The Nationality of Corporate Investors under International Investment Law 9781509933594, 9781509933624, 9781509933600

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THE NATIONALITY OF CORPORATE INVESTORS UNDER INTERNATIONAL INVESTMENT LAW This monograph offers a detailed and distinctive analysis of corporate nationality under international investment law, covering the ICSID Convention and the investment treaty framework. It takes the reader back to the basics, threading through the concepts of jurisdiction, nationality, and corporate personality to give a clear context to the discussion of corporate nationality under international investment law, at a time when international investment is dominated by multinational business enterprises operating in a globalised economy. The book examines different understandings of corporate personality and nationality under a selection of jurisdictions and public international law. It also offers an in-depth analysis of approaches found in ICSID arbitral awards and in investment treaty practice, distilling the problematic areas and discussing the impacts of the areas of concern. It evaluates the techniques developed to address problems and puts forward suggestions for effective and balanced solutions to the questions of corporate nationality and personal scope of investment protection. Studies in International Trade and Investment Law: Volume 22

Studies in International Trade and Investment Law Series Editors Gabrielle Marceau Krista Nadakavukaren Schefer Federico Ortino Gregory Shaffer This series offers a forum for publication of original and scholarly analyses of emerging and significant issues in international trade and investment law – broadly understood to include the whole of the law of the WTO, the public international law of foreign investment, the law of the EU common commercial policy and other regional trade regimes, and any legal or regulatory topic that interacts with global trade and foreign investment. The aim of the series is to produce works which will be readily accessible to trade and investment law scholars and practitioners alike. Recent titles in this series: The Right to Development and International Economic Law: Legal and Moral Dimensions Isabella Bunn Free Trade and Cultural Diversity in International Law Jingxia Shi Tied Aid and Development Aid Policies in the Framework of EU and WTO Law: The Imperative for Change Annamaria La Chimia Balancing Human Rights, Environmental Protection and International Trade: Lessons from the EU Experience Emily Reid Public Procurement and Labour Rights: Towards Coherence in International Instruments of Procurement Regulation Maria Anna Corvaglia The China-Australia Free Trade Agreement: A 21st-Century Model Edited by Colin Picker, Heng Wang and Weihuan Zhou Regional Economic Integration and Dispute Settlement in East Asia: The Evolving Legal Framework Anna G Tevini The EU, World Trade Law and the Right to Food: Rethinking Free Trade Agreements with Developing Countries Giovanni Gruni Patent Games in the Global South: Pharmaceutical Patent Law Making in Brazil, India and Nigeria Amaka Vanni

The Nationality of Corporate Investors under International Investment Law Anil Yilmaz Vastardis

HART PUBLISHING Bloomsbury Publishing Plc Kemp House, Chawley Park, Cumnor Hill, Oxford, OX2 9PH, UK 1385 Broadway, New York, NY 10018, USA HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2020 Copyright © Anil Yilmaz Vastardis, 2020 Anil Yilmaz Vastardis has asserted her right under the Copyright, Designs and Patents Act 1988 to be identified as Author of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2020. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication data Names: Yilmaz Vastardis, Anil, author. Title: The nationality of corporate investors under international investment law / Anil Yilmaz Vastardis. Description: Oxford, UK ; New York, NY : Hart Publishing, Bloomsbury Publishing Plc, 2020.  |  Series: Studies in international trade and investment law ; volume 22  |  Includes bibliographical references and index. Identifiers: LCCN 2020021220 (print)  |  LCCN 2020021221 (ebook)  |  ISBN 9781509933594 (hardcover)  | ISBN 9781509933617 (Epub)  |  ISBN 9781509933600 (ePDF) Subjects: LCSH: Investments, Foreign (International law)  |  Corporations—Investor relations.  | International commercial arbitration. Classification: LCC K3830 .Y59 2020 (print)  |  LCC K3830 (ebook)  |  DDC 346/.092—dc23 LC record available at https://lccn.loc.gov/2020021220 LC ebook record available at https://lccn.loc.gov/2020021221 ISBN: HB: 978-1-50993-359-4 ePDF: 978-1-50993-360-0 ePub: 978-1-50993-361-7 Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

Acknowledgements

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his manuscript had its foundations laid in my PhD thesis exploring corporate nationality under the ICSID Convention. Six years after completing my viva, I am grateful to all those colleagues, friends and family who supported me on that path to an academic career and in the preparation of this manuscript. I am hugely indebted and grateful to Youseph Farah, my mentor, PhD supervisor and friend. He has been the most encouraging and supportive mentor, educator, supervisor and colleague. Without his guidance and support, I would not have found my academic calling. I would also like to express my gratitude to Professor M Sornarajah and Steve Peers for their helpful comments and feedback as my PhD examiners. Professor Sornarajah’s work had a profound impact on my thinking about international investment law long before I met him and his ongoing support to this day is greatly appreciated. I owe special thanks to Sheldon Leader for the many enlightening conversations I had with him that left me with more questions about my research than answers. My PhD student Luis Felipe Yanez’s meticulous research assistance helped greatly in updating the case law for the manuscript. The transformation of my PhD into a book would not have been possible without inputs from the wonderful women who provided comments, mentorship, encouragement, and personal support along the way. I am grateful for the time and dedication they put into supporting me in this process. Marie-­Bénédicte Dembour’s encouragement and feedback were essential at the early stages of transforming the PhD into a manuscript. Sabine Michalowski’s invaluable guidance and support helped me in managing priorities during this process as an early career academic and this made it possible for me to revise and finalise the manuscript even as I juggled many diverse responsibilities at work and as a new mum. Carla Ferstman’s feedback on several chapters had a profound impact on the way I approached the structure of the chapters. Mavluda Sattorova’s encouragement and comments have helped me immensely in finalising the manuscript. Tara Van Ho has supported me personally and professionally from the PhD days until this day. Her presence gives me strength and there is no academic deadlock unsolvable over a coffee with her. I am also eternally grateful to the women whose social reproduction work allowed me to concentrate on my academic work, including this book. The staff at the Wivenhoe Park Day Nursery, particularly Kerry, Karen and Charlotte provided fantastic care for my son while I went to work. As many migrant academics know, being far away from family means we have limited safety nets

vi  Acknowledgements if things stop functioning smoothly at home or at work. Yet, my parents Birgul and Zafer and my in-laws Kaiti and Aristo have travelled across Europe to take care of my family when we most need their support to keep functioning. Along the way, my thinking has been influenced by discussions with my PhD friends, Essex Law School colleagues, and IEL Collectivists. I am grateful to the contributions of these colleagues and friends to my thinking and development. The staff at Hart Publishing have been extremely professional and supportive. My thanks firstly to Roberta Bassi for her continued support and the Editors for the Hart Studies in International Trade and Investment Law Gabrielle Marceau, Krista Nadakavukaren Schefer, Federico Ortino, Gregory Shaffer as well as the two anonymous peer reviewers for their feedback on the manuscript. My thanks to Linda Staniford, Rosamund Jubber and Chris Harrison for their support in finalising this monograph. Finally, I am deeply grateful to my family, Birgul, Zafer, Deniz, Nikos and Aris for the inspiration and the joy they bring to my life.

Table of Contents Acknowledgements����������������������������������������������������������������������������������������v Table of Cases��������������������������������������������������������������������������������������������� ix Table of International Instruments����������������������������������������������������������� xxiii Introduction��������������������������������������������������������������������������������������������������1 I. A Case against the Expansionist Approach to Personal Scope of IIL Protections����������������������������������������������������������������������������4 II. Structure of the Analysis����������������������������������������������������������������12 PART I FUNDAMENTAL ELEMENTS OF CORPORATE NATIONALITY IN IIL: CONDITIONS OF ACCESS TO PROTECTION, NATIONALITY AND CORPORATE PERSONALITY 1. Access to International Investment Protection: ICSID, Investment Treaties and Institutional Arbitration Rules��������������������������������������������25 I. Access to International Investment Arbitration�������������������������������27 II. Conditions for Access to Investment Treaty Protection�������������������46 III. Conclusion������������������������������������������������������������������������������������49 2. Nationality as a Legal Bond in International Law: A Story of Disagreement Over the Relevance and Meaning of ‘Genuine Link’����������������������������������������������������������������������������������50 I. Nationality of Individuals�������������������������������������������������������������52 II. Nationality of Objects�������������������������������������������������������������������69 III. Conclusion������������������������������������������������������������������������������������80 3. Distinguishing Features of Corporations for Purposes of Nationality�����82 I. The Corporation as a Fictional Creature of the Law�����������������������83 II. Connecting a Corporation to a State Through Lex Societatis����������94 III. The Corporation in a Global Economy: Multinationals Enterprises, Shell Corporations, and Regulatory Havens�������������� 101 IV. Conclusion���������������������������������������������������������������������������������� 106

viii  Table of Contents PART II UNDERSTANDING CORPORATE NATIONALITY 4. Corporate Nationality in the Context of Diplomatic Protection and War-Time Sanctions���������������������������������������������������������������������� 109 I. Determining Corporate Nationality under the Principles of Diplomatic Protection������������������������������������������������������������� 110 II. Control Criterion for Domestic Wartime Sanctions���������������������� 121 III. Conclusion���������������������������������������������������������������������������������� 123 5. Corporate Investors’ Nationality under the ICSID Convention and Investment Treaties����������������������������������������������������������������������� 125 I. The ICSID Convention Article 25(2)(b) Requirement: Objective but Rarely Addressed���������������������������������������������������� 127 II. How do Investment Treaties Link Corporate Investors to States?������������������������������������������������������������������������������������� 165 III. Conclusion���������������������������������������������������������������������������������� 174 PART III PROBLEMS AND SOLUTIONS 6. Exposing the Fault Lines���������������������������������������������������������������������� 179 I. Methodological Flaws������������������������������������������������������������������ 181 II. Erosion of the Concept of ‘Nationality’��������������������������������������� 199 III. Ramifications of the Methodological and Interpretative Flaws������ 207 IV. Conclusion���������������������������������������������������������������������������������� 219 7. Evaluation of Responses to Nationality Shopping and the Way Forward��������������������������������������������������������������������������� 220 I. Abuse of Rights – A Solution as Difficult as the Problem Itself����� 221 II. Denial of Benefits Clauses������������������������������������������������������������ 223 III. Way Forward: Restoring Conceptual and Methodological Rigour to Analysing Corporate Investors’ Nationality������������������ 230 IV. Conclusion���������������������������������������������������������������������������������� 250 Conclusion������������������������������������������������������������������������������������������������ 252 Bibliography���������������������������������������������������������������������������������������������� 255 Index��������������������������������������������������������������������������������������������������������� 267

Table of Cases Investment Arbitration A11Y LTD. v Czech Republic (Decision on Jurisdiction) (ICSID Case No UNCT/15/1, 29 June 2018)����������������������������������������� 168, 198–99 Abaclat and Others v Argentine Republic, (Decision on Jurisdiction and Admissibility) (ICSID Case No ARB/07/5, 4 August 2011)��������������� 222 ADC Affiliate Limited and ADC & ADMC Management Limited (ADC) v The Republic of Hungary (Hungary) (Award of the Tribunal) (ICSID Arbitral Tribunal Case No ARB/03/16, 2 October 2006)����������������������������������������������������������������������� 32, 133, 232 Adel A Hamadi Al Tamimi v Sultanate of Oman (Award) (ICSID Case No ARB/11/33, 3 November 2015)���������������������������������������68 Adriano Gardella S.p.A. v Ivory Coast (Award) (ICSID Arbitral Tribunal Case No ARB/74/1, 29 August 1977)���������������������������������129, 140 AES Corporation v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/02/17, 26 April 2005)��������������������������������������42, 187 AES Summit Generation Limited and AES-Tisza Erömü Kft v The Republic of Hungary (Award) (ICSID Case No ARB/07/22, 23 September 2010)��������������������������������149, 151, 162 AGIP S.p.A. v People’s Republic of the Congo (Award) (ICSID Arbitral Tribunal Case No ARB/77/1)���������������������������������128, 246 Aguas del Tunari, S.A. v Republic of Bolivia (Decision on Jurisdiction) (ICSID Case No ARB/02/3, 21 October 2005)����������� 2, 155–56,159, 192–93, 232–33, 242, 248 Aguaytia Energy LLC v Republic of Peru (Award) (ICSID Case No ARB/06/13, 11 December 2008)����������������������������������� 141 Alpha Projektholding GmbH v Ukraine (Award) (ICSID Arbitral Tribunal Case No ARB/07/16, 8 November 2010)���������� 133 Alps Finance and Trade AG v Slovak Republic (Award) (UNCITRAL Award IIC 489, 2011)���������������������������������������������������������������������171, 173 Amco Asia Corporation and others v Republic of Indonesia (Decision on Jurisdiction) (ICSID Case No ARB/81/1, 25 September 1983)����������������������������������������������������������� 142, 152, 163–64 American Manufacturing & Trading Inc v Republic of Zaire (Award) (ICSID Case No ARB/93/1, 21 February 1997)�������������������151, 154 Ampal-American Israel Corporation and Others v Arab Republic of Egypt, (Decision on Jurisdiction) (ICSID Case No ARB/12/11 1 February 2016)���������������������������������������� 210

x  Table of Cases Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Trading Ltd v Republic of Kazakhstan (Award) (SCC Arbitration V (116/2010), 19 December 2013)������������������������������� 226 Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V v Kingdom of Spain, (Award) (ICSID Case No ARB/13/31, 15 June 2018)�������������������������������������������� 132 Asian Agricultural Products Ltd. v Republic of Sri Lanka (Final Award) (ICSID Arbitral Tribunal Case No ARB/87/3, 15 June 1990)���������������������������������������������������������������������������������������� 128 ATA Construction, Industrial and Trading Company v The Hashemite Kingdom of Jordan (Award) (ICSID Arbitral Tribunal Case No ARB/08/2, 18 May 2010)�����������������������128, 239 Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea (Award) (ICSID Arbitral Tribunal Case No ARB/84/1, 21 April 1986)���������������������������������������������������42, 128 Autopista Concesionada de Venezuela C A (Aucoven) v Bolivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/00/5, 27 September 2001)���������������������������� 31, 126, 208, 232 Azurix Corp v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/01/12, 8 December 2003)�������������������������� 31, 42, 187 Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v Democratic Republic of the Congo (Award) (ICSID Case No ARB/98/7, 1 September 2000)��������������������������������������������������������������� 25, 153–54, 209 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v Islamic Republic of Pakistan (Decision on Jurisdiction) (ICSID Case No ARB/03/29, 14 November 2005)���������������������� 41, 133, 236 Biwater Gauff (Tanzania) Ltd (Biwater) v United Republic of Tanzania (Award), (ICSID Case No ARB/05/22, 24 July 2008)����������������������������������������������������������������������� 41–42, 185, 247 Bosh International, Inc and B&P Ltd Foreign Investments Enterprise v Ukraine (Award) (ICSID Arbitral Tribunal Case No ARB/08/11, 25 October 2012)�������������������������������������������129, 140 Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V v The Republic of Paraguay (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/07/9, 29 May 2009)������������������������ 133–34, 136–37, 183, 208, 241–42 Burimi SRL and Eagle Games SH.A v Republic of Albania (Award) (ICSID Case No ARB/11/18, 29 May 2013)�����������������������141, 153 Burlington Resources Inc. v Republic of Ecuador (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/08/5, 2 June 2010)������������������������������������������������������������������������������������������ 128

Table of Cases  xi Camuzzi International S.A. v The Argentine Republic (Decision on Objection to Jurisdiction) (ICSID Case No ARB/03/2, 11 May 2005)�����������������������������������������������������������������������������������42, 187 CDC Group plc v Republic of Seychelles (Award) (ICSID Arbitral Tribunal Case No ARB/02/14, 17 December 2003)�������������������� 132 CEAC Holdings Limited v Montenegro, (Award) (ICSID Case No ARB/14/8, 26 July 2016)���������������������������������������� 10, 25, 132, 204 Cem Cengiz Uzan v Republic of Turkey, (Award on Respondent’s Bifurcated Preliminary Objections) (SCC Case No V 2014/023, 20 April 2016)��������������������������������������������������������������������������������������� 205 Cemex Caracas Investments BV and Cemex Caracas II Investments BV v Bolivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/08/15, 30 December 2010)���������������������� 151–52, 155 Ceskoslovenska Obchodni Banka AS v The Slovak Republic (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/97/4, 24 May 1999)��������������42, 128 Champion Trading Company, Ameritrade International Inc., James T Wahba, John B Wahba and Timothy T Wahba v Arab Republic of Egypt (Decision on Jurisdiction) (ICSID Case No ARB/02/9, 21 October 2003)���������������������������������� 66–67, 140, 205 Churchill Mining PLC and Planet Mining Pty Ltd v Indonesia (Decision on Jurisdiction) (ICSID Case No ARB/12/14 and 12/40, 24 February 2014)��������������������������������������������������������������������������������� 129 CME Czech Republic BV v Czech Republic, (Partial award and separate opinion) (IIC 61 (2001) 14 March 2003)������������������������������������������210, 212 CMS Gas Transmission Company v The Republic of Argentina, (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/01/8, 17 July 2003)�����������������������������������������������������31, 187 Commerce Group Corp. and San Sebastian Gold Mines, Inc. v The Republic of El Salvador, (Award) (ICSID Arbitral Tribunal Case No ARB/09/17, 14 March 2011)���������������������������������������������������� 129 Compañiá del Desarrollo de Santa Elena, S.A. v The Republic of Costa Rica (Award) (ICSID Case No ARB/96/1, 17 February 2000)��������������������������������������������������������������������������142, 244 ConocoPhillips Petrozuata B.V, ConocoPhillips Hamaca B.V and ConocoPhillips Gulf of Paria B.V v Bolivarian Republic of Venezuela, (Decision on Jurisdiction and Merits) (ICSID Case No ARB/07/30, 3 September 2013)������������������������������������� 152 Continental Casualty Company v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/03/9, 22 February 2006)��������������������������������������������������������������������������������� 187 Dan Cake S.A. v Hungary, (Decision on Jurisdiction and Liability) (ICSID Case No ARB/12/9, 24 August 2015)������������������������������������������ 133

xii  Table of Cases David R Aven et al v Republic of Costa Rica (Final Award) (ICSID Case No UNCT/15/3, 18 September 2018)����������������������������� 66–68 Dawood Rawat v The Republic of Mauritius, (Award on Jurisdiction) (PCA Case 2016-20, 6 April 2018)������������������������������������������33, 37, 62, 205 Desert Line Projects LLC v The Republic of Yemen (Award) (ICSID Arbitral Tribunal Case No ARB/05/17, 6 February 2008)������������������������������������������������������������������������������128–29 Duke Energy Electroquil Partners & Electroquil S.A. v Republic of Ecuador (Award) (ICSID Case No ARB/04/19, 18 August 2008)������������������������������������������������������������������������������������ 149 EDF (Services) Limited v Romania (Award) (ICSID Arbitral Tribunal Case No ARB/05/13, 8 October 2009)���������������������������������17, 167 El Paso Energy International Company v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/03/15, 27 April 2006)��������������������������������������������������������������������������������������� 187 Electrabel S.A. v Republic of Hungary, (Decision on Jurisdiction, Applicable Law and Liability) (ICSID Arbitral Tribunal Case No ARB/07/19, 30 November 2012)����������������������������������������������� 129 Empresa Eléctrica del Ecuador, Inc. v Republic of Ecuador (Award) (ICSID Case No ARB/05/09, 2 June 2009)���������������������������������������������� 129 Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v The Republic of Peru (Award) (ICSID Case No ARB/03/4, 7 February 2005)���������������������������������������������������������������������149, 151, 183 EnCana Corporation v Republic of Ecuador, LCIA Case No UN3481, UNCITRAL, Award (3 February 2006)��������������������� 143 Enron Corporation and Ponderosa Assets, L.P. v Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB01/3, 14 January 2004)����������������������������������������������������������������������������������� 187 European American Investment Bank AG v Slovak Republic, (Second Award on Jurisdiction) (PCA Case No 2010-17, 4 June 2014)������������������������������������������������������������������������������������������ 186 Fedax N.V v The Republic of Venezuela (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Arbitral Tribunal, Case No ARB/96/3, 11 July 1997) 37 I.L.M. 1378 (1998)��������������������45, 236 Flemingo DutyFree Shop Private Limited v Republic of Poland, UNCITRAL Award 12 August 2016�����������������������������������������������168, 198 Fraport AG Frankfurt Airport Services Worldwide v Republic of the Philippines (Award) (ICSID Case No ARB/03/25, 16 August 2007)������������������������������������������������������������������������������������ 151 F-W Oil Interests, Inc. v The Republic of Trinidad and Tobago (Award) (ICSID Case No ARB/01/14 3 March 2006)�������������������������������������133, 240 Gambrinus, Corp. v Bolivarian Republic of Venezuela (Award) (ICSID Case No ARB/11/31, 15 June 2015)�������������������������������������������� 133 GAMI Investments v Mexico (Final Award) (NAFTA–UNCITRAL IIC 109 (2004) 15 November 2004)��������������������� 186

Table of Cases  xiii Garanti Koza LLP v Turkmenistan (Decision on Objection to Jurisdiction for Lack of Consent) (ICSID Arbitral Tribunal Case No ARB/11/20, 3 July 2013)���������������������������������������������������������� 132 GEA Group Aktiengesellschaft v Ukraine, (Award) (ICSID Arbitral Tribunal Case No ARB/08/16, 31 March 2011)������������������������� 132 Generation Ukraine Inc v Ukraine (Award) (ICSID Case No ARB/00/9, 16 September 2003) �����������������������������������������������������������������������137, 227 Gold Reserve Inc. v Bolivarian Republic of Venezuela, (Award) (ICSID Case No ARB(AF)/09/1, 22 September 2014)�������������� 4, 17, 167–68, 184, 198 Guaracachi America, Inc. and Rurelec PLC v The Plurinational State of Bolivia, (Award) (UNCITRAL, PCA Case No 2011-17, 31 January 2014)���������������������������������������������������25, 188, 198–99, 226, 229 Guardian Fiduciary Trust, Ltd. v Former Yugoslav Republic of Macedonia (Award) (ICSID Case No ARB/12/31, 22 September 2015)������������������������������������������������������������������������������� 153 Gustav F W Hamester GmbH & Co KG v Republic of Ghana (Award) (ICSID Arbitral Tribunal Case No ARB/07/24, 18 June 2010)���������������������������������������������������������������������������������������� 132 H&H Enterprises Investments Inc. v Arab Republic of Egypt (The Tribunal’s Decision on Respondent’s Objections to Jurisdiction) (ICSID Case No ARB/09/1, 5 June 2012)���������������������������� 133 Helnan International Hotels A/S v Arab Republic of Egypt (Decision of the Tribunal on Objection to Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/05/19, 17 May 2006)���������������������������� 128 Hesham Talaat M. Al-Warraq v The Republic of Indonesia (Award) (UNCITRAL, IIC 718 (2014) 15 December 2014)����������������������������������� 186 Hochtief AG v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/07/31, 24 October 2011)�������������������������������������� 187 Holiday Inns S.A. and others v Morocco, (Decision on Jurisdiction) (ICSID Case No ARB/72/1, 12 May 1974)���������������������������������������������� 164 Hussein Nuaman Soufraki v The United Arab Emirates (Award) (ICSID Case No ARB/02/07, 7 July 2004)�������������������������������16, 31, 63–64, 174, 184 IBM World Trade Corporation v República del Ecuador (Decision on Jurisdiction and Competence) (ICSID Case No ARB/02/10, 22 December 2003)������������������������������������������42, 187 İçkale İnşaat Limited Şirketi v Turkmenistan, (Award) (ICSID Case No ARB/10/24, 8 March 2016)������������������������������������������� 129 Impregilo S.p.A. v Argentine Republic (Award) (ICSID Case No ARB/07/17, 21 June 2011)�������������������������������������������� 187 Impregilo S.p.A. v Islamic Republic of Pakistan (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/03/3, 22 December 2003)������������������������������������������������������������������������������� 132

xiv  Table of Cases Inceysa Vallisoletana S.L. v Republic of El Salvador (Award) (ICSID Arbitral Tribunal Case No ARB/03/26, 2 August 2006)��������������� 128 Inmaris Perestroika Sailing Maritime Services GmbH and Others v Ukraine (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/08/8, 8 March 2010)�������������������������������������������������������� 128 Ioan Micula and et al v Romania, (Decision on Jurisdiction and Admissibility) (ICSID Case No ARB/05/20 24 September 2008)��������������������������������������������������������������������������� 29, 63 Jan de Nul N.V and Dredging International N.V v Arab Republic of Egypt (ICSID Case No ARB/04/13, 14 November 2005)�����������������������41 Joy Mining Machinery Limited (Joy Mining) v The Arab Republic of Egypt (Egypt) (Award on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/03/2011, 6 August 2004)������������������������� 40, 45, 128 Kaiser Bauxite Company v Jamaica, (Decision on Jurisdiction and Competence) (ICSID Arbitral Tribunal Case No ARB/74/3, 6 July 1975)������������������������������������������������������������������������������������������ 132 Khan Resources Inc., Khan Resources B.V and CAUC Holding Company Ltd. v The Government of Mongolia and MonAtom LLC, (Decision on Jurisdiction) (PCA Case No 2011-09, 25 July 2012)������������������������������������������������������������������������������������225–26 Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais (Award) (ICSID Case No ARB/81/2, 21 October 1983)���������������������������������141, 164 KT Asia Investment Group B.V v Republic of Kazakhstan (Award) (ICSID Case No ARB/09/8, 17 October 2013)�����������������9, 133, 203, 205–06 Lanco International Inc v The Argentine Republic (Jurisdiction of the Arbitral Tribunal) (ICSID Case No ARB/97/6, 8 December 1998)�������������������������������������� 42, 185, 187 Lao Holdings N.V v The Lao People’s Democratic Republic (Decision on Jurisdiction) (ICSID Case No ARB(AF)/12/6, 21 February 2014)��������������������������������������������������������������������������������� 166 LESI, S.p.A. and Astaldi, S.p.A. v People’s Democratic Republic of Algeria (Algeria) (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/05/3, 12 July 2006)��������������������������������� 40–41, 128 LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc v Argentine Republic (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/02/1, 30 April 2004)��������������������������������������������� 187 Liman Caspian Oil BV and NCL Dutch Investment BV v Republic of Kazakhstan, (Award) (ICSID Case No ARB/07/14, 22 June 2010)����������� 226 Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v Kingdom of Spain (Decision on Jurisdiction) (ICSID Case No ARB/13/30, 6 June 2016)�������������������������������������������152, 238, 251

Table of Cases  xv Limited Liability Company Amto v Ukraine, (Final Award) (SCC Case No 080/2005 26 March 2008)���������������������������������� 224, 226–28 M.C.I. Power Group L.C. and New Turbine, Inc. v Republic of Ecuador (Award) (ICSID Arbitral Tribunal Case No ARB/03/6, 31 July 2007)����������������������������������������������������������������������������������129, 140 Malaysian Historical Salvors SDN BHD v The Government of Malaysia (Award on Jurisdiction) (ICSID Case No ARB/05/2010, 17 May 2007)������������������������������������������������������������������������������������������40 Malicorp Limited v The Arab Republic of Egypt (Award) (ICSID Arbitral Tribunal Case No ARB/08/18, 7 February 2011)������������������������ 132 Mamidoil Jetoil Greek Petroleum Products Societe S.A. v Republic of Albania (Award) (ICSID Case No ARB/11/24, 30 March 2015)���������� 128 Maritime International Nominees Establishment (MINE) v Republic of Guinea (Award) (ICSID Arbitral Tribunal Case No ARB/84/4, 6 January 1988)������������������������������������������������������ 128 Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain (Award) (ICSID Case No ARB/14/1, 16 May 2018)���������������������������������������132, 225 M.C.I. Power Group, LC and New Turbine, Inc. v Republic of Ecuador (Award) (ICSID Case No ARB/03/6, 31 July 2007)����������������������42 Mera Investment Fund Limited v Republic of Serbia (Decision on Jurisdiction) (ICSID Case No ARB/17/2, 30 November 2018)�������������������������������������������������� 132, 137, 173, 198, 205 Middle East Cement Shipping and Handling Co SA v Arab Republic of Egypt (Award of the Tribunal) (ICSID Arbitral Tribunal Case No ARB/99/6, 12 April 2002)������������������������������������������ 132 Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka (Award) (ICSID Arbitral Tribunal Case No ARB/00/2, 15 March 2002) �����������������������������������������������������������������������������128, 133 Millicom International Operations BV and Sentel GSM SA v The Republic of Senegal (Decision on Jurisdiction of the Arbitral Tribunal) (ICSID Case No ARB/08/20, 16 July 2010)�������������������������������������������������������������� 35, 150, 155, 164, 183 MNSS B.V and Recupero Credito Acciaio N.V v Montenegro (Award) (ICSID Case No ARB(AF)/12/8, 4 May 2016)��������� 17, 167–68, 196 Mobil Corporation, Venezuela Holdings, B.V, Mobil Cerro Negro Holding, Ltd., Mobil Venezolana de Petróleos Holdings, Inc., Mobil Cerro Negro, Ltd., and Mobil Venezolana de Petróleos, Inc. (Mobil) v Bolivarian Republic of Venezuela (Venezuela) (Decision on Jurisdiction) (ICSID Case No ARB/07/27, 10 June 2010)�������������������������������������������������������� 3, 125, 143, 151, 155–58, 173,184, 195, 233 Mondev International Ltd. v United States of America (Award) (ICSID Case No ARB(AF)/99/2, 11 October 2002)��������������������������������� 195

xvi  Table of Cases Mr Saba Fakes v Republic of Turkey (Award) (ICSID Case No ARB/07/20, 14 July 2010)��������������������������������������������� 66–67, 206 Mr Franz Sedelmayer v The Russian Federation, (Arbitration Award) (SCC Case No 106/1998 7 July 1998)���������������������� 198 M. Hassan Awdi, Enterprise Business Consultants, Inc. and Alfa El Corporation v Romania, (Award) (ICSID Case No ARB/10/13, 2 March 2015)������������������������������������������������������ 128 M. Franck Charles Arif v Republic of Moldova, (Award) ICSID Case No ARB/11/23, 8 April 2013)����������������������������������������������������������63 MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile (Award) (ICSID Case No ARB/01/7, 25 May 2004)�������������������������149, 151 Murphy Exploration and Production Company International v Republic of Ecuador (Award on Jurisdiction) (ICSID Case No ARB/08/4, 15 December 2010)������������������������������������������������� 182 National Gas S.A.E. v Arab Republic of Egypt, (Award) (ICSID Case No ARB/11/7, 3 April 2014) ��������������������������������������������������141, 148 Niko Resources (Bangladesh) Ltd v People’s Republic of Bangladesh, Bangladesh Petroleum Exploration and Production Company Limited, Bangladesh Oil Gas and Mineral Corporation (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/10/11 and ARB/10/18 19 August 2013)����������������������133, 236 Noble Ventures, Inc. v Romania (Award) (ICSID Arbitral Tribunal Case No ARB/01/11, 12 October 2005)�������������������������������������������129, 140 Occidental Petroleum Corporation and Occidental Exploration and Production Company v The Republic of Ecuador (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/06/11, 9 September 2008)�����������������������������������������129, 140 Oko Pankki Oyj, VTB Bank (Deutschland) AG and Sampo Bank Plc v The Republic of Estonia (Award) (ICSID Arbitral Tribunal Case No ARB/04/6, 19 November 2007)�����������������������������40, 132 Orascom TMT Investments S.à r.l. v People’s Democratic Republic of Algeria (Final Award) (ICSID Case No ARB/12/35, 31 May 2017)��������������������������������������������������������������������������132, 185, 236 Pac Rim Cayman LLC v The Republic of El Salvador (Decision on the Respondent’s Jurisdictional Objections) (ICSID Case No ARB/09/12, 1 June 2012)���������������������������������������������� 229 Pantechniki S.A. Contractors & Engineers (Greece) v The Republic of Albania (Award) (ICSID Case No ARB/07/21, 30 July 2009)����������������������������������������������������������������������������������������� 133 Patrick Mitchell v The Democratic Republic of the Congo (Award) (ICSID Case No ARB/99/7, 9 February 2004)�������������������������������������������41 Perenco Ecuador Ltd. v The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/08/6, 30 June 2011)������������������������������������� 134, 183, 240–41

Table of Cases  xvii Philip Morris Asia Limited v The Commonwealth of Australia, (Award on Jurisdiction and Admissibility) (PCA Case No 2012-12, 17 December 2015)���������������������������2, 4, 169, 184, 192–96, 221–22 Phoenix Action Ltd v The Czech Republic (Award) (ICSID Case No ARB/06/5 15 April 2009)���������������������������������� 40–41, 44–45, 163, 192, 196, 221 Plama Consortium Limited v Republic of Bulgaria (Decision on Jurisdiction) (ICSID Case No ARB/03/24, 8 February 2005)���������������������������������������������������������������������������������133, 225 PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v Republic of Turkey (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/02/5, 4 June 2004)��������������������������������������129, 140 Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v Plurinational State of Bolivia, (Decision on Jurisdiction) (ICSID Case No ARB/06/2, 27 September 2012)������������������������ 31, 145, 163 Railroad Development Corporation v Republic of Guatemala (Decision on Objection to CAFTA Article 10.20.5) (ICSID Case No ARB/07/23, 17 November 2008)����������������������������149, 151 Renée Rose Levy and Gremcitel S.A. v Republic of Peru, (Award) (ICSID Case No ARB/11/17, 9 January 2015)���������������������������������������� 192 Romak S.A. (Switzerland) v The Republic of Uzbekistan (Award) (UNCITRAL PCA Case No AA280)�������������������������������������������������������45 Ronald S Lauder v Czech Republic (Final award) (IIC 205 (2001) 3 September 2001)��������������������������������������������������������������������������210, 212 RosInvestCo UK Ltd. v The Russian Federation (Final Award) (SCC Case No 079/2005, 12 September 2010)���������������������������������������� 195 Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v Republic of Kazakhstan (Award) (ICSID Case No ARB/05/16, 29 July 2008)�������������������������������������������������������� 137 Rusoro Mining Limited v The Bolivarian Republic of Venezuela, (Award) (ICSID Case No ARB(AF)/12/5, 22 August 2016)���������������������� 188 Saipem S.p.A. v People’s Republic of Bangladesh (Decision on Jurisdiction and Recommendation on Provisional Measures) (ICSID Arbitral Tribunal Case NoARB/05/7, 21 March 2007)�����������40, 132 Salini Costruttori SpA and Italstrade SpA (Salini) v Kingdom of Morocco (Decision on Jurisdiction) (ICSID Case No ARB/00/4, 23 July 2001)�������������������������������������������������������������������������������������������41 Salini Costruttori SpA and Italstrade SpA (Salini) v The Hashemite Kingdom of Jordan (Jordan) (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/02/13, 9 November 2004)��������������������� 128 Sempra Energy International v The Argentine Republic (Decision on Objections to Jurisdiction) (ICSID Case No ARB/02/16, 11 May 2005)������������������������������������������������������� 187

xviii  Table of Cases Serafín García Armas and other v Venezuela PCA Case No 2013-3����������������62 SGS Société Générale de Surveillance S.A. v Islamic Republic of Pakistan (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/01/13, 6 August 2003)����������128–29 SGS Société Générale de Surveillance S.A. v Republic of the Philippines (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/02/6)����������������������������� 48, 128–29 SGS Société Générale de Surveillance S.A. v The Republic of Paraguay (Decision on Jurisdiction) (ICSID Case No ARB/07/29, 12 February 2010)����������������������������������������������������������������������������33, 132 Siemens A.G. v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/02/8, 3 August 2004)�������������������������������������������� 187 Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, S.A. v The Dominican Republic, (Award on Preliminary Objections to Jurisdiction) (LCIA Case No UN 7927 19 September 2008)���������������������������������������������������� 188–189, 194, 210–11 Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal (Decision on Jurisdiction) (ICSID Case No ARB/82/1, 1 August 1984)�������������������������������������������������������������������������������142, 186 Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt (Decision on Jurisdiction and Dissenting Opinion) (ICSID Case No ARB/84/3, 27 November 1985)�������������������������� 36–37, 163 ST-AD GmbH (Germany) v The Republic of Bulgaria, (Award on Jurisdiction), (UNCITRAL PCA Arbitration, 18 July 2013)����������������������������������������������������������������������������������169, 193 Standard Chartered Bank v United Republic of Tanzania (Award) (ICSID Case No ARB/10/12, 2 November 2012)����������������� 10, 153, 161, 186 Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/03/19, 3 August 2006)���������������������� 187 Tanzania Electric Supply Co. Ltd. v Independent Power Tanzania Ltd. (Final Award) (ICSID Case No ARB/98/8, 12 July 2001)������������������������� 146 TCW Group, Inc. and Dominican Energy Holdings, L.P. v The Dominican Republic, (Consent Award) (PCA Case No 2008-06, 16 July 2009)������������������������������������������������������������� 210 Técnicas Medioambientales Tecmed v United Mexican States (Award) (ICSID Case No ARB(AF)/00/2, 29 May 2003)�������������������������� 195 Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/09/1, 21 December 2012)������������������������������143, 187 Telefónica S.A. v The Argentine Republic (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/03/20, 25 May 2006)������������������������������������������������������� 187

Table of Cases  xix Telenor Mobile Communications A.S. v The Republic of Hungary (Award) (ICSID Case No ARB/04/15, 13 September 2006����������������133, 246 Tenaris S.A. and Talta – Trading e Marketing Sociedade Unipessoal Lda. v Bolivarian Republic of Venezuela, (Award) (ICSID Case No ARB/11/26 29 January 2016)���������������������������������������� 132 The Rompetrol Group N.V v Romania (Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility) (ICSID Case No ARB/06/3, 18 April 2008)�������������������������������140, 183, 232 Tidewater Inc, Tidewater Investment SRL, Tidewater Caribe, CA, Twenty Grand Offshore, LLC, Point Marine, LLC, Twenty Grand Marine Service, LLC, Jackson Marine, LLC, Zapata Gulf Marine Operators, LLC v Bolivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/10/5, 8 February 2013)��������������������������������������������������2–3, 21, 35, 137, 151, 184, 192–93, 195, 233, 235 Tokios Tokelés v Ukraine (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/02/18, 29 April 2004)�������������������4, 17, 32, 131, 133–34, 137–39, 144, 167, 175, 183–84, 232–33, 237, 245 Total S.A. v The Argentine Republic (Decision on Objections to Jurisdiction) (ICSID Case No ARB/04/01, 25 August 2006)���������������� 187 Toto Costruzioni Generali S.p.A. v The Republic of Lebanon (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/07/12, 11 September 2009)�����������������������������������������40, 129 Tradex Hellas SA v Republic of Albania (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/94/2, 24 December 1996)��������������������������������������������������������������������������128–29 Transglobal Green Energy, LLC and Transglobal Green Energy de Panama, S.A. v The Republic of Panama (Award) (ICSID Case No ARB/13/28, 2 June 2016)���������������������������������������������� 169 TSA Spectrum de Argentina, S.A. v Argentine Republic, (Award) (ICSID Case No ARB/05/5, 19 December 2008)�����������������������146, 153, 192 Tulip Real Estate and Development Netherlands B.V v Republic of Turkey, (Award) (ICSID Case No ARB/11/28, 10 March 2014)���������� 129 Ulysseas, Inc. v The Republic of Ecuador (Interim Award) (UNCITRAL, PCA Case No 2009-19, 28 September 2010)��������������������� 226 Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The Argentine Republic, (Award) (ICSID Case No ARB/07/26 8 December 2016)����������������������������������������37 Vacuum Salt Products Ltd. v Republic of Ghana (Award) (ICSID Case No ARB/92/1, 16 February 1994)����������������� 141, 146, 164, 186 Víctor Pey Casado and President Allende Foundation v Republic of Chile (Decision on Jurisdiction) (ICSID Case No ARB/98/2, 8 May 2002)�������������������������������������������������41

xx  Table of Cases Vigotop Limited v Hungary (Award) (ICSID Case No ARB/11/22, 1 October 2014)������������������������������������������������������������������������������������ 132 Vincent J. Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v Republic of Poland (Award) (ICSID Case No ARB(AF)/11/3, 24 November 2015).�����������������������������������196–97 Waguih Elie George Siag and Clorinda Vecchi v The Arab Republic of Egypt (Decision on Jurisdiction and Partial Dissenting Opinion of Professor Francisco Orrega Vicuña) (ICSID Case No ARB/05/15, 11 April 2007)�������������������������������� 32, 63, 204 Wena Hotels Ltd. v Arab Republic of Egypt (Award) (ICSID Arbitral Tribunal Case NoARB/98/4, 8 December 2000)������������������������ 133 Wintershall Aktiengesellschaft v Argentine Republic (Award) (ICSID Case No ARB/04/14, 8 December 2008)������������������������������������� 187 Yaung Chi Oo Trading Pte. Ltd. v Government of the Union of Myanmar, (Award) (ASEAN I.D. Case No ARB/01/1, 31 March 2003)������������������������������������������������������������������������������������� 171 Yosef Maiman, Merhav (Mnf) Ltd, Merhav Ampal Group Ltd, and Merhav Ampal Energy Holdings Limited Partnership v The Arab Republic of Egypt, (PCA Case No 2012-26)��������������������������� 210 Yukos Universal Limited (Isle of Man) v The Russian Federation (Interim Award on Jurisdiction and Admissibility) (PCA Case No AA 227, 30 November 2009)���������������� 168, 205–07, 218, 226 International Judgments Barcelona Traction, Light and Power Co Ltd (Belgium v Spain) (Judgment) 5 February 1970 ICJ Reports 1970�������������71, 110, 112–21, 124, 138–39, 187, 234 Canavero (Italy v Peru) (Award of the Tribunal) 2 May 1912 PCA Case No 190-01, 11 RIAA 397��������������������������������������������������������������� 111 Case concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo) (Preliminary Objections) (Judgment) 24 May 2007 ICJ Reports 2007 582��������������������������� 56, 116–17 Case concerning Elettronica Sicula SpA (ELSI) (United States of America v Italy) (Judgment) 20 July 1989 [1989] ICJ Rep 15������������������� 115 Electricity Company of Sofia and Bulgaria (Belgium v Bulgaria) (Order) 26 February 1940, PCIJ Series A/B No 80���������������������������������� 111 Esphahanian v Bank of Tejarat 2 Iran US CTR 157���������������������������������������61 Fisheries Jurisdiction Case (Spain v Canada) (Jurisdiction of the Court) Judgment of 4 December 1998, [1998] ICJ Rep 432����������� 128 Flegenheimer Case – US-Italy Claims commission Decision No182 20 September 1958 Volume XIV,������������������������������������������������������������������57

Table of Cases  xxi Flexi-Van Leasing, Inc. v The Government of the Islamic Republic of Iran, Claim No 36 (Order of Dec. 15, 1982) 1 Iran-US C.T.R. 455����������������������������������������������������������������������������� 119 Grand Prince (Belize v France) (Judgment) (ITLOS Case No 8, ICGJ 341, 20 April 2001)�������������������������������������������������������71 M/V ‘Virginia G’ (Panama v Guinea-Bissau) (Judgment) (ITLOS Case No 19, ICGJ 452, 14 April 2014)�����������������������������������������72 M/V Saiga (No2) (Saint Vincent and The Grenadines v Guinea) (Judgment) (ITLOS Case No 2, ICGJ 336, 1 July 1999)���������������������� 70–72 Mavrommatis Palestine Concessions Case (Greece v United Kingdom) (Jurisdiction) 1924 P.C.I.J., Series A, No 2, p 12��������������������������������56, 112 Mergé Case (US v Italy), 14 Review of International Arbitral Awards 236 (Italian–United States Conciliation Commission, 1955)��������������������������������������������������������������������������� 57, 60 Nottebohm Case (Liechtenstein v Guatemala) (Second Phase) (Judgment) 6 April 1955 ICJ Reports 1955 4, 20��������������������������� 50, 54–55, 57–61, 66–67, 69 Panevezys-Saldutiskis Railway (Estonia v Lithuania) (Judgment) 1939, PCIJ Series A/B, No 76, 16������������������������������������������������ 56, 110–11 Societe Commerciale de Belgique (Belgium v Greece) (Judgment) 15 June 1939, PCIJ Series A/B No 78����������������������������������������������������� 111 The Nationality Decrees in Tunis and Morocco Opinion (1923), PCIJ Series B No 4, 24���������������������������������������������������������������������� 50, 54 EU Cases Case 170/83, Hydrotherm Gerätebau v Compact, [1984] ECR 2999���������������92 Case 81/87 R v HM Treasury and Commissioners of Inland Revenue, ex p Daily Mail and General Trust plc [1988] ECR 5483��������������������������83 Case C-167/01 Kamer van Koophandel en Fabriekenvoor Amsterdam v Inspire Art Ltd, [2005], 3 CMLR 937���������������������������������������������99–100 Case C-208/00 Überseering BV v Nordic Construction Company Baumanagement GmbH (NCC), [2005], 1 CMLR 1��������������������������99–100 Case C-212/97 Centros Ltd v Erhvervs-OG Selskabsstyrelsen, [1999], 2 CMLR 551������������������������������������������������������������������������99–100 Case T-112/05 Akzo Nobel NV v Commission [2007] ECR II-5049, [2008] 4 CMLR 321������������������������������������������������������������������������������ 105 Cases T-144/07, T-147/07 to T-150/07 and T-154/07 ThyssenKrupp Liften Ascenseurs NV and Others v European Commission���������������������88

xxii  Table of Cases Domestic Cases France

Re Energotech SARL [2007] B.C.C. 123 (Tribunal de Grande Instance (France))���������������������������������������������������99 Societe ‘The Moulin-Rouge Attractions, Ltd.,’ Tribunal Correctionel de la Seine, July 2, 1912, [1913] Dalloz Jurisprudence II. 165����������������������������������������������������������������������������� 100 Societe Remington Typewriter v Kahn, Cour de Cassation, France, May 12, 1931, 1936 Dalloz Jurisp.I. 121���������������������������������������97 Netherlands

Dutch Supreme Court (Hoge Raad) 25 September 1981 (Osby-Pannan A/B v Las Verkoopmaatschappij BV), NJ 1982, No 443����������������������������91 UK

Adams v Cape Industries Plc [1990] BCC 786�����������������������������������������������86 Base Metal Trading Ltd v Shamurin [2005] 1 WLR 1157������������������������� 95–96 Chandler v Cape plc [2012] EWCA Civ 525�������������������������������������������� 89, 91 Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd (Daimler) (1916) 2 AC 319���������������������������������������������������������121–22 In Wood and another v Holden (Inspector of Taxes) [2006] 1 WLR 1393�������������������������������������������������������������������������������������������96 Prest v Petrodel Resources Limited and others [2013] UKSC 34����������������������86 Re F.G. (Films) Ltd. [1983] 1 WLR 483����������������������������������������������������������92 Salomon v A. Salomon and Co. Ltd [1897] AC 22�����������������������������������������86 Smith, Stone and Knight Ltd. v Birmingham Corporation [1939] 4 All E.R. 116�����������������������������������������������������������������������������������������91 The Gramophone and Typewriter, Limited v Stanley [1906] 2 KB 856������������86 Tunstall v Steigmann[1962] 2 QB 593�����������������������������������������������������������86 Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20������������������������������������������������������������������������������������������ 89, 91 US

Clark v Uebersee Finanz-Korporation, A.G. 332 U.S. 480 (1947)������������������ 123 Sundaco Inc v State 463 S.W.2d 528 (Tex. Civ App. 1970)������������������������������93

Table of International Instruments Treaties 1987 ASEAN Agreement for the Promotion and Protection of Investments signed 15 December 1987��������������������������������������������������� 171 Accord Entre Le Gouvernement De La Republique Francaise Et Le Gouvernement De La Republique Du Nicaragua Sur L’Encouragement Et La Protection Reciproques Des Investissements, entered into force in 31 March 2000������������������������������ 181 Accord relatif à l’encouragement et la protection des investissements entre le Royaume des Pays-Bas et la République du Sénégal signed 3 August 1979, entered into force 5 May 1981.��������������������������������������� 150 Agreement between Japan and the Republic of Colombia for the Liberalization, Promotion and Protection of Investment, Signed on 12 September 2011 and entered into force in 11 September 2015�������������������������������������������������������������������������������� 144 Agreement between the Austrian Republic and the Ukraine on the Promotion and Mutual Protection of Investments, signed 8 November 1996, entered into force 1 December 1997��������������������������� 172 Agreement between the Czech and Slovak Federal Republic and the Swiss Confederation on the promotion and reciprocal protection of investments, signed 5 October 1990, entered into force 7 August 1991������������������������������������������������������������������������������� 171 Agreement between the Government of Canada and the Government of the Republic of Venezuela for the promotion and protection of investments, signed 1 July 1996, entered into force 28 January 1998������������������������������������������������������������������������������������ 168 Agreement between the Government of Hong Kong and the Government of Australia for the Promotion and Protection of Investments, signed 15 September 1993, entered into force, 15 October 1993�������������� 172 Agreement between the Government of the Czech Republic and the Government of the State of Israel for the Reciprocal Promotion and Protection of Investments, signed on 23 September 1997, and entered into force on 16 March 1999�������������������������������������������������41 Agreement between the Government of the Federal Republic of Ethiopia and the Government of the Republic of France for the reciprocal promotion and protection of investments, signed 25 June 2003, entered into force 7 August 2004 �������������������������������������� 172

xxiv  Table of International Instruments Agreement between the Government of the Hong Kong Special Administrative Region of the People’s Republic of China and the Government of the United Kingdom of Great Britain and Northern Ireland for the Promotion and Protection of Investments, Signed 30 July 1998 and entered into force 12 April 1999��������������������������11 Agreement between the Government of the Kingdom of Sweden and the Government of the Republic of India for the Promotion and Reciprocal Protection of Investments, terminated 22 March 2017����������� 170 Agreement between the Government of the Republic of India and the Government of the Lao People’s Democratic Republic for the promotion and protection of investments, terminated 22 March 2017 ��������������������� 170 Agreement Between the Government of the Republic of Korea and the Government of the United Kingdom of Great Britain And Northern Ireland for the Promotion and Protection of Investments (Signed and entered into force on 4 March 1976)��������������������������������������35 Agreement between the Government of the United Arab Emirates and the Government of the Republic of Azerbaijan on the Promotion and Reciprocal Protection of Investments, signed 1 November 2006, entered into force 24 August 2007�������������������������19, 223 Agreement between the Government of the United Arab Emirates and the Government of the Italian Republic for the Promotion and Protection of Investments signed on 22 January 1995 and entered into force 29 April 1997���������������������������������������������������������������64 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Belarus, signed on 1 March 1994, entered into force 28 December 1994����������������������������������������������������������������� 185 Agreement between the Kingdom of the Netherlands and the Republic of Paraguay on encouragement and reciprocal protection of investments signed on 29 October 1992, entered into force on 1 August 1994������������������������������������������������������������������� 136 Agreement between the Republic of Colombia and the Swiss Confederation on the Promotion and Reciprocal Protection of Investments, signed on 17 May 2006 and entered into force on 6 October 2009�������������������������������������������������������������������49, 171 Agreement between The Slovak Republic and The Islamic Republic of Iran for the Promotion and Reciprocal Protection of Investments, signed 19 January 2016, entered into force 30 August 2017��������������������� 214 Agreement between the State of Kuwait and the Republic of Singapore for the Encouragement and Reciprocal Protection of Investments, signed 5 November 2009, entered into force 15 April 2013���������������������� 243 Agreement between the Swiss Confederation and the Republic of Uzbekistan on the Promotion and Reciprocal Protection of Investments, signed on 16 April 1993 and entered into force on 5 November 1993�������������������������������������������������������������������������������45

Table of International Instruments   xxv Agreement on Encouragement and Reciprocal Protection of Investments between the Government of the Kingdom of the Netherlands and the Government of Romania signed on 19 April 1994, entered into force on 1 February 1995�������������������������������������������������������������������������38 Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Federal Republic of Yugoslavia, signed on 29 January 2002 and entered into force on 1 March 2004������������������������������������������������������������������������������������������47 Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Venezuela, entered into force 1 November 1993, terminated on 1 November 2008������������������������������������������������������������ 156 Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Bolivia, entered into force 1 November 1994, terminated on 1 November 2009������������������������������������������������������������ 159 Agreement on Promotion and Protection of Investments between the Government of the Kingdom of the Netherlands and the Government of the Kingdom of Bahrain signed 05 February 2007, entered into force 01 December 2009������������������������� 166 Agreement on Promotion, Protection and Guarantee of Investments amongst the Member States of the Organization of the Islamic Conference, signed 5 June 1981 and entered into force February 1988��������������������������������������������������������������������������������������� 166 Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, signed on 30 October 2016������������������������������������������������������ 4, 11–12, 170, 185, 214 Convention on International Civil Aviation, 15 UNTS 295 entered into force 4 April 1947����������������������������������������������������������������74 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) entered into force on 7 June 1959���������������������������������������������������������������������������������28, 201 Convention on the Rights of the Child, UN General Assembly, 20 November 1989, United Nations, Treaty Series, vol 1577, p 3���������������53 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature on March 18, 1965, 575 UNTS 159 (entered into force on 14 October 1966)��������������������������������������������� v, 6–8, 10, 12, 15–18, 20–21, 26–28, 30–35, 37–41, 43–46, 49, 56, 62–63, 66, 77, 79, 89, 93, 125–75, 179, 181–83, 185, 187–88, 192, 195, 197, 200–05, 207, 209, 214, 216, 219, 221, 231, 233–34, 243–45

xxvi  Table of International Instruments Convention Relating to the Regulation of Aerial Navigation, 11 LNTS entered into force 31 May 1920�������������������������������������������������75 Council of Europe, European Convention on Nationality, 6 November 1997, ETS 166���������������������������������������������������������������������53 Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran 19 January 1981������������������������������������ 119 Dominican Republic–Central America Free Trade Agreement, signed on 5 August 2004 and entered into force 1 January 2009����������������66 Energy Charter Treaty, signed on 17 December 1994 and entered into force on 16 April 1998���������������������������� 1, 20, 47, 205–06, 224–26, 228 Entre Le Gouvernement De La RépubliqueFrançaise Et Le Gouvernement De La RépubliqueDominicaine Sur L’encouragement Et La Protection RéciproquesDesInvestissements (Signed 14 January 1999, entered into force 23 January 2003)����������������� 189 European Convention on Nationality, Strasbourg, 6.XI.1997�������������� 50, 54–55 ILC Draft Articles on Diplomatic Protection Sixty-first Session, 2006 Supplement No. 10 (A/61/10)��������������������������������������������� 14, 50, 109 ILC Draft Articles on Nationality of Natural Persons in relation to the Succession of States, GAOR 54th Session Supp 10, 15 (A/54/10)������������������������������������������������������������������������������������������������51 International Covenant on Civil and Political Rights, UN General Assembly 16 December 1966, United Nations, Treaty Series, vol 999, p 171 ��������������������������������������������������������������������53 International Law Commission ‘Draft Articles on Responsibility of States for Internationally Wrongful Acts’ 53rd Session (2001) (extract from the ‘Report of the International Law Commission on the work of its Fifty-third session’, Official Records of the General Assembly, 56th Session, Supp no 10 (A/56/10), chap IV.E.1, November 2001)������������������������������������������������������������������������������48, 194 League of Nations, Convention on Certain Questions Relating to the Conflict of Nationality Law, 13 April 1930, League of Nations, Treaty Series, vol 179, p 89, No 4137���������������������������������������50, 54, 59, 61 Reciprocal Investment Promotion and Protection Agreement between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria, signed on 3 December 2016�������������������������������������������������������������������������������� 4, 47 Treaty between the Republic of Belarus and the Republic of India on Investments, signed 24 September 2018�������������������������������������������������� 170 Treaty between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates on Extradition, signed on 6 December 2006 and entered into force on 2 April 2008���������������������������������������������������������������������������������������55

Table of International Instruments   xxvii Treaty between the United States of America and the Republic of Poland Concerning Business and Economic Relations, signed 21 March 1990, entered into force 6 August 1994����������������������������������� 196 Treaty between United States of America and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investment signed on 14 November 1991 and entered into force on 20 October 1994��������������������������������������������������� 164 Treaty of Versailles, signed 28 June 1919����������������������������������������������������� 119 Treaty on the Functioning of the European Union OJ C 115/47���������������������55 UN General Assembly, Convention on the Reduction of Statelessness, 30 August 1961, United Nations, Treaty Series, vol 989, p 175 �����������������������������������������������������������������������������������������51 UN General Assembly, Convention Relating to the Status of Stateless Persons, 28 September 1954, United Nations, Treaty Series, vol 360, p 117��������������������������������������������������������������������53 United Nations Convention on Conditions for Registration of Ships (done 7 February 1986, not yet entered into force) UN Doc TD/RS/CONF/23����������������������������������������������������������������������72 United Nations Convention on the Law of the Sea signed 10 December 1982, entered into force 16 November 1994 1833 UNTS 396����������������������������������������������������������������������70–72, 77, 80 Universal Declaration of Human Rights, UN General Assembly, 10 December 1948, 217 A (III)�����������������������������������������������������������������53 US-Belize Air Transport Agreement Signed and entered into force on 16 October 2018������������������������������������������������������������������������75 Vienna Convention on Consular Relations, signed 24 April 1963 and entered into force on 19 March 1967, 500 UNTS 95��������������������56, 110 Vienna Convention on the Law of Treaties (VCLT) 1155 UNTS 331, 8 ILM 679 (1969)�������������������������������������������� 44–45, 138–39, 160, 244 Soft Law Instruments and Model Investment Treaties 2011 OECD Guidelines for Multinational Enterprises�������������������� 103–04, 106 Canada Model BIT 2004�����������������������������������������������������������������������169–70 Canada Model Treaty 2014������������������������������������������������������������������������ 170 India Model BIT 2016�������������������������������������������������������������������������������� 170 Netherlands Model BIT 2004����������������������������������������������������������������49, 185 Netherlands Model Investment Agreement 2019������������������������������ 4, 169, 214 OECD, Guidelines on Corporate Governance of State-Owned Enterprises (OECD Publishing, 2005)������������������������������� 246 The Czech Republic Model Bilateral Investment Treaty��������������������������� 47–48 The South African Development Community’s Model BIT������������������������� 225

xxviii  Table of International Instruments United Kingdom Model BIT 2005�������������������������������������������������������������� 167 US Model BIT 2012������������������������������������������������������������������������������17, 167 EU Legal Instruments Council Regulation (EC No. 2157/01 of 8 October 2001) governing The European Company (SocietasEuropea)����������������������������������������������������97 Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters���������������������������������������������������������������95 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings�����������������������������������������������������������������������������92 Regulation (EC) No 1008/2008 of the European Parliament and of the Council of 24 September 2008 on common rules for the operation of air services in the Community (Recast)��������������������������������75 Domestic Legislation 14 US Code 664-46 part 67 Documentation of Vessels�����������������������������������72 Bahamas Merchant Shipping Act������������������������������������������������������������������71 French Commercial Code ���������������������������������������������������������������������83, 109 Italian Private International Law Code 1995�������������������������������������������������97 Swiss Private International Law Statute 1987������������������������������������������������96 UK Listing Authority Disclosure Rules and Transparency Rules���������������������92 UK Merchant Shipping (Registration of Ships) Regulations 1993�������������������72 UK Trading with the Enemy Act 1939��������������������������������������������������������� 122 UK Trading with the Enemy Act of 1914���������������������������������������������������� 122 UK Companies Act 2006������������������������������������������������������������������� 83, 85, 95 US Restatement (Third) of Foreign Relations Law § 213 (1987)�������������������� 118 US Trading with the Enemy Act 1941���������������������������������������������������������� 123 US Trading with the Enemy Act of 1917����������������������������������������������121–122

Introduction

O

n 3 December 2019, the Financial Times (FT) reported that investors in the UK have begun restructuring their holdings in the UK public utility companies ‘to create the option of bringing lawsuits under bilateral investment treaties (BITs) between Britain and around 90 other countries, including Hong Kong and Malaysia’.1 This restructuring was in response to the prospect of a Labour Party victory in the 12 December 2019 general election, who campaigned to nationalise parts of public utility services in the UK. The FT story reported that two British utilities companies, National Grid and SSE Energy ‘shifted their UK regulated operations under new offshore holding companies in Switzerland, Hong Kong and Luxembourg’,2 thus enabling them access protection under the Energy Charter Treaty and the Hong-Kong UK investment treaty. Similarly, the Canadian Pension Plan Investment Board had already re-routed its investment in a UK water utility company through a Hong-Kong subsidiary.3 By posing as nationals and investors of other countries, the British and Canadian companies bring themselves within the protective scope of investment treaty instruments, which could be deployed against the UK should a UK Government nationalise their investments.4 The law allows and even encourages such a manipulation of a corporate investor’s identity and nationality.5 One utility company commented that corporate restructuring was ‘in line with [their] fiduciary duty to [their] shareholders … This has no financial benefit to the company and is solely to protect … shareholders’ interests.’6 This strategic re-structuring by the UK utility investors is no way exceptional. Investors frequently structure their investments in ways that will minimise risks for their business and maximise profit and legal protection.7 If gaining access to investment treaty protection by inserting new 1 J Ford and G Plimmer, ‘UK utility investors prepare to fight with nationalisation in prospect’ Financial Times, 3 December 2019 London www.ft.com/content/d2931a4a-1511-11ea-8d736303645ac406?segmentid=acee4131-99c2-09d3-a635-873e61754ec6. 2 Ibid and see N Thomas ‘National Grid and SSE shift some UK operations into offshore groups’ Financial Times 24 November 2019 London www.ft.com/content/7f55898a-0e9f-11ea-a7e 6-62bf4f9e548a. 3 J Ford and G Plimmer, ‘UK utility investors prepare to fight with nationalisation in prospect’. 4 This is an unlikely prospect after the Conservative Party’s victory in the 12 December 2019 election. 5 Throughout this book the terms ‘company’ and ‘corporation’ will be used interchangeably. 6 N Thomas ‘National Grid and SSE shift some UK operations into offshore groups’. 7 In modern corporate law promoting the success of the corporation is the primary duty of the directors. Under s 172 of the United Kingdom Companies Act directors of the company have the duty to promote the success of the company. See also, LE Ribstein and E O’Hara, The Law Market (New York, Oxford University Press, 2009) 109.

2  Introduction identities and nationalities into the corporate structure, ie ‘nationality shopping’ or the so called ‘treaty shopping’,8 enables the company to minimise losses, from the management’s perspective, this is a sensible move. International investment arbitration (IIA) awards and scholarly writing dealing with questions of corporate nationality generally view this a legitimate corporate practice and endorse artificially constructed nationalities as a basis for accessing international investment law (IIL) protections.9 Should a UK headquartered energy company be treated as a national of ­Switzerland or Luxembourg only because some of their investments are channelled through shell corporations located there? Similarly, should a Canadian pension fund be treated a national of Hong Kong only because it channels investments through shell corporations in Hong Kong? While this is both logically and legally unsound, IIL arbitral practice has frequently endorsed such manufacturing of corporate nationality and has treated nationality shopping an acceptable means for accessing IIL protections.10 It is true that the law empowers investors to adopt best possible structures for their business. But the legality, legitimacy, and prevalence of corporate structuring should not be a central consideration for IIA tribunals when determining the nationality of a corporate investor. As I will discuss throughout this book, there are various elements within investment treaty texts which are conducive to expansive interpretations of corporate nationality. For the most part, however, such expansive interpretations are not warranted by the legal texts and principles of IIL and international law, but rather they are a product of the generous attitude of arbitral tribunals towards their jurisdiction.11 By hinging the question of corporate nationality to legitimacy of corporate planning, IIA tribunals are permitting a massive unwarranted expansion of investment treaty coverage with significant ramifications on the operation of IIL and the communities affected by its operation.

8 Throughout this book, I refer to treaty shopping or nationality shopping when referring to this practice. The terms are not used interchangeably. Not every instance of nationality shopping amounts to treaty shopping. Corporate investors may utilise nationalities of convenience to access IIL protections without benefitting from an investment treaty. I characterise the acquistion of a convenient nationality by a corporate investor as ‘nationality shopping’, and use the term ‘treaty shopping’ when referring to other primary or secondary sources using this term. 9 J Baumgartner, Treaty Shopping in International Investment Law (Oxford, Oxford University Press, 2016), 1; Philip Morris Asia Limited v The Commonwealth of Australia, (Award on Jurisdiction and Admissibility) (PCA Case No 2012-12, 17 December 2015) paras 540–545; Tidewater Inc., Tidewater Investment SRL, Tidewater Caribe, C.A., Twenty Grand Offshore, L.L.C., Point Marine, L.L.C., Twenty Grand Marine Service, L.L.C., Jackson Marine, L.L.C. and Zapata Gulf Marine Operators, L.L.C. v Bolivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/10/5, 8 February 2013) para 184; Aguas del Tunari, S.A. v Republic of Bolivia (Decision on Respondent’s Objections to Jurisdiction) (ICSID Case No ARB/02/3, 21 October 2005) para 330. 10 See ch 5 for a review of arbitral awards. 11 See ch 5. See also, G Van Harten, ‘Arbitrator Behaviour in Asymmetrical Adjudication: An Empirical Study of Investment Treaty Arbitration’ Osgoode Hall Law School Comparative Research in Law and Political Economy Research Paper Series Research Paper No 41/2012.

Introduction  3 It is no surprise that the permissive attitude of IIA tribunals towards manufactured corporate nationalities has contributed to the backlash against IIL and IIA.12 As Bonnitcha, Poulsen and Waibel note the ‘definitional issues relating to the coverage of investment treaties have profound policy relevance for the investment treaty regime’ due to their potential to undermine the preferential nature of the IIL protections.13 Investment treaty protections are granted as preferential treatments to investors and nationals of contracting parties on a reciprocal basis. Corporate nationality is key to answering when IIA tribunals can exercise personal jurisdiction over disputes involving corporate investors and when corporate investors can benefit from the substantive and procedural protections provided in an investment treaty. A permissive approach to manufactured corporate nationalities by IIA tribunals stretch the protective scope of investment treaties to an unlimited number of investors, thus de facto eliminating the reciprocal preferential nature of the protection. Some argue that such an extension is desirable as it allows a greater number of investors to benefit from IIL standards and contributes to the multilateralisation of IIL.14 According to this view, IIL fulfils a good governance function by imposing international standards of behaviour on host states with positive impacts both on the international rule of law and domestic rule of law within host states.15 Wider IIL coverage widens the good governance effects and encourages a greater number of investments to be attracted into host states contributing to its economic development, which is the primary goal of IIL instruments.16 By contrast, states have persistently objected to this expansive approach to corporate nationality in investment arbitration practice. To counteract nationality shopping, host states have argued that the investor’s corporate planning constituted an abuse of process,17 that a genuine link was lacking between the investor and its home state,18 that the tribunal should look behind 12 R van Os, R Knottnerus, Dutch Bilateral Investment Treaties: A Gateway to ‘treaty shopping’ for investment protection by multinational companies(October 2011) SOMO; P Eberhardt and C Olivet, Profiting from Injustice: How law firms, arbitrators and financiers are fuelling an investment arbitration boom, (November 2012) Corporate Observatory and the Transnational Institute; JW Yackee, ‘Pacta Sunt Servanda and State Promises to Foreign Investors Before Bilateral Investment Treaties: Myth and Reality’ (2009) 32 Fordham International Law Journal 1550; UNCITRAL Working Group III (Investor-State Dispute Settlement Reform) 36th Session Vienna, 29 October-2 November 2018. Possible reform of investor-State dispute settlement (ISDS): Consistency and related matters, A/CN.9/WG.III/WP.150 [17]. 13 J Bonnitcha, LNS Poulsen, M Waibel, The Political Economy of the Investment Treaty Regime (Oxford, Oxford University Press, 2017) 55 14 SW Schill, The Multilateralization of International Investment Law (Cambridge, Cambridge University Press, 2009) 17–18. 15 See R Dolzer and C Schreuer, Principles of International Investment Law 2nd edn (Oxford, Oxford University Press, 2012) 25. 16 SW Schill, The Multilateralization of International Investment Law 5–6. 17 See Tidewater v Venezuela. 18 Mobil Corporation, Venezuela Holdings, B.V., Mobil Cerro Negro Holding, Ltd., Mobil ­Venezolana de Petróleos Holdings, Inc., Mobil Cerro Negro, Ltd., and Mobil Venezolana de Petróleos, Inc. (Mobil) v Bolivarian Republic of Venezuela (Venezuela) (Decision on Jurisdiction) (ICSID Case No ARB/07/27, 10 June 2010) para 27.

4  Introduction the corporate veil,19 that there was no investment ‘made’ by the claimant,20 that the timing of corporate restructuring rendered the claim outside temporal jurisdiction.21 But states have rarely succeeded in these objections. As IIA tribunals continue to uphold manufactured corporate nationalities, states have begun reforming investment treaties to include explicit safeguards to prevent nationality shopping.22 Against this background, the aim of this book is to explore the concept of nationality as it applies to corporate investors under IIL. There are two central questions to this inquiry. The first one is whether nationality is an appropriate legal bond for connecting a corporation to a state for purposes of IIL. The second one is, if nationality is an appropriate legal bond, then what is and should be the standard for determining the nationality of a corporate investor under IIL? Is it fit for purpose for adjudicators to link corporations to states based on tenuous connections? Or is it necessary to adopt a standard that establishes a corporate investor’s nationality based on a genuine link between the investor and the home state? What are the policy and legal reasons for advocating for a genuine link to determine corporate nationality and tighten the scope of IIL protections? These are the central questions addressed throughout this book. The analysis of corporate investors’ nationality in this book will rest on three foundational pillars: the principles governing (1) access to IIL protections, (2) nationality, and (3) corporate personality. Building on these pillars, the book analyses the challenges faced by tribunals and parties in determining the nationality of a corporate investor, the reasons underpinning the emergence of the erratic arbitral jurisprudence on corporate nationality we have today, and how arbitral tribunals can address this issue more consistently, efficiently and fairly in the future. I.  A CASE AGAINST THE EXPANSIONIST APPROACH TO PERSONAL SCOPE OF IIL PROTECTIONS

The method used for determining corporate investors’ nationality has significant implications on the reach and coverage of IIL protections. The questions of where disputes concerning foreign investments can be adjudicated and whether 19 Tokios Tokelés v Ukraine (Decision on Jurisdiction) (ICSID Case No ARB/02/18, 29 April 2004). 20 Gold Reserve Inc. v Bolivarian Republic of Venezuela, (Award) (ICSID Case No ARB(AF)/09/1, 22 September 2014). 21 Philip Morris v Australia. 22 See Art 8.1 Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part signed on 30 October 2016; Art 1 Reciprocal Investment Promotion and Protection Agreement between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria, signed 3 December 2016; Netherlands Model Investment Agreement (22 March 2019) Article 1 www.rijksoverheid.nl/ministeries/ministerie-van-buitenlandse-zaken/documenten/publicaties/2019/03/22/ nieuwe-modeltekst-investeringsakkoorden.

A Case against the Expansionist Approach to Personal Scope  5 an investment can benefit from the protections of an investment treaty are crucial not only for the investors and host states concerned, but also the public affected by such large-scale investments and by the decisions of IIA tribunals.23 The large scale investments that give rise to IIL claims often concern natural resources, public utilities, major infrastructure projects essential to the functioning of societies and fulfilment of basic rights of local communities. Whether investment disputes get resolved by IIA tribunals acting as the ultimate arbiter, without meaningful participation of affected communities, under a loosely organised institutional structure and applying substantive standards stipulated in a high level of abstraction, is not a question that can be treated lightly. As expressed by Van Harten, IIA ‘has far reaching implications for how people are governed around the world … At the option of a foreign investor, they [arbitrators] decide the legality of legislative, executive, or judicial acts as well as the scope of their own authority.’24 The expansionist approach to IIL’s personal access requirements, ie the good governance thesis and the role of IIL in contributing to economic prosperity and development of host states, justify that approach by referring to the expected ultimate societal benefits of increased flow of investments enabled by IIL. Yet, the effects of IIL on good governance and economic development remain normative claims contested by empirical findings.25 While IIL may contribute to good governance and economic development in some instances, such an uncertain prospect cannot justify a transformation of investment treaty protections entered into on a reciprocal basis among states into a universal regime through arbitral interpretations. The way tribunals approach personal scope of protection also produces trust and legitimacy implications for the investment treaty regime. The permissive and formalistic legal approaches to corporate nationality widely adopted in IIA jurisprudence allow investors to make opportunistic uses of the corporate form to swiftly adopt a nationality that will provide them investment treaty protections they would not ordinarily have access to. I demonstrate in this book that the dominant approach to corporate nationality in arbitral jurisprudence expand the personal scope of protections through internally inconsistent ­interpretations26 that carry serious flaws and add to the legitimacy crisis in the 23 See for a comprehensive analysis, G Van Harten, Investment Treaty Arbitration and Public Law (Oxford, Oxford University Press, 2007); G Van Harten, Sovereign Choices and Sovereign Constraints: Judicial Restraint in Investment Treaty Arbitration (Oxford, Oxford University Press, 2013) 7. 24 G Van Harten, Sovereign Choices 1. 25 See on the good governance argument M Sattorova, The impact of investment treaty law on host states: Enabling good governance? (Oxford, Hart Publishing, 2018), 196 (‘The principal finding of our empirical investigation is that host states do not necessarily respond to their encounter with investment treaty law by becoming more risk-averse and compliant with good governance norms.’) On the contribution of IIL to economic development see J Bonnitcha, L Poulsen and M Waibel, The Political Economy of the Investment Treaty Regime, 46–47. 26 See ch 5.

6  Introduction field of IIL which was recently described as a ‘caricature of a legal system’ by one of its most prominent practitioners.27 Besides, the possibility of domestic investors, such as National Grid in the UK, to adopt a foreign nationality through corporate structuring to benefit from IIL standards goes against the foundational policy justification of IIL that affords international protection to ‘foreign’ investors for they are considered more vulnerable to political risk when operating in a foreign country.28 In response to the trust and legitimacy implications, the issue of personal scope of international investment protection has been identified as one of the reform areas by the United Nations Commission on International Trade Law to overcome consistency and correctness problems in investor-state dispute settlement.29 This book makes an important contribution to the reform agenda by proposing a recalibration of IIL’s personal access requirements as they apply to corporate investors. The proposals are built on an in-depth scholarly analysis of the concepts and issues essential to corporate investors’ nationality. The discussion goes beyond the existing, well-regarded, but general and narrowly focussed discussions of corporate nationality under IIL30 and draws on the relevant international and domestic legal principles governing ‘nationality’ and the ‘corporation’, as well as IIL principles. Distinctively, the analysis presented fully addresses the interaction between the investment treaty standards and the ICSID Convention, as well as unpacking the complex interactions between ‘investment’, ‘consent’ and ‘nationality’ as access requirements. A key issue concerning corporate nationality in IIL, widely discussed in the literature, is the practice of treaty shopping.31 The discussion throughout this book is mindful that treaty 27 G Kahale III, ‘ISDS: The Wild, Wild West of International Law and Arbitration’ Forthcoming, 44(1) Brooklyn Journal of International Law, 5. 28 J Bonnitcha, L Poulsen and M Waibel, The Political Economy of the Investment Treaty Regime 8–13. See for a critical and historical inquiry of the depoliticisation rationale N Tzouvala, ‘The Ordo-Liberal Origins of Modern International Investment Law: Constructing Competition on a Global Scale’ in JD Haskell and A Rasulov (eds) European Yearbook of International Economic Law Special Issue: New Voices and New Perspectives in International Economic Law (Switzerland, Springer, 2020), 37. 29 UNCITRAL Working Group III (Investor-State Dispute Settlement Reform) 36th Session Vienna, 29 October-2 November 2018. Possible reform of investor-State dispute settlement (ISDS): Consistency and related matters, A/CN.9/WG.III/WP.150 [17]. 30 See, eg, M Sornarajah, The International Law on Foreign Investment 3rd edn (Cambridge, Cambridge University Press, 2010); CH Schreuer et al, The ICSID Convention: A Commentary 2nd edn (Cambridge, Cambridge University Press, 2009); C McLachlan, L Shore and M Weiniger, International Investment Arbitration: Substantive Principles 2nd edn (Oxford, Oxford University Press, 2017); M Sasson, Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between International Law and Municipal Law (The Netherlands, Kluwer Law International, 2010); Z Douglas The International Law of Investment Claims (Cambridge, Cambridge University Press, 2009). 31 For the leading text on treaty shopping, see J Baumgartner, Treaty Shopping. See also R van Os and R Knottnerus, Dutch Bilateral Investment Treaties; E Zuleta et al, ‘Treaty Planning: Current Trends in International Investment Disputes that Impact Foreign Investment Decisions and Treaty Drafting’ in MA Fernandez-Ballesteros and D Arias (eds) Liber Amicorum Bernardo Cremades (Madrid, La Ley, 2010); E De Brabandere, ‘Good Faith’, ‘Abuse of Process’ and the Initiation of

A Case against the Expansionist Approach to Personal Scope  7 shopping captures a broader set of issues, as analysed in Baumgartner’s ­leading work on the subject,32 and the question of corporate nationality similarly captures a broader set of issues than treaty shopping. Within the context of the discussion presented in this book, treaty shopping can be best described as a symptom and its analysis here, drawing on the literature on treaty shopping, supports the arguments for developing a more rigorous approach to corporate nationality within IIL. What is proposed is a stricter interpretation of corporate nationality, aligned with the usage of ‘nationality’ in other areas of law, determined based on a genuine link. While such an approach does not wipe out the public interest and legitimacy concerns raised by the operation of IIL, it crucially limits the reach of IIL to the bounds agreed by contracting states. It also prevents investors from undermining ongoing and future reforms to investment treaties, incorporating public policy limitations, by artificially bringing themselves within the scope of treaties that do not contain such limitations. In the next sections, I unpack how the overly generous interpretations of corporate nationality and personal scope of investment treaties undermine (1) the reciprocal and preferential nature of IIL protections and (2) the substance of the negotiated bargain struck between the contracting states. A. Reciprocity At the heart of investment protection treaties and the ICSID Convention is the reciprocity of protection extended to the ‘investments’, as defined in the treaty, made in the territory of a Contracting State by the ‘investors’ or ‘nationals’, as defined in the treaty, of the other Contracting State. Investment treaties are signed, most commonly, on a bilateral basis.33 States have refrained from committing to a multilateral instrument that covers substantive rights for foreign investors, despite several attempts at creating a global multilateral instrument

Investment Treaty Claims, (2012) 3(3) Journal of International Dispute Settlement 609; SW Schill and HL Bray, ‘Good Faith Limitations on Protected Investments and Corporate Structuring’ in AD Mitchell, M Sornarajah and T Voon (eds) Good Faith and International Economic Law (Oxford, Oxford University Press, 2015) 105; M Sornarajah, ‘Good Faith, Corporate Nationality, and Denial of Benefits’, in AD Mitchell, M Sornarajah and T Voon (eds) Good Faith and I­ nternational Economic Law (Oxford, Oxford University Press, 2015) 139. 32 J Baumgartner, Treaty Shopping. 33 Though regional investment treaties have been attracting more interest recently, states primarily continue to commit to bilateral treaties for investment protection. See UNCTAD, World Investment Report 2018: Investment and New Industrial Policies (New York and Geneva, United Nations, 2018), 88 (‘In 2017, 18 new IIAs were concluded, bringing the total to 3,322 treaties by year-end. The year marks the lowest number of IIAs concluded since 1983, and for the first time, effective treaty terminations exceeded the number of new treaty conclusions.’).

8  Introduction on foreign investment protection.34 Disagreements on the table could not be overcome at a multilateral setting, though states continued to sign almost identical treaties on a bilateral basis. But in practice, multilateralisation has been achieved to some extent through the backdoor.35 Broad and extremely malleable definitions of ‘investor’ and ‘investment’ and inclusion of most favoured nation (MFN) clauses in treaty texts coupled with generous arbitral interpretations have broadened the coverage of investment treaties beyond the intended beneficiaries of the treaty, ie nationals of the signatory states. This backdoor expansion of investment treaty protection stretches coverage well beyond what the states were prepared to undertake in treaties and undermines the reciprocal nature of the protection offered only to the investors of contracting states.36 Corporate nationality determined based on tenuous links can wipe out the preferential and reciprocal nature of IIL protections. Reciprocity in IIL operates somewhat uniquely compared to other sub-fields of international law37 due to the triangular relationship between the contracting states and the treaty beneficiaries, as well as the special characteristics of IIL’s corporate beneficiaries. First, in IIL, investment treaty parties make reciprocal commitments that are meant to be primarily invoked by private parties who are not privy to the treaty. Protections afforded by most investment treaties can be invoked by an investor fulfilling application requirements of the treaty without obtaining state consent separately, since consent is already provided in the treaty on a reciprocal basis.38 In terms of having third party non-state beneficiaries, IIL is akin to international human rights (IHRL) treaties which have private parties as rights-holders. However, the distinction between IIL and IHRL is that the former bestows ­advantages to a defined group on a reciprocal basis, whereas IHRL t­reaties

34 The ICSID Convention, which covers only procedural rights, is the one IIL instrument that has attracted a wide multilateral uptake. See, eg, OECD’s Draft Multilateral Agreement on Investment which was under negotiations between 1995–1998 but did not succeed. Similarly, see the 1959 Abs-Shawcross Draft Convention on Investments Abroad; P Muchlinski, ‘The Rise and Fall of the Multilateral Agreement on Investment: Where Now?’ (2000) 34(3) The International Lawyer, 1033; T St John. The Rise of Investor-State Arbitration: Politics, Law, and Unintended Consequences (Oxford, Oxford University Press, 2018), 68–99. 35 S W Schill, The Multilateralization of International Investment Law. 36 J Baumgartner, Treaty Shopping 39; R van Os and R Knottnerus, 11. 37 J Baumgartner, Treaty Shopping 45–48 (Also argues that ‘there are … elements that warrant for a somewhat different, if less strict approach to reciprocity in international investment law.’ The elements rendering reciprocity less strict in IIL are (1) the strong enforcement mechanism for investment treaties provided by international arbitration, (2) the wide use of MFN clauses multilateralising standards of protection, and (3) broad definitions of ‘investor’.); R Dolzer and C Schreuer, Principles of International Investment Law 20 (Argue that reciprocity in IIL does not adopt the ‘traditional themes of reciprocity and mutuality, but instead sets accepted standards for the unilateral conduct of the host state.’) 38 In modern IIL the consent to ICSID arbitration is most often derived from investment treaty dispute settlement clauses; the reciprocity and preferential treatment analysis for the access to ICSID is closely related with the reciprocity of investment treaties. According to the 2019 ICSID Caseload and Statistics, 76% of all disputes registered by ICSID under the Convention and A ­ dditional Facility rules invoked investment treaty consent (https://icsid.worldbank.org/en/Documents/ICSID_ Web_Stats_2019-2_(English).pdf.

A Case against the Expansionist Approach to Personal Scope  9 benefit any person within the signatory state’s territory and jurisdiction. States must fulfil their human rights treaty obligations to any person within their jurisdiction or territory regardless of and without discrimination on the basis of their nationality or any other protected characteristic.39 Investment treaties limit beneficiaries to a specific group linked by nationality, residence, or another link, to the host state. This is an important feature of reciprocity in investment treaties that must be taken into consideration when interpreting access requirements. The terms of an investment treaty are meant to only cover ‘qualifying’ investors. This alone does not pose a challenge to the notion of reciprocity in IIL, but when combined with certain characteristics of corporate investors, the reciprocal nature of commitments can de facto disappear, allowing an unlimited number of persons ordinarily falling outside the scope of the treaty to be brought within its scope. One of the most contested and controversial features of IIL has been the fact that it allows investors to shop for the protection of a treaty in a way that beneficiaries of other treaties, states or private parties, cannot. For states as beneficiaries, they can only take advantage of treaties that they are a party to. The only way for them to benefit from the standards of a treaty to which they are not a party to is if they benefit from an MFN clause in the original treaty. Unlike corporate investors, states cannot treaty shop by changing their identity and posing as another state. For instance, the Treaty on the European Union only binds its signatory states, and a non-party cannot access the benefits of that treaty by altering their identity and posing as a contracting party. In the investment treaty context, however, despite the signatories being states, the primary beneficiaries and enforcers of the treaty are corporate investors who can adjust their identity with relative ease to qualify as a protected investor. Once an investment treaty enters into force, that treaty’s enforcement leaves the contracting states’ sphere of influence to a large extent.40 It is in the hands of the qualifying investors to invoke and enforce the protections guaranteed in the treaty on a reciprocal basis, and it is exclusively in the discretion of IIA tribunals to interpret the content and limits of protection.41 If the treaty’s scope is defined

39 With the exception of certain rights reserved for a defined group, such as the right to vote, see The International Covenant on Civil and Political Rights 6 December 1966, United Nations, Treaty Series, vol 999, p 171, Art 25. 40 G Van Harten, Sovereign Choices 7 (Describes investment treaty based arbitration as unique due to the ‘structure of consent on which the arbitrators’ authority is based.’ And further elaborates that ‘… arbitrators’ authority is trigerred when a company or individual brings a claim and can demonstrate that it has the required foreign nationality and that it owns assets covered by the treaty.’) T St John, The Rise of Investor-State Arbitration 9 (‘It is the decentralization of consent that makes ISDS resilient.)’ 41 G Van Harten, Sovereign Choices 7 (Observes in regards to investment treaty based arbitration that ‘One may imagine the investor’s claim as a key, left in a place accessible to select persons, that opens a door into a special chamber of as yet unknown adjudicators. It is the leaving of the key by state officials that gives the individuals in the chamber the ultimate power to regulate the sovereign.’) See KT Asia Investment Group B.V. v Republic of Kazakhstan (Award) (ICSID Case No ARB/09/8, 17 October 2013) para 19.

10  Introduction loosely, this will make it possible for an investor that would not normally benefit from the treaty to shift its place of incorporation to a signatory state and pose as an investor of that state to benefit from an investment treaty. The unique enforcement features of IIL have been characterised as a reason to consider reciprocity as less salient in IIL compared to other international law relationships.42 A less strict view of reciprocity is also supported on the grounds that investment treaties adopt loose standards for personal scope43 and that investment treaties aim to increase investment regardless of what relations investors have with their home state.44 I argue that the notion of reciprocity must be interpreted more rigorously in IIL by arbitral tribunals because of how little influence contracting states have over the enforcement and interpretation of the investment treaty after it enters into force. Arbitral tribunals have interpreted the personal scope standards, denial of benefits clauses, and the concept of corporate nationality in a manner that renders the protections of a treaty accessible to any investor who can manipulate its identity and considered this compatible with the notion of reciprocity on a formal reading of the relevant treaty terms.45 As I demonstrate in Chapter 5, arbitral tribunals have adopted interpretations generously allowing nationality shopping, even where the applicable legal standards were not fully permissive of such nationality shopping. The most problematic instances are when tribunals have interpreted any potential limits to nationality shopping, such as denial of benefits clauses or nationality requirements, loosely enough to allow domestic investors to benefit from protections of various investment treaties and the ICSID Convention. It is argued in this book that arbitral tribunals and scholars should place greater, and certainly not lesser, importance on the notion of reciprocity than they currently do in interpreting access requirements to investment treaty protections. B.  Consent and Bargain IIL treaties, just like any other international treaty, embody a bargain struck between the contracting states. States consent to abide by the terms of the

42 Baumgartner Treaty Shopping 46. 43 Ibid, 46–47 and 245–246. 44 SW Schill and HL Bray, ‘Good Faith Limitations’ 107; B Legum, ‘Defining Investment and Investor: Who Is Entitled to Claim?’ Making the most of international investment agreements: A common Agenda (A symposium co-organised by ICSID, OECD and UNCTAD) 4–5. 45 One award where the tribunal considers the link between nationality and reciprocity of protection explicitly is the decision in Standard Chartered Bank v United Republic of Tanzania (Award) (ICSID Case No ARB/10/12, 2 November 2012) paras 227–228; CEAC Holdings Limited v Montenegro, (Award) (ICSID Case No ARB/14/8, 26 July 2016) para 101 (one of the pillars of the respondent’s argument on corporate nationality rested on the concept of reciprocity, but the arbitral tribunal has not discussed this element in its analysis).

A Case against the Expansionist Approach to Personal Scope  11 bargain reflected in the investment treaty vis-à-vis its defined beneficiaries. Allowing investors to access IIL protections through artificially constructed nationalities not only undermine the reciprocity of protection but also subvert the substantive bargain agreed by the state parties to an investment treaty.46 The corporate restructuring by the Canadian Pension Plan Investment Board is a good example of how nationality shopping can undermine the substantive bargain incorporated in IIL instruments. In that instance, the Canadian investor re-routed its investment through Hong Kong to gain access to the protection of UK-Hong Kong BIT.47 If the investor is treated as a Canadian investor in the UK, any potential claims it may have against the UK would need to be filed under the standards incorporated into CETA’s investment chapter (until the UK’s departure from the EU and the conclusion of a new investment treaty between the UK and Canada). There are some crucial differences between the substantive treatment standards found in the Hong Kong BIT and CETA. The former contains no public policy limitations applicable to the evaluation of substantive standards, nor an affirmation of the right to regulate to achieve legitimate policy objectives. CETA negotiators have explicitly acknowledged in the treaty and its joint interpretative instrument certain public policy caveats applicable to the interpretation of substantive treaty protections, such as the right to regulate in the public interest and that such regulation alone interfering with the investor’s expectations or profits would not give rise to a breach of the substantive obligations under the treaty.48 Further, the Joint Interpretative Instrument stipulates that CETA does not prevent governments from nationalising public services.49 While such a nationalisation would give rise to a duty to pay compensation under both the Hong Kong BIT and the CETA,50 there are likely to be significantly different outcomes in terms of the amount of compensation. The investor can possibly obtain additional compensation under the Hong Kong BIT for breach of FET, while that seems less likely under the CETA. Consider the impact of this strategic move by the Canadian investor in the broader context of backlash against IIL and state efforts to reform their investment treaties. CETA’s investment chapter represents the contracting parties

46 See J Lee, ‘Resolving Concerns of Treaty Shopping in International Investment Arbitration’ (2015) 6(2) Journal of International Dispute Settlement 355, 360 (‘Treaty Shopping, however, prevents these efforts of substantive reform from succeeding in the short term, as multinational corporations can continue to avoid newer, more robust treaties by incorporating elsewhere.’) 47 Agreement between the Government of the Hong Kong Special Administrative Region of the People’s Republic of China and the Government of the United Kingdom of Great Britain and Northern Ireland for the Promotion and Protection of Investments, signed 30 July 1998, entered into force 12 April 1999. 48 Art 8.9(2) 49 S 4(c). 50 Additionally, the valuation of damages under the two treaties may be different, as CETA refers to compensating the fair market value of an investment, while the Hong Kong BIT refers to the real market value.

12  Introduction attempt to reform investment treaty standards (both substantively and procedurally) to alleviate its most heavily criticised features. But Canadian investors in the UK or UK investors in Canada can choose to bypass CETA and instead benefit from a treaty providing more unrestrained protection, rendering the CETA bargain irrelevant. An expansionist approach to corporate nationality and personal scope of protection not only undermines the existing bargain in investment treaties, but it negates any substantive reforms through which state parties have been seeking to address the backlash against and the legitimacy crisis of IIL.51 II.  STRUCTURE OF THE ANALYSIS

A.  Fundamental Elements of Corporate Nationality in IIL: Conditions of Access to Protection, Nationality and Corporate Personality This book offers detailed and distinctive analysis of corporate nationality under international investment law, in an era where international investment is dominated by multinational business enterprises operating in a globalised economy. To do this, the book first takes the reader back to the basics threading together the principles governing access to IIL protections, nationality and corporate personality to establish a solid foundation for the discussion of corporate nationality under IIL. Chapter 1 sets the scene for the discussion of corporate nationality as a personal scope requirement for investor access to IIL protections. It introduces the reader to the rules governing access to the procedural and substantive IIL protections under the ICSID Convention and investment treaties. It is within this framework of ‘access to IIL protection’ that ‘nationality’ of a corporation becomes a matter of contestation. The chapter outlines the key principles governing the questions of access to procedural and substantive protections under IIL. This covers both the rules on the jurisdiction of investment arbitration tribunals and the conditions for access to investment treaty protections. The aim of the chapter is not to offer a comprehensive analysis of access requirements, but rather to demonstrate the linkages between ‘nationality’ as the limit of personal scope of protection and other access requirements such as consent, material scope of protection and temporal scope of protection. The analysis in this chapter shows that the increasing use of investment treaties as sources of consent to ICSID arbitration and the categorisation of direct and indirect shareholding in a company operating in the host state as an ‘investment’ in its own right have transformed the assessment of corporate nationality under IIL.

51 P Muchlinski, ‘Corporations and the Uses of Law: International Investment Arbitration as a Multilateral Legal Order’ Oñati Socio-Legal Series, v 1, n 4 (2011), 21–22.

Structure of the Analysis  13 These developments have catapulted nationality shopping in IIL into a mainstream investor strategy endorsed by arbitral jurisprudence. Is the malleable notion of corporate nationality embraced in IIL arbitration and practice compatible with the principles governing ‘nationality’ as a legal bond used in international law to link individuals or certain objects such as ships, aircraft and corporations to a state? Chapter 2 begins this inquiry by looking at the criteria applied to determining nationality, as well as the legal implications and consequences of nationality for individuals, ships and aircraft. It also discusses the main issues of contention regarding their nationality under international law. A central debate around recognition, enforcement and effectiveness of nationality under international law has always been whether there is or should be a ‘genuine link’ requirement for granting, recognising or enforcing an individual’s or object’s nationality. The flip side of this debate is to what extent acquisition of nationality for strategic reasons, ie ‘nationality shopping’, is and should be permissible under international law. These questions on genuine link and nationality shopping have also been a frequent source of disagreement in the context of IIL. The reason why this chapter primarily focuses on individuals, ships and aircraft is that the rules governing their nationality are far more advanced than those applying to corporations. For corporations, nationality has not been commonly used as a connecting factor in national laws, despite certain areas of international law, such as diplomatic protection and IIL, being applicable to corporations based on their nationality. To begin tackling the uncertainties surrounding corporate investors’ nationality, Chapter 2 discusses the application and interpretation of this concept in analogous contexts. Despite the differences between how international law has dealt with nationality for individuals, ships and aircraft on one hand and corporations, on the other hand, the bond of nationality fulfils the same function for all these objects. Nationality is attributed to these persons and objects in international law as a legal bond linking them to a state so as to legally identify their place of belonging. Many rights and duties stem from this attachment to a state. Understanding the meaning, purpose, and use of nationality for individuals, ships and aircraft is essential for deconstructing corporate nationality under IIL. This also helps delineate why nationality is an appropriate link for corporate investors and that nationality is deliberately adopted as a connecting factor for corporations when a sufficiently strong link is sought between a state and a corporation. While it is important to recognise and factor in the shared function of nationality for individuals, ships, aircrafts, and corporations, it is equally important to recognise the features of corporations that distinguish them from other actors and objects. Corporations are fictional persons with unique features, such as separate legal personality, limited liability, ability to possess shares in other corporations, and perpetual existence. These unique features bring an additional layer of complexity for international courts and tribunals when ascertaining the nationality of a corporation, particularly in a trans-national

14  Introduction setting. Chapter 3 examines the features of corporate personality and the laws governing the corporation that play a crucial role in analysing corporate nationality. Besides the unique features of corporations, for a complete nationality discussion, it is essential to understand the criteria commonly used to legally link corporations to a state under domestic laws and private international law for purposes of identifying the law governing the corporation (lex societatis). Lex societatis fulfils a role analogous to what nationality does for natural persons, as it governs the existence, capacity, internal affairs and demise of the corporation.52 The same criteria for determining lex societatis are often adopted in investment treaties and used in arbitral jurisprudence to determine nationality. It is important to understand the features of the key lex societatis criteria as these largely overlap with the criteria used to determine corporate nationality. In the final part of this chapter, I contextualise my analysis of corporate personhood within a transnational operating environment. I discuss the key features of multinational enterprises and uses of shell corporations in the global economy within which corporate investors benefit from IIL protection. B.  Understanding Corporate Nationality Nationality has been most prominently used as a legal bond for corporations in the context of diplomatic protection, war-time sanctions and international investment law. In this part of the book, I examine the standards adopted by states, courts, and tribunals for determining corporate nationality and identify the patterns emerging from jurisprudence and state practice. Chapter 4 primarily focuses on the attribution of nationality to corporations in the context of diplomatic protection. This begins with an analysis of the approach adopted by the International Court of Justice in cases involving diplomatic protection of companies and the relevant provisions of the ILC Draft Articles on Diplomatic Protection.53 This is followed by a snapshot of state practice on the nationality of companies in their diplomatic protection policies and in their bilateral or multilateral post-conflict settlement agreements. Finally, this section analyses the uses of nationality as a determinant for the applications of domestic war time sanctions. Throughout, the analysis highlights how the core features of the corporation and the lex societatis rules impact assessment of nationality. Despite the lack of established legal standards, the analysis in Chapter 4 demonstrates that sources and practice of international law and domestic laws

52 It is also important to bear in mind that, different aspects of a company’s affairs could be governed by different laws, such as the contracts it may enter into or the taxation of its income. See S Rammeloo, Corporations in Private International Law: A European Perspective (Oxford, Oxford University Press, 2001) 131, fn 163. 53 ILC Draft Articles on Diplomatic Protection Sixty-first Session, 2006 Supplement No 10 (A/61/10).

Structure of the Analysis  15 typically require a sufficiently close link when determining whether a company is linked to a state with the bond of nationality. Ascertaining a corporation’s nationality is made more challenging by the stretch of business enterprises across borders in the form of MNEs as well as with the increasing use of shell corporations based in regulatory havens. An important consideration missing from the sources analysed in Chapter 4 on corporate nationality is the scarcity of references to the transnational context in which the corporations in question operate. The sources analysed concentrate on the individual entities within a corporate group without paying due attention to its existence as part of a multi-national collective whose certain constituent parts may be vehicles of convenience. The approach to corporate nationality that I am proposing in this book rectifies this shortcoming by factoring into the nationality analysis the different functions exercised by the various entities within a corporate group operating across borders. Chapter 5 maps and critically analyses the IIA jurisprudence and investment treaty standards on corporate nationality as a personal scope requirement. This chapter distinguishes the concept of corporate nationality under ICSID Convention claims54 and under investment treaty claims arbitrated through non-ICSID mechanisms. In the latter group of claims, the question is usually whether the claimant is an investor (or a company/enterprise) of a Contracting State, and not whether it is a ‘national’ of a Contracting State. Although this distinction may appear trivial, the lack of its appreciation by ICSID tribunals represent a fundamental flaw in the reasoning of their corporate nationality findings. While the Convention provides for a nationality requirement, it does not provide the method through which corporate investors’ nationality is to be determined.55 States and investors can agree on the criteria for determining corporate nationality in their instruments of consent to ICSID arbitration, such as investment contracts and treaties. The ultimate authority on the question of corporate nationality, however, rests with arbitral tribunals interpreting the instrument of consent. To develop a complete taxonomy of the salient issues emerging from the arbitral jurisprudence on corporate nationality, Chapters 5 and 6 rely on the content analysis of a selection of 158 publicly available arbitral awards written in or translated to English until November 2018. The review of ICSID awards reveals that the current formulation of IIL standards on corporate nationality, and the interpretation of these standards by arbitral tribunals are conducive for investors to manufacture convenient nationalities by utilising existing corporate structures or create new ones to benefit from investment treaty protections offered by home states on extremely tenuous

54 This covers ICSID claims brought under an investment contract, national investment law, as well as an investment treaty as the source of consent. 55 CH Schreuer et al, The ICSID Convention 264 (The drafters of the Convention chose to leave ‘nationality’ undefined thinking that doing otherwise would unnecessarily limit the meaning of the term and cause jurisdictional controversies.)

16  Introduction links. In some awards, no mention of nationality is made, even though it is an objective jurisdictional requirement of the ICSID Convention which must be established proprio motu by the tribunal.56 In others, no reasoning is provided, or the reasons given are superficial at best. These are typically observed in claims where the respondent state has not challenged the investor’s nationality. More detailed reasoning is most commonly present in awards for claims that involve an objection to the jurisdiction or admissibility of the claim on personal jurisdiction or abuse of process grounds. Another pattern emerging from these awards is that arbitral tribunals tend to provide more detailed reasoning to their decisions on nationality if the arbitration is based on an investment contract than they do when the source of consent is found in an investment treaty. The key takeaway from this analysis is that, especially with the proliferation of investment treaties, arbitral tribunals have developed a generally dismissive approach to ‘nationality’ as a pre-condition for corporate investors to access IIL protections. This chapter unveils that ICSID jurisprudence on corporate nationality can be characterised as outcome-led: tribunals are consistent in finding satisfactory nationality, but the paths they have taken to reach that outcome have not been consistent. The reasoning supporting the outcomes are at best inconsistent, or unclear or even absent.57 This is particularly common in cases involving multi-tiered investment structures with several layers of upstream shareholders. Tribunals have followed inconsistent paths when determining which entity within a multi-layered corporate investment structure is the ‘investor’ but consistently finding for satisfactory nationality. Inconsistencies are also common in the way tribunals factor the general principles of international law and the international law on treaty interpretation into their decisions on corporate nationality. The review of awards and the patterns identified reveal how, at times, it appears as if tribunals referred to legal principles to ex post facto ‘rationalise’ a decision which they had arrived through another path.58 It gives the impression to the

56 This obligation of the tribunals was confirmed by the Annulment Committee in Hussein Nuaman Soufraki v The United Arab Emirates (Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki) (ICSID Case No ARB/02/7, 5 June 2007) para 60 (‘… international tribunals have the right – and indeed the obligation – to determine the existence of treaty-required nationality as a jurisdictional requirement by reference to the laws of the State whose nationality is claimed.’ [Emphasis added].) 57 F Ortino ‘Legal Reasoning of International Investment Tribunals: A Typology of Egregious Failures’ (2012) 3(1) Journal of International Dispute Settlement 31, 38 (Identifies three types of failures in reasoning by investment arbitration tribunals applying substantial standards found in investment treaties. These are ‘misuse of precedent’, ‘lack of internal consistency’ and ‘minimalism’ which correspond to reasoning that is ‘manifestly ‘contradictory’, ‘inconsistent’ or ‘practically non-existent’.’) 58 K Zweigert and H Kötz Introduction to Comparative Law 3rd edn, (Oxford, Oxford University Press, 1998) 248 (Explaining that according to the ‘legal realism’ ‘… the traditional doctrines of law were relatively insignificant for the actual decision on the merits in many cases and simply offered a means whereby the judge could ex post facto ‘rationalize’ a decision which he had arrived by another path.’)

Structure of the Analysis  17 reader that the reasoning was picked to fit a pre-determined outcome, rather than the outcome being a consequence of the reasoning applied. Chapter 5 also explores the investment treaty standards on personal scope, their interpretation by non-ICSID IIA tribunals in key awards and the evolution of treaty standards in response to the expansive interpretations of IIA tribunals. The analysis of corporate nationality in IIL literature often fails to duly account for the distinction between ICSID’s personal jurisdiction and investment treaties’ personal access requirements. While the ICSID Convention uses ‘nationality’ as the link connecting a corporate investor to a state, investment treaty practice is not uniform on this. Some investment treaties use the link of nationality for corporate investors, but many do not. Instead, most treaties define personal scope with reference to terms such as ‘investors’, ‘enterprises’ or ‘companies’ of a contracting party, which is in turn defined by reference to criteria such as place of incorporation, seat of the company, place of substantial economic activity, and the nationality of controllers or a combination thereof. It is important to acknowledge that many investment treaties do not refer to ‘nationality’ for corporations. Surprisingly, it is common to see arbitral awards59 or leading scholars60 referring to corporate nationality in the context of a particular treaty that does not actually use the ‘nationality’ in relation to corporate investors. Such a confusion is particularly problematic when an investment treaty definition of ‘investor’ is relied on as the disputing parties agreed definition of ‘nationality’ under the ICSID Convention. Chapter 5 traces the evolution of investment treaty standards on personal scope in relation to corporate investors and notes that the most recent investment treaty practice demonstrates that States are moving towards tightening the personal scope of their investment treaties as far as these apply to corporate investors.

59 Tokios Tokelés v Ukraine para 42 (The tribunal finds that ‘the definition of corporate nationality in the Ukraine-Lithuania BIT, on its face and as applied to the present case, is consistent with the Convention’. Ukraine-Lithuania BIT defines corporate investors of a party, but does not refer to nationality for corporations. The tribunal goes on to state that the definition of nationality found in the BIT acts as the parties’ definition of corporate nationality under the ICSID Convention, despite the lack of such a definition in the BIT); EDF (Services) Limited v Romania, (Award) (ICSID Case No ARB/05/13 8 October 2009) (This is another example where the tribunal refers to the nationality of the corporate investor under the BIT, even though the applicable UK-Romania BIT contains no reference to nationality for companies. See also Gold Reserve v Venezuela, para 252 (The tribunal states that the Canadian nationality of the investor company will be determined by applying the incorporation test pursuant to Art 1(g) of the Canada Venezuela BIT, even though the BIT does not refer to nationality of legal entities); MNSS B.V. and Recupero Credito Acciaio N.V v Montenegro (Award) ICSID Case No ARB(AF)/12/8, 4 May 2016 [178], [180] (Refers several times to the nationality of the corporate investors, even though the Netherlands-Yugoslavia BIT does not attribute nationality to corporate investors). 60 R Dolzer and C Schreuer, Principles of International Investment Law, 48 (eg refers to the 2012 US Model BIT’s definition of ‘enterprise of a party’ when discussing how corporate nationality is determined under IIL, despite that BIT not using nationality as the relevant link for corporate investors.) AC Sinclair, ‘The Substance of Nationality Requirements in Investment Treaty Arbitration’ (2005) 20(2) ICSID Review – Foreign Investment Law Journal 357; SW Schill, ‘The Multilateralization of International Investment Law’ 222–223.

18  Introduction C.  Exposing the Fault Lines and the Way Forward The review of IIA jurisprudence on corporate nationality reveals serious methodological and interpretative flaws that are problematic in their own right, and their adverse consequences are amplified further by how these flaws create an environment permissive and encouraging of investors manipulating their nationality. In the first part of Chapter 6, I discuss and critique the interpretative and methodological choices of arbitral tribunals which have shaped the predominant IIL approach to corporate nationality and personal jurisdiction. I identify two fundamental methodological flaws in arbitral interpretations of corporate nationality for purposes of jurisdiction under the ICSID Convention. The first one arises from the increasingly blurring lines, in arbitral awards, between the ICSID Convention’s jurisdictional requirements and investment treaty clauses on personal scope. ICSID tribunals regularly apply investment treaty definitions of ‘investor’ to determine the nationality of the corporate claimant under the ICSID Convention. In doing so, tribunals treat the investment treaty definition of ‘investor’ as the parties’ agreement on ‘nationality’ under the ICSID Convention. I argue here that ‘investor’ definitions of investment treaties cannot be treated as the parties’ agreement on nationality under the ICSID Convention and that the latter’s nationality requirement should be evaluated independently from investment treaty’s investor definition. The second methodological flaw, present both in ICSID and non-ICSID procedures, concerns the framing of a legal issue that primarily concerns personal scope of protection as a question of material and/or temporal scope. When an investment treaty is invoked as a source of consent, material and temporal limits of that treaty also influence who qualifies as a protected investor, alongside the personal scope requirements. A definition of investment that includes direct or indirect shareholding can bring the entire upstream ownership of a host state investment within the personal scope of a treaty. This gives the choice to an investor to select which entity within that structure would be standing as claimant in an investment treaty claim. Temporal scope becomes relevant when assessing whether an investor’s acquisition of a new nationality may or may not be timed right to bring it under the coverage of a treaty. I argue that in many of the cases falling in these categories, the issues that were framed as a material or temporal scope issue would have been more effectively dealt with as a personal scope issue. In the second part of Chapter 6, I critique the erosion of the concept of ‘nationality’ for corporate investors under IIL. The first cause of this erosion is the widely accepted view, implicitly or explicitly, in arbitral awards and scholarly work that ‘nationality’ is becoming increasingly irrelevant as the link connecting an investor to its home state under IIL. Besides minimising ‘nationality’ as a requirement of jurisdiction, this also operates to justify a very broad and formalistic view of nationality which tolerates the most tenuous links as the basis of corporate nationality. I challenge this view and argue that nationality remains relevant to determining personal scope of protection under IIL, and

Structure of the Analysis  19 when d ­ etermined on the basis of a genuine link, nationality is an appropriate connecting factor for corporations in the IIL context. The second cause of erosion is the differential treatment of corporations and individuals in arbitral awards when it comes to the rigour of analysis and the expected strength and genuineness of connection to their state of nationality. Typically, arbitral tribunals engage in a more rigorous analysis to establish the investor’s nationality and ensure that the required nationality in fact exists, whereas they typically settle for tenuous links between corporate investors and their home state. In the final part of Chapter 6, I discuss the ramifications of the problems presented in the earlier parts of the chapter. Firstly, the current approach of arbitral tribunals to corporate nationality enables investors to use multiple dispute resolution channels in parallel to pursue a host state for the same loss. This may involve parallel diplomatic interventions by the actual home state of an investor alongside an investment treaty claim based on a different nationality invoked via nationality shopping. It may also involve multiple arbitration claims for the same loss by different entities within the upstream ownership structure under different bases of consent. Finally, I discuss the damage inflicted on the sociological and normative legitimacy of the international investment arbitration system by the jurisdictional excesses resulting from the interpretative and methodological flaws in determining corporate investors’ nationality. The concluding Chapter 7 evaluates the viability of the two key proposals for tackling nationality shopping and drawing reasonable boundaries to the personal scope of IIL instruments: the abuse of rights doctrine and denial of benefits clauses. The abuse of rights doctrine has been invoked by host states and advocated by scholars61 as an appropriate legal tool to tackle access to investment treaty protection through the manipulation of a corporate investor’s identity and nationality. I argue that the abuse of rights doctrine is not fit for purpose in settling reasonable limits to personal scope of IIL protections. The abuse of rights doctrine, by its very nature, is an extraordinary means of stripping a right holder from its rights and has been approached with extreme caution by arbitral tribunals. Understandably, it sets a very high threshold for treating investor behaviour abusive. It can only be effective in cases where investor conduct is reprehensible. But most cases of treaty or nationality shopping fall outside that limited range. A more promising tool is the denial of benefits (‘DoB’) clause. DoB clauses investment treaties allow host states to fully or partially exclude, from the protection of the treaty, corporate claimants who only have an artificial link to the home state.62 Many states do not include DoB clauses in their ­investment

61 See for a detailed analysis J Baumgartner Treaty Shopping. 62 See, eg, Agreement between the Government of the United Arab Emirates and the Government of the Republic of Azerbaijan on the Promotion and Reciprocal Protection of Investments, signed 1 November 2006, entered into force 24 August 2007, Art 15; Domincan Republic, Central America and United States Free Trade Agreement (CAFTA-DR) signed 5 August 2004, entered into force 1 January 2009, Art 10.12.

20  Introduction t­reaties, but some key treaty partners, such as the US, Canada, Japan, and Australia, as well as in the Energy Charter Treaty and the ASEAN Investment Agreement, do include them in their treaties.63 Denial of benefits clauses hold promise, but arbitral jurisprudence on their application is incoherent and undermines the successful invocation of these clauses to limit personal scope. Uncertainties remain as to when, how, and with what effect states can invoke these clauses. Some states are moving towards more prescriptive DoB clauses in their investment treaties. This may overcome many of the uncertainties arising from the arbitral interpretation of DoB clauses. Chapter 7 also introduces proposals to move away from the incorporation test to define corporate nationality and personal scope of IIL instruments. I propose the adoption of the ‘real seat’ standard to determine corporate nationality both for purposes of ‘nationality’ under the ICSID Convention and for purposes of defining the personal scope of an investment treaty. Here, I discuss the reasons for the adoption of the real seat standard over incorporation and control standards. I then demonstrate how nationality of the corporate investor would have been decided had the tribunals applied the real seat standard in a select group of arbitral awards representative of different investment structure and ownership scenarios. The real seat of the company is where it has its central administration.64 It is where the will of the company is created. It is more than a mere presence on paper, and it is unlikely to be established in more than one jurisdiction at a time. The real seat of a company is a place where important corporate activities concentrate. It reflects a sufficiently genuine link between a corporation and a state to form the basis of the nationality bond. Determining corporate investors’ nationality with reference to their real seat is in harmony with the understanding of corporate nationality under the principles of international law on diplomatic protection. Adopting real seat can achieve a balance between the standard of genuine link generally accepted for attributing nationality and the fundamental principles of corporate personality. Corporate nationality decided this way provides a balanced solution for investors and host states. It respects the separation between the shareholders and the company. Applying this standard to multinational corporate groups, I factor in that there may be more than one real seat relevant to the nationality assessment within such a group, particularly when the group business is organised around regional groupings with several regional headquarters overseeing the management of the business within their region. The proposed approach avoids the complex task of identifying who exercises control within a complex MNE, whilst allowing economic realities prevail over formal appearances. 63 The recent India Model treaty also includes denial of benefits. UK, France, Germany, and the Netherlands do not typically include denial of benefits clauses in their treaties. 64 Where the place of incorporation and the central administration is in different jurisdictions the latter will determine the nationality of the company. See ch 3.

Structure of the Analysis  21 It helps preserve reciprocity by excluding opportunistic uses of corporate form to nationality shop and minimises the possibility of multiple parallel claims concerning the same dispute to be filed. Deciding corporate investors’ nationality based on their real seat also eliminates, to a large extent, the need to consider whether investors are acting abusively, with ill intentions or fraudulently when they structure their investments in one way or the other.65 I conclude that the real seat standard provides a strong and stable factual link to a state as basis of nationality. States wishing to draw clear limits to the personal scope of their investment treaties and preserving the reciprocity of the IIL regime can most effectively do this by adopting the real seat standard in their investment treaties and by including DoB clauses which are sufficiently detailed in terms of the procedure for their invocation and in terms of the substantive requirements for denying benefits. From the early days of modern IIL, the notion of ‘nationality’ used in IIL has been distinguished from the use of the notion in the area of diplomatic protection, and the utility of the concept in the former field has been considered less important. In the words of the architect of the ICSID Convention Aron Broches: The significance of nationality in traditional instances of espousal of a national’s claim should be distinguished from its relatively unimportant role within the framework of the Convention. In the former case, the issue of nationality is of substantive importance as being crucial in determining the right of the State to bring an international claim, while under the Convention it is only relevant as regards the capacity of the investor to bring a dispute before the Centre.66

Broches’ 1964 statement on the ‘relatively unimportant’ role of nationality in the context of international investment disputes resonates with the dominant approach adopted on the subject in IIA jurisprudence. In this book, I push back against this view of nationality within IIL. Just like in the field of diplomatic protection, in modern IIL, nationality is of substantive importance for determining an investor’s rights vis-à-vis host states. Application of the concept to corporate investors operating on a global scale is certainly challenging. Yet, this book demonstrates that amid transformation of IIL through the proliferation of investment treaties since the 1990s, the methods used for determining corporate nationality has profound impacts on the reach of substantive protection offered by investment treaties as well as on the trust and legitimacy questions IIL is facing. This book makes an important contribution to how the question of corporate nationality can be addressed more fairly, efficiently, and consistently within IIL. 65 See A Yilmaz, Case Note on ICSID Case No ARB/10/5: Tidewater v Venezuela, Decision on Jurisdiction, (2013) 20 Australian International Law Journal 201–202. 66 A Broches, Chairman’s Report on the Preliminary Draft of the Convention, July 9, 1964, doc Z11, reprinted in II Documents Concerning the Origin and Formulation of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID 1968) 579–582.

22

Part I

Fundamental Elements of Corporate Nationality in IIL: Conditions of Access to Protection, Nationality and Corporate Personality

24

1 Access to International Investment Protection: ICSID, Investment Treaties and Institutional Arbitration Rules

‘N

ationality’ of an investor is one of the key determinants for access to the procedural and substantive protections offered to foreign investors under international investment law (IIL). The uncertainty over the international and domestic legal standards applicable to the determination of corporate nationality has given rise to frequent disagreements between the disputing parties and inconsistent arbitral decisions at jurisdictional and admissibility phases.1 The link or links adopted by states or arbitral tribunals for deciding corporate investors’ nationality can limit or expand the number of investors having access to IIL protections in significant proportions. Determining corporate nationality by reference to more tenuous links, such as place of incorporation, can artificially expand the number of beneficiary corporate investors covered by IIL protections, while the use of stronger links, such as shareholding or control, can have a limiting effect on the number of beneficiaries. In a foreign investment dispute where nationality of the investor is contested, the host state party to the dispute will typically argue in favour of taking a restrictive approach while the investor will argue in favour of an expansive approach. Investors or tribunals that adopt an expansive approach often justify this, inter alia, with references to the aims of the relevant investment treaty to facilitate and increase foreign investment into the host state.2 From that perspective, since the ultimate goal of the treaty is to increase flows of investment into the host state, it should be of no importance for the protection of the corporate investor that it has tenuous links with its alleged home state. Host states or tribunals that adopt a restrictive approach usually justify this approach on the grounds of reciprocity.3 From their perspective, the personal scope ­requirements of IIL 1 These are analysed in detail in ch 5. 2 See, ie, Guaracachi America, Inc. and Rurelec PLC v The Plurinational State of Bolivia, (Award) (UNCITRAL, PCA Case No 2011-17, 31 January 2014) para 353. 3 CEAC Holdings Limited v Montenegro, (Award) (ICSID Case No ARB/14/8, 26 July 2016) para 101; Guaracachi paras 182–89; Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v Democratic Republic of the Congo (Award) (ICSID Case No ARB/98/7, 1 September 2000). Excerpts of the award published on 17 ICSID Review – [2002] Foreign Investment Law Journal 382 paras 6–10.

26  Access to International Investment Protection instruments have a particularly important function in defining and preserving the boundaries of reciprocity of IIL protection, since benefits of an investment treaty are reserved for investors of the treaty partner.4 Nationality requirements also have an important function in defining and preserving the jurisdictional limits of arbitral tribunals constituted under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).5 The aim of this chapter is to set the scene for the discussion of corporate nationality as a determinant of personal scope of protection under IIL in the following parts of this book. It will introduce the reader to the rules governing access to the procedural and substantive IIL protections. It is within this framework of ‘access to IIL protection’ that ‘nationality’ of a corporation becomes a matter of contestation. The chapter outlines the key principles governing the questions of access to procedural and substantive protections under IIL. This covers both the rules on the jurisdiction of investment arbitration tribunals and the conditions for access to investment treaty protections. The aim of the chapter is to demonstrate the linkages between ‘nationality’ as the limit of personal scope of protection and other access requirements such as consent, material scope of protection and temporal scope of protection. It demonstrates that the increasing use of investment treaties as sources of consent to ICSID arbitration and the categorisation of direct and indirect shareholding as an ‘investment’ in its own right have transformed the concept of ‘nationality’ as it applies to corporate investors. The chapter begins by situating international investment arbitration as a unique enforcement mechanism with generous access provisions and a strong compliance framework offered to foreign investors to enforce substantive IIL standards vis-à-vis host states. This is followed by an overview of the key jurisdictional requirements for access to the dispute settlement mechanism established by the ICSID Convention in its Article 25. These include consent to arbitrate, and a legal dispute between a national of another Contracting State and the host Contracting State arising out of the former’s investment in the latter’s territory. Although the requirements in Article 25 are objective and cannot be waived or amended by the parties, the text of the article was formulated in broad terms leaving a wide margin of discretion to the parties and arbitral tribunals to interpret these terms. These broadly formulated requirements have been unpacked in arbitral jurisprudence, investment treaty texts, academic texts, and in investment contracts. As I begin to demonstrate in this chapter, amid the broad formulation of ICSID’s jurisdictional requirements, the meaning of ‘nationality’ for corporate investors is entwined with how ‘consent’ and ‘investment’ are defined. 4 See Introduction. 5 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature on March 18, 1965, 575 UNTS 159 (entered into force on 14 October 1966).

Access to International Investment Arbitration  27 This chapter then moves to outline the standards on access to investment arbitration procedures under arbitral rules outside of the ICSID framework, such as the United Nations Commission on International Trade Law ­(UNCITRAL) Arbitration Rules. Despite the popularity of ICSID arbitration, a sizeable portion of arbitrations take place under other arbitral frameworks. Unfortunately, it is not possible to know how many, as not all non-ICSID cases are publicly known. The most crucial aspect of non-ICSID arbitrations for the purposes of this book is that, unlike the ICSID Convention, these do not require the investor to possess a particular ‘nationality’ as a condition of jurisdiction. In such arbitrations, nationality may only be of relevance as a matter of consent to arbitration, where the dispute concerns an investment treaty claim and the applicable treaty adopts nationality as a personal access requirement. The final part of this chapter covers the access requirements found in investment treaties. As there are several thousand treaties on investment protection, the chapter will not be able to provide a full picture, but it will focus on the most commonly used standards. The aim of this section is to provide an overview of investment treaty access requirements which have a bearing on the analysis of corporate nationality under IIL. I.  ACCESS TO INTERNATIONAL INVESTMENT ARBITRATION

The procedural aspect of the IIL framework is a crucial and distinguishing feature of the protection afforded to investors under this regime. Investors having direct standing vis-à-vis host states to enforce substantive IIL standards via international arbitration has been cited among the main reasons for rapid expansion and success of this area of law.6 The use of international arbitration in settling investment disputes is at least as crucial for investor protection as the substantive aspects of the protection regime. Direct international recourse empowers investors to rigorously enforce substantive IIL standards largely without interventions by domestic judiciaries. Having a strong and effective enforcement mechanism greatly enhances the practical benefits of the substantive investor rights guaranteed under international law.7 Compared to the other areas of international law extending direct or indirect substantive rights to private parties, such as under international or regional human rights frameworks, or under the principles of diplomatic protection, IIL’s strong enforcement mechanism enables investors to receive more effective

6 BA Simmons, ‘Bargaining over BITS, Arbitrating Awards: The Regime for Protection and Promotion of International Investment’ (2014) 66 World Politics 12, 17. 7 M Waibel, ‘Investment Arbitration: Jurisdiction and Admissibility’ (2014) University of Cambridge Faculty of Law Research Paper No 9/2014, 5 (‘access to impartial fora is seen as essential to the realisation of the substantive legal obligations that States have undertaken’).

28  Access to International Investment Protection legal protection.8 International investment arbitration (IIA) provides protected investors more favourable terms of access to dispute settlement and a stronger legal framework of compliance compared to the other areas of international law providing international recourse to a court or a tribunal to enforce private parties’ rights or interests. First, unlike IHRL mechanisms or diplomatic protection, access to IIA is not typically conditioned to the exhaustion of local remedies.9 Second, IIA awards benefit from two widely adopted international treaties dealing with enforcement of arbitral awards via national courts, the New York Convention10 and the ICSID Convention. The enforcement features of IIA distinguish it from other international dispute settlement mechanisms which rely heavily on political will and pressure.11 These features make IIA a uniquely effective dispute settlement mechanism for its beneficiaries unparalleled by any other system of international dispute settlement protecting private parties from state violations. In this section, I will provide an overview of the requirements for access to this unique international dispute settlement framework, focusing on both arbitration under the ICSID Convention and under a selection of non-ICSID institutional rules. This will include a discussion of how each jurisdictional requirement has received differing interpretations from arbitral tribunals and how the jurisdictional rules interact with the investment treaty standards on personal and material scope. I will highlight the extent to which the various interpretations of jurisdictional standards impact accessibility of IIA, bearing in mind the overarching considerations of reciprocity of protection and the goal of investment promotion. In this chapter and in the later chapters of this book, I will navigate through the questions of (1) to what extent should investment arbitration be viewed as a recourse available to only its intended beneficiaries interpreted in the strict sense?; and (2) to what extent it should be viewed as a recourse intended to benefit as many investors as possible so long as they can be brought within the coverage of an applicable treaty based on a generously expansive interpretation of the access requirements? As I navigate between these two questions in this book, my arguments fall within the first approach. I argue that a strict approach to determining the personal scope of IIL protections is a

8 There are other important reasons that contribute to this disparity, such as un/availability of funds to access justice in comparing IHRL and IIL, and the centrality of the role played by the home state in comparing diplomatic protection to IIL where the investor benefits from direct recourse to arbitration. 9 Under Art 26 of the ICSID Convention ‘A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.’ [emphasis added]. 10 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) entered into force on 7 June 1959. 11 See on the challenges to enforcing international human rights protections S Joseph, Blame it on the WTO? A Human Rights Critique (Oxford, Oxford University Press 2011) 15–17.

Access to International Investment Arbitration  29 necessity for maintaining reciprocity of IIL protections, particularly owing to the extent of concessions given by states in signing up to investment arbitration compared to the concessions given in any other area of international law and the public law implications IIA awards.12 Finally, before starting to unpack the jurisdictional rules for access to investment arbitration, it is important to note that questions of access to IIA may concern issues of jurisdiction or admissibility. In arbitral practice, tribunals and parties sometimes use these terms interchangeably.13 Though issues of jurisdiction and admissibility may overlap, they are not interchangeable.14 They also produce different consequences.15 A claim that is found inadmissible may later be found admissible before the same tribunal in cases where the reason of inadmissibility is curable. A typical example of this is if inadmissibility of an investment treaty claim is due to waiting periods stipulated in the treaty not having expired.16 Even though such a claim is likely to be dismissed as inadmissible, the same claim can be filed again after the waiting period lapses. The distinction between the two is explained clearly in Lim, Ho, and Paparinskis, who state that one must distinguish whether the legal nature of the objection is ‘directed against the tribunal (and is hence jurisdictional) or is it directed at the claim (and is hence one of admissibility)’.17 The question of nationality discussed in this book, in most investment arbitration procedures, will be an issue of jurisdiction. This will be so in ICSID arbitration because it is explicitly stipulated as a jurisdictional requirement. In non-ICSID arbitration based on investment treaty consent, it may be an issue of jurisdiction if the applicability of the treaty as the source of consent to arbitration depends inter alia on the nationality of the claimant. Sometimes, questions linked to the investors’ nationality will be of admissibility, if the tribunal is dealing with an abuse of right objection due to allegations of nationality or treaty shopping by the claimant. There may also be a question of admissibility concerning nationality, if the host state invokes a denial of benefits clause due to the investor’s lack of genuine connections to its state of nationality. These questions relating to nationality as a condition of access to IIA will be analysed in detail in Chapters 6 and 7.

12 See Introduction. 13 See, ie, Ioan Micula and et al v Romania, (Decision on Jurisdiction and Admissibility) (ICSID Case No ARB/05/20 24 September 2008). 14 CL Lim, J Ho, and M Paparinskis, International Investment Law and Arbitration: ­Commentary, Awards and other Materials (Cambridge, Cambridge University Press, 2018), 118. 15 J Paulsson, ‘Jurisdiction and Admissibility’, in Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum in honour of Robert Briner (Paris, ICC Publishing 2005) 601; E De Brabandere, ‘Good Faith, Abuse of Process and the Initiation of Investment Treaty Claims’ (2012) Journal of International Dispute Settlement 3(3) 609–636, 617. 16 J Paulsson, ‘Jurisdiction and Admissibility’ 616. 17 CL Lim, J Ho, M Paparinskis, International Investment Law and Arbitration, 118.

30  Access to International Investment Protection A.  Jurisdiction under the ICSID Convention The IIA mechanism established by the ICSID Convention is one of the most frequently used arbitration frameworks by international investors.18 The ­highest number of publicly known arbitral awards are issued under the ICSID Convention, providing academics and practitioners the richest publicly available jurisprudence to analyse the workings of the system of investment arbitration.19 Rules governing the jurisdiction of arbitration tribunals constituted under the ICSID Convention are found in Article 25 governing the jurisdiction of the Centre, the key parts of which read as follows: Article 25 (1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally. (2) “National of another Contracting State” means: (a) any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State party to the dispute; and (b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and 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.’

According to Rule 41(1) of the ICSID Rules of Procedure for Arbitration Proceedings, as a general principle, the objection to the jurisdiction of the tribunal shall be made as early as possible; however, in any case no later than the due date of the counter-memorial. If the facts on which the jurisdictional objection is based are not known to the objecting party by that time, the objection shall be filed as early as possible after becoming aware of such information. 18 According to the latest ICSID Caseload – Statistics Issue 2019-2, up to 30 June 2019, 652 cases were registered under the ICSID Convention since the inception of the Centre in 1965. 19 See for full statistics of IIA claims filed by different arbitral institutions, D Behn, M Langford, OK Fauchald, R Lie, M Usynin, T St John, L Letourneau-Tremblay, T Berge and T Loven Kirkebø, PITAD Investment Law and Arbitration Database: Version 1.0, Pluricourts Centre of Excellence, University of Oslo (31 January 2019).

Access to International Investment Arbitration  31 Rule 41(2) endorses the tribunals’ competence to rule on its jurisdiction at any stage of the proceedings at its own initiative. Furthermore, at the registration stage, the ICSID Secretary-General, under Article 36(3) of the Convention, has the authority to refuse to register a dispute if they find that the dispute is manifestly outside the jurisdiction of the Centre. Lastly, the jurisdictional issues may constitute grounds for annulment under Articles 52(1)(b) and (e) of the Convention, if the annulment committee finds that the tribunal had manifestly exceeded its powers or that the decision on jurisdiction does not state the reasons on which it is based. The Convention spells out the applicable law to the substance of the dispute in Article 42, but it does not expressly provide for the law or laws that are applicable to the jurisdiction of the tribunal.20 However, it can be inferred from Articles 25 and 41 that in deciding whether a tribunal has jurisdiction, the provisions of the Convention, in particular Article 25, will be central.21 In interpreting the substance of ICSID’s jurisdictional requirements, tribunals resort to the instrument of consent, and where necessary, to principles of public international law, general principles of law and domestic laws of the host or the home state.22 Article 25 of the Convention refers to the ‘consent’ of the disputing parties, the existence of an ‘investment’ in a host Contracting State and the investor having a particular ‘nationality’ as jurisdictional requirements. However, it does not define these terms within the context of the Convention. According to the Convention’s architect Aron Broches there was no need to provide precise definitions for the concepts contained in Article 25, and it was left to the discretion of the parties to define these concepts for their particular situation in a manner that will not render futile the objective criteria of Article 25.23 Although there were various proposals suggesting precise definitions, no consensus was reached by the delegates.24 Tribunals are guided by the relevant principles of international law,25 and general principles of law when interpreting the ­jurisdictional

20 See Azurix Corp v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/01/12, 8 December 2003) para 48; CMS Gas Transmission Company v The Republic of Argentina, (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/01/8, 17 July 2003) paras 88–89. 21 Azurix paras 49–50. 22 See Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v Plurinational State of Bolivia, (Decision on Jurisdiction) (ICSID Case No ARB/06/2, 27 September 2012) para 109. 23 A Parra, The History of ICSID, 2nd edn (Oxford, Oxford University Press, 2017) 72–74; CH Schreuer et al, The ICSID Convention: A Commentary 2nd edn (Cambridge, Cambridge University Press 2009) 82–83. 24 A Parra, 63–64, 71–75; C Schreuer et al, 83; F Yala, ‘The Notion of “Investment” in ICSID Case Law: A Drifting Jurisdictional Requirement? Some “Un-Conventional” Thoughts on Salini, SGS and Mihaly’ (2005) 22(2) Journal of International Arbitration 105, 105. 25 Autopista Concesionada de Venezuela C A (Aucoven) v Bolivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/00/5, 27 September 2001) para 107; Hussein Nuaman Soufraki v The United Arab Emirates (Award) (ICSID Case No ARB/02/07, 7 July 2004) para 55.

32  Access to International Investment Protection r­equirements of the Convention. When analysing ‘nationality,’ tribunals often invoke decisions of other IIA tribunals, scholarly writing on principles of international law,26 previous decisions by the ICJ27 on the subject, or general principles of company law found commonly in domestic laws.28 The contract, treaty or legislation giving consent to ICSID dispute settlement, plays an important role in the interpretation of ICSID’s jurisdictional requirements, especially if the consent instrument contains clauses on the same personal and material requirements. In such cases, ICSID tribunals may treat the definitions stipulated in the consent instrument as the parties’ agreed definition of the ICSID Convention’s ‘nationality’ and ‘investment’ requirements. In IIL practice, parties’ consent most commonly derives from investment treaty provisions.29 The definitions of ‘investment’ and ‘investor’ provided in investment treaties have been regularly adopted by arbitral tribunals in interpreting the meaning of ‘investment’ and ‘nationality’ under the ICSID Convention. But investment treaty definitions do not replace the Convention’s own requirements. Such investment treaty definitions cannot cure jurisdictional defects that place a dispute outside the limits of the Convention defined in Article 25.30 For instance, an investment treaty that defines a covered ‘investor’ with reference to an investor’s residence cannot be considered the parties’ agreement on the ICSID Convention’s personal jurisdiction standard based on nationality of a Contracting State. The relationship between the personal access terms of investment treaties and the ICSID Convention is discussed in detail in Chapter 6.31

26 Aucoven paras 51–53. 27 Waguih Elie George Siag and Clorinda Vecchi v The Arab Republic of Egypt (Decision on Jurisdiction and Partial Dissenting Opinion of Professor Francisco Orrega Vicuña) (ICSID Case No ARB/05/15, 11 April 2007) Partial Dissenting Opinion 62; Tokios Tokelés v Ukraine (Decision on Jurisdiction) (ICSID Case No ARB/02/18, 29 April 2004) para 54. 28 Ie, in ADC Affiliate Limited and ADC & ADMC Management Limited (ADC) v The ­Republic of Hungary (Hungary) (Award of the Tribunal) (ICSID Case No ARB/03/16, 2 October 2006) para 358. 29 According to the UNCTAD Investment Dispute Settlement Navigator, as of 31 July 2019 there are 983 known treaty-based IIA cases, https://investmentpolicy.unctad.org/investment-disputesettlement. 30 KVSK Nathan, The ICSID Convention: The Law of the International Centre for Settlement of Investment Disputes, (New York, Juris Publishing 2000) 137 (states in that effect ‘In determining its competency under Article 41(1) of the ICSID Convention, the ICSID tribunal will be bound primarily by the provisions in the Convention and not by provisions in any agreement between the parties to the dispute as would be the case in arbitration proceedings administered by private arbitral bodies such as the ICC International Court of Arbitration in Paris. Therefore, if the parties decide to submit a dispute which is not of a legal character or does not arise directly out of an investment, the ICSID tribunal must refuse jurisdiction. It does not possess any discretion whatsoever in its duty to refuse to hear the case. If it does hear the case, it will be acting in violation of the Convention that established ICSID.’); See also Aucoven para 96. 31 Section I(A).

Access to International Investment Arbitration  33 B.  ICSID Convention Article 25 Requirements In exercising the power to decide their own jurisdiction, arbitration tribunals must ensure (1) home state and host state adherence to the Convention; (2) consent of the disputing parties to submit their legal disputes to an arbitration tribunal constituted under the Convention; (3) a legal dispute directly arising out of an investment; and (4) that the investor is a national of an ICSID Contracting State other than the state party to the dispute. These jurisdictional requirements have a mandatory nature and as such they cannot be waived by the agreement of the parties.32 ICSID tribunals must examine these requirements at their own accord.33 This section will focus on the requirements of ‘consent’ and ‘investment’, as their interpretation has become highly relevant to the interpretation of ‘nationality’ with the proliferation of investment treaty based arbitrations. The nationality requirement will be unpacked in the remaining chapters of this book. i. Consent Article 25 establishes that home and host state ratification of the Convention alone is not sufficient for a home state investor to bring a claim against the host state under the Convention. The disputing parties must have consented separately ‘in writing’ to the jurisdiction of the Centre before or at the time the request for arbitration is filed with ICSID.34 Like any other type of arbitration, consent is the cornerstone of ICSID arbitral tribunals’ jurisdiction.35 At the time of the Convention’s drafting and in the early years of the Convention, the usual method of consent was found in an investment contract between the investor and the host state.36 The drafters had also recognised that consent need not to be provided in a single instrument.37 The Report of the Executive Directors provides that consent may be given by the host state in its investment

32 See CH Schreuer et al, 82–83. 33 SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay (Decision on Jurisdiction) (ICSID Case No ARB/07/29, 12 February 2010) para 56. 34 Art 36 (2) of the ICSID Convention. 35 See, eg, Dawood Rawat v The Republic of Mauritius (Award on Jurisdiction) (PCA Case 2016–20, 6 April 2018) para 158 (The Tribunal agrees with Mauritius that consent to arbitration is foundational to jurisdiction. This is in fact common ground between the Parties. All objections to jurisdiction, be they of a ratione personae, ratione materiae or ratione temporis nature, are for this reason sub-types of ratione voluntatis objections.) 36 A Parra, 121; According to the ICSID Caseload – Statistics Issue 2019-2, 16% of all disputes submitted to ICSID until 30 June 2019 have been based on contractual consent. 37 Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (18 March 1965) (Report of the Executive Directors) para 24; A Parra, 53; According to the ICSID Caseload – Statistics Issue 2019-2, 8% of all investment disputes submitted to ICSID up to 30 June 2019 were based on consent found in host state legislation.

34  Access to International Investment Protection legislation, which would constitute the state’s offer to arbitrate under ICSID, and the investor may accept such an offer in writing, thus concluding an agreement to arbitrate under the ICSID Convention.38 Another method developed in the IIL practice is establishing consent to ICSID through dispute resolution clauses in investment treaties.39 This has transformed ICSID into a widely used mechanism and it is currently the most commonly invoked type of consent in ICSID arbitration.40 Similar to consent through legislation, an ICSID clause in an investment treaty acts as an offer to arbitrate, and when a covered investor accepts this offer in writing, the agreement to arbitrate will be established. Often the investor’s acceptance is found in the notice of arbitration initiating the claim. In the latter two methods, unlike consent incorporated in a direct agreement, the instrument of consent does not concern a particular investor and is not limited to a specific legal relationship.41 And this decentralised nature of consent to investment arbitration is identified as a key reason for its resilience and success, despite the backlash it receives from states.42 Consent to ICSID arbitration by states and investors exist at any given time in thousands of instruments (investment treaties, contracts, or domestic legislation) ready to be invoked by aggrieved investors around the globe. It will be shown in this book that investment treaty clauses and arbitral interpretations have widened the scope of consent to ICSID arbitration significantly expanding the number of potential beneficiaries of this mode of dispute settlement thereby reinforcing its resilience even further. As discussed in Chapters 5 and 6, consent to ICSID arbitration through investment treaties has had a profound impact on the interpretation of corporate nationality and the widening of the personal scope of ICSID’s jurisdiction. To provide a background to that discussion, I will unpack the operation of consent through investment treaties below. a.  Consent Through Investment Treaties Dispute resolution clauses in investment treaties provide different levels of commitment by states to ICSID arbitration.43 A mere declaration of an i­ ntention 38 Report of the Executive Directors para 24; J Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Review – Foreign Investment Law Journal 232–257. 39 T St John, The Rise of Investor-State Arbitration: Politics, Law, and Unintended Consequences (Oxford, Oxford University Press 2018), 14 (St John’s research reveals that the ICSID Secretariat promoted to governments insertion of ICSID dispute settlement clauses into investment treaties). 40 According to the ICSID Caseload – Statistics Issue 2019-2, 76% of cases registered with ICSID up to 30 June 2019 invoked consent found in an investment protection treaty or a free trade agreement. 41 CF Amerasinghe, ‘The International Centre for Settlement of Investment Disputes and Development through the Multinational Corporation’ (1976) 9 Vanderbilt Journal of Transnational Law 793, 810. 42 T St John, 8–9. 43 AM Steingruber, Consent in International Arbitration (Oxford, Oxford University Press 2012) 201.

Access to International Investment Arbitration  35 by the host state to submit future disputes to the jurisdiction of ICSID is not considered an offer to arbitrate.44 An example can be found in the NetherlandsKenya BIT, which provides in Article 11 that: The Contracting Party in the territory of which a national of the other Contracting Party makes or intends to make an investment, shall give sympathetic consideration to a request on the part of such national to submit for conciliation or arbitration, to the Centre established by the Convention of Washington of 18 March 1965, any dispute that may arise in connection with the investment.

This clause requires the host state and the investor to negotiate separately from the treaty for submission of their investment disputes to ICSID arbitration.45 More commonly, investment treaties contain ICSID clauses that constitute a direct standing offer by the host state to arbitrate. In such clauses, the statement of consent must be unambiguous and expressed ‘in a manner which does not require further action by the host state’.46 These clauses are designed to form an agreement to arbitrate upon acceptance by the investor. Although the exact wording may vary from one treaty to another, many investment treaties that are in force currently incorporate this type of dispute resolution clause.47 For instance, Article 8 of the United Kingdom-South Korea BIT provides as follows:48 1.  Each Contracting Party hereby consents to submit to the International Centre for the Settlement of Investment Disputes (hereinafter referred to as “the Centre") for settlement by conciliation or arbitration under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States opened for signature at Washington on 18 March 1965 any legal dispute arising between

44 CH Schreuer, ‘Denunciation of the ICSID Convention and Consent to Arbitration’ in M Waibel, A Kaushal, K-HL Chung, and C Balchin (eds), The Backlash against Investment Arbitration: Perceptions and Reality (London, Kluwer Law International 2010), pp 353–368, 356. 45 AM Steingruber, 205; Broches takes a different view, see A Broches, ‘Bilateral Investment Protection Treaties and Arbitration of Investment Disputes’, in JC Schultsz and AJ Van Den Berg (eds), The Art of Arbitration: Liber Amicorum Pieter Sanders (Deventer, Kluwer Law and Taxation Publishers 1982) 65 (‘While a provision of this character falls short of requiring the host State to give consent to proceedings under the Convention, it clearly implies an obligation not to withhold consent unreasonably.’) 46 CF Amerasinghe, ‘The International Centre for Settlement of Investment Disputes and Development through the Multinational Corporation’ 811; Four ICSID arbitral decisions on Venezuela’s investment code have found that its Art 22 did not constitute a standing offer to arbitrate on this reasoning, See, A Yilmaz, Case Note on ICSID Case No ARB/10/5: Tidewater v Venezuela, Decision on Jurisdiction, [2013] Australian International Law Journal Vol 20 199–200; See on the contrary, Millicom International Operations BV and Sentel GSM SA v The Republic of Senegal (Decision on Jurisdiction of the Arbitral Tribunal) (ICSID Case No ARB/08/20, 16 July 2010) para 63 (the tribunal decided that even though further action was required from the state, the language used in the investment treaty did not leave discretion to the state in refusing to take a separate action to consent.) 47 AM Steingruber, 201; JDM Lew, LA Mistelis and SM Kröll, Comparative International Commercial Arbitration (The Hague, Kluwer Law International 2003) paras 22–28. 48 Agreement Between the Government of the Republic of Korea and the Government of the United Kingdom of Great Britain And Northern Ireland for the Promotion and Protection of Investments (Signed and entered into force on 4 March 1976).

36  Access to International Investment Protection that Contracting Party and a national or company of the other Contracting Party concerning an investment of the latter in the territory of the former.

This type of ICSID arbitration clause has significantly broadened the availability of ICSID arbitration to investors. Not only because it is open for acceptance to any investor that is covered by the treaty, but more importantly because the coverage of the treaties is often formulated in very broad terms. These two factors make it easier for any investor to bring itself within the protective scope of an investment treaty and access ICSID arbitration through strategic corporate structuring no matter what the origins and identity of the investor.49 Dispute resolution clauses in treaties that require further agreement between the parties are not likely to have the same broadening effect, as the requirement of a separate agreement between the investor and the host state to establish consent could operate to narrow the group of beneficiaries. But, from an investor’s perspective, leaving that much discretion to the host state may be undesirable, especially if the negotiation of the arbitration agreement has to be done after a dispute has already arisen between the parties. A more balanced option might be achieved by having a standing offer to arbitrate but: (1) more carefully and narrowly drafting of the ‘access’ requirements; and (2) including a national screening mechanism the treaty requiring the investor to obtain permissions from an investment authority for entry into the host state and to fall within the scope of the treaty at the time of making or acquiring the investment.50 Under the current standing offer model, host states are likely to be unaware of most eligible investors’ existence in their territory, or of the characteristics and identity of particular investors. This creates a significant difference between, on one hand, agreements to arbitrate that are concluded as part of an investment contract, or an investment approval process at the stage of entry into the host state, and on the other hand those concluded without privity. The expression ‘arbitration without privity’ for this type of arbitration agreement was first used by Jan Paulsson in his article titled ‘Arbitration without Privity’, where he explained that: This new world of arbitration is one where the claimant need not have a contractual relationship with the defendant and where the tables could not be turned: the ­defendant could not have initiated the arbitration, nor is it certain of being able even to bring a counterclaim.51 49 This is discussed in detail below in ch 6. 50 Chester Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford, Oxford University Press 2013) 24, 156–157, 212, 330–331 (Investment treaties generally leave it at the discretion of the host state to set the conditions of entry into their territory. As part of this discretion, host states may require foreign investors to obtain various authorisations. See Art 2 of the 2008 Austria Model Bilateral Investment Treaty, Art 2 Chinese Model Bilateral Investment Treaty, Colombia Model International Investment Agreement, Art 3. Other treaties such as the 2003 Italian Model, guarantees same market access to foreign investors as domestic investors.) 51 J Paulsson, ‘Arbitration Without Privity’ 232; Such arbitrations without privity can also be a production of an offer included in the national investment law as in Southern Pacific Properties

Access to International Investment Arbitration  37 Though counter-claims or initiation of claims by states are possible under the ICSID Convention itself, investment treaties typically do not allow such claims by states as they only recognise rights of investors vis-à-vis the host state.52 Paulsson observed that the conclusion of arbitration agreements through this method would allow direct recourse to dispute resolution by private parties against the state with respect to a wide range of issues, which would ‘create a dramatic extension of arbitral jurisdiction in the international realm.’53 This has indeed been the case with the proliferation of investment treaties comprising of such standing offers to arbitrate. The number of disputes that have been brought before ICSID tribunals by private investors has increased dramatically in the last two decades. Until 1996, in the first 30 years after the Convention’s entry into force, 36 claims were filed with ICSID, only six of them were under an investment treaty. In the following 23 years 617 claims were filed, the majority of them under investment treaties. The abundance of claims brought on the basis of investment treaty consent, however, has not eased the controversy over this type of arbitration agreement without privity. Many ICSID tribunals constituted on the basis of investment treaty consent have received jurisdictional challenges from defendant states for alleged lack of consent. States’ lack of consent argument, in those cases, is usually based on a lack of investment within the meaning of the treaty or the ICSID Convention, and/or the investor’s failure to fulfil the personal and/ or temporal scope requirements of the treaty or the ICSID Convention.54 Applicability of an investment treaty is contingent upon the investor falling within the scope of that treaty.55 The material and personal scope of the treaty’s application is normally outlined in each treaty by the definitions of ‘investment’ and ‘investor’. If the investor and its investment fall within the perimeters set in the treaty, the investor will be able to benefit from the protections of the treaty, including its dispute settlement provisions. The consent requirement of the Convention and its connection with the material and personal scope of investment treaties becomes visible when treaty articles on scope are read together with the provision on dispute settlement. The connection can be seen when,

(Middle East) Limited v Arab Republic of Egypt (Decision on Jurisdiction); AM Steingruber, 201 (However, Arbitration without privity is more frequently invoked by investors by taking up investment treaty offers, rather than by taking up offers found in national investment laws.) 52 If an investment treaty allows state claims relating to the investment, it will be possible to advance such claims, See Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The Argentine Republic, (Award) (ICSID Case No ARB/07/26 8 December 2016). 53 J Paulsson, ‘Arbitration Without Privity’ 233. 54 Dawood Rawat v Mauritius para 158 (The Tribunal agrees with Mauritius that consent to arbitration is foundational to jurisdiction. This is in fact common ground between the Parties. All objections to jurisdiction, be they of a ratione personae, ratione materiae or ratione temporis nature, are for this reason sub-types of ratione voluntatis objections.); See CH Schreuer et al, 253. 55 See Introduction.

38  Access to International Investment Protection for instance, Article 1 of the Netherlands-Romania BIT56 is read together with Article 8 of the same treaty. Article 8 of the BIT constitutes the host state’s offer to submit disputes that fall within the scope of the treaty to ICSID. It provides: 1) For the purpose of solving disputes with respect to investments between a Contracting Party and an investor of the other Contracting Party, … 2) … the investor may submit the dispute, at his choice, for settlement to: … b) the International Centre for Settlement of Investment Disputes (ICSID) provided for by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, of 18 March 1965; …

Article 8 confirms that the Contracting States to the treaty are making an offer to arbitrate before ICSID to a certain category of persons which have ‘investments’ and are ‘investors’ of the other Contracting State within the meaning of Article 1 of the BIT. In order for an investor to accept the offer provided in Article 8, the investor must satisfy the treaty’s material, temporal, and personal requirements, as the offer to arbitrate is addressed to only the persons that satisfy those requirements. The question arises as to whether acceptance of the offer by the investor falling within the definition of the treaty will suffice to conclude the agreement to arbitrate under the ICSID Convention and thus satisfy the ‘consent’ requirement of Article 25. The general trend in ICSID arbitral awards and literature is affirmative.57 The acceptance of a standing offer in an investment treaty by an

56 Art 1 of the Agreement on Encouragement and Reciprocal Protection of Investments between the Government of the Kingdom of the Netherlands and the Government of Romania signed on 19 April 1994, entered into force on 1 February 1995 reads as: ‘For the purposes of this Agreement: (a) the term ‘investments’ means every kind of asset invested by investors of one Contracting Party in the territory of the other Contracting Party, in conformity with the laws and regulations of the latter, and more particularly, though not exclusively: i. movable and immovable property as well as any other rights in rem in respect of every kind of asset; ii. rights derived from shares, bonds and other kinds of interests in companies and joint ventures; iii. title to money, to other assets or to any performance having an economic value; iv. rights in the field of intellectual property, technical processes, goodwill and know-how; v. rights granted under public law or contract, including rights to prospect, explore, extract and win natural resources. (b) the term ‘investors’ shall comprise with regard to either Contracting Party: i. natural persons having the citizenship or the nationality of that Contracting Party in accordance with its laws; ii. legal persons constituted under the law of that Contracting Party; iii. legal persons owned or controlled, directly or indirectly, by natural persons as defined in i. or by legal persons as defined in ii. above.’ 57 For a detailed discussion of this issue see ch 6. There is a similar debate in the literature and arbitral case law regarding the meaning of the ‘investment’ requirement under the ICSID Convention; See, ie, B Stern, ‘The Contours of the Notion of Protected Investment’ (2009) 24(2) ICSID Review – Foreign Investment Law Journal 534.

Access to International Investment Arbitration  39 investor falling within the scope of an investment treaty will be sufficient to bring the investor within the scope of that treaty, and it might also suffice to establish a valid consent to ICSID arbitration.58 However, the existence of consent to ICSID arbitration via an investment treaty does not automatically satisfy the other jurisdictional requirements under Article 25, ie ‘nationality’ and ‘investment’ unless the offer in an investment treaty is accepted by an investor who is a national of the home state party to the investment treaty within the meaning of ‘nationality’ under the Convention.59 Similarly, such an investor must have made an ‘investment’ within the meaning of the Convention. ‘Nationality’ of an investor under the Convention should be assessed under the Convention itself and independently from the terms of the investment treaty. Replacing the text of Convention with investment treaty terms when determining ICSID’s jurisdiction is common in arbitral jurisprudence, as will be shown in Chapters 5 and 6 below. This automatic deference to the investment treaty rules on access when assessing the jurisdiction of ICSID arbitration tribunals represents a flawed methodology and casts doubts on competence of tribunals in such arbitral proceedings, and the validity of the awards produced as a result of those proceedings.60 ii.  Dispute Directly Arising Out of an Investment The Convention’s text does not provide guidance on the type of transactions that constitute investment within the meaning of the Convention. It leaves a broad discretion to the host state and the investor to classify their transaction as investment within the meaning of the Convention.61 There are various ways by which parties can define a transaction as an ‘investment’. They can simply refer to their transaction as an ‘investment’ within the meaning of the Convention in their agreement to arbitrate or in the substantive part of the investment agreement. Reference to ICSID arbitration for dispute settlement in parties’ agreement, without expressly stipulating whether the transaction constitutes an investment or not, has been viewed a strong indication that the parties treat their transaction as an ‘investment’.62 Most commonly, arbitral tribunals adopt the

58 See ch 6. 59 See ch 6. 60 Pursuant to Art 52(1)(b) of the ICSID Convention, an ICSID arbitration award may be annulled if the tribunal has manifestly exceeded its powers. 61 See Report of the Executive Directors para 27 (‘No attempt was made to define the term “investment” given the essential requirement of consent by the parties, and the mechanism through which Contracting States can make known in advance, if they so desire, the classes of disputes which they would or would not consider submitting to the Centre’ (Article 25(4)). 62 CH Schreuer et al, 119; CF Amerasinghe, ‘Submissions to the Jurisdiction of the International Centre for Settlement of Investment Disputes’ (1973–1974) 5 Journal of Maritime Law and Commerce 211, 223; A Broches, ‘The Convention on the Settlement of Investment Disputes, Some Observations on Jurisdiction’ (1966) 5 Columbia Journal of Transnational Law 263, 268.

40  Access to International Investment Protection ‘investment’ definition found in the investment treaty invoked by the investor, as tribunals treat the investment treaty definition as encapsulating the parties’ agreement on the meaning of investment under the Convention.63 The discretion granted to the parties is not unlimited. The transaction identified by the parties as an ‘investment’ should meet the objective characteristics of ‘investment’ under the Convention.64 The problem with the notion of ‘objective characteristics of investment under the Convention’ is that there is no guidance in the Convention or in the Report of the Executive Directors as to what these characteristics are. One view that has been consistently supported so far is that ordinary sales transactions between foreign parties and states will not constitute an investment within the meaning of the Convention.65 This means that at least the risk assumed and the commitment made by the foreign party needs to be higher than a sales transaction. Apart from the consensus on the ordinary sales transactions, the ICSID jurisprudence and literature is divided on the meaning of ‘investment’.66 The first group of ICSID decisions favour a more restricted interpretation of ‘investment’ on the grounds that the parties’ discretion is limited by the ‘objective characteristics of investment under the Convention’, and should be given weight so long as it does not override those characteristics.67 The arbitral tribunal’s interpretation of ‘investment’ in Phoenix Action v Czech Republic68 provides a clear example of the restrictive approach.69

63 CH Schreuer et al, 122–124. 64 Malaysian Historical Salvors SDN BHD v The Government of Malaysia (Award on Jurisdiction) (ICSID Case No ARB/05/2010, 17 May 2007) para 55; Joy Mining Machinery Limited v The Arab Republic of Egypt (Award on Jurisdiction) (ICSID Case No ARB/03/2011, 6 August 2004) para 50; CH Schreuer et al, 117; KVSK Nathan, 123. 65 See, ie, Joy Mining Machinery Limited (The tribunal denied jurisdiction on grounds that the contract before them was an ordinary sales transaction which did not amount to an investment); KVSK Nathan, 123; Loans were considered investment within the meaning of ICSID Convention in Oko Pankki Oyj, VTB Bank (Deutschland) AG and Sampo Bank Plc v The Republic of Estonia (Award) (ICSID Case No ARB/04/6, 19 November 2007). 66 B Stern, 535. 67 Malaysian Historical Salvors; Liberian Eastern Timber Corporation (LETCO) v Republic of Liberia (Award) (ICSID Case No ARB/83/2, 31 March 1986) French translation of English original in 115 Journal du droit international 167 (1988) (excerpts) 5; UNCTAD Scope and Definition: A Sequel, Series on Issues in International Investment Agreements II, New York and Geneva 2011: The United Nations 52–53; E Gaillard, ‘Identify or Define? Reflections on the Evolution of the Concept of Investment in ICSID Practice’, in C Binder U Kriebaum A Reinisch and S Wittich (eds) International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford, Oxford University Press 2009) 403–407 (Gaillard describes this approach as the ‘deductive method’); KVSK Nathan, 122. 68 Phoenix Action Ltd v The Czech Republic (Award) (ICSID Case No ARB/06/5 15 April 2009) para 114. 69 A similar approach was taken in Toto Costruzioni Generali S.p.A. v The Republic of L ­ ebanon (Decision on Jurisdiction) (ICSID Case No ARB/07/12, 11 September 2009) para 66; Saipem S.p.A. v People’s Republic of Bangladesh (Decision on Jurisdiction and Recommendation on Provisional Measures) (ICSID Case No ARB/05/7, 21 March 2007); LESI, S.p.A. and Astaldi, S.p.A. v People’s Democratic Republic of Algeria (Decision on Jurisdiction) (ICSID Case No ARB/05/3,

Access to International Investment Arbitration  41 The instrument of consent invoked in this dispute was a bilateral investment treaty.70 The tribunal referred to the following six elements in determining whether a transaction amounts to an investment within the meaning of the ICSID Convention: –– a contribution in money or other assets; –– a certain duration; –– an element of risk; –– an operation made in order to develop an economic activity in the host State; –– assets invested in accordance with the laws of the host State; –– assets invested bona fide.71

The tribunal emphasised that a ‘double-barrelled’ test shall be applied in determining what constitutes an investment for purposes of deciding on jurisdiction under the Convention. This is a test that takes into account the parties’ definition expressed in a contract or an investment treaty, but ultimately decides the question of material jurisdiction by applying the standard of ‘investment’ as provided in Article 25 of the ICSID Convention. If the former definition falls outside the latter’s scope of coverage, then the transaction will not be considered to fall within the material jurisdiction of the ICSID tribunal. The second group of decisions adopt a more flexible approach by asserting that the jurisdiction of the ICSID tribunals is based on the parties’ consent, and this consent is the most essential element of jurisdiction. Thus, even if the transaction does not satisfy all of the so called ‘objective characteristics of investment’ under the ICSID Convention, it will be considered an ‘investment’ for the purposes of ICSID jurisdiction, so long as the parties have attributed that title or quality to it.72 The permissive approach can be exemplified by the Biwater v Tanzania decision, where the tribunal held that identifying typical characteristics of an investment under the Convention creates a risk of arbitrary

12 July 2006); Bayindir Insaat Turizm Ticaret ve Sanayi A.S. v Islamic Republic of Pakistan (Decision on Jurisdiction) (ICSID Case No ARB/03/29, 14 November 2005); Jan de Nul N.V. and Dredging International N.V. v Arab Republic of Egypt (ICSID Case No ARB/04/13, 14 November 2005); Patrick Mitchell v The Democratic Republic of the Congo (Award) (ICSID Case No ARB/99/7, 9 February 2004), Joy Mining v Egypt (Award on Jurisdiction); Víctor Pey Casado and President Allende Foundation v Republic of Chile (Decision on Jurisdiction) (ICSID Case No ARB/98/2, 8 May 2002); Salini Costruttori SpA and Italstrade SpA (Salini) v Kingdom of Morocco (Decision on Jurisdiction) (ICSID Case No ARB/00/4, 23 July 2001). 70 Agreement between the Government of the Czech Republic and the Government of the State of Israel for the Reciprocal Promotion and Protection of Investments, signed on 23 September 1997, and entered into force on 16 March 1999. 71 Phoenix Action Ltd v The Czech Republic para 114. 72 JD Mortensen, ‘The Meaning of “Investment”: ICSID’s Travaux and the Domain of International Investment Law’ (2010) 51(1) Harvard International Law Journal 257 (Supporting this view); UNCTAD, Scope and Definition: A Sequel 52–53; E Gaillard, ‘Identify or Define?’ 403–407 (Gaillard describes this approach as the ‘intuitive method’).

42  Access to International Investment Protection exclusion of investments which fail to correspond with those characteristics.73 The tribunal further stated that a substantial number of BITs contain a broad definition of investment which amounts to a type of international consensus, thus it is difficult to see why ‘investment’ under the Convention shall be interpreted narrowly.74 From a practical point of view, both approaches are expressed in rather vague terms and the difference between them does not seem major. The only apparent difference between the two is their priorities. While the restrictive approach will prioritise the Convention over the parties’ agreement, the flexible approach will give priority to the latter over the Convention. A similar question of priority also arises for determining the meaning of ‘nationality’ under the Convention, and this will be unpacked in Chapters 5 and 6. For the focus of this book, the most important aspect of ‘investment’ is the approach of an arbitral tribunal on what types of activities or transactions constitute ‘investment’. This may impact the assessment of investor’s nationality, since what constitutes an investment influences who qualifies as a protected investor.75 A more flexible approach to material jurisdiction may result in a wider coverage of personal jurisdiction. This is especially seen in cases involving shareholder claimants that invoke the first part of Article 25(2)(b), rather than the second part of Article 25(2)(b). The latter provides that if the corporate investor is a national of the host state, but controlled by foreign nationals, it can submit disputes to ICSID if the parties have agreed to treat the investor a foreign national. In these cases, the protected investor would normally be the host state entity and its controllers. But investment treaty definitions of investment typically cover shareholding as a protected investment. This allows investors to file claims based on their direct or indirect shareholding as investment rather than claiming on the basis of the investment carried out by the local entity, even where the complained host state action is directed towards the local entity.76 Claims by shareholders have been typically considered an issue of standing and

73 Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania (Award), (ICSID Case No ARB/05/22, 24 July 2008) [314]; other decisions adopting a similar approach: Ceskoslovenska Obchodni Banka AS v The Slovak Republic (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/97/4, 24 May 1999); MCI Power Group, LC and New Turbine, Inc. v Republic of Ecuador (Award) (ICSID Case No ARB/03/6, 31 July 2007); AES Corporation v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/02/17, 26 April 2005); Azurix Corp v The Argentine Republic (Decision on Jurisdiction); Camuzzi International SA v The A ­ rgentine Republic (Decision on Objection to Jurisdiction) (ICSID Case No ARB/03/7, 11 May 2005); IBM World Trade Corp v República del Ecuador (Decision on Jurisdiction and Competence) (ICSID Case No ARB/02/10, 22 December 2003); Lanco International Inc v The Argentine Republic (Jurisdiction of the Arbitral Tribunal) (ICSID Case No ARB/97/6, 8 December 1998); Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea (Award) (ICSID Case No ARB/84/1, 21 April 1986). 74 Biwater paras 314–318. 75 PM Protopsaltis, ‘The Challenge of the Barcelona Traction Hypothesis: Barcelona Traction Clauses and Denial of Benefits Clauses in BITs and IIAs’ (2010) 11(4) Journal of World Investment and Trade 561, 570–571. 76 See ch 6.

Access to International Investment Arbitration  43 admissibility77 or material jurisdiction, but as discussed in Chapter 6 below,78 there is an important nationality and personal jurisdiction angle to the issue when it concerns the jurisdiction of ICSID arbitral tribunals. This type of shareholder claim typically survives jurisdictional and admissibility challenges, when it is based on investment treaty consent. In these instances, investors claim that the direct or indirect shareholding in the local entity is the protected investment, and not the operations of the local entity, even though their claims may be for the losses of the latter.79 The protected investor, then, is not the host state entity, but the direct or indirect shareholder. When this is the case, the second part of Article 25(2)(b) does not find application.80 Instead, the nationality of the investor is assessed under the first part of Article 25(2)(b), which merely refers to companies that have the nationality of a Contracting State other than the host state. While the second part requires search of control to determine nationality, the first part of Article 25(2)(b) is completely silent on how the nationality of a corporation should be determined. If shares, stocks and other equities in companies are not treated as an investment for purposes of determining jurisdiction, then the claimant would have to be the local entity and foreign persons controlling that entity. In such a case, the nationality of the investor would be determined based on the nationality of the local company’s controllers under the second part of Article 25(2)(b), which covers direct or indirect ­shareholders that are in a position of ‘control’.81 In this respect, when analysing the nationality of corporate investors in the later parts of this book, attention will be paid to the question of what constitutes ‘investment’ to the extent it impacts the identity of the protected investor. C.  Investment Arbitration Outside the ICSID Convention (‘Non-ICSID Investment Arbitration’) IIA is not within the exclusive domain of tribunals constituted under the ICSID Convention. As investor arbitration is based on consent, the parties may agree to arbitrate under other institutional arbitration rules, or via ad hoc arbitration. The parties may choose for the arbitration to be conducted pursuant to the UNCITRAL Arbitration Rules,82 or under the arbitral rules of institutions such 77 M Waibel, 77; G Bottini, ‘Indirect Claims under the ICSID Convention’ (2008) 29 University of Pennsylvania Journal of International Law 563. 78 Section I(B). 79 It is uncertain whether the shareholder should claim for the losses of the company or whether it can only claim for losses resulting from direct infringement of its rights as a shareholder; See for a detailed discussion ch 6 (I) (B). 80 See ch 5 for the distinction between the two parts of Art 25(2)(b) of the Convention. 81 The question of what constitutes control under Art 25 of the Convention is analysed in ch 5 Section I(B) below. 82 UNCITRAL Arbitration Rules (as revised in 2010) available at www.uncitral.org/uncitral/en/ uncitral_texts/arbitration/2010Arbitration_rules.html.

44  Access to International Investment Protection as the International Chamber of Commerce (ICC),83 the Stockholm Chamber of Commerce (SCC),84 the London Court of International Arbitration (LCIA)85 or any other arbitral institution. They may have also chosen to arbitrate under the ICSID Additional Facility Rules,86 which are procedural rules used for disputes falling short of satisfying all the jurisdictional requirements of the Convention. As international arbitration allows generous flexibility to the parties to tailor the procedure according to their will, they may choose to use SCC Rules, but the arbitration may be administered by the Permanent Court of Arbitration. In other words, different combinations are possible in the user-friendly world of international arbitration. The ICSID Additional Facility Rules are less flexible than other institutional rules in terms of their availability. These rules can only be available if one of the elements of jurisdiction found in Article 25 of the ICSID Convention is missing. For instance, it will be available for investment disputes between parties if one of the parties is not an ICSID state or its national while the other party is. Alternatively, the Additional Facility can be used if at least one of the parties is an ICSID state or its national but the dispute does not directly arise out of an investment. Parties’ consent to non-ICSID arbitration can be found in a direct agreement, an investment treaty provision or an investment promotion legislation. Such arbitration may be included in the instrument of consent as an exclusive venue or may be an alternative to other venues, such as ICSID arbitration or domestic courts. For instance, the Turkey-South Africa BIT refers, alongside the ICSID Convention, to arbitration under the UNCITRAL Arbitration Rules and the ICC Rules as alternative means of dispute settlement. There are two key features that separate ICSID arbitration from other types of IIA when it comes to the assessment of jurisdiction: First, other arbitration rules do not contain requirements of ‘nationality’ and ‘investment’. Second, the ICSID Convention is an international treaty existing within the domain of public international law, and unlike the constitutive documents of other IIA mechanisms, its provisions are interpreted in accordance with the Vienna Convention on the Law of Treaties (VCLT).87 Institutional arbitration rules do not need to be interpreted in accordance with VCLT or in the context of public international law. In Phoenix Action, the tribunal stressed that the ICSID Convention’s jurisdictional requirements cannot be read in isolation from the principles of public 83 ICC Rules of Arbitration, available at www.iccwbo.org/Products-and-Services/Arbitrationand-ADR/Arbitration/Rules-of-arbitration/ICC-Rules-of-Arbitration/. 84 Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce, available at www.sccinstitute.com/media/40120/arbitrationrules_eng_webbversion.pdf. 85 The London Court of International Arbitration Rules, available at www.lcia.org/Dispute_ Resolution_Services/lcia-arbitration-rules-2014.aspx. 86 Rules governing the additional facility for the administration of proceedings by the ­Secretariat of the International Centre for Settlement of Investment Disputes, available at https://icsid. worldbank.org/ICSID/StaticFiles/facility/partA-article.htm. 87 Vienna Convention on the Law of Treaties (VCLT) 1155 UNTS 331, 8 ILM 679 (1969).

Access to International Investment Arbitration  45 international law,88 and emphasised the difference between a purely commercial dispute resolution and the ICSID mechanism. The tribunal stated that a purely commercial transaction that is characterised as an investment in an investment treaty, if submitted to arbitration under the ICSID Convention must also be tested under the objective criteria for ‘investment’ under the Convention. However, if the same dispute was submitted to arbitration under the UNCITRAL Rules, there would be no assessment of the meaning of ‘investment’ besides under the investment treaty itself, because the UNCITRAL Rules, unlike the Convention, does not require the dispute to arise out of an investment. They merely require there to be a defined legal relationship between the parties.89 However, this is not to say that non-ICSID tribunals will not evaluate that the dispute arises out of an investment as the term is defined in the applicable investment treaty. For instance, the tribunal in Romak v Uzbekistan a tribunal established under the Stockholm Chamber of Commerce Arbitration Rules held that even in non-ICSID arbitrations, the term ‘investment’ has an intrinsic meaning under international investment law that will guide the arbitral tribunals in interpreting and applying the term ‘investments’ found in investment treaties.90 In that particular case, the dispute arose from an ordinary sales transaction and an arbitral award relating to that transaction. The tribunal held that the meaning of ‘investment’ as found in the applicable Switzerland-Uzbekistan investment treaty91 interpreted pursuant to the VCLT did not encompass ordinary sales transactions within the term’s meaning.92 The difference between ICSID and non-ICSID arbitrations in interpreting the meaning of investment is a matter of whether a dispute must arise out of an investment only within the meaning of the investment treaty or whether within the meaning of both the investment treaty and the ICSID Convention. At the end of the day, if an ICSID tribunal views the meaning of ‘investment’ under the Convention broadly, there will not be an identifiable practical difference between the two. But the difference may be significant for certain transactions that fall within a grey zone, such as portfolio investments or claims to money arising from court judgments, if a stricter interpretation is adopted by the ICSID tribunal. 88 Phoenix Action Ltd v The Czech Republic para 78 (In that respect the tribunal stated that ‘To take an extreme example, nobody would suggest that ICSID protection should be granted to investments made in violation of the most fundamental rules of protection of human rights, like investments made in pursuance of torture or genocide or in support of slavery or trafficking of human organs.’) See also, Joy Mining Machinery Ltd. v Arab Republic of Egypt, para 58. See, also Fedax NV v Republic of Venezuela, (Award on Jurisdiction) (ICSID Case No ARB/96/3, 11 July 1997) para 42. 89 UNCITRAL Arbitration Rules, art 1(1). 90 Romak S.A. (Switzerland) v The Republic of Uzbekistan (Award) (UNCITRAL PCA Case No AA280) para 188. 91 Agreement between the Swiss Confederation and the Republic of Uzbekistan on the Promotion and Reciprocal Protection of Investments, signed on 16 April 1993 and entered into force on 5 November 1993. 92 Romak v Uzbekistan para 189.

46  Access to International Investment Protection The difference between an ICSID and a non-ICSID arbitration is much more crucial when assessing personal scope of protection for corporate investors. This is because the ICSID Convention defines personal scope for individual and corporate investors based on their nationality. But investment treaties often define personal scope based on nationality only for individual investors and not for corporate investors. If a case is brought before a non-ICSID tribunal under an investment treaty which does not define its personal scope based on a corporate investor’s nationality, then no question of nationality will arise. But if a claim is brought before an ICSID tribunal under an investment treaty that does not define personal scope for corporations based on nationality, the investor’s nationality will still have to be ascertained for purposes of the ICSID Convention. If, for instance, a corporate investor qualifies, within the definition of ­‘investor’ found in the Dutch-Argentina BIT, as a Dutch investor, but its nationality assessed under the Convention is not Dutch but Indian, there will be a jurisdictional defect for the ICSID tribunal due to a lack of personal jurisdiction and consent.93 India is not an ICSID Contracting State and there is currently no investment treaty between India and Argentina consenting to ICSID jurisdiction. This defect cannot alone be cured by the parties’ consent to ICSID arbitration in the investment treaty. Such a problem will not arise if the arbitration is non-ICSID, as the latter will not impose a nationality requirement beyond the personal scope requirements of the investment treaty, as the consent to nonICSID arbitration does not have an additional requirement of nationality as in ICSID arbitration. II.  CONDITIONS FOR ACCESS TO INVESTMENT TREATY PROTECTION

The conditions for access to investment treaty protection are similar in many aspects to jurisdictional requirements found in ICSID Convention’s Article 25. Investment treaties also stipulate personal, material, and temporal conditions of access. In order to benefit from an investment treaty, one must be an ‘investor’ who has made an ‘investment’ in the host Contracting State within the meaning of the treaty.94 Typically, investment treaties consider an ‘investment’ every kind of asset owned or otherwise controlled by an investor in the host state’s territory. This broad definition is typically followed by a non-exhaustive list

93 This is analysed in detail in ch 6 Section I. 94 UNCTAD Scope and Definition: A Sequel, 125 (‘Definitions of investment and investor are crucial in shaping the scope of an investment agreement. They determine economic interests, to which governments extend substantive IIA protections, as well as the range of natural and legal persons who will benefit from the treaty. Thus, to a large extent, the definitions outline the boundaries of a country’s exposure to possible investor-State claims.’)

Conditions for Access to Investment Treaty Protection  47 of examples.95 Most, but not all, investment treaties also require investment to be made in accordance with the laws of the host state.96 Newer investment treaties increasingly move away from a broadly formulated definition towards a more qualified definition referring to features such as assumption of risk, certain duration, contribution to the economic or sustainable development of the host state.97 As explained in the previous section, a crucial aspect of ‘investment’ definitions found in investment treaties for ‘nationality’ is the inclusion of direct or indirect shareholding as a type of investment separate and independent from the business activities carried on by the entity whose shares are held, and therefore, deserving protection in its own right. The impact of this on nationality of the investor will be discussed in detail in Chapters 5 and 6 below. A protected ‘investor’ in an investment treaty is defined separately for natural persons and legal persons. For natural persons, investment treaties refer most commonly to ‘nationality’,98 but rarely ‘residence’ is also used in addition to nationality.99 Some treaties also stipulate the conditions for application to dual nationals. For instance, the Czech Model BIT provides in Article 1(3)(a) that in cases of dual nationality of the Czech Republic and the other Contracting Party, the dominant and effective nationality will prevail. For legal persons, there are a number of connecting factors used in investment treaty practice. These are analysed in detail in Chapter 5,100 but they will be briefly mentioned here as well. The most commonly used connecting factors include the place of incorporation, seat, permanent seat, place of substantial business activities, controllers’ nationality, or a combination of these factors. Investment treaties rarely refer to nationality of legal persons. When they do, they then define that using one or a combination of the commonly used connecting factors. If the criteria used for deciding personal scope is based on tenuous links, investors will be able to easily

95 Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Federal Republic of Yugoslavia, signed on 29 January 2002 and entered into force on 1 March 2004, art 1: ‘For the purposes of this Agreement: a)the term ``investments” means every kind of asset and more particularly, though not exclusively: (i)movable and immovable property as well as any other rights in rem, such as leases, mortgages, liens and pledges, in respect of every kind of asset; (ii)rights derived from shares, bonds and other kinds of interests in companies and joint ventures; (iii)claims to money, to other assets or to any performance having an economic value; (iv)rights in the field of intellectual property (such as copyrights and related rights, patents, industrial designs or models, trade marks), technical processes, goodwill and know-how; (v)rights granted under public law or under contract, including rights to prospect, explore, extract and win natural resources.’ 96 The Czech Republic Model BIT requires this in art 1, but Netherlands-Montenegro BIT does not stipulate it expressly. 97 See The Czech Republic Model BIT art 1(1); Reciprocal Investment Promotion and Protection Agreement between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria, signed on 3 December 2016, art 1(3). 98 See The Czech Republic Model BIT art 1(3)(b). 99 See The Energy Charter Treaty, signed on 17 December 1994 and entered into force on 16 April 1998, art 1(7) referring to permanent residency. 100 Section II.

48  Access to International Investment Protection fit themselves within that treaty’s personal scope of protection, thus watering down the reciprocity of the treaty.101 Normally, in accordance with the general public international law standard on non-retroactivity of treaties, the temporal scope of a treaty will cover breaches of the treaty taking place after its entry into force, unless otherwise stated in the treaty.102 The investment may have been made earlier than that date, but that will not bar claims as long as the breach occurs after entry into force, again unless otherwise stated in the treaty. For instance, Article 14 of the Czech Model BIT provides the following: This Agreement shall apply to investments made by investors of one Contracting Party in the territory of the other Contracting Party in accordance with laws and regulations of the latter Contracting Party, whether made before or after the entry into force of this Agreement. However, the provisions of this Agreement shall not apply to claims arising out of events which occurred, or to claims which had been settled, prior to its entry into force.

In some cases, a distinction has been made between temporal scope for substantive standards and for dispute settlement provisions.103 This issue can arise if the investment treaty applies to investments made before the treaty’s entry into force, and the dispute settlement clause does not expressly stipulate that it only covers disputes arising out of treaty violations. For instance, Article 9 of NetherlandsMontenegro BIT refers to ‘Any dispute which may arise between an investor of one Contracting Party and the other Contracting Party in connection with an investment in the territory of that other Contracting Party’. This could potentially cover disputes that arose prior to the treaty’s entry into force. Another possibility for applying the treaty with a somewhat retroactive effect is if the acts giving rise to the breach have a continuous nature starting before entry into force but stretching beyond that date.104 The relevance of these temporal standards to nationality and personal scope is unpacked in Chapter 6.105 They particularly influence the assessment of whether the investor’s invocation of a treaty constitutes an abuse of rights because of the timing of a corporate structuring resulting in change of nationality that brings the investor within the personal scope of the investment treaty.

101 See Introduction. 102 VCLT, art 28. 103 R Dolzer and C Schreuer, Principles of International Investment Law 2nd edn (Oxford, Oxford University Press 2012) 36–37; Micula and et al v Romania; SGS Société Générale de Surveillance S.A. v. Republic of the Philippines (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/02/6, 29 January 2004). 104 See on continuous acts art 14 of the International Law Commission ‘Draft Articles on Responsibility of States for Internationally Wrongful Acts’ 53rd Session (2001) (extract from the ‘Report of the International Law Commission on the work of its Fifty-third session’, Official Records of the General Assembly, 56th Session, Supp no 10 (A/56/10), chap IV.E.1, November 2001). 105 Section I(C).

Conclusion  49 Another dimension of temporal scope of investment treaties relate to termination and survival clauses. In the current investment treaty climate when states are working on updating, renewing, or withdrawing from existing investment treaties, it is important to also consider this aspect of temporal scope. Many investment treaties contain survival clauses that continue the coverage of the treaty for investments made before termination for a further 10 or more years after the termination.106 The interpretation of survival clauses may become relevant to ‘nationality’ if an investment which was made before the termination and not covered by the treaty due to not being owned by an ‘investor’ within the meaning of the investment treaty gets acquired, after the termination of the treaty, by a national or a company of the home contracting state. III. CONCLUSION

This chapter sketched out the requirements for and the features of access to international investment protection under key IIL instruments. The goal of this exercise is to provide the context in which the concept of ‘nationality’ as a personal scope requirement will be analysed in the following chapters. The discussion in this chapter shows that a prudent analysis of nationality cannot be made in isolation from the other access requirements typically found in IIL instruments. The analysis of nationality might take different paths depending on what type of instrument is the source of consent. It may also follow different paths depending on the way material or temporal scope of an investment treaty is defined, if consent to arbitration is found in an investment treaty. There is a difference made to the access requirements’ interpretation by the arbitration being conducted under the ICSID Convention or under non-ICSID arbitral rules. The former sets its own additional material and personal requirements of access, while the latter’s access requirements are limited to the existence of a legal dispute and consent. As will be shown in Chapters 5 and 6, the ICSID Convention having its own material and personal requirements is not always given due consideration in arbitral decisions on nationality of corporate investors.

106 See, eg, Agreement between the Republic of Colombia and the Swiss Confederation on the Promotion and Reciprocal Protection of Investments, signed on 17 May 2006 and entered into force on 6 October 2009, art 14(3); The Netherlands Model BIT stipulates 15 years survival in art 26(3); Nigeria-Morrocco BIT does not contain such a survival clause.

2 Nationality as a Legal Bond in International Law: A Story of Disagreement Over the Relevance and Meaning of ‘Genuine Link’

I

n this chapter, I explore the concept of ‘nationality’ as a legal bond used in international law to link individuals or certain objects such as ships, aircrafts and corporations to a state. I discuss the criteria applied to determining nationality, as well as the legal implications and consequences of nationality for individuals, ships and aircrafts. I also identify the main issues of contention that have given rise to uncertainties in its application under international law. Despite nationality being one of the essential conditions for investor access to international investment law protection, its meaning remains ambiguous in international investment law (IIL) for the most regular beneficiaries of the system, corporate investors. This overview will provide the conceptual foundation for the analysis of nationality in relation to corporate investors in the later chapters of this book. Nationality is a legal concept that is usually applied to natural persons. International law does not have its own substantive rules on the acquisition or loss of individuals’ nationality. Every nation-state sets its own substantive rules on individuals’ nationality, and international law recognises the granting of nationality a sovereign prerogative of states.1 International law does, however, determine the legal consequences of nationality, or its absence, in the international legal order. For instance, international law defines the scope of a state’s right to exercise diplomatic protection with reference to nationality.2 International law also

1 Art 1 of the League of Nations, Convention on Certain Questions Relating to the Conflict of Nationality Law, 13 April 1930, League of Nations, Treaty Series, vol 179, p 89, No 4137; Art 3 of the European Convention on Nationality, Strasbourg, 6.XI.1997; Nottebohm Case (Liechtenstein v Guatemala) (Second Phase) (Judgment) 6 April 1955 ICJ Reports 1955 4, 20; The Nationality Decrees in Tunis and Morocco Opinion (1923), PCIJ Series B No 4, 24. 2 For exceptions see art 8 of the ILC Draft Articles on Diplomatic Protection Sixty-first Session, 2006 Supplement No 10 (A/61/10).

Nationality as a Legal Bond in International Law  51 defines the outer limits of the states’ discretion on determining the conditions for acquisition or loss of nationality, particularly in cases of statelessness and in cases of succession of states.3 In applying and interpreting these limits and consequences, international courts and tribunals have developed jurisprudence on the concept of ‘nationality’ itself. Particularly relevant for the purposes of this chapter is the international jurisprudence on the questions concerning the existence and effectiveness of nationality. Nationality is also a legal concept applied to certain objects, such as ships and aircrafts, which routinely move across borders. Similar to individuals’ nationality, each state determines the substantive conditions for the acquisition of nationality for these objects, but international courts and tribunals may in exceptional circumstances refuse to recognise or enforce such nationality for the purposes of the dispute before them. International law attaches legal consequences to the nationality of these objects, particularly on the allocation of jurisdiction on the high seas and international air spaces. For corporations, nationality has not been commonly used as a connecting factor in national laws, despite certain areas of international law, such as diplomatic protection and IIL, being applicable to corporations based on their nationality. In this sense, corporations differ from individuals, ships and aircrafts, due to the almost complete absence of national laws formally attributing nationality to corporations. Without national law standards on acquisition of corporate nationality, the determination of nationality for purposes of international law quickly becomes contentious. One view expressed in the literature has been that the relevance of nationality is increasingly diminishing as a legal bond for corporations especially in the area of IIL.4 I disagree with that approach and I explain later in this chapter the reasons why nationality is an appropriate legal bond for corporate investors under IIL. To begin tackling the uncertainties surrounding corporate investors’ nationality, in this chapter, I will unpack the application and interpretation of this concept in international law in different but analogous contexts. Despite the differences between how international law has dealt with nationality for ships and aircrafts on one hand and corporations on the other hand, the bond of nationality fulfils the same function for all these objects. It determines the international rules that will govern (1) the relationship between two or more states in relation to a ship, aircraft, or corporation; and (2) the relationship between

3 UN General Assembly, Convention on the Reduction of Statelessness, 30 August 1961, United Nations, Treaty Series, vol 989, p 175; ILC Draft Articles on Nationality of Natural Persons in relation to the Succession of States, GAOR 54th Session Supp 10, 15 (A/54/10). 4 AC Sinclair, ‘ICSID’s Nationality Requirements’ (2008) 23(1) ICSID Review – Foreign Investment Law Journal 57, 62 (‘… bond of nationality frequently seems to be diminished in significance to a mere formality.’); SW Schill, The Multilateralization of International Investment Law (Cambridge, Cambridge University Press 2009) 221; see for a general discussion S Rammeloo, Corporations in Private International Law: A European Perspective (Oxford, Oxford University Press 2001) 241.

52  Nationality as a Legal Bond in International Law a state and the ship, aircraft or the corporation. As such, nationality is attributed to these objects in international law for the same reason it is attributed to individuals in national and international law. It is a legal bond linking the person or object to a state so as to legally identify its place of belonging. Many rights and duties stem from this attachment to a state. Nationality serves the same purpose of legally identifying place of belonging for corporate investors under IIL. Understanding the meaning, purpose, and use of nationality for individuals, ships and aircrafts will be essential to a rigorous analysis of corporate nationality under IIL. This will also help delineate that nationality is deliberately adopted as a connecting factor for corporations when a sufficiently strong link is sought between a state and a corporation. It will become clear as this chapter progresses that a central debate around recognition, enforcement and effectiveness of nationality under international law has always been whether there is or should be a ‘genuine link’ requirement for granting, recognising or enforcing an individual’s or object’s nationality. The flip side of this debate is to what extent acquisition of nationality for strategic reasons, ie ‘nationality shopping’ is and should be permissible under international law. These questions on genuine link and nationality shopping have also been a frequent source of disagreement in the context of IIL. The discussion on the question of genuine link and nationality shopping presented in this chapter will be revisited in later chapters when discussing this issue for corporate investors. This chapter begins by exploring the standards applied to individuals’ nationality under international law. As substantive standards for acquisition of nationality are found in national laws, this section includes a brief overview of the most commonly used links in national laws for attributing nationality to individuals. It then explains how existence and effectiveness of n ­ ationality can be challenged in the areas of diplomatic protection and IIL. Next, this ­chapter provides an overview of nationality as it is applied to ships and aircrafts under international law. The chapter concludes with an introduction to the relationship between ‘nationality’ as a legal bond and the ‘corporation’ as legal fiction. In this final section, I argue that nationality, despite its limitations, is an appropriate connecting factor for corporations for purposes of their regulation under international law and more specifically under IIL. I.  NATIONALITY OF INDIVIDUALS

Nationality is a legal bond linking individuals to states for purposes of both domestic laws and international law.5 It is a concept that was reported to have

5 AM Boll, Multiple Nationality and International Law (Leiden, Martinus Nijhoff 2006) 3 (the term will be used in its legal meaning ‘distinct from the meaning given to ‘nationality’ when referring to members of a national or ethnic group, or people’).

Nationality of Individuals  53 first appeared in the Dictionnaire de l’Académie Française in 1835.6 Yet, a legal bond linking persons to states has existed at least since Roman law, though the term used was not ‘nationality’. In the Roman world the bond of ‘citizenship’ granted certain rights, privileges and obligations upon the citizen and the state, and in feudal Europe the bond was based on the relationship between a sovereign and its ‘subjects’ determined by allegiance.7 Today, nationality is the primary connecting factor for linking individuals to states as political communities.8 In fact, it is recognised and protected as a human right.9 With certain exceptions, it is generally uncomplicated to identify an individual’s nationality. International rules and jurisprudence recognising and protecting nationality10 and detailed national laws on its acquisition, recognition and loss provide sufficient clarity and certainty. As international law does not have its own substantive rules on acquisition and loss of nationality by individuals, this section begins with an analysis of the typical links sought for granting nationality to individuals by states and the legal consequences of nationality under domestic law and international law. This section will then provide an overview of recognition and enforcement of nationality under international law where questions of ‘existence’ and ‘effectiveness’ of nationality will be explored. The key lessons conveyed in this section are that (1) nationality of individuals is typically granted by states based on genuine links and international law indirectly implements this standard by its deference to national laws on acquisition of nationality; (2) courts and arbitral tribunals, where necessary, set aside formal appearances, and rigorously investigate the existence or effectiveness of individuals’ nationality for purposes of international law; and (3) courts and tribunals view nationalities of convenience with suspicion. These features of individuals’ nationality that will be recalled when evaluating the links that are or should be used by international tribunals and states to determine corporate nationality.

6 AM Boll, 65 (‘the French word nationalité’). 7 AM Boll, 65. 8 K Hailbronner, ‘Nationality in Public International Law and European Law’ in R Baubock, E Ersboll, K Groenendijk, H Waldrauch (eds) Acquisition and Loss of Nationality: Volume 1: Comparative Analyses: Policies and Trends in 15 European States (Amsterdam, Amsterdam University Press 2006) 36 (explains that as a result of globalisation, ‘there may well be more than just one membership of a political community.’) 9 See, art 15 Universal Declaration of Human Rights, UN General Assembly, 10 December 1948, 217 A (III). 10 See art 7 Convention on the Rights of the Child, UN General Assembly, 20 November 1989, United Nations, Treaty Series, vol 1577, p 3; Council of Europe, European Convention on N ­ ationality, 6 November 1997, ETS 166; art 24(3), International Covenant on Civil and Political Rights, UN General Assembly 16 December 1966, United Nations, Treaty Series, vol 999, p 171 Convention on the Reduction of Statelessness; UN General Assembly, Convention Relating to the Status of Stateless Persons, 28 September 1954, United Nations, Treaty Series, vol 360, p 117.

54  Nationality as a Legal Bond in International Law A.  Acquisition of Nationality by Individuals and its Legal Consequences It is a well-accepted principle of international law that every state has the right to determine under its own laws who its nationals are, and the kind of consequences flowing from that status, to the extent these sovereign choices are within the parameters of binding international conventions, international custom and the principles of law generally recognised with regard to nationality.11 Acquisition of nationality is typically based on the principles of jus soli, acquisition of nationality by birth in the territory of a state, and jus sanguinis, acquisition of nationality by birth to parent or parents possessing the nationality of a state, or a combination of these two principles.12 Individuals may also acquire nationality through naturalisation. The conditions of naturalisation are determined by the naturalising state itself, which usually include requirements such as residence, family links, language, character and financial status.13 Each of these routes to acquiring nationality are based on a sufficiently strong c­onnection between a state and an individual. Under its domestic law, each state can have its own description of nationality and may attribute different legal consequences to it within the boundaries of its international legal commitments.14 Nationality is considered fundamental to a person’s exercise of certain rights.15 These typically include the right to enter into and leave the country, a right to work, a right to reside, rights to social security and benefits, a right to vote in elections, a right to be elected and a duty to join civil or military service. Similarly, each state has the right to determine what kind of obligations and rights non-nationals will have within its territory under its own laws, which must, again, be consistent with rules and principles of the state’s international law obligations.16 Certain rights typically reserved for nationals may be extended to non-nationals at the discretion of the state.17 11 See art 1, Convention on Certain Questions Relating to the Conflict of Nationality Law; art 3 of the European Convention on Nationality; Nottebohm Case 20; Nationality Decrees in Tunis and Morocco Opinion (1923), PCIJ Series B No 4, 24; See also S Forlati ‘Nationality as a human right’ in A Annoni and S Forlati (eds) The Changing Role of Nationality in International Law (London, Routledge 2013) 19–20. 12 H Waldrauch, ‘Acquisition of Nationality’, in R Baubock, E Ersboll, K Groenendijk, H Waldrauch (eds) Acquisition and Loss of Nationality (Amsterdam, Amsterdam University Press, 2007), 122–132; AM Boll, 40 (also refers to other modes of acquisition of nationality as resumption/ reintegration, by transfer of territory, acquisition of domicile with the intention of establishing a permanent residence, service to the state and changes in civil status provoked by a relationship to a national, such as adoption or marriage); See also, art 6 of the European Convention on Nationality. 13 S Forlati ‘Nationality as a human right’ 23; K Hailbronner, ‘Nationality in Public International Law and European Law’ 58; art 6 of the European Convention on Nationality. 14 AM Boll, 94; art 3(1) of the European Convention on Nationality. 15 K Hailbronner, ‘Nationality in Public International Law and European Law’, 64; An exception to this is found under international human rights law which creates obligations for states that are owed to all persons within their jurisdiction regardless of nationality. 16 For instance, non-nationals may acquire a right to reside and work or have a duty to pay certain taxes and social security contributions in accordance with the laws of the host country. 17 For instance, a state may grant a right to vote its non-national residents, as the European Union rules do for local elections though this is normally a right granted exclusively to nationals. Pursuant

Nationality of Individuals  55 International law attaches its own consequences to nationality or the lack of it. The ICJ’s leading Nottebohm judgment describes how nationality is perceived in international law: Nationality is a legal bond having as its basis a social fact of attachment, a genuine connection of existence, interests and sentiments, together with the existence of reciprocal rights and duties. It may be said to constitute the juridical expression of the fact that the individual upon whom it is conferred, either directly by the law or as the result of an act of the authorities, is in fact more closely connected with the population of the State conferring nationality than with that of any other state.18

The question of whether there is a general international law requirement for nationality to be based on a ‘genuine connection’ has been debated in academic commentary.19 Critics of Nottebohm have argued that no such rule of genuine link is found in international law.20 Others have accepted that a nationality based on a ‘genuine connection’ prevails under international law after the Nottebohm judgment.21 While no such explicit rule exists, the state practice in granting nationality has typically been based on a sufficiently strong link such as descent, place of birth or long term residence. The relationship between a state and its nationals gives rise to certain international law rights or duties for the granting state or its national vis-à-vis other states.22 Such rights and duties conferred upon states or nationals deriving from the bond of nationality include a duty to not deprive a person arbitrarily of their nationality,23 a right to refuse extradition of its own nationals,24 the right of home states to provide diplomatic protection to their nationals, and the duty of host states to refrain from inflicting harm on foreign nationals in ­violation of their obligations under international law, rights of nationals to

to Art 22 of the Treaty on the Functioning of the European Union OJ C 115/47, European Union nationals that reside in a European Union country other than their state of nationality have the right to vote in the local elections of their country of residence; See D Rudan ‘Nationality and Political Rights’ in A Annoni and S Forlati (eds) The Changing Role of Nationality in International Law (London, Routledge, 2013) 118. 18 Nottebohm Case 23. 19 CF Amerasinghe, Diplomatic Protection (Oxford, Oxford University Press 2008) 94–95; RD Sloane, ‘Breaking the Genuine Link: The Contemporary International Regulation of ­Nationality’ (2009) 50 Harvard International Law Journal 1; GIF Leigh, ‘Nationality and Diplomatic Protection’ (1971) 20(3) International and Comparative Law Quarterly, 453–475. 20 RD Sloane, ‘Breaking the Genuine Link’. 21 P Acconci, ‘Determining the Internationally Relevant Link Between a State and a Corporate Investor: Recent Trends concerning the Application of the ‘Genuine Link’ Test’ (2004) 5(1) Journal of World Investment and Trade 139, 139–140. 22 A Sironi ‘Nationality of individuals in public international law’ in A Annoni and S Forlati (eds) 56. 23 See art 4(c) European Convention on Nationality. 24 See, eg, art 3 of the Treaty between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates on Extradition, signed on 6 December 2006 and entered into force on 2 April 2008.

56  Nationality as a Legal Bond in International Law be direct beneficiaries of international treaties granting certain protections to nationals of contracting states.25 The closest analogy to the use of nationality in IIL is found in the use of nationality in the area of diplomatic protection. ‘Diplomatic protection’ refers to a state’s right to protect its nationals from a violation of international law by another state.26 From the late eighteenth until the mid-twentieth century, diplomatic protection of citizens had been a common method for settling foreign investment disputes at the international level.27 Today, a state’s right to exercise diplomatic protection for its citizens is a well-accepted rule of customary international law.28 The right of the home state to protect its nationals abroad is also recognised by Article 3(1)(b) of the Vienna Convention on Consular Relations.29 Nationality is one of the two preconditions for extending diplomatic protection.30 As a general principle, a state cannot provide diplomatic protection to persons other than its nationals.31 This rule derives from the fiction that injury to an alien by the host state is considered an injury to its home state, giving the home state the right to claim reparations from the host state.32 Being a national of a state can also produce legal consequences for ­individuals under international investment law. The ICSID Convention offers individual foreign investors who are nationals of contracting states the option to resolve their investment disputes with other contracting states through the ICSID mechanism. Similarly, investment treaties’ personal scope of protection is, in most instances, limited to the individual investor who are nationals of the contracting states. 25 A Sironi ‘Nationality of individuals in public international law’ 56. 26 See, art 1 of the ILC Draft Articles on Diplomatic Protection. 27 CF Amerasinghe, Diplomatic Protection 8. 28 Most recently right of diplomatic protection was recognised by the Case concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo) (Preliminary Objections) (Judgment) 24 May 2007 ICJ Reports 2007 582 [39]; See also, UN International Law Commission ‘First report on diplomatic protection’ by Special Rapporteur J R Dugard, 7 March 2000 A/CN.4/506, 5, para 36. 29 Vienna Convention on Consular Relations, signed 24 April 1963 and entered into force on 19 March 1967, 500 UNTS 95. 30 See art 1 ILC Draft Articles on Diplomatic Protection; The other precondition is the exhaustion of local remedies; See, UN International Law Commission ‘Second report on diplomatic protection’ by Special Rapporteur JR Dugard, 28 February 2001 A/CN.4/514, 2. 31 Panevezys-Saldutiskis Railway (Estonia v Lithuania) (Judgment) 1939, PCIJ Series A/B, No 76, 16 (‘… in the absence of a special agreement, it is the bond of nationality between the state and the individual which alone confers upon the State the right of diplomatic protection …’); J Crawford, Brownlie’s Principles of Public International Law 8th edn (Oxford, Oxford University Press 2012) 702; Exception to this rule is stipulated in Art 8 of the ILC Draft Articles on Diplomatic Protection. 32 Mavrommatis Palestine Concessions Case (Greece v United Kingdom) (Jurisdiction) 1924 P.C.I.J., Series A, No 2, p 12 (the Permanent Court of International Justice confirmed that ‘By taking up the case of one of its subjects and resorting to diplomatic action or international ­judicial proceedings on his behalf, a state is in reality asserting its own right – its right to ensure, in the person of its subjects, respect for the rules of international law.’); JR Dugard, First report on diplomatic protection, para 19.

Nationality of Individuals  57 B.  Recognition and Enforceability of Nationality under International Law on Diplomatic Protection International courts and tribunals can in certain circumstances refuse to ­recognise or enforce nationality granted by a state under its national law under the principles of jus sanguinis or jus soli, via naturalisation, or otherwise. ­International courts or tribunals may examine whether the claimed nationality exists at all,33 or whether the claimed nationality is the effective nationality of the person.34 i.  Existence of Nationality A question of whether the nationality ostensibly held by the person exists usually arises from allegations that a person has either lost or has never actually acquired that nationality. Such a question came before the US-Italy Conciliation Commission in the Flegenheimer case, a claim brought by the US against Italy concerning the taking of property of a US citizen. In that case, the Commission explicitly stated that an international court or tribunal has the power ‘to investigate the existence of the nationality of the claimant, even when this is established prima facie by the documents issued by the State to which he owes allegiance and in conformity with the legislation of said State.’35 If such an investigation reveals that the claimed nationality was not acquired in accordance with the applicable national law, the international court or tribunal may refuse to recognise and enforce that nationality. This could be the case despite any official evidence or statements provided by the granting state attesting to the existence of the nationality. In Flegenheimer, the claimant US Government argued that such a refusal to recognise existence of nationality should only be reserved for situations where it is established that a very serious cause affects the acquisition of nationality.36 Considering this approach too restrictive, the Commission disagreed with this high threshold approach for assessing the existence of nationality. Eventually, the Commission held that it would be up to the tribunal or court exercising jurisdiction over the dispute to assess the probative value of the evidence presented to prove nationality.37 In Flegenheimer, the Commission decided that the evidence

33 Flegenheimer Case – US-Italy Claims commission Decision No 182 20 September 1958 Volume XIV, para 38 (‘It is therefore important to establish in as precise a manner as possible the limits within which an international jurisdiction is entitled to investigate the acquisition or the loss of nationality by a person whose nationality is established prima facie.’) 34 See Nottebohm Case; Mergé Case (US v Italy), 14 Review of International Arbitral Awards 236 (Italian–United States Conciliation Commission, 1955). 35 Flegenheimer Case para 31. 36 Ibid, para 33. 37 Ibid, para 38.

58  Nationality as a Legal Bond in International Law did not prove that Mr Flegenheimer was a naturalised US citizen despite the US explicitly declaring that he was a US citizen. The question of whether the claimed nationality exists does not concern an evaluation of the strength of the links between the individual and the state either at the time of acquisition of the nationality or at the time of the dispute. Tribunals simply assess in light of the facts whether the person has, under the applicable nationality law, acquired or lost the claimed nationality despite the formal documents unambiguously showing the existence of nationality. It is a power that allows tribunals to look beyond formal appearances to make their own evaluation based on the applicable law. ii.  Effectiveness of Nationality A question of effectiveness of nationality usually, but not exclusively, arises in cases involving persons with multiple nationalities where a respondent state raises objections to the admissibility of the claim due to the claimed nationality not being the dominant or effective nationality of the person protected. In these claims, the issue to be investigated by the court does not concern the strength of the links that were the basis of granting either nationality, although courts may also consider that as one aspect of their evaluation. Rather, courts would investigate whether, at the time of the dispute, one of the two nationalities is the more dominant one because of the person having stronger ties to that state at the relevant times. This does not mean that the person does not have genuine ties also to the other state, but it merely means that the ties are not as strong as the ties to the first state. The most prominent example of the effectiveness analysis is found in ICJ’s much criticised38 Nottebohm decision which considered whether an individual’s single nationality was ‘effective’ for purposes of the international claim before the court.39 In this case, Liechtenstein initiated proceedings against Guatemala based on the claim that Guatemala violated international law via its actions towards Mr Friedrich Nottebohm, a national of Liechtenstein. Guatemala denied recognising Mr Nottebohm’s Liechtenstein nationality and on that basis objected to the admissibility of Liechtenstein’s claim. Mr Nottebohm was a German national by birth (born in 1881), but he was naturalised as a Liechtenstein national in 1939, at which point he lost his German nationality due to Germany’s non-recognition of dual nationality. In the process of Mr Nottebohm’s naturalisation, Liechtenstein waived its own residency requirements for naturalisation and disregarded that Mr Nottebohm resided and conducted business activities in Guatemala between 1905 and 1943. 38 A Macklin, ‘Is it time to retire Nottebohm?’ (2018) 111 AJIL Unbound, 492–497; RD Sloane, ‘Breaking the Genuine Link’; A Vermeer-Künzli ‘Nationality and Diplomatic Protection: A reappraisal’ in A Annoni and S Forlati (eds) The Changing Role of Nationality in International Law 77; J L Kunz, ‘The Nottebohm Judgment’ (1960) 54 American Journal of International Law 536. 39 Nottebohm Case 4.

Nationality of Individuals  59 In its decision, the ICJ emphasised that it shall only assess Nottebohm’s nationality for the purposes of admissibility of Liechtenstein’s claim under international law and with regard to the recognition of that nationality by Guatemala. The ICJ made it clear that it would not question the validity of Nottebohm’s Liechtenstein nationality in general, but only for purposes of the case before it, ie, in relation to Liechtenstein’s right to extend diplomatic protection to ­Nottebohm vis-à-vis Guatemala. The Court investigated whether ­Liechtenstein’s grant of nationality to Nottebohm ‘directly entailed an obligation on the part of ­Guatemala to recognize its effect, namely, Liechtenstein’s right to extend ­protection’40 and not whether the granting of nationality was valid under the laws of Liechtenstein. The ICJ, in other words, assessed whether full international effect could be attributed to the nationality invoked by Liechtenstein.41 The ICJ then drew an analogy between the international tribunals’ approach to dual nationality in diplomatic protection and the case of Nottebohm, even though Nottebohm did not have dual nationality.42 In this respect, the ICJ stated that: They [international arbitrators] have given their preference to the real and effective nationality, that which accorded with the facts, that based on stronger factual ties between the person concerned and one of the States whose nationality is involved. Different factors are taken into consideration, and their importance will vary from one case to the next: the habitual residence of the individual concerned is an important factor, but there are other factors such as the centre of his interests, his family ties, his participation in public life, attachment shown by him for a given country and inculcated in his children, etc.

Based on these considerations, the ICJ found Liechtenstein’s claim inadmissible, holding that Guatemala had the right not to recognise Mr Nottebohm’s Liechtenstein nationality as it was based on ‘tenuous’ links. The state practice in granting nationality generally requires a genuine link, as explained in Section A above, but the conditions under which Mr Nottebohm acquired ­Liechtenstein nationality do not appear to be based on a genuine link. Nottebohm is considered an exceptional judgment which should be viewed in light of the facts surrounding the case. One author has argued that the situation in Nottebohm would better be characterised as an issue of ‘abuse of rights’ on Liechtenstein’s part in espousing Mr Nottebohm’s claim vis-à-vis Guatemala, rather than imposing a genuine link requirement.43 40 Ibid, 20. 41 Ibid, 22. 42 Pursuant to art 5 of the Convention on Certain Questions Relating to the Conflict of N ­ ationality Law ‘Within a third State, a person having more than one nationality shall be treated as if he had only one. Without prejudice to the application of its law in matters of personal status and of any conventions in force, a third State shall, of the nationalities which any such person possesses, recognise exclusively in its territory either the nationality of the country in which he is habitually and principally resident, or the nationality of the country with which in the circumstances he appears to be in fact most closely connected.’ 43 RD Sloane, ‘Breaking the Genuine Link’.

60  Nationality as a Legal Bond in International Law Although there is no general rule of international law that imposes a ­genuine or effective link requirement for enforcement of nationality,44 the question of ‘genuine link’ continues to dominate debates on nationality in international law. It is important to distinguish the question of enforcement of nationality under international law from the question of which links are sought by states for granting nationality, as the former does not concern itself with the conditions of acquisition alone. Instead, the courts seem to take a holistic approach when evaluating the effectiveness of nationality. This will be recalled when analysing corporate investors’ nationality in the later parts of this book. Beyond the exceptional case of Nottebohm, the question of effective nationality has most commonly arisen where the injured person holds multiple nationalities and the defendant state is one of the states whose nationality the person holds.45 The ILC Draft Articles on Diplomatic Protection addresses this type of dual nationality claims in its Article 7 which bars states from espousing of dual nationals who also hold the nationality of the respondent state, unless the claimant state’s nationality is predominant. In those instances, the claimant state will only be able to assert a claim if the individual is more closely linked to it rather than to the respondent state. Before being incorporated into the ILC Draft Articles on Diplomatic Protection, this principle was recognised in case law. The Mergé decision rendered by a UN Conciliation Commission panel in 1955 represents a good example of effective links in such dual nationality cases.46 Mrs Mergé was a US national by birth, and she acquired Italian nationality by reason of her marriage to an Italian national. The US brought a compensation claim against Italy under the Treaty of Peace between the two countries for the property losses Mrs Mergé incurred during the war. The parties did not dispute that Mrs Mergé was a dual national of the US and Italy, so the issue to be decided by the commission was whether the US had the right to extend protection to Mrs Mergé vis-à-vis Italy under the Treaty of Peace.47 The Commission held that according to customary international law, a person’s state of nationality cannot provide diplomatic protection to a person vis-à-vis another state whose nationality that person also holds.48 The Commission, however, identified an exception to this rule: The principle, based on the sovereign equality of States, which excludes diplomatic protection in the case of dual nationality, must yield before the principle of effective nationality whenever such nationality is that of the claiming State.

44 ILC Draft Articles on Diplomatic Protection with commentaries, 32–33; J Collier and V Lowe, The Settlement of Disputes in International Law: Institutions and Procedures (Oxford, Oxford University Press 1999) 192 (n 8) (‘Note that Nottebohm did not establish any positive requirement that there be a genuine link between and individual and a national state.’) 45 Art 7 of the ILC Draft Articles on Diplomatic Protection uses the term ‘predominant’ nationality. 46 Mergé Case. 47 Ibid, 258. 48 Ibid, 246.

Nationality of Individuals  61 The question was not whether the nationality or nationalities of the person would be recognised, but rather whether they would be enforced. In terms of the indicators of effectiveness, the Commission referred to habitual residence, ‘conduct of the individual in his economic, social, political, civic and family life, as well as the closer and more effective bond with one of the two States.’49 The Commission held that the US was not entitled to extend diplomatic protection to Mrs Mergé vis-à-vis Italy as her dominant nationality was Italian due to residence and social and economic ties to Italy.50 Commentary to the Article 7 of the ILC Draft Articles on Diplomatic Protection provides a non-exhaustive list of factors to be taken into account when determining the predominant nationality. These include residence, length of time spent in the country, if naturalised, date of naturalisation, education and use of language, economic links, family ties, participation in social and public life, possession and use of passport of the other state, and military service. The ILC Draft Articles on Diplomatic Protection do not stipulate a general ‘genuine link’ requirement for enforcement of nationality.51 However, by way of a non-exhaustive list of examples it acknowledges that (1) nationality is typically granted by national states based on a genuine link,52 and (2) in cases of multiple nationality, it will be necessary to consider the strength of the ties to each state. Stronger links or dominant nationality may also be sought where the courts of a third country determine the law applicable to a dual national’s personal status.53 The rule on predominant nationality, however, is different to seeking a genuine link when enforcing nationality under international law for persons holding a single nationality. While the former is about comparing the strength of a person’s links between two or more states both of which could be genuine, the latter is about the person having acquired the nationality based on a meaningful link. The view that in order to have full effect under international law, nationality at least should not have been granted on the basis of some tenuous link finds some support in case law and literature.54 According to this view nationality acquired based on tenuous links is not devoid of effect, but it may not be enforceable under international law in certain cases involving nationalities of convenience, like in Liechtenstein’s claim against Guatemala in the Nottebohm case.55 The focus in single nationality cases, when evaluating the strength of the links, is primarily on the time when and on the conditions under which the 49 Ibid, 247. 50 Ibid, 248. 51 ILC Draft Articles on Diplomatic Protection with commentaries, 32–33. 52 ILC Draft Articles on Diplomatic Protection, art 4. 53 Art 5, Convention on Certain Questions Relating to the Conflict of Nationality Law. 54 See Nottebohm Case; Esphahanian v Bank of Tejarat 2 Iran US CTR 157; JR Dugard, First Report on Diplomatic Protection [112]–[118]; RD Sloane, ‘Breaking the Genuine Link’; C Forcese, ‘The Capacity to Protect: Diplomatic Protection of Dual Nationals in the ‘War on Terror’’ (2006) 17 (2) European Journal of International Law 369. 55 RD Sloane, ‘Breaking the Genuine Link’; C Forcese, ‘The Capacity to Protect’.

62  Nationality as a Legal Bond in International Law nationality was granted, and only additionally on whether at the time of the claim the person has substantial links to its state of nationality.56 C.  Individual Investors’ Nationality under International Investment Law IIL instruments such as the ICSID Convention and investment treaties largely follow the international law principles and practice on individual investors’ nationality: an individual’s nationality will be determined by the laws of the state whose nationality is claimed.57 There exists no general IIL rule that a nationality must be acquired based on genuine links or that it must be effective, though in certain circumstances of dual or multiple nationality, tribunals may decide to ascertain effective nationality. The only special rule stipulated in the ICSID Convention on individuals’ nationality is the exclusion from ICSID jurisdiction investors who are dual or multiple nationals of the host state and another contracting state, regardless of whether one of the nationalities is the predominant one.58 Dual nationals of the host and home state may be protected under certain investment treaties, though not via the ICSID mechanism, if the investment treaty language remains silent on the question of such dual nationals.59 Much like other international courts or tribunals, despite the apparent certainty of rules regarding natural persons’ nationality, investment tribunals may still come across uncertainties when determining an investor’s ­nationality, particularly in cases involving investors with dual or multiple nationalities. The two main issues that arise in IIL concerning individuals’ nationality are the same as the ones arising in the context of diplomatic protection: the existence or effectiveness of the investor’s nationality. i.  Existence of Nationality A question of whether the claimed nationality exists arises where there is a suspicion over whether the investor really possesses the claimed nationality, despite prima facie evidence, such as passports and certificates of nationality, attesting

56 C Forcese, ‘The Capacity to Protect’ 382. 57 CH Schreuer et al, The ICSID Convention: A Commentary 2nd edn (Cambridge, Cambridge University Press 2009) 265; R Wisner and N Gallus, ‘Nationality Requirements in Investor-State Arbitration’, (2004) 5 Journal of World Investment and Trade 927, 928; M Sornarajah, The International Law on Foreign Investment 3rd edn (Cambridge, Cambridge University Press 2010) 323. 58 ICSID Convention art 25(2)(a). 59 See, eg, Serafín García Armas and other v Venezuela PCA Case No 2013-3; Cf. Dawood Rawat v The Republic of Mauritius, PCA Case 2016–20, the tribunal decided that dual host and home state national was not covered by the relevant investment treaty, as despite the silence of the treaty on dual nationals, it made election of ICSID arbitration by the parties the mandatory method of dispute resolution. This reference constituted an explicit exclusion of such dual nationals from the scope of the investment treaty.

Nationality of Individuals  63 to a particular nationality.60 Arbitral tribunals then look beyond the evidence presented and examine whether the claimed nationality had been lost or was never acquired in the first place. Some tribunals have taken the approach that unless there is ‘convincing and decisive evidence’ that an investor’s acquisition of the nationality in question is ‘fraudulent or at least resulted from a material error’,61 they must respect the state’s decision to grant nationality. This approach sets the threshold for challenging the existence of nationality very high. The application of this approach is highly fact sensitive since it remains uncertain in arbitral jurisprudence as to what would constitute a ‘material error’. It would also be difficult to prove the fraudulent intention of the individual in acquiring the claimed nationality. The simpler approach for an arbitral tribunal evaluating nationality for purposes of its jurisdiction would be, in addition to cases of fraudulent acquisition, to simply assess whether the nationality was lost or never acquired under the applicable law, as was done by the Siag and Vecchi tribunal below. In Siag and Vecchi v Egypt, two individual claimants, Mr Siag and Ms Vecchi, brought ICSID proceedings against Egypt, invoking their I­talian nationality, under the Italy-Egypt BIT. They requested compensation for damages they suffered as a result of the alleged confiscation of their investment by the Egyptian authorities.62 Egypt objected to the ICSID tribunal’s jurisdiction ratione personae, asserting that the claimants were also nationals of Egypt, and therefore failed to satisfy Article 25(2)(a) of the ICSID Convention as dual nationals. Article 25(2)(a) excludes dual national claims under the Convention against either of their states of nationality.63 Mr Siag was Egyptian by birth, until he acquired Lebanese nationality via naturalisation in 1989 when he was 27 years old. He claimed that he lost his Egyptian nationality when he acquired Lebanese nationality, even though he obtained permission from the Egyptian authorities to maintain his Egyptian nationality. Furthermore, Mr Siag retained and used his Egyptian passport until the submission of the ICSID proceedings. He also acquired Italian nationality in 1993 on the basis of his marriage to an Italian national. Ms Vecchi, the mother of Mr Siag, was Italian by birth and acquired ­Egyptian nationality upon her marriage to Mr Siag’s father in 1957. She lost her

60 Waguih Elie George Siag and Clorinda Vecchi v The Arab Republic of Egypt (Decision on Jurisdicion and Partial Dissenting Opinion of Professor Francisco Orrega Vicuña) (ICSID ­Arbitral Tribunal Case No ARB/05/15, 11 April 2007); Hussein Nuaman Soufraki v The United Arab E ­ mirates (Award) (ICSID Arbitral Tribunal Case No ARB/02/07, 7 July 2004); See also Mr. Franck Charles Arif v Republic of Moldova, (Award) ICSID Case No ARB/11/23, 8 April 2013). 61 Ioan Micula et al v Romania, (Decision on Jurisdiction and Admissibility) (ICSID Case No ARB/05/20 24 September 2008) paras 94–95; Mr. Franck Charles Arif v Republic of Moldova para 357. 62 Siag and Vecchi v Egypt paras 17–18. 63 Article 25(2) (a) stipulates: ‘National of another Contracting State’ … does not include any person who … also had the nationality of the Contracting State party to the dispute’.

64  Nationality as a Legal Bond in International Law Italian nationality when she acquired Egyptian nationality. Ms Vecchi’s husband died in 1987, and in 1993 she re-acquired Italian nationality. Both claimants contended that they were not nationals of Egypt at the time they filed the request for arbitration, while Egypt maintained that they were also nationals of Egypt at all relevant times. The claimants’ Italian nationality was not disputed by Egypt. The dispute was over whether the claimants were also Egyptian nationals. The Tribunal accepted the documents produced by Egypt as prima facie evidence of the claimants’ Egyptian nationality, and stated that the documents ‘should be disregarded if they were inconsistent with the applicable [­nationality] law.’64 This is a lower threshold for challenging the prima facie evidence of nationality than the fraudulent acquisition or material error standard accepted in the Micula65 decision discussed below. According to the Siag and Vecchi tribunal, it had to determine, for itself, the nationality of the claimants pursuant to the applicable nationality law in order to determine whether it had jurisdiction.66 After a detailed analysis of the Egyptian law on nationality, the tribunal decided that both claimants were not nationals of Egypt at the relevant times for the purposes of ICSID jurisdiction. In his partial dissenting opinion to the award, Professor Francisco Orrego Vicuña stated that Mr Siag ‘is not a rightful claimant as far as jurisdiction is concerned because of the effectiveness of the connections he had with Egypt at all relevant times. Neither Italian nor Lebanese nationalities play any meaningful role in Waguih’s [Mr Siag] life.’67 The tribunal refused to take the issue of effectiveness into consideration, considering it irrelevant for the dispute at hand. A similar assessment was made by the tribunal in Soufraki v UAE. Mr Soufraki was awarded a concession by the UAE authorities for a period of 30 years to develop, manage and operate a port in the UAE. The concession agreement described Mr Soufraki as a Canadian national. When a dispute arose between the concession parties, Mr Soufraki initiated arbitration under the Italy-UAE BIT,68 describing himself an Italian national. The UAE challenged the jurisdiction of the tribunal ratione personae, stating that Mr Soufraki was ‘not a national of Italy under Italian law and he did not possess effective Italian nationality under international law so as to entitle him to invoke the BIT.’69 The tribunal’s analysis of nationality was not focused on the effectiveness of Mr Soufraki’s Italian nationality, but on its existence. The UAE contended that Mr Soufraki had lost his Italian nationality automatically under the ­Italian nationality laws when he acquired Canadian nationality in 1991 and took up 64 Siag and Vecchi v Egypt para 152. 65 Micula et al v Romania. 66 Siag and Vecchi v Egypt paras 142–153. 67 Siag and Vecchi v Egypt 66. 68 Agreement between the Government of the United Arab Emirates and the Government of the Italian Republic for the Promotion and Protection of Investments signed on 22 January 1995 and entered into force 29 April 1997. 69 Hussein Nuaman Soufraki v The United Arab Emirates para 9.

Nationality of Individuals  65 residence there. Mr Soufraki was not aware of this loss of nationality until the ICSID proceedings. In 1992, a new nationality law entered into force in Italy repealing the previous law dating back to 1912, which provided the opportunity to Mr Soufraki to reacquire his Italian nationality provided that he made a timely application or took up residence in Italy for no less than one year. Mr Soufraki maintained that he resided in Italy between March 1993 and April 1994, thus satisfying the condition to reacquire his Italian citizenship. Although Mr Soufraki produced certificates provided to him in various instances proving his Italian nationality as well as a statement by the Italian Ministry of Foreign Affairs endorsing Mr Soufraki’s Italian nationality, the tribunal held that these only constituted prima facie evidence. The tribunal held in this respect that: 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. Article 1(3) of the BIT reflects this rule. But it is no less accepted that when, in international arbitral or judicial proceedings, the nationality of a person is challenged, the international tribunal is competent to pass upon that challenge. It will accord great weight to the nationality law of the State in question and to the interpretation and application of that law by its authorities. But it will in the end decide for itself whether, on the facts and law before it, the person whose nationality is at issue was or was not a national of the State in question and when, and what follows from that finding.70

The tribunal concluded that Mr Soufraki had lost his Italian nationality in 1991, and he was not able to prove in the proceedings that he had reacquired it after 1992; therefore, he could not invoke the Italy-UAE BIT. The tribunal rejected jurisdiction on the grounds of a lack of nationality despite the fact that neither Mr Soufraki nor the Italian authorities were aware of this loss of nationality, and both maintained that he was an Italian national. In both of these cases, the respective tribunals applied the law of the state whose nationality was claimed and found that the prima facie evidence was not consistent with the result produced by applying the relevant provisions of nationality law. These cases demonstrate the close link between the question of existence of nationality and the probative value afforded by the tribunals to prima facie evidence of nationality, such as passports and nationality certificates. Arbitral tribunals have the power to carry out a detailed investigation to determine that an individual, despite appearing to be a national of a state in official records and being able to benefit from the consequences of that nationality under domestic law, is not considered a national of that state for purposes of invoking international investment law protections. The Soufraki and Siag tribunals did not consider what kind of intentions the claimants had, such as lack of good faith or fraudulent intentions, when acquiring or losing the nationalities

70 Ibid,

para 55.

66  Nationality as a Legal Bond in International Law concerned. The tribunals’ decision also did not result in revoking or invalidating the individuals’ nationality. An arbitral tribunal does not have such an authority. In these decisions, the effects of the tribunals’ non-recognition of the nationality were only limited to the question of jurisdiction. This approach is in accordance with the practice of international courts and tribunals on nationality discussed above in Section B. At the same time, this approach to individual investors’ nationality is different from the arbitral jurisprudence on corporate investors’ nationality, which typically accords decisive value to prima facie evidence of nationality without investigating the reality behind formal appearances. This disparity will be discussed in more detail in Chapter 6 below.71 ii.  Effectiveness of Nationality The second nationality challenge typically raised by parties in investment arbitration concerns the effectiveness of the person’s nationality or the lack thereof. Similar to the cases of diplomatic protection discussed above, this arises when the claimant holds dual or multiple nationalities. Arbitral decisions72 on the subject indicate that applying the Nottebohm rule on genuine link to determine effectiveness, would be contrary to the texts of the Convention and investment treaties and could only be done where there is an express reference to such a standard in the treaty language73 or in very exceptional circumstances.74 Mr Saba Fakes v Republic of Turkey is a good example of the effectiveness challenge in the IIL context. The claimant held both Jordanian and Dutch nationality and filed a claim against Turkey under the ICSID Convention and the Netherlands-Turkey BIT. Turkey challenged the effectiveness of Mr Fakes’ Dutch nationality. Turkey invoked the Nottebohm rule and contended that although it recognised both nationalities of Mr Fakes, for purposes of the Convention the effective nationality of the person must be decisive.75 The tribunal, however, decided that the alleged lack of effectiveness of Mr Fakes’ Dutch nationality did not affect the jurisdiction of the tribunal.76 71 Section II(B). 72 Mr Saba Fakes v Republic of Turkey (Award) (ICSID Case No ARB/07/20, 14 July 2010); Micula and et al v Romania paras 100–101 and 104; Siag and Vecchi v Egypt; Champion Trading Company, Ameritrade International Inc., James T Wahba, John B Wahba and Timothy T Wahba (Champion Trading) v Arab Republic of Egypt (Egypt) (Decision on Jurisdiction) (ICSID Case No ARB/02/9, 21 October 2003). 73 See, eg, Section 10.28 of The Dominican Republic-Central America Free Trade Agreement, signed on 5 August 2004 and entered into force 1 January 2009; David R Aven et al v Republic of Costa Rica (Final Award) (ICSID Case No UNCT/15/3, 18 September 2018). 74 In the Micula case, the individual claimants had single nationality, but they previously held only the nationality of the host state. They were born and grew up in the host state. But at the relevant times for the ICSID claim, they did not hold the nationality of the host state. The tribunal held that the Nottebohm rule did not apply in this case, as the investors clearly only had the nationality of the home state. Paras 102–103. 75 Mr Saba Fakes v Republic of Turkey para 54. 76 Ibid, para 56.

Nationality of Individuals  67 According to the tribunal, the only rule found in Article 25(2)(a) on dual nationals was about dual nationals of the host state. Since the Convention did not prescribe a general requirement that would oblige the tribunal to assess the effectiveness of a person’s nationality, the tribunal did not have the authority to establish additional limitations to ICSID jurisdiction beyond the intention of the ICSID Contracting Parties.77 The tribunal distinguished the Nottebohm decision on two grounds from Mr Fakes’ case. First, Nottebohm involved a state’s right to exercise diplomatic protection for its nationals, which was another area of international law, and second, it did not involve a dual nationality.78 The tribunal held that ‘[t]he rules of customary international law applicable in the context of diplomatic protection do not apply as such to investor-state ­arbitration.’79 The tribunal, however, stated that there may be room for the effective nationality test under the ICSID framework, if a nationality of convenience or an involuntarily acquired nationality was involved.80 The Tribunal concluded that although there was no place for the effective nationality test in this case, Mr Fakes did have genuine connections with the Netherlands, and thus there was no reason why the tribunal should not confirm its jurisdiction.81 A second example is found in Aven v Costa Rica.82 Here, the claimant was a dual national of the US and Italy. The claim was brought under the D ­ ominican Republic-Central America-United States FTA (DR-CAFTA). Costa Rica objected to the jurisdiction of the tribunal arguing that the dominant and effective nationality of Mr Aven was Italian and not US.83 Costa Rica mainly relied on the fact that Mr Aven presented himself as an Italian national at the time of entry into Costa Rica as an investor as well as throughout his business dealings in Costa Rica. It was only at the time of filing the investment treaty claim that Mr Aven invoked his US nationality. DR-CAFTA’s Article 10.28 stipulates 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’. According to the tribunal, this rule in DR-CAFTA must be in interpreted in light of the customary international law rules on effective nationality as they find expression in the ILC Draft ­Articles on Diplomatic Protection. As such, the 10.28 standard would only apply if the

77 Ibid, para 76; Similar findings were made by ICSID tribunals in Siag and Vecchi v Egypt para 198 and Champion Trading v Egypt 16. 78 Mr Saba Fakes v Republic of Turkey paras 68–69. 79 Ibid, para 69. 80 Ibid, paras 77–78. 81 Ibid, para 80 (The effectiveness of Mr Fakes’ Dutch nationality was based on the facts that both his parents, his wife and his three children were Dutch nationals, he has spent a substantial part of his childhood and early adulthood in the Netherlands, studied there and holds a Dutch passport and a driver’s licence.) 82 David R. Aven et al. Republic of Costa Rica. 83 Ibid, para 192.

68  Nationality as a Legal Bond in International Law investor is a dual national of the host and the home state.84 Since Mr Aven was not a dual national of Costa Rica, the tribunal would not need to consider which of his nationalities was the dominant one for purposes of investment treaty protection. In any case, the tribunal found that Mr Aven’s US nationality was effective, as he was born, studied, resided and carried out business activities there.85 Costa Rica also challenged the personal jurisdiction of the tribunal on the grounds that Mr Aven’s invocation of his US nationality constituted an abuse of rights, as throughout his business dealings in Costa Rica he used his Italian nationality.86 The tribunal disagreed with Costa Rica following an analogy with arbitral decisions on abuse of rights involving corporate investors. The tribunal found that the timing and purpose of Mr Aven’s acquisition of US nationality, as well as the timing of his claim did not show that his invocation of DR-CAFTA was an abuse of rights.87 The Saba Fakes and Aven decisions show that tribunals do not consider there to be a dominant nationality requirement for recognising and enforcing a nationality under IIL. But both decisions also recognise that the individuals concerned had genuine links with their state of nationality and that nationalities of convenience or abusive acquisitions of nationality could give rise to nationality not being recognised. D.  Concluding Observations This section briefly examined the basic legal principles applicable to ­granting, recognising, and enforcing an individual’s nationality commonly found in domestic laws and under international law. The purpose is to capture the guiding principles relating to nationality of individuals, which can help shape our understanding of how corporate nationality should be understood and determined under IIL. Since individuals are the original holders of nationality, the development of the law on their nationality provides a useful analogy to analysing corporate nationality. The decisions analysed in this section demonstrate that international tribunals have the power and autonomy to evaluate the existence, validity or consequences of individuals’ nationality granted or recognised by its state of nationality. Tribunals concentrate on the existence, validity or consequences of nationality under international law only in connection with the specific legal issue at hand. Depending on the circumstances, international courts and tribunals may seek actual and genuine connections between the state of nationality and the individual in order to recognise or give effect to that nationality. 84 Ibid, paras 213–15. The same approach was adopted in Adel A Hamadi Al Tamimi v Sultanate of Oman (Award) (ICSID Case No ARB/11/33, 3 November 2015) para 274. 85 David R. Aven et al v Republic of Costa Rica para 221. 86 Ibid, para 222. 87 Ibid, paras 239–242.

Nationality of Objects  69 The landmark Nottebohm decision was criticised for practically treating Mr Nottebohm as stateless88 and it is open to debate that it actually established a ‘genuine link’ standard to recognise or enforce an individual’s nationality under international law.89 Nevertheless, conditions for granting nationality in domestic laws are generally based on the existence of a genuine link between the individual and the state. This genuine link is not interpreted in reference to the notion of allegiance or other sentimental attachment. It could be established based on various factors such as the place of birth, family ties or domicile, all of which can be considered meaningful enough so as to constitute the basis of granting nationality. As such, an individual may have effective links to multiple countries and thus have multiple nationalities each based on genuine links. IIL instruments stipulate special rules on nationality, such as certain rules on host state dual nationals, but not all questions on nationality are answered in treaties. Even the special rules need to be applied and interpreted by tribunals in cases which may not fit squarely within the written rules. Tribunals in such cases should not treat nationality under IIL in isolation from international law principles.90 Such principles will be most useful when tribunals evaluate the effectiveness or existence of nationality with little guidance from the applicable IIL instruments. Despite the differences between IIL and the rules on diplomatic protection, they are sufficiently similar when it comes to the role played by nationality in these regimes. As such it is logical for tribunals to find guidance in and draw analogies from the diplomatic protection framework.91 II.  NATIONALITY OF OBJECTS

Societies informally or formally attribute nationality to things such as foodstuffs, football teams, and goods. Formal links established for such things to a state can have legal and practical consequences, such as in determining the amount of duty to be paid for products at customs, or whether a football team can compete at a regional championship. This section focuses on the three objects that are formally linked to a state with a bond of nationality under international law: ships, aircraft, and corporations.92 Objects having a nationality can 88 A Vermeer-Künzli ‘Nationality and Diplomatic Protection: A reappraisal’ 77; RD Sloane, ‘Breaking the Genuine Link’ 1. 89 J Collier and V Lowe, The Settlement of Disputes in International Law 192 (n 8) (‘Note that Nottebohm did not establish any positive requirement that there be a genuine link between and individual and a national state.’) 90 Micula and et al v Romania para 87. 91 A Roberts, ‘Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System’ (2013) 107 American Journal of International Law 45, 50 (‘[w]hen a field is young, it is common for many issues to remain unresolved, leading participants to draw analogies with more established legal disciplines in seeking to provide content and form to the new field.’) 92 Corporations are legal persons, but they are grouped together in this analysis under objects for purposes of distinguishing them from natural persons.

70  Nationality as a Legal Bond in International Law be ­considered an anomaly due to these objects lacking human ­characteristics essential for nationality as a social construct. Yet, attributing these objects a ‘nationality’ understood as a legal construct was necessary to establishing an orderly legal regime to govern their movements and activities that transcend national borders. This section provides a brief overview of the reasons for and legal criteria used in linking these subjects to a state with the bond of nationality. As corporate nationality will be unpacked in detail in the rest of this book, its treatment here will be very brief. The main focus will be on ships and aircraft. A.  Ships and Aircraft i. Ships Attribution of nationality to commercial ships produces various consequences under international law and plays a central role in the legal ordering of maritime spaces and relationships.93 International law recognises certain rights and duties for the state of nationality, such as the right to exercise jurisdiction over the vessel on the high seas,94 extend diplomatic protection to ships carrying its flag,95 and determine the conditions of safety and labour on board.96 The UN Convention on the Law of the Sea (UNCLOS) goes in parallel with the principles of international law on nationality of natural persons and recognises that each state has the authority to determine ‘the conditions for the grant of its nationality to ships’.97 UNCLOS goes further and explicitly requires a genuine link between the granting state and the ship.98 The practical application of the ‘genuine link’ standard found in UNCLOS will be unpacked below. No such rule of genuine link has been codified in international law for natural persons, but as discussed in the previous section, a genuine link is typically sought by states in granting nationality and the lack of it may give rise to a refusal of international recognition of nationality. Another essential difference between ships and individuals is that UNCLOS does not allow ships to have dual or multiple nationalities.99

93 Separate opinion of Vice-President Wolfrum in M/V Saiga (no.2) (Saint Vincent and The Grenadines v Guinea) (Judgment) (ITLOS Case No 2, ICGJ 336, 1 July 1999) para 17. 94 Art 92 United Nations Convention on the Law of the Sea (UNCLOS) (signed 10 December 1982, entered into force 16 November 1994) 1833 UNTS 396, LB Sohn et al, Cases and Materials on the Law of the Sea 2nd edn (Leiden, Brill 2017) 111. 95 See ILC Draft Articles on Diplomatic Protection art 18. 96 UNCLOS art 94. 97 Ibid, art 91. 98 Ibid. 99 Ibid, art 92.

Nationality of Objects  71 Ships acquire nationality by registering with the relevant authorities in the flag state, though conditions for registration may vary from one state to another.100 The registration documents act as proof of a ship’s nationality, as long as the documents presented are adequate and demonstrate a valid registration.101 In this sense, these documents fulfil an equivalent function to individuals’ ­passports or certificates of citizenship, and they constitute prima facie evidence of nationality. The level of scrutiny exercised by the UNCLOS dispute settlement mechanism, the International Tribunal for the Law of the Sea (ITLOS), over the validity and adequacy of these documents and the weight given to the registration state’s conduct in relation to a ship registered with its nationality have varied in different cases.102 While in M/V Saiga, the ITLOS panel showed complete deference to the prima facie evidence of the ship’s nationality, in Grand Prince the tribunal sought ‘sufficient evidence’ to recognise the nationality of the ship and carried out a more thorough analysis of the validity and the sufficiency of the documents presented.103 Both cases involved open registry states as the state of nationality, which allow ships to be registered as nationals without having any prior links to that state. The lack of clarity over the ‘genuine link’ standard for granting nationality to ships104 and use of the system of open registration allow ship owners to frequently use ‘flags of convenience’. This way, ship owners can choose an open registry state with a convenient regulatory framework and low costs, even if the ship owners or the crew have no connection to that state. Since the ship, just like a corporation, has a separate legal personality from its owners,105 it has been widely accepted that a ship’s nationality is not automatically linked to the owner’s nationality. Such a link may be imposed by the laws of a flag state wishing to establish a ‘genuine link’, as it is done by large maritime states like the US and the UK. ITLOS panels, however, have not interpreted the reference

100 In the Bahamas, the Merchant Shipping Act s 3 allows registration by any ship regardless of nationality if it is engaged in foreign-going trade and is above a certain net register tonnage or if it is classified as a yacht. In the UK, the eligibility for registering to the UK’s ship register is determined based on the owner’s nationality or residence if owned by natural persons, or by the place of incorporation if owned by a company, see for detailed information, UK Ship Register, A Guide to Registration, Version 4, April 2019; available at https://assets.publishing.service.gov.uk/government/uploads/ system/uploads/attachment_data/file/799033/2019_April_A_Guide_to_Registration_V4.pdf. 101 Grand Prince (Belize v France) (Judgment) (ITLOS Case No 8, ICGJ 341, 20 April 2001) para 83; LB Sohn et al, 132. 102 Compare M/V Saiga with Grand Prince. 103 M/V Saiga paras 67–72 and Grand Prince paras 83–93. 104 GK Walker, Definitions for the Law of the Sea: Terms Not Defined by the 1982 Convention, (Leiden, Brill 2011) 70. 105 Barcelona Traction, Light and Power Co Ltd (Belgium v Spain) (Judgment) 5 February 1970 ICJ Reports 1970, Separate Opinion of Judge Jessup 186 (states that ‘maritime situations are comparable to the corporate situations’.); HE Anderson, III, ‘The Nationality of Ships and Flags of Convenience: Economics, Politics, and Alternatives’ (1996) 21 Tulane Maritime Law Journal 139, 145.

72  Nationality as a Legal Bond in International Law to ‘genuine link’ in UNCLOS as a pre-condition of acquiring nationality or the lack of it as a reason for not recognising the nationality of the ship. From the foregoing discussion, clear parallels emerge between the practice of nationality shopping for ships and corporations. The requirement of a ‘genuine link’ between a ship and its state of nationality has been interpreted by the ITLOS in M/V Saiga as not giving rise to a right of another state to challenge the grant of nationality on the grounds that a genuine link is missing between the flag state and the ship.106 According to ITLOS, the ‘genuine link’ requirement in Article 91 of UNCLOS aims merely to ‘secure more effective implementation of the duties of the flag State’.107 In this sense, the ‘genuine link’ requirement is not a pre-condition of granting nationality that calls for an effective link between the ship and the flag state prior to registration. Rather, it is a consequence of nationality that the flag state shall have the ability to exercise its duties effectively, ensuring the ship’s compliance with the applicable international and national standards on safety, labour, and environmental issues.108 In this sense, it has been argued that ‘a genuine link is acquired after registration.’109 Even if one considers that the ‘genuine link’ requirement should be applied as a precondition of registration, there is no clarity around what would constitute a genuine link between a ship and a state under international law. The International Transport Workers’ Federation advocates for an understanding of a genuine link that connects the nationality of the ship to its real owner.110 An additional or alternative connecting factor included in the 1986 Registration Convention,111 which never came into force, was based on the nationality or the domicile of a satisfactory percentage of officers and crew members of the ship.112 In closed registry states like the US and the UK, preconditions of registration include both ownership and crew links to the flag state.113 The proliferation of open registries gave rise to a debate around the economic, social, and political consequences of this approach.114 A 2014 UNCTAD study noting this change in ship nationality stated that ‘historically, a vessel would fly the same flag as the nationality of its owner. Today, however, almost

106 M/V Saiga para 83. 107 M/V ‘Virginia G’ (Panama v Guinea-Bissau) (Judgment) (ITLOS Case No 19, ICGJ 452, 14 April 2014) para 113. 108 GK Walker, 73; H E Anderson, III, ‘The Nationality of Ships and Flags of Convenience’, 140. 109 HE Anderson, III, ‘The Nationality of Ships and Flags of Convenience’, 149. 110 See, eg, the website of the International Transport Workers’ Federation (ITF), ‘What Are FOCs?’ www.itfseafarers.org/what_are_focs.cfm. 111 United Nations Convention on Conditions for Registration of Ships (done 7 February 1986, not yet entered into force) UN Doc TD/RS/CONF/23. 112 United Nations Convention on Conditions for Registration of Ships, art 9. 113 See s 8 of the Merchant Shipping (Registration of Ships) Regulations 1993 for the UK; and see s 67.5 of the 14 U.S.C. 664-46 CFR Pt 67 – DOCUMENTATION OF VESSELS. 114 See, eg, HE Anderson, III, ‘The Nationality of Ships and Flags of Convenience’.

Nationality of Objects  73 73 per cent of the world fleet are foreign flagged.’115 This debate has largely divided the states and commentators into two camps: those perceiving open registries as a matter of economic sovereignty and a crucial source of income, and those perceiving open registries as a threat to labour and safety protections on board and environmental protection in marine areas.116 It has been suggested that the concerns over labour, safety and the environment could be addressed more appropriately by tightening the duties of flag states or establishing international marine inspection centres around the globe,117 rather than requiring a genuine link as a condition of nationality.118 As I will discuss below, in the area of aviation, states have established high standards of safety by doing both: maintaining genuine link requirements and establishing international inspection mechanisms. It is important to recall the socio-economic and political context within which the open registration practice flourished and continues to dominate ship registration. The proliferation of open registries began largely in the interests of the western businesses to relocate registration away from their home countries, in order to avoid the prohibition laws in the US,119 as well as due to the increasing regulation or labour protections at home countries causing reduction in profits.120 It was at the initiative of such businesses and political classes in developed and developing states that certain developing states began setting up open registries.121 The appeal for developing states was the revenues that could be generated from fees of registration and maintenance of registration. Typically, no or minimal income tax is charged on the ship or its owner by the open registry flag state.122 Paradoxically, some of these open registries are actually headquartered in the US or the UK, and not in the country which they belong to.123 The actual registration process usually takes place in consular offices

115 UNCTAD Review of Maritime Transport 2014, UNCTAD/RMT/2014, 38. 116 GK Walker, 71; L Campling and A Colas, ‘Capitalism and the sea: Sovereignty, territory and appropriation in the global ocean’ (2018) 36(4) Environment and Planning D: Society and Space 776, 784–785; NP Ready, Ship Registration, 2nd edn (London, Lloyd’s of London Press 1991), 162 (Explains that the lack of inspections and presence of untrained labour in ships registered with a flag of convenience have been causally linked to some major oil spills at sea.) 117 SW Tache, ‘The Nationality of Ships: The Definitional Controversy and Enforcement of Genuine Link’ (1982) 16(2) The International Lawyer 301–312. 118 GK Walker, 77–78; HE Anderson, III, ‘The Nationality of Ships and Flags of Convenience’ 169. 119 CF Llinas Negret, ‘Pretending to be Liberian and Panamanian; Flags of Convenience and the Weakening of the Nation State on the High Seas’ (2016) 47(1) Journal of Maritime Law and Commerce 1, 4. 120 1970 Rochdale Report on Shipping Industry, 71. 121 NP Ready, 26 (Explains that the earliest examples of open registry use include the United Fruit Company’s moving of all its vessels’ registration from the US to Honduras in the early 20th century. Notes that the United Fruit Company practically controlled the country and history tells us the mass atrocities committed by UFC in Honduras, the effects of which continue to this day.) 122 Rochdale Report, 51. 123 The Liberian registry is headquartered in the US, the Bahamas Registry is headquaretered in the UK, and the Cambodian Registry is headquartered in Singapore.

74  Nationality as a Legal Bond in International Law of the registry state located in foreign countries.124 The benefits for the open registry state come at a cost of high dependency to other countries which exercise significant influence on international maritime and trade.125 Nationality shopping is not a usual practice for the original possessors of nationality, individuals. But it is often practiced by ships and corporations. For corporations, this gave rise to a debate among commentators on the appropriate links for granting corporate nationality in the IIL context. Nationality shopping for ships and corporations have been objected to as enabling the beneficiaries of these objects to legally avoid or minimise taxation, avoid certain regulatory burdens, and engage in certain illegal activities, such as money-laundering, terrorism financing, modern slavery, human or drug trafficking, behind a cloud of corporate structures anonymising the perpetrators. This is enabled by the absence of oversight by the state of nationality and/or by the opaque of trail of ownership and relationships created by these practices. In fact, in many instances the two types of nationality shopping are combined, where a ship carrying a flag of convenience is also owned by several layers of shell corporations incorporated in various jurisdictions thereby legally distancing the entire operation of the ship from its beneficial owners.126 On the other hand, nationality-shopping has been widely considered a legitimate exercise for beneficiaries seeking to utilise the best regulatory framework available to increase their profits and reduce the regulatory risks arising from engaging in international trade and investment.127 This tension between nationality shopping being a stimulator of economic activity and an enabler of abusive practices, illegitimate or otherwise, features in the analysis throughout this book. ii. Aircraft International and national legal regimes governing commercial aircraft are anchored to the concept of nationality of the aircraft. Aircraft carry the flag of their state of nationality and are governed by the laws of their flag state. Pursuant to the Chicago Convention on International Civil Aviation,128 aircraft acquire nationality by registration, just like ships do.129 Dual nationality is expressly prohibited by Article 18 of the Chicago Convention. A major difference from the maritime regime is that the international and national regimes for civil aviation have not traditionally allowed for flags of convenience, as national regimes

124 Rochdale Report, 51. 125 NP Ready, 160. 126 UNCTAD Review of Maritime Transport, xi; UNCTAD, Action on the Question of Open Registries, TC/B/C.4/220 1981. 127 DF Matlin, ‘Re-evaluating the Status of Flags of Convenience under International Law’, (1991) 23 Vanderbilt Journal of Transnational Law 1017. 128 Convention on International Civil Aviation, 15 UNTS 295 entered into force 4 April 1947. 129 Convention on International Civil Aviation art 17.

Nationality of Objects  75 and bilateral treaties condition registration of aircraft upon strict ownership requirements. The Paris Convention,130 the predecessor of the Chicago Convention, required an aircraft to be wholly owned by the nationals of the flag state.131 For corporate owned aircraft, this meant that either the corporation must hold the nationality of the flag state or the ‘president or chairman of the company and at least two-thirds of the directors possess such nationality …’132 Though these ownership requirements do not appear in the Chicago Convention, national laws on aviation generally adopt such nationality requirements amounting to a ‘genuine link’ as a pre-condition of registration and operating licences for airlines.133 Such ownership and effective control requirements are also widely included in bilateral aviation agreements between states.134 Even if an aircraft is chartered to an operator having its place of business outside the aircraft’s flag state, under Article 83bis of the Chicago Convention, the duties of the flag state will be partially or fully assigned to the state where the operator’s principal place of business is located, thus maintaining genuine links between both the operator and the owner of the aircraft. The Chicago Convention itself does not refer to a ‘genuine link’ as a precondition of aircraft registration, yet such a link is adopted in state practice via domestic laws and bilateral agreements. In commentary, scholars have attributed several reasons to the acceptance of a ‘genuine link’ as a pre-condition of aircraft nationality in state practice. Air navigation and rights for landing in territorial land is generally subject to a ‘closed skies’ regime, in contrast to the freedom of the seas standard governing maritime navigation.135 In the latter regime, the overarching principle of the freedom to navigate renders unimportant the nationality of the ship for the functioning of maritime activities. This gives rise to opportunities for states to attract revenues by adopting an open registry model. The closed skies regime adopted in aviation gives rise to stricter controls by states over their air space and access to their airports usually under bilateral arrangements. This tightly controlled regime does not create

130 Art 1, Convention Relating to the Regulation of Aerial Navigation, 11 L.N.T.S. 173 opened for signature 13 October 1919 and entered into force 31 May 1920. 131 Art 6, Convention Relating to the Regulation of Aerial Navigation. 132 Art 7, Convention Relating to the Regulation of Aerial Navigation. 133 Art 4, Regulation (EC) No 1008/2008 of the European Parliament and of the Council of 24 September 2008 on common rules for the operation of air services in the Community (Recast); AS Williams, ‘The Interception of Civil Aircraft Over the High Seas in the Global War on Terror’ (2007) 59(1) Air Force Law Review 73, 129–30. 134 Eg EU Model Air Services Agreement, Art 2(2)(iii) available at https://ec.europa.eu/transport/ sites/transport/files/modes/air/international_aviation/doc/draft_horizontal_agreement_en.pdf; Art 3, US-Belize Air Transport Agreement Signed and entered into force on 16 October 2018. 135 P Donges Snodgrass, ‘Aviation Flags of Convenience: Ireland and the Case of Norwegian Airlines International’ (2015) 14 Issues in Aviation Law and Policy 245, 248–54; VP Cogliati-Bantz, ‘Disentangling the ‘Genuine Link’: Enquiries in Sea, Air and Space Law’ (2010) 79 Nordic Journal of International Law, 383, 418–20.

76  Nationality as a Legal Bond in International Law an ­opening for open registry states to flourish in pursuit of income from the aviation industry. Another difference between maritime and aviation that may be giving rise to the contrasting approaches to nationality concerns the differences in regulation of safety standards in these respective areas.136 It is often suggested that ship owners acquire flags of convenience to avoid enforcement of strict safety standards. In aviation, avoidance of safety standards by registering in a particular state would not be feasible, as flag states take their duties to maintain and enforce standards more seriously due to close monitoring over these by the International Civil Aviation Organization.137 The aviation standards on nationality demonstrate that even if there is no explicit international law standard on genuine link, states can in their national laws and treaty practice adopt such a standard. This allows states to better regulate the activities in the aviation sector and minimise the creation of loopholes that can give rise to these actors operating in a convenient legal vacuum and in anonymity. The standards in aviation and maritime provide useful lessons on the pitfalls and opportunities to regulating corporate nationality in IIL. B. Corporations Neither international law, nor domestic laws provide much clarity on the meaning of and the criteria for nationality as it may be applied to corporations. One of the reasons behind this may be the lack of the human characteristics that were traditionally essential to attribution of nationality to individuals, such as the ability to form a bond of allegiance to a state,138 to share a common history, culture, ethnicity, political convictions or values.139 This could cause logical difficulties in attributing nationality to legal persons.140 But this does not explain the difference between corporations on one hand and ships and aircraft on the other in terms of attribution of nationality. The same reasons relating to lack of human characteristics also apply to ships and aircraft, yet there are rules governing their nationality under international law and national laws. There are no equivalent formal standards in international law or commonly found domestic rules on corporate nationality. This difference may be explained by the essential role nationality plays in regulating activities of ships and aircraft due to their activities across borders or

136 P Donges Snodgrass, ‘Aviation Flags of Convenience’ 258–60. 137 ICAO Safety www.icao.int/safety/Pages/default.aspx. 138 A Vermeer-Künzli ‘Nationality and Diplomatic Protection: A reappraisal’ 77. 139 K Hailbronner, ‘Nationality in Public International Law and European Law’ 35. 140 Y Hadari, ‘The Choice of National Law Applicable to the Multinational Enterprise and the Nationality of Such Enterprises’ (1974) Duke Law Journal 1, 3; J Schokkaert and Y Heckscher, ‘Protected Investors Nationality’ (2009) 10(5) Journal of World Investment and Trade 699.

Nationality of Objects  77 in areas not governed by state jurisdiction. Despite corporations also routinely acting across borders, the necessity to link a corporation to a state with the bond of nationality has arisen considerably less often both for purposes of national laws and international law. The legal structures used by corporations in their cross-border activities and the highly fragmented legal orders governing their cross-border activities are tightly anchored in domestic legal systems. This fragmented attachment to the national legal systems also explains the lack of a general treaty governing corporate entities in the international sphere analogous to UNCLOS or the Chicago Convention. No treaty with such a global reach has been adopted for governing cross-border corporate activity, which provides a global recognition that all bodies corporate shall be attributed a nationality. Yet for purposes of international law, nationality is the chief determinant for attributing a legal person to one state or another, as it is for ships and aircraft. The ICSID Convention is the only example of a widely ratified treaty, yet with a very narrow mandate limited to investor-state dispute resolution, containing a formal attribution of nationality to juridical persons, including corporations.141 Domestic laws governing corporate activity, including cross-border activity, have used various links to connect corporate actors to a state for various purposes. These include nationality, domicile, seat, incorporation, identity of controllers or beneficial owners, and place of business activities.142 When nationality and domicile are used, these are in turn determined by reference to links such as incorporation, seat, or controllers’ identity. The most essential function of the legal link between a state and the corporation is the legal recognition of the corporation’s existence and assigning the law governing the corporation, lex societatis.143 Connecting factors are also used to determine issues such as applicable rules on taxation, labour standards, availability of certain types of financing, rules on insolvency, and rules on stock exchange listing. Different aspects of a company’s affairs could be linked to different states and be governed by different laws, such as the contracts it may enter into or the taxation of its income. Lex societatis governs issues such as establishment, possession of legal personality, capacity to have legal rights and obligations, regulation of internal corporate matters, liability of the company’s members, directors and employees and the company’s demise. It is rare to see references to nationality in domestic laws as the determinant of lex societatis. The general trend is reference to the place of incorporation or the real seat of the company; however, among the jurisdictions that have been considered in this book, France uses nationality as the determining criterion of the law governing the company. In order to determine the nationality of the company, though, French law refers to the real seat



141 Art

25, ICSID Convention. ch 3, Section II. 143 This is explored in greater detail in ch 3, Section II. 142 See

78  Nationality as a Legal Bond in International Law as the connecting factor. This means that under French law companies that have their real seat in France will have French nationality, and thus will be governed by the laws of France. Nationality, as a connecting factor, has traditionally been most relevant in international and domestic law for purposes of a state’s espousal of a diplomatic claim on behalf of a corporation. This, as will be explored in detail in Chapter 4,144 has a domestic law and an international law angle. It is the state espousing the claim that will determine under its domestic law what criteria will be applicable to determine its corporate nationals. International courts and tribunals may or may not recognise and give effect to such choice under international law standards on diplomatic protection. Another area where nationality of a corporation may have to be ascertained is found in the rules of origin under the international trade regime for services.145 Under the international trade regime, nationality of a corporation will influence the determination of the origin of the service provided, which will in turn determine the trade regime applicable to the service provision.146 Nationality has also been adopted as an eligibility criterion for overseas investment insurance or financing by home states, for both corporations and individuals.147 Finally, an important area where the nationality of a corporation may have to be determined is public procurement, including bids for providing goods and services, and privatisation of public services. The most salient present-day consideration of corporate nationality has been taking place in the area of international investment law, as nationality often determines the type of protection offered to foreign investors. The lack of international or domestic law standards on corporate nationality distinguishes the recognition and enforcement of corporate nationality by international tribunals from individuals’, ships’ and aircrafts’ nationality. This is because the most fundamental principle of international law on nationality cannot de facto be applied to determine corporate nationality: it is for each state to determine who its nationals are and that only in exceptional circumstances that nationality may not be recognised or enforced for the purposes of international law. The absence of domestic procedures for corporations to acquire

144 Section I. 145 O Cadot, A Estevadeordal, A Suwa-Eisenmann, T Verdier The Origin of Goods: Rules of Origin in Regional Trade Agreements (Oxford, Oxford University Press 2006) 122–123 (explain that the same uncertainty found in other areas of international law on corporate nationality is also present in the context of rules of origin in services). 146 D-K Dinh, ‘The Standstill of Rules of Origin for Services: Towards a ‘Substantial Transformation’ Approach’ (2016) 19(4) Journal of International Economic Law 845, 851 (The nationality of suppliers as legal persons is determined based on a combination of various criteria. The most typical ones include place of incorporation, place of corporate seat, substantial business operation, and nationality of the owner or controller of the company.) 147 For instance, the eligibility requirements of the Overseas Private Investment Corporation in the US requires companies to be US corporations with at least 50% ownership by US Citizens or US corporations, and for entities established outside the US, it requires 95% ownership by US citizens or corporations (www.opic.gov/doing-business-us/applicant-screener/insurance-eligibility-checklist).

Nationality of Objects  79 nationality analogous to individuals, ships and aircraft means that corporate nationality cannot be determined by reference to the rules of the granting state. Instead, when the issue comes before an international tribunal, it usually has to determine the nationality of the company for itself with little guidance from domestic law on the question of nationality. This gives the tribunal a greater discretion over the question of nationality. If, rarely, a relevant domestic law does prescribe a method for determining the nationality of a company, that method should have priority. An international tribunal may refuse to give effect to such nationality under international law for the same reasons they may do so for individuals’ nationality. A fundamental question that has been occasionally posed in debates relating to corporate nationality is whether ‘nationality’ is an appropriate connecting factor for corporations under international law.148 The two main reasons of criticism include the companies’ inability to have allegiance to a state, which is the traditional basis for granting nationality to individuals, and unsuitableness of attribution of nationality to companies with global businesses.149 Why not simply adopt directly, criteria already used in domestic laws such as incorporation, seat, place of principal business or shareholding or management rights, instead of opting for nationality which is often defined with reference to one or a combination of those factors? This approach is increasingly adopted in investment treaties where personal scope of the treaty is determined with reference to incorporation, seat, controllers or place of business rather than with reference to the ‘nationality’ of the corporation. Yet, corporate nationality will remain highly relevant in the context of IIL due to a significant amount of investment treaty disputes being settled under the ICSID Convention which adopts nationality as a connecting factor. I argue in this book that ‘nationality’ still lingers on as a connecting factor for corporations under international law and should continue to do so. International law continues to be largely based on the nation-state model, despite the changes brought by developments such as increasing globalisation of economic activity and the expansion of international human rights law. Nationality implies, or at least it should imply, a meaningful bond between a state and the corporation. Nationality is particularly useful as a connecting factor where our highly globalised economy dominated by businesses with multi or transnational presence intersects with the international law of nation-states under which certain rights and obligations of corporations are tightly linked to a state actor.

148 S Rammeloo, Corporations in Private International Law: A European Perspective (Oxford, Oxford University Press 2001) 199; J Schokkaert and Y Heckscher, ‘Protected Investors Nationality’ (2009) 10(5) Journal of World Investment and Trade 699, 712 (Referring to M J Wolff Private International Law 2nd edn (Oxford, Oxford University Press, 1950) 308 who argues that there can be no ‘nationality’ for legal persons); See on the same point in relation to ships, LB Sohn et al, 116 (who pose the question whether it is misleading to use the term ‘nationality’ in reference to ships.) 149 S Rammeloo, Corporations in Private International Law 199.

80  Nationality as a Legal Bond in International Law Anchoring entities that form a part of a global business enterprise to a legal system based on sufficiently strong links allows for a more robust and certain allocation of rights and duties among states, corporations, and societies which are the ultimate beneficiaries or victims of corporate activity. This is not to say that nationality in this context does not have any limitations, particularly when corporations have links with different levels of effectiveness to several different states at any time. Still, nationality can be a useful anchor in determining which of these connections should prevail for purposes of international law. I explore this in more detail in Chapter 6 below.150 It is likely that in some cases, a corporation or a group will have effective links with more than one state, which can give rise to a corporation having dual or multiple nationalities. In such situations, analogies with how multiple nationalities are dealt with for natural persons under international law may prove useful. In analysing what links may be used to determine corporate nationality analogies with ship and aircraft nationality may prove useful due to the shared fictional legal character of these objects. III. CONCLUSION

In this chapter, I provided an overview of nationality as it applies to individuals, ships, aircraft, and corporations. The standards for nationality of individuals are the most advanced ones, though there are still some areas of contention and uncertainty when it comes to assessing the existence and effectiveness of nationality. For ships and aircraft major international treaties in maritime and aviation recognise that these objects must have a nationality which is to be determined by reference to their state of registration. There is less clarity over whether there is an international law standard on the links required to register a ship or an aircraft, as this is left to the flag state’s determination. After this point, maritime and aviation regulations have followed in different directions on the effectiveness or genuineness of the links required for granting nationality. The law of the sea provided fertile ground for open registries to proliferate in state practice thereby rendering the ‘genuine link’ standard in UNCLOS a standard for assessing the post-registration relationship between the flag state and the ship, rather than being a pre-condition of nationality. In the aviation field, despite the lack of a ‘genuine link’ standard in the Chicago Convention, state practice widely adopted various effective links that amount to a genuine link as a pre-condition of nationality. The questions of whether and when the ‘genuine link’ standard is applicable for individuals’ and objects’ nationality or what constitutes a ‘genuine link’



150 Section

II(A).

Conclusion  81 have given rise to disagreements and controversies. Having the phrase ‘genuine link’ as a standard in a treaty does not guarantee that it will be applied as a precondition of nationality, as we have seen in the maritime area. Yet, not having it as a treaty standard does not mean that it will not be present in state practice, as we have seen in aviation and natural persons. For corporations, there is lesser clarity in international law as to how their nationality should be determined. Unlike for natural persons, aircraft and ships, international tribunals cannot begin their analysis of corporate nationality from the granting state’s standards on corporate nationality. This gives greater discretion to international tribunals in assessing a corporate investor’s nationality. Having argued in this chapter for the usefulness of ‘nationality’ as a connecting factor for corporations under international law as a guarantor of a meaningful connection between the state and the person or object, I consider the genuineness of the link between the state and the corporation essential to the discussion of corporate nationality. Taking stock from the experience from the other more established areas of international law discussed in this chapter, this book will employ genuine link not as a legal standard which has a fixed legal meaning, but genuine link as a descriptor of the link or links that should exist for a particular nationality to be attributed to a corporation.

3 Distinguishing Features of Corporations for Purposes of Nationality

C

orporations are fictional persons with unique features, such as ­separate legal personality, limited liability, ability to possess shares in other corporations, and perpetual existence. These unique features bring an additional layer of complexity for international courts and tribunals when ascertaining the nationality of a corporation, particularly in a transnational setting. Corporate law treats the corporation legally separate from its managers and shareholders who may also be corporate entities. In a transnational business context, several factors may link a corporation to different states. Its place of incorporation may be in one state, its business activities stretching over several states, and its direct and indirect shareholders from several other states. Such are situations that one comes across regularly in international investment law (IIL). To construct a solid approach to corporate nationality under IIL in this book, this chapter unpacks the key distinguishing features of corporations that fundamentally influence the question of corporate nationality. Besides the unique features of corporations, it is essential to understand the criteria commonly used to legally link corporations to a state under domestic laws and private international law for purposes of identifying the law governing the corporation (lex societatis). While nationality is the primary connecting factor legally linking natural persons to a state,1 for corporations other connecting factors are often used in domestic laws. Under most legal systems, companies’ place of registration, domicile or seat act as the criteria for connecting a company to a state and determining the lex societatis.2 The lex societatis governs issues such as establishment, possession of legal personality, capacity to have legal rights and obligations, regulation of internal corporate matters, liability of the corporation’s members, directors and employees and the corporation’s demise. Lex societatis fulfils a role analogous to what nationality does for natural persons, as it governs the existence, capacity, internal affairs



1 The 2 The

other links include domicile, residence and asylum seeker status. law governing the company, lex societatis, will be further elaborated below in Section III.

The Corporation as a Fictional Creature of the Law  83 and demise of the corporation.3 The same criteria for determining lex ­societatis are often adopted in investment treaties and used in arbitral jurisprudence to determine nationality. It is important to understand the features of the key lex societatis criteria as these largely overlap with the criteria used to determine corporate nationality. In this chapter, I will deconstruct the corporation as it is recognised and governed under domestic laws. One cannot have an informed discussion of corporate nationality without a clear understanding of basic features of and legal principles on corporations. The chapter begins by explaining the key features of the corporate entity. It provides a brief analysis of the theories concerning the origin and purpose of corporations, as these theories inform the approach taken to resolving issues of corporate governance and regulation. It elaborates on the core features of the modern corporation, ie separate legal personality and limited liability. It then analyses the different theories on the law governing the corporation, as those theories are often used by international courts and tribunals when determining the nationality of companies. Finally, this chapter will contextualise corporate personhood within a transnational operating environment by considering the place and uses of the corporation in a global economy within which corporate investors benefit from IIL protection. I.  THE CORPORATION AS A FICTIONAL CREATURE OF THE LAW

The corporate person is a legal fiction4 possessing features such as separate personality, limited liability, perpetual existence, transferable shares and the ability to acquire other companies’ shares. Once created, a corporation has the capacity to acquire rights and incur liabilities of itself, separate from those of its shareholders, directors or employees.5 If the chosen type of the corporation provides for limited liability of the shareholders, then the corporation’s shareholders will not be held liable personally for the former’s obligations.6 3 It is also important to bear in mind that different aspects of a company’s affairs could be governed by different laws, such as the contracts it may enter into or the taxation of its income. See S Rammeloo, Corporations in Private International Law: A European Perspective (Oxford, Oxford University Press, 2001) 131, fn163. 4 Case 81/87 R v HM Treasury and Commissioners of Inland Revenue, ex p Daily Mail and General Trust plc [1988] ECR 5483 (The CJEU emphasised that: ‘19. … it should be borne in mind that, unlike natural persons, companies are creatures of the law, and in the present state of Community law, creatures of national law. They exist only by virtue of the varying national legislation which determines their incorporation and functioning.’) 5 Corporations acquire legal personality upon completion of registration with the relevant authorities. See, ie, French Commercial Code Art L210-6; United Kingdom Companies Act 2006, s 16. 6 In many jurisdictions besides the corporations that grant limited liability to its shareholders, there are other types of corporations which have a separate legal personality but their shareholders do not benefit from limited liability. For instance, according to Art L226-1 of the French Commercial Code ‘Partnerships Limited by Shares’ has a separate personality from its partners, but its ­managing

84  Distinguishing Features of Corporations for Purposes of Nationality By immunising the shareholders to the liabilities of the corporation, the limited liability principle further detaches the corporation from its shareholders, beyond what the separate personality principle does.7 Perpetual existence means that a corporation’s existence will not be affected by changes of shareholding through share transfer or death of a shareholder. A corporation will survive such events and exist perpetually or for a fixed period of time stated in its constitution. This is complemented by the transferability of corporate shares as intangible assets, which makes corporate shares an attractive instrument for investment. And finally, a corporation can acquire shares in other companies, which is foundational to the existence of holding companies and multinational corporations.8 The corporation is not an end in itself, but it is a means to an end for its creators or owners. Different theories exist on the purpose of corporations, and these will be outlined in the next section. Whichever theory is adopted on the purpose of a corporation, the immediate utility of a corporation is to provide an efficient organisational form and structure for the production of economic goods and benefits.9 As a fiction and an instrumentality, corporations have the unique features listed in the previous paragraph, which individuals or ships and aircraft do not possess, that bring additional layers of complexity to the way in which their nationality can be determined. Separate personality, limited liability, transferability of shares and perpetual existence principles limit the influence of the shareholders’ nationality on the corporation’s nationality. The ability to acquire other companies’ shares adds further layers of complexity to the nationality assessment, as it makes the creation of corporate groups possible. Among these core principles, the separate personality and limited liability have a direct bearing on the assessment of the nationality of corporations and they have often been invoked in investment arbitration as reasons for determining the nationality of corporate investors one way or another.10 This part will first provide a brief analysis of the theories concerning the origin and purpose of ­corporations,11

partners have the capacity of traders and are fully liable for the corporation’s debts jointly with the corporation, whereas the non-managing partners are not liable personally for the corporation’s debts. However, use of these types of corporations has become rare in practice. 7 A Yilmaz, ‘Corporate Personality in ICSID Arbitration’ (2012) 15(5) International Arbitration Law Review 172, 173. 8 PI Blumberg, The Multinational Challenge to Corporation Law: The Search for a New ­Corporate Personality (New York, Oxford University Press, 1993) 56 (Notes that New Jersey was the first state in the US to accept acquisition of shares in other companies by a series of acts enacted in 1888, 1889, and 1893.) 9 S Kim Ripken, Corporate Personhood (Cambridge, Cambridge University Press, 2019) 8. 10 See ch 5. 11 This is a very limited and short analysis done only for purposes of background to this part of this chapter; for a detailed analysis of the subject see SK Ripken Corporate Personhood; J Dine The Governance of Corporate Groups (Cambridge, Cambridge University Press, 2006) and LE Talbot Critical Company Law (London, Routledge-Cavendish, 2008).

The Corporation as a Fictional Creature of the Law  85 as these inform how the core features of corporations are interpreted. The part will then provide an analysis of the principles of separate personality and limited liability, and the grounds for disregarding these principles. A.  Origin and Purpose of Corporations The theories concerning the origin and purpose of corporations directly influence how the elements of corporate personality and their consequences are regulated and interpreted.12 Two conceptions have been dominant in this regard.13 The first conception, the socio-legal approach, understands law as ‘an expression of social processes which can include class, culture, ideology politics and the (political) economy’. In this conception, company law reflects these processes and the company is a creation of the state law. Therefore, it is not and should not be seen isolated from the social and economic reality in which it is embedded.14 The second conception, the contractual approach, considers the company as a series of contractual arrangements between the incorporators/ shareholders, directors, creditors, consumers and employees. In this perspective, the sole objective of the company is to maximise its profits either free from state intervention or in an environment where the state intervenes only to the extent necessary for maintaining efficient competition in the market.15 What the two camps agree on is that companies are fictional persons. Both camps recognise that it is through specific legal mechanisms that companies are created with particular features. If there were no laws providing for features such as limited liability or transferable shares, it would be beyond the autonomy of the parties to create an entity with such features producing binding effects on third parties. The approach of any given jurisdiction on the theoretical foundation of companies has a direct bearing on corporate personality and affiliated concepts. Increasingly, a mixed approach is taken in jurisdictions whereby some aspects of the corporation are regulated in light of a socio-legal approach and other aspects are regulated in light of a contractual approach.16 Most relevant to the

12 J Dine, The Governance of Corporate Groups 1. 13 LE Talbot, Critical Company Law 1; JL Weiner, ‘The Berle-Dodd Dialogue on the Concept of the Corporation’, (1964) 64(8) Columbia Law Review 1458. 14 LE Talbot, Critical Company Law 1; PI Blumberg, The Multinational Challenge to ­Corporation Law 29–30; EM Dodd, ‘For Whom Are Corporate Managers Trustees?’ (1932) 45 Harvard Law Review 1145. 15 LE Talbot, Critical Company Law 1; J Dine, The Governance of Corporate Groups 8 (Defines this approach under economic contractualism.); AA Berle, ‘For Whom Corporate M ­ anagers Are Trustees: A Note’, (1932) 45 Harvard Law Review 1365, 1367. 16 For instance, in the UK, a contractual approach jurisdiction in many respects of its regulation of companies, the current Companies Act 2006, s 172 stipulates that directors’ duty to promote the success of the company encompasses the impact of company operations on the community and the environment.

86  Distinguishing Features of Corporations for Purposes of Nationality understanding of corporate nationality is the impact of these theories on the regulation and interpretation of separate corporate personality and limited liability. For instance, if the law governing the corporations is built upon a sociolegal approach, social concerns will inevitably be brought not only into how corporate personality is defined but also into how the boundaries of concepts such as separate personality and limited liability are assessed.17 Grounds for lifting the corporate veil to disregard separate personality and limited liability would be more sensitive to socio-economic impacts and context of corporate activity in a legal framework built around the socio-legal approach in comparison to a legal framework built around the contractual approach. Furthermore, states that adopt the place of incorporation as a criterion for determining the lex societatis tend to view company law as ‘enabling and facilitative’ for its founders and investors reflecting the contractual approach, while those adopt the corporation’s real seat or centre of administration tend to view company law as ‘public and mandatory’,18 reflecting the socio-legal approach. As it will be demonstrated in Chapter 5 below, a similar distinction between ‘socio-legal’ and ‘contractual’ approaches can be seen in different IIL instruments’ or tribunals’ approaches to corporate nationality and personal scope requirements as they consider the features of corporation in their assessment. B.  Separate Legal Personality and the Principle of Limited Liability Under the doctrine of separate legal personality, the corporation is a legal person with rights and obligations of its own, distinct from the rights and obligations of its members, shareholders, directors and employees.19 As a result of this, the 17 See, ie, S Rammeloo, Corporations in Private International Law 5 (Quotes H Richards’ description of the EU’s approach to company law which reads as follows ‘Thus EC activity in respect of company law applies the public policy balance, well known in the national context, to the creation and functioning of the Internal Market. The essential elements are, on the one hand, the creation of a climate favourable for corporate enterprises and, on the other, the provision of equivalent standards of protection for those dealing with companies.’ In ‘What is EC corporate law?’ in AC Trenting (managing ed.) Corporate Law: The European Dimension (Butterworths, 1991) 1). 18 AF de Sousa, ‘Company’s Cross-border Transfer of Seat in the EU after Cartesio’ Jean Monnet Working Paper 07/09’ 4, available at www.jeanmonnetprogram.org/papers/09/090701.pdf. 19 P Blumberg, The Multinational Challenge to Corporation Law 3 (The acceptance of this nature of corporation dates back to the 15th century in England, when only a few business organisations, such as trading companies and craft guilds, had been granted a corporate charter.) In England, the seminal case concerning principles of separate personality of the business corporations and limited liability of the shareholders was the House of Lords decision in Salomon v A. Salomon and Co. Ltd [1897] AC 22. The House of Lords emphasised that even if the corporation is dominantly run by one shareholder holding 39,994 of the 40,000 shares, it is still a separate legal personality according to the Companies Act 1862 and therefore, the shareholders will not be held liable for the undertakings of that separate legal personality. The Salomon decision has been the starting point of discussion in many England and Wales cases in determining whether the corporate veil should be lifted or not. See, ie, The Gramophone and Typewriter, Limited v Stanley [1906] 2 KB 856; Tunstall v Steigmann[1962] 2 QB 593; Adams v Cape Industries Plc [1990] B.C.C. 786; Prest v Petrodel Resources Limited and others [2013] UKSC 34.

The Corporation as a Fictional Creature of the Law  87 shareholders of a corporation do not have a direct entitlement on the assets of the corporation, but only a right to share in profits through a distribution of dividends. The corporation can enter into contracts, acquire property, be a party in legal proceedings, pay taxes and incur debts in its own legal capacity distinct from its shareholders or other persons affiliated with it. Likewise, its shareholders’ personal obligations or rights cannot be attributed to the corporation. Corporations having a separate legal personality is considered advantageous for several reasons. In particular, it sustains certainty and stability of business, by legally distinguishing the affairs of the shareholders and managers from the corporation’s affairs in three crucial ways: (1) corporate assets or liabilities do not mix with those of its shareholders and managers;20 (2) changes in shareholding do not affect the existence or legal status of the corporation; and (3) corporations have the capacity to exist for an indefinite period even after their incorporators or shareholders cease to exist due the separation of the entity from its shareholders and creators.21 The principle of limited liability shields the shareholders of a corporation from the latter’s liabilities. The principle was adopted in the nineteenth century, having been perceived as a necessity in a capitalist economy to encourage investment in corporations and risk taking, thus increasing the level of economic activity in the marketplace.22 It was also called for by the changes in the management of companies. As the number of shareholders in companies increased and management was distanced from ownership, it was considered unfair to hold investors of the corporation responsible against the creditors of the company beyond their capital contribution.23 It has become one of the main principles of modern corporate law in both civil law and common law systems, amid strong criticisms regarding the risks inherent to it.24 Limited liability enables the shareholders to shift, to a large extent, the risks of the business to the company’s creditors.25 The liability of the shareholders for the obligations of a limited liability company will be limited to the amount

20 PL Davies, S Worthington and E Micheler, Gower and Davies’ Principles of Modern Company Law, 9th edn (London, Sweet and Maxwell, 2012), 42. 21 Gower and Davies’ Principles of Modern Company Law 44–46; PI Blumberg, ‘Limited Liability and Corporate Groups’ (1985–1986) 11 Journal of Corporate Law 573, 588. 22 P Muchlinski, ‘Limited Liability and Multinational Enterprises: a case for reform?’ (2010) 34 Cambridge Journal of Economics 915; PI Blumberg, ‘Limited Liability and Corporate Groups’ 604 (‘In a number of areas, pockets of shareholder liability survived, demonstrating that limited liability is not an essential condition for capitalist economic activity.’) 23 PI Blumberg, ‘Limited Liability and Corporate Groups’ 586; P Ireland, ‘Limited Liability, Shareholder Rights, and the Problem of Corporate Irresponsibility’ (2010) 34 Cambridge Journal of Economics, 837, 845. 24 P Muchlinski, ‘Limited Liability and Multinational Enterprises: a case for reform?’ 916; PI Blumberg, ‘Limited Liability and Corporate Groups’, 595, 604. 25 JD Cox and TL Hazen, Corporations 2nd edn (Philadelphia, Aspen Publishers, 2002) 100; F Easterbrook and D Fischel, ‘Limited Liability and the Corporation’ (1985) 52 University of Chicago Law Review 89, 91.

88  Distinguishing Features of Corporations for Purposes of Nationality invested in subscribing to shares in the company by the shareholder.26 When the corporation’s assets are not sufficient to meet its obligations, it is typically the creditors that will bear the consequences and not the shareholders. Limited liability thus encourages investment even in risky ventures by setting a maximum limit to the shareholders’ financial liability,27 and decreases monitoring costs for both investors and creditors, as stakeholders do not need to keep track of each shareholder’s individual wealth.28 The principal goal of limited liability principle corresponds to the principal purpose of IIL to encourage investment and risk taking by setting minimum legal standards that apply to shield investors, to an extent, from harm even in risky investment climates.29 C.  Abandoning the Fiction and Piercing the Corporate Veil All around the world, domestic laws enshrine the principles of separate entity and limited liability that fulfil an essential function of risk allocation and reduction in the existing economic order. It is nonetheless exceptionally possible to disregard these foundational principles. This is primarily achieved by the doctrine of ‘piercing the corporate veil’ which allows for looking behind the façade of the corporate entity to identify its shareholders or hold them liable for the obligations of the corporation. Grounds for piercing the corporate veil are often incorporated in statutes or developed by case law. Corporations can also contract out from limited liability for specific purposes; in which case the veil piercing will be classified as voluntary.30 In some circumstances, the disregarding of the separate personality is achieved not under the classic veil piercing doctrine, but by using other legal routes. Outside the classic veil piercing doctrine, although these are not technically considered veil piercing, one finds the de facto disregarding of the corporate veil most commonly in two situations: (1) certain areas of law, such as competition law, may treat the corporation and its shareholders as a single economic unit under certain circumstances prescribed by law;31 and (2) a parent company may have been considered to have voluntarily set aside the corporate veil by providing instructions to its subsidiaries in certain areas of the business, which may in turn give rise to a tortious liability directly for the parent if the 26 JD Cox and TL Hazen, Corporations 3. 27 JD Cox and TL Hazen, Corporations 101. 28 F Easterbrook and D Fischel, ‘Limited Liability and the Corporation’, 94. 29 A Yilmaz Vastardis and R Chambers, ‘Overcoming the Corporate Veil Challenge: Could Investment Law Inspire the Proposed Business and Human Rights Treaty’, (2018) 67 International and Comparative Law Quarterly 389, 406. 30 K Vandekerckhove, Piercing the Corporate Veil (Deventer, Kluwer Law International, 2007) 16; Corporations might volunteer to lift the veil, where they provide a collateral or a guarantee for their subsidiaries. 31 ThyssenKrupp Liften Ascenseurs NV and Others v European Commission Cases T-144/07, T-147/07 to T-150/07 and T-154/07, para 5.

The Corporation as a Fictional Creature of the Law  89 subsidiary’s implementation of the instructions, or the lack thereof, results in harms to third parties.32 For the purposes of this book, I will treat all these categories under veil piercing in the following section. The current legal frameworks on disregarding corporate personality and veil piercing are far from being structured. In Talbot’s words, this is because ‘veil piercing is not an end in itself but a means to an end.’33 It is prescribed by legislation or applied by courts ‘to find a solution to an inequity’ created by the fictional personality of the corporation.34 The application of the doctrine slightly differs from one jurisdiction to another, depending on the approach of the legislation and the judiciary regarding the purpose and origin of corporations. However, it is possible to identify various common grounds applicable in both civil and common law jurisdictions. The grounds accepted in domestic laws have been considered by international tribunals in dealing with the question of the corporate veil. In this respect, investment arbitration tribunals considered piercing the corporate veil in their analysis of corporate nationality, particularly when assessing whether the nationality of the shareholders are relevant to the determination of the corporation’s nationality. The issue of the corporate veil will be discussed in two strands in the context of corporate investors’ nationality in this book. First, I demonstrate in Chapters 5 and 6 that IIL already allows disregard of the corporate veil in investment treaties and the ICSID Convention to protect the direct and indirect shareholder investors. Second, IIA tribunals when dealing with the question of the corporate veil in the context of investor nationality, often analyse the question in light of the limited grounds for veil piercing found in domestic laws. A brief analysis of the domestic law grounds for disregarding the corporate veil in the following sections aims to provide a background and context to the interaction between corporate nationality and the corporate veil under international law and IIL discussed in the rest of this book. D.  Veil Piercing in Domestic Laws Consequences of veil piercing in domestic laws can be divided into two main categories based on the purpose and the outcome of the act.35 First, the corporate veil is pierced to disregard the principle of limited liability, with the consequence of holding the shareholders or the directors liable for all or some obligations of the corporation.36 The second category is where piercing the veil is done

32 Chandler v Cape plc [2012] EWCA Civ 525; Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20. 33 LE Talbot, Critical Company Law 29. 34 Ibid. 35 A Yilmaz, ‘Corporate Personality in ICSID Arbitration’ 174. 36 Ibid.

90  Distinguishing Features of Corporations for Purposes of Nationality to identify the shareholders of the company for various regulatory purposes and does not necessarily result in holding shareholders or the directors liable.37 In such instances, it is not the limited liability principle that is disregarded, but only the separate personality principle. i.  Disregarding Limited Liability Disregarding limited liability may result in holding the shareholders or the formal or de facto directors of the company liable for the liabilities of the company.38 This is most commonly done to prevent abuses of legal personality. In France, for instance, limited liability is disregarded when a company is classified as a fictitious corporation39 which merely serves its shareholders’ interest in conducting high-risk commercial activities behind the veil of the corporation.40 The veil may also be pierced when the assets of the corporation are mixed with those of its shareholders to the extent that it is no longer possible to distinguish one’s assets from the other.41 The equivalent of the fictitious corporation in English law is the ‘sham’ or ‘façade’ corporation.42 In German law the issue is addressed by the doctrine of creation of false appearances by the shareholders of a corporation.43 Similarly in the US, the veil is lifted, if the corporation is considered ‘sham’, ‘puppet’, ‘shell,’ etc.44 Although the interpretation of abuse of personality varies slightly from one jurisdiction to another, the existence of an element of fraud and abuse of law coupled with excessive control by the shareholders are the common considerations taken into account by courts.45 Another exception to limited liability is the agency exception found in English law, which applies when the corporation is acting as the agent of its shareholders. An agency relationship will be assessed based on who receives the profits, who actually carries out the business, who appoints the persons conducting the business, who the brain of the business is and has constant and effective control

37 Gower and Davies’ Principles of Modern Company Law 215; K Vandekerckhove, Piercing the Corporate Veil 13–15. 38 Shareholders are considered de facto directors when, even though they are not the formal managers of the corporation, they exercise significant management functions. 39 JM Dobson, ‘Lifting the Veil in Four Countries: The Law of Argentina, England, France and the United States’ (1986) 35 International and Comparative Law Quarterly 839, 843. 40 K Vandekerckhove, Piercing the Corporate Veil 42. 41 Ibid. 42 Gower and Davies’ Principles of Modern Company Law 219; A Daehnert, ‘Lifting the corporate veil: English and German Perspectives on group liability’ (2007) 18(11) International Company and Commercial Law Review 393, 394. 43 K Vandekerckhove, Piercing the Corporate Veil, 62. 44 K Vandekerckhove, Piercing the Corporate Veil, 79; JD Cox and TL Hazen, Corporations 106. 45 Gower and Davies’ Principles of Modern Company Law, 219–23; M Moore, ‘A Temple Built on Faulty Foundations: Piercing the Corporate Veil and the Legacy of Salomon v Salomon’ (2006) Journal of Business Law 180, 193; JM Dobson, ‘Lifting the Veil in Four Countries’ 840–841.

The Corporation as a Fictional Creature of the Law  91 of the business.46 In these cases, the shareholders will be liable for c­ orporate obligations personally through the application of agent-principal rules.47 Shareholders may also be held liable as formal or de facto directors due to mismanagement of the corporation, breach of the corporation’s articles of association or breach of the applicable laws. Directors of a corporation could be held liable with their personal assets, in English,48 Dutch,49 German50 and French law51 if their mismanagement has caused loss to third parties or contributed to the insolvency of the corporation and the assets of the corporation does not meet its obligations. If the loss of the creditors is outside insolvency, then the directors or a parent company exercising managerial functions within its subsidiary may be held liable on the basis of tort/delict.52 Finally, a novel route for shareholder liability for the acts or omissions of a corporation is founded under the tort of negligence principles in common law.53 Although courts have explicitly rejected the notion that this constitutes veil piercing in the technical sense of the doctrine applied in the situations described above,54 I consider it a de facto and voluntary disregard of the veil by the shareholder itself. These cases involve parent companies that exercise close supervision and monitoring over certain policies and practices of their subsidiaries concerning health and safety in and around the workplace. In situations where third parties suffer harm as a result of defective policies or inadequate implementation by the subsidiary of these policies, the courts in England have found that the parent company may be directly liable under the tort of negligence for the harms otherwise resulting from the acts or omissions of the subsidiary.55 In these cases, the parent company’s assumption of responsibility

46 Smith, Stone and Knight Ltd. v Birmingham Corporation [1939] 4 All ER 116; A Daehnert, ‘Lifting the corporate veil: English and German Perspectives on group liability’ 395. 47 P Ziegler and L Gallagher, ‘Lifting the Corporate Veil in the Pursuit of Justice’ (1990) Journal of Business Law 292, 296. 48 Insolvency Act 1986, s 214. 49 K Vandekerckhove, Piercing the Corporate Veil 35. 50 Ibid, 62. 51 Ibid, 41; K Weissberg and MC Moissinac, ‘Piercing the Corporate Veil In France’ (1987) 6 International Financial Law Review 33, 35. 52 K Vandekerckhove, Piercing the Corporate Veil, 34; Dutch Supreme Court (Hoge Raad) 25 September 1981 (Osby-Pannan A/B v Las Verkoopmaatschappij BV), NJ 1982, no 443, In this case the parent corporation provided credit to its subsidiary, and in consideration received the latter’s actual and future assets as security. The effect of this arrangement was that the subsidiary seemed a financially sound corporation in the eyes of the third parties while in fact it had no assets for its creditors. The Supreme Court decided to lift the corporate veil of the subsidiary and attribute liability to the parent on the grounds that the parent should be tortiously liable against the creditors of the subsidiary where the facts demonstrate that the parent had significant influence over the subsidiary’s management and even though the parent was aware that the subsidiary was unable to satisfy its debts against third parties due to the security in the benefit of the parent, it had the subsidiary carry on with the business and thus harmed the third party creditors. 53 Chandler v Cape; Vedanta v Lungowe. 54 Chandler v Cape para 69. 55 See Vedanta v Lungowe.

92  Distinguishing Features of Corporations for Purposes of Nationality for the policies and practices of the subsidiary can be framed as a partial voluntary disregard of the corporate veil, only in regards to the area of health and safety, and not in regards to all other liabilities of the subsidiary as it would be the case in a classic case of veil piercing. ii.  Disregarding the Separate Legal Personality Under the second category of veil piercing, it is not the limited liability principle that is disregarded, but the separate personality principle. This type of veil piercing does not require existence of fraudulent or abusive behaviour by shareholders or directors, nor parent actively interfering with the policies or practices of a subsidiary. The Dutch ‘Identification (‘Vereenzelviging’) principle is the most established example of this type of veil piercing.56 Other examples include the ‘single economic unit’ doctrine under EU competition law,57 and the recognition of group companies as a single undertaking under accounting and reporting laws.58 Under the Identification principle the shareholders of the corporation are identified and they constitute a single economic unit with the corporation and its sister companies.59 As a result of identification, certain rights and duties of the parties, ie the corporation and its shareholder, may be attributed to each other or they may be treated as a collective. In fact, every veil lifting exercise for disregarding limited liability involves, as a first step, identification of the shareholders, and as a second, attribution of liability to them.60 The two types of veil lifting may often overlap; however, the distinction is not purely technical. The law may require increased transparency as to the shareholding and structure of certain types of large corporations, such as listed companies which amounts to disregard of separate corporate personality for purposes of identification. For instance, according to the UK Disclosure Rules, investors must disclose their shareholding in listed companies when it falls below or exceeds certain thresholds.61 This obligation of disclosure does involve looking beyond the veil; however, no liability is attributed to the shareholder. English courts have resorted to veil piercing for identification purposes in order to determine issues other than imposing personal liability on the shareholders.62 In F.G. (Films) Ltd,63 the court looked behind the corporate veil

56 K Vandekerckhove, Piercing the Corporate Veil 36. 57 See Case 170/83, Hydrotherm Gerätebau v Compact, [1984] ECR 2999, para 11. 58 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings. 59 K Vandekerckhove, Piercing the Corporate Veil 13. 60 A Yilmaz, ‘Corporate Personality in ICSID Arbitration’ 175. 61 UK Listing Authority Disclosure Rules and Transparency Rules, Rule 5.1.2. 62 Gower and Davies’ Principles of Modern Company Law 215. 63 Re F.G. (Films) Ltd [1983] 1 WLR 483.

The Corporation as a Fictional Creature of the Law  93 where a US company had incorporated a mailbox company in Britain in order to obtain a declaration that the film produced was British, and thus secure financing for filmmaking.64 This merely resulted in the British company being regarded as a US company in relation to the nationality of the film it produced. No liability was attributed to the shareholders for the obligations of the company. The purpose of FG Films incorporating in the UK is similar to the investor incorporating an investment vehicle in a home state that has favourable bilateral and multilateral investment treaties with potential host states: to benefit from the most favourable legal framework for the business.65 Similarly, when the separate personality of a corporation is disregarded in international investment law practice for determining the nationality of an investor, the purpose is not attributing liability to direct or indirect shareholders, but to identify their country of nationality. In fact, most investment treaties explicitly allow ‘reverse’ veil lifting in sections dealing with their personal scope of application, where the shareholders do not bear the liabilities of the company but instead they acquire a right to file a claim for the damage sustained by the company.66 Article 25 of the ICSID Convention allows, under certain conditions, a corporation’s nationality to be determined by looking at its controllers’ nationality. Similarly, investment treaties’ personal scope covers corporations who are owned or controlled, directly or indirectly, by nationals of the home state. In such cases, there may be several layers of corporate veils that are disregarded to identify the investor. But as will be seen in Chapter 5,67 in applying IIL rules on personal scope and nationality, some tribunals have refused to look behind the corporate veil to determine corporate nationality, holding that the case before them did not justify applying the exceptional domestic law grounds for piercing the corporate veil, such as fraudulent intent or abuse of corporate form. It is possible once the shareholders are identified they may later incur ­liabilities;68 however, attributing liability is not the goal of the identification exercise. The difference between identification and liability attribution is an important consideration to bear in mind when assessing a corporation’s nationality under IIL. The abusive elements69 required in domestic laws for veil lifting

64 Gower and Davies’ Principles of Modern Company Law 215–17. 65 JD Cox and TL Hazen, Corporations 104 (See also Sundaco Inc v State 463 S.W.2d 528 (Tex. Civ. App. 1970) for an example from the US. In this case, to circumvent state law mandating that businesses close on alternate weekends, a subsidiary corporation was formed to operate the business on the weekends that the business was not being operated by its parent.) 66 A Yilmaz Vastardis and R Chambers ‘Overcoming the Corporate Veil Challenge’, 397. 67 Section I. 68 For instance, if in ICSID proceedings the parent company is regarded as the claimant instead of the subsidiary through veil piercing, the parent company may incur certain costs regarding the proceedings; however, the reason of veil piercing is not attributing the costs to the parent, but to identify the true claimant in the proceedings for jurisdictional purposes. 69 JD Cox and TL Hazen, Corporations 107.

94  Distinguishing Features of Corporations for Purposes of Nationality for the purpose of attributing liability to shareholders are not relevant considerations when assessing a corporate investor’s nationality under international investment law, as the latter is an exercise of identification and not liability attribution. This will be especially important when the entity in question claiming to be the protected investor is a mere investment vehicle with no genuine business activities itself other than holding shares. In such cases, without seeking an element of fraud or abuse of law, tribunals should have the ability to look behind the corporate veil and identify the shareholders of the investor to carry out a sound assessment of their nationality.70 II.  CONNECTING A CORPORATION TO A STATE THROUGH LEX SOCIETATIS

A corporation can be linked to a state and its legal system for several purposes, such as taxation, insolvency, employment relations and governance. Different aspects of a corporation’s affairs may be governed by the rules of the same jurisdiction or they may be governed by different jurisdictions, and the criteria applicable to determining the law which a company or its affairs is subject to may differ from one jurisdiction to another.71 Thus, a company’s affairs may well be governed by the laws of one country for the purposes of its relationships with subcontractors, employment, social security and tax, while being governed by the laws of another country for the purposes of its existence, validity, functioning and demise, ie, the law governing the company or lex societatis.72 Since lex societatis fulfils a similar role to what nationality does for natural persons, then one way of determining a company’s nationality could be by reference to its lex societatis. But tying nationality formally to lex societatis would not assist in tackling nationality shopping by corporate investors in the IIL context. Instead, this would provide further legitimacy to nationality shopping as the variation of national rules on determining the lex societatis would allow and incentivise corporations to change their lex societatis with ease to a state that adopts place of registration as a connecting factor. Corporate investors already engage in this practice of acquiring nationalities of convenience based on registration in a state with which they have otherwise no links.73 Formally adopting lex societatis as the determinant of corporate nationality would endorse this practice and rather than moving away from it. 70 See ch 7, Section III for an application of this approach to determining corporate nationality in cases involving shell corporations under IIL. 71 D Kokkini-Iatridou and PJIM de Waart, ‘Foreign investments in developing countries – Legal personality of multinationals in international law’ (1983) 14 Netherlands Yearbook of International Law 87, 95. 72 T Bachner, Creditor Protection in Private Companies: Anglo-German Perspectives for a European Legal Discourse (New York, Cambridge University Press, 2009) 5–12. 73 See ch 5 Section I.

Connecting a Corporation to a State Through Lex Societatis  95 This is not to say that the theories for determining lex societatis cannot assist in ascertaining corporate nationality. In fact, as it will be explored in Chapter 5, IIA tribunals rely on these theories to determine a corporation’s nationality and I will rely on these theories in this book when exploring corporate nationality in the following chapters. The aim of this section is to introduce the two dominant theories on the law governing the corporation which will be referred to frequently in the analysis that will follow this chapter: the ‘theory of incorporation’ and the ‘real seat theory’. A.  Theory of Incorporation The theory of incorporation is a widely accepted theory for determining the law governing the corporation. The theory was born in England as a response to the needs of the English overseas trading companies that were conducting all their activities abroad but wanted to be subject to the laws of England in matters related to the company.74 The theory upholds the party autonomy principle,75 ie, the autonomy of the incorporators of the company to choose the laws that will form the lex societatis. The main advantage of the theory is the simplicity of identification of the place of incorporation. From the incorporating state’s point of view, it is entitled to regulate the entity that was created under its laws.76 For the company, its incorporators and the other third parties involved with the corporation, it provides a level of legal certainty and predictability, due to mainly the simplicity and transparency of incorporation.77 Under this theory, a company will be governed by the laws of the place of its registration. This will be the place of its registered office or statutory seat.78 For instance, under Section 1 of the Companies Act 2006, a corporation registered in the UK is governed by the Companies Act 2006.79 This means that companies incorporated in the UK must comply with the provisions of the Companies Act 2006 for matters regarding company law, even when they are

74 AF de Sousa, ‘Company’s Cross-border Transfer of Seat in the EU after Cartesio’ 4. 75 S Rammeloo, Corporations in Private International Law 16. 76 TC Drucker, ‘Companies in Private International Law’ (1968) 17 International and Comparative Law Quarterly 28; Base Metal Trading Ltd v Shamurin [2005] 1 WLR 1157 para 56. 77 P Paschalidis, Freedom of Establishment and Private International Law for Corporations (Oxford, Oxford University Press, 2012) 12; Base Metal v Shamurin para 56. 78 ‘Statutory seat’ is defined in Art 60(2) of the Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I Regulation) as ‘For the purposes of the United Kingdom and Ireland ‘statutory seat’ means the registered office or, where there is no such office anywhere, the place of incorporation or, where there is no such place anywhere, the place under the law of which the formation took place.’; See also P Stone, EU Private International Law 2nd edn (Cheltenham, Edward Elgar Publishing, 2010) 72. 79 Some other countries that have adopted the incorporation theory are Switzerland, Russia, the Netherlands, Ireland, Denmark, Canada, Australia and the US.

96  Distinguishing Features of Corporations for Purposes of Nationality operating abroad. If a company registered in the UK is carrying out activities solely outside the country together with a management located overseas, it will still be governed by UK law in matters related to company law, such as passing resolutions, keeping accounts, directors’ duties80 and distribution of dividends. As a rule, the laws of the state where a company’s managers are located or where its activities are carried out do not play a role. In some of the states that adopt the incorporation theory an exception to the incorporation rule is the treatment of the so called ‘letter-box’, ‘shell’ or ‘pseudoforeign corporations’.81 These entities are merely corporate vehicles that do not carry out actual business activity. Civil law incorporation jurisdictions such as the Netherlands, Switzerland and Denmark have specific provisions applicable to shell companies. These provisions do not have an impact on the existence and legal personality of the company, nor do they alter the lex ­societatis of the company in its totality, but simply replace some provisions of the lex societatis with their own rules. For instance, in the Netherlands, the Pro-Forma Foreign Companies (Formeel Buitenlandse Vennootschappen) Act 1998 requires that companies incorporated outside the Netherlands as merely shell companies without any genuine connection to the place of incorporation, and conduct the substantial part of their business in the Netherlands are required to comply with certain provisions of the Dutch company law, such as the rules on capital maintenance and accounting.82 Swiss law also excludes, for the sake of creditors, application of the laws of the state of incorporation of a pseudo foreign company to liability of the persons acting on behalf of the company where the business is incorporated outside but conducted in or from Switzerland.83 Instead, Swiss law will govern the representatives’ liability. Denmark adopts the real seat theory for tax purposes in order to prevent the evasion of its tax laws by incorporating a letter-box company abroad.84 In the UK, companies incorporated outside the UK but real seated in the UK will still be considered tax residents in the UK,85 in line with the fact that, depending on the issue considered, different connecting factors may be applied by a given jurisdiction.

80 Base Metal v Shamurin para 56 (‘A director’s duties to his company are inextricably bound up with these matters [internal management] and must therefore be governed by the place of the company’s incorporation.’) 81 P Paschalidis, Freedom of Establishment and Private International Law for Corporations 5. 82 S Rammeloo, Corporations in Private International Law 108–110; R Drury, ‘The ‘Delaware Syndrome’’: European Fears and Reactions’ (2005) Journal of Business Law 709, 720. 83 Article 159 of the Swiss Private International Law Statute, available in English on www. umbricht.ch/pdf/SwissPIL.pdf; R Drury, ‘The ‘Delaware Syndrome’’ 721. 84 R Drury, ‘The Delaware Syndrome’ 722. 85 In Wood and another v Holden (Inspector of Taxes) [2006] 1 WLR 1393 (The Court of Appeal examined whether a company incorporated in the Netherlands has its central management and control in the UK to be a UK tax resident); A Miller and L Oats, Principles of International Taxation 5th edn (Haywards Heath, Bloomsbury Professional, 2016) 54.

Connecting a Corporation to a State Through Lex Societatis  97 B.  The Real Seat Theory Under the real seat theory,86 the law governing the company will be the law of its place of incorporation and the place where the centre of its management and control are located.87 The real seat theory was developed in continental Europe during the nineteenth century, first in regards to natural persons, and later in regards to legal persons.88 Instead of the common law domicile of origin89 doctrine, civil law countries adopted the real domicile doctrine that connects the individual to the legal system of the place where s/he actually resides.90 Similarly, the real seat doctrine links the legal person to the place where it has its centre of administration, instead of establishing the link based solely on the birth place of the legal person, namely, its place of registration. French law stands out in its approach to lex societatis among the major real seat jurisdictions because it defines lex societatis with reference to the nationality of the company.91 Under French law, the company will be governed by the laws of the country of its nationality, and nationality of a company will be determined by reference to its real seat.92 The use of nationality as a criterion

86 This theory is referred to as the ‘theorie du siege reel’, or ‘siege social’ in France and Sitztheorie in Germany. See S Rammeloo, Corporations in Private International Law 11 fn 5. 87 Countries that adopt the real seat theory in Europe are France, Germany, Belgium, Spain, Greece, Luxemburg, Italy and Portugal. The European Union Council Regulation (EC No 2157/01 of 8 October 2001) governing The European Company (Societas Europea) also adopts the real seat theory in Art 7. It should be pointed out that Italy adopts a sui generis position by recognising the incorporation theory for companies incorporated and real seated outside Italy, while applying the real seat theory to companies that have their real seat in Italy, see Art 25 of the Italian Private International Law Code 1995; R Drury, ‘The ‘Delaware Syndrome’’ 710; S Rammeloo, Corporations in Private International Law 11. 88 S Rammeloo, Corporations in Private International Law 11; R Drury, ‘The ‘Delaware Syndrome’’ 711; L Collins et al Dicey, Morris and Collins: The Conflict of Laws 15th edn (London, Sweet and Maxwell, 2012) para 6-007. 89 Dicey, Morris and Collins: The Conflict of Laws para 6R-025 (‘(1) Every person receives at birth a domicile of origin: (a) A legitimate child born during the lifetime of his father has his domicile of origin in the country in which his father was domiciled at the time of his birth; (b) A legitimate child not born during the lifetime of his father, or an illegitimate child, has his domicile of origin in the country in which his mother was domiciled at the time of his birth; (c) A foundling has his domicile of origin in the country in which he was found. (2) A domicile of origin may be changed as a result of adoption, but not otherwise.’ 90 Robert Drury, ‘The ‘Delaware Syndrome’’, 711. 91 S Rammeloo, Corporations in Private International Law 196. 92 There have been exceptions to this rule. The French Cour de Cassation has put aside the siege social doctrine in determining the nationality of Societe Remington Typewriter in Societe ­Remington Typewriter v Kahn, Cour de Cassation, France, May 12, 1931, 1936 Dalloz Jurisp.I. 121, and held that the claimant was not a French corporation because it had its centre of operations in the US and not in France, and could not benefit from the provisions of the law of 30 June 1926 on commercial rentals which can only be invoked by French corporations; See for further DF Vagts, Transnational Business Problems 2nd edn (New York, Foundation Press, 1998) 111.

98  Distinguishing Features of Corporations for Purposes of Nationality to determine the lex societatis has been criticised as a method belonging to the domain of public international law rather than private international law.93 The real seat theory reflects the public and mandatory approach to company law based on the idea that the state has the right to exercise control over the activities conducted by natural and legal persons within its territory.94 Under the theory, a company will be ‘most closely connected’ to the state of its real seat.95 The theory aims at preventing circumvention of mandatory company law provisions of the state where the control and management of the company is located, by simply incorporating in another state.96 As a result, the country of real seat is able to remain in charge of the applicable policies regarding the protection of the creditors, shareholders and other stakeholders of the company.97 The real seat theory is also supported on the grounds that the state of the real seat of a company will have the most interest in regulating it as ‘a dominant proportion of the promoters, directors, officers, shareholders, and debt-security holders of a corporation is more likely to be concentrated in the country where the genuine head office is located than in any other single country.’98 While this may be the case for the traditional company operating at a domestic level, or even for closed multinational companies, for listed multinational companies, this is only partially applicable. While the directors and officers responsible for the central management of the company may be primarily located in the real seat, this is unlikely to be the case for its shareholders and debt-security holders. They may be scattered all around the world. However, this is not in itself a reason why the real seat should not identify the lex societatis of the company. The location of a company’s real seat is determined based on the centre of administration or control and management of the company. Under German law, this is the place where ‘the fundamental business decisions by the managers are being implemented effectively into day-to-day business activities.’99 Under ­Italian law, it is the place where the predominant activities of the company or the ‘place where the acts forming the will of the company (volontà sociale)’ are carried out.100 In France, the real seat will be the central, not the secondary,101 place of management, which is determined based on the place where the general

93 S Rammeloo, Corporations in Private International Law 241. 94 AF de Sousa, ‘Company’s Cross-border Transfer of Seat in the EU after Cartesio’ 6; R Drury, ‘The ‘Delaware Syndrome’’ 711. 95 S Rammeloo, Corporations in Private International Law 11. 96 AF de Sousa, ‘Company’s Cross-border Transfer of Seat in the EU after Cartesio’ 7–8; R Drury, ‘The ‘Delaware Syndrome’’ 713. 97 R Drury, ‘The ‘Delaware Syndrome’’ 714. 98 Note, ‘The ‘Nationality’ of International Corporations under Civil Law and Treaty’, (1961) 61(74) Harvard Law Review 1429, 1432. 99 WF Ebke, ‘The ‘Real Seat’ Doctrine in the Conflict of Corporate Laws’ (2002) 36 International Lawyer 1015, 1022; P Paschalidis, Freedom of Establishment and Private International Law for Corporations 10. 100 P Paschalidis, Freedom of Establishment and Private International Law for Corporations 11. 101 S Rammeloo, Corporations in Private International Law 203.

Connecting a Corporation to a State Through Lex Societatis  99 assembly meetings take place, the directors have their offices and the organs of central management and control are located.102 Location of the central management will be the decisive factor regardless of the location of the company’s working plants. More concrete indicators are found in case law, where courts determining the location of the ‘head office’ of a company, have considered location of board meetings, place where commercial policy is determined, location of human resources, treasury, IT, and accounting functions.103 Each of the three major jurisdictions has its own criteria for locating the real seat with minor variations from each other, but each require a close and substantial connection to the jurisdiction that shall govern the corporation. The main disadvantage of the real seat theory is the question over its ability to keep up with globalised business phenomenon.104 Muchlinski highlights the difficulties in applying the real seat theory to assessing the nationality of multinational enterprises referring to the difficulties in pinning down the location of the real seat in operations scattered around the globe.105 While this is a fair concern, a multinational corporate group need not be identified with a single real seat based solely on where the central management of the entire group is located. There may be several bases of power within a multinational group, which for purposes of nationality may give rise to dual or multiple nationalities.106 In fact, the EU rules governing cross-border insolvencies adopts the concept of ‘centre of main interests’ (COMI) in determining the place of insolvency proceedings with the possibility of opening coordinated proceedings where corporate groups are involved. While COMI is based neither entirely on the incorporation nor on the real seat theory, it adopts a rebuttable presumption that the place of registration will be COMI.107 The COMI standard has been interpreted as akin to the real seat standard and viewed more practical and realistic in governing crossborder insolvencies within the EU and has provided a more effective standard

102 P Paschalidis, Freedom of Establishment and Private International Law for Corporations 8. 103 Most recent case law considering head office relate to the concept of ‘Centre of Main Interests’ in cross-border insolvency cases under EU Insolvency Regulation No 1346/2000 of May 29, 2000, Re Energotech SARL [2007] B.C.C. 123; D Milman, National Corporate Law in a Globalised Market: the UK experience in perspective (Cheltenham, Edward Elgar, 2009), 138–141. 104 S Rammeloo, Corporations in Private International Law 14; See also P Muchlinski, ‘The Diplomatic Protection of Foreign Investors: A Tale of Judicial Caution’ in C Binder U Kriebaum A Reinisch and S Wittich (eds) International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (New York, Oxford University Press, 2009) 350–351. 105 P Muchlinski, ‘The Diplomatic Protection of Foreign Investors: A Tale of Judicial Caution’ 349–351 referring to Centros Ltd v Erhvervs-OG Selskabsstyrelsen, Case C-212/97 [1999], 2 CMLR 551; Kamer van Koophandel en Fabriekenvoor Amsterdam v Inspire Art Ltd, Case C-167/01 [2005], 3 CMLR 937; Überseering BV v Nordic Construction Company Baumanagement GmbH (NCC), Case C-208/00 [2005], 1 CMLR 1. 106 See ch 7, Section III for an application of this approach in determining corporate nationality under IIL. 107 Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, Articles 3, 56.

100  Distinguishing Features of Corporations for Purposes of Nationality in ­navigating a large business enterprise spanning over several jurisdictions.108 In cases involving the insolvency of a letterbox company within a corporate group, for purposes of insolvency governance, EU courts have acknowledged that the registered office of such an entity could be disregarded in determining the ‘centre of main interests’ of the debtor entity and instead the parent company’s registered office could be deemed the letterbox company’s ‘centre of main interests’.109 Companies with connections to more than one jurisdiction could also raise complications due to clash of incorporation and the real seat theories. An early case exhibiting such a clash involves the well-known Parisian Moulin Rouge cabaret,110 the owners of which had incorporated a letter-box entity in England, Moulin Rouge Attractions Inc, Ltd, to run the business on paper, while the whole management was actually carried out in Paris.111 The French courts, applying the real seat theory, imposed sanctions on the promoters and the director of the company for failing to comply with the French incorporation requirements.112 In similar situations, German law considers a company real seated in Germany but incorporated elsewhere as lacking legal personality.113 The German courts would treat the company either as a German partnership whose members are jointly liable for the debts of the partnership, or as a company subject to the pre-incorporation regime.114 This attitude of German law was held contrary to the freedom of establishment principle within the EU by the CJEU in multiple instances.115 This limitation, however, is only applicable within the EU context and even there only applies to the recognition of a company’s legal personality and limited liability of its shareholders when it is incorporated abroad but real seated in Germany. In situations like this, where the corporation is headquartered in one place and incorporated in another, for purposes of nationality identification, the place of headquarters could take precedence as the more substantial link without having the effect of denying legal personality to the entity that is incorporated elsewhere. I discuss the application of the real seat test to determining corporate investors’ nationality in detail in Chapter 7.116 108 D Milman, National Corporate Law in a Globalised Market 141. 109 Eurofood IFSC Ltd Judgment of the Court (Grand Chamber) of 2 May 2006 Case C-341/04 [34]–[35]. 110 Societe ‘The Moulin-Rouge Attractions, Ltd.,’ Tribunal Correctionel de la Seine, July 2, 1912, [1913] Dalloz Jurisprudence II. 165 cited in ER Latty, ‘Pseudo-Foreign Corporations’ (1955–1956) 65 Yale Law Journal 137, fn 130. 111 R Drury, ‘The ‘Delaware Syndrome’’ 714. 112 Ibid. 113 M Menjucq, ‘Towards the end of the real seat theory in Europe?’, in M Tison H De Wulf, C Van Der Elst, R Steennot (eds) Perspectives in Company Law and Financial Regulation: essays in honour of Eddy Wymeersch (Cambridge, Cambridge University Press, 2009) 125. 114 S Rammeloo, Corporations in Private International Law 178; T Bachner, Creditor Protection in Private Companies 3 (This, however, is not an act of piercing the corporate veil, but merely a sanction imposed on the legal person for not complying with the requirements of German law.) 115 Centros; Kamer van Koophandel; Überseering; R Drury, ‘The ‘Delaware Syndrome’’ 716–717. 116 Section III.

The Corporation in a Global Economy  101 Any model applied or proposed to govern the corporation or to determine its nationality must recognise the challenges in regulating corporate activity in the face of economic globalisation and the legal tools it offers businesses to increase profits and avoid liability and risk. In the next section, I outline features of corporate activity in a global economy that are most salient for the discussion of corporate nationality. III.  THE CORPORATION IN A GLOBAL ECONOMY: MULTINATIONALS ENTERPRISES, SHELL CORPORATIONS, AND REGULATORY HAVENS

A lot can be written on the role, uses, and the impact of corporations in the everglobalising economy we live in. Full monographs and countless articles explore the subject from different angles.117 This section provides a snapshot of the uses of corporate form in the global economy to the extent such uses should influence our understanding of corporate nationality. Three instrumentalities of the global investment and trade architecture are particularly important: multinational enterprises (MNEs), shell corporations, and regulatory havens. All three are closely linked to each other, and their existence and uses often complicate our understanding of a corporation’s identity and where it legally belongs to.118 While cross-border trade existed since time immemorial, until the formation of overseas trading companies during the sixteenth and seventeenth centuries, foreign traders and investors were either individuals or loosely organised business associations – guilds which operated on a membership basis.119 Cross-border business in those times had a temporary nature whereby the businesspersons would return to their home states once the venture had finished. The legal texts

117 P Muchlinski, Multinational Enterprises and the Law 2nd edn (Oxford, Oxford University Press, 2007); D Milman, National Corporate Law in a Globalised Market: the UK experience in perspective; G Baars and A Spicer The corporation: A critical, multi-disciplinary handbook (Cambridge, Cambridge University Press, 2017); J-P Robe, A Lyon-Caen, and S Vernac, Multinationals and the Constitutionalization of the World Power System (Abingdon, Routlegde, 2016). 118 For an in-depth analysis of the impact of these instrumentalities on distribution of wealth see K Pistor, The Code of Capital: How the Law Creates Wealth and Inequality (Princeton, Princeton University Press, 2019). 119 S Williston, ‘History of the Law of Business Corporations Before 1800’, (1888–1889) 2 Harvard Law Review 105, 109 (explains the business organisation of the time as follows: ‘During the sixteenth century the growth of the commercial spirit, fostered by the recent discovery of the New World, the more thorough exploration of the Southern Atlantic and Indian Oceans, and the search for a North-west passage, led to the establishment and incorporation of companies of foreign adventurers, similar in all respects to the earlier guilds, except that their members were foreign instead of domestic traders. Among the earliest of these were the African Company, the Russia Company, and the Turkey Company. The last two were called ‘regulated companies’; that is, the members had a monopoly of the trade to Russia and to Turkey, but each member traded on his own account.’), M Sornarajah, The International Law on Foreign Investment 3rd edn (Cambridge, Cambridge University Press, 2010) 60.

102  Distinguishing Features of Corporations for Purposes of Nationality on cross border business at the time reflect the needs of this type of business.120 For instance, the Magna Carta of 1215 provides protections such as safe entry and exit to England, the right to remain and travel safely in England, and the right to buy and sell goods whilst in England.121 During the seventeenth century, overseas trading companies emerged as actors and drivers of cross border business. They have notoriously exercised various sovereign rights and privileges in the colonisation of overseas territories.122 These investors greatly influenced the development of international law of foreign investment.123 The beginnings of these companies had similar features to their predecessors; they operated on a membership basis, not every member was subscribed to the joint stock, members could trade in the relevant overseas territory individually, and only members had the freedom to trade in the relevant overseas territory.124 The joint stock of the English East India Company was subscribed for each venture separately, and once the venture had come to an end, it was re-divided.125 This indicates that each venture of the English East India Company could be carried out by different investors, who in the end of the venture got their share from the proceeds of the investment. History also tells us the central role of these companies in colonising territories and exploiting resources on behalf of the imperial powers.126 By the end of the nineteenth century, European overseas trading companies were involved in overseas projects for the extraction of natural resources, building railways and canals.127 Even though these trading companies are considered predecessors to modern MNEs,128 their internal structure was different than their contemporary counterparts. As for the British corporate investors, they were companies incorporated in England by English citizens for purposes of obtaining financing from the London capital markets; however, all the ­operations of

120 M Sornarajah, The International Law on Foreign Investment 60. 121 See Section 41. 122 K Miles, The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge, Cambridge University Press, 2013) 33–34 (‘In possessing delegated sovereign powers, these companies were entitled to enter into treaties, found and ­administer settlements, engage in military conquest, and build forts.’) 123 K Miles, The Origins of International Investment Law 33–34. 124 The East India Company of England is one of the most well-known trading companies of the time. Later overseas trading companies include the Royal African Company of England and the Hudson Bay Company of England. These companies were not created simply for profit, but for a more significant public role of maintaining order in trade. See, S Williston, ‘History of the Law of Business Corporations Before 1800’, p 109–111. See for the similar features of the Dutch overseas trading company (Verenigde Oostindishe Compagnie); K Miles, The Origins of International Investment Law 35–36. 125 S Williston, ‘History of the Law of Business Corporations Before 1800’ 110. 126 K Miles, The Origins of International Investment Law 33–41. 127 P Muchlinski, Multinational Enterprises and the Law 10. 128 AM Carlos and S Nicholas, ‘‘Giants of an Earlier Capitalism’: The Chartered Trading Companies as Modern Multinationals’ (1998) 62(3) The Business History Review 398–419; ­ M Wilkins ‘The History of Multinational Enterprise’ in AM Rugman and TL Brewer Oxford ­Handbook of International Business (Oxford, Oxford University Press, 2001) 17–19.

The Corporation in a Global Economy  103 the company took place overseas under the supervision of the British managers of the company and all the assets were located at the place of the project.129 Today, most cross-border investments are carried out by MNEs of various sizes, owned and managed by persons of diverse nationalities, with sophisticated corporate structures that have spread their presence in two or more states, through incorporation, residence or carrying out of activities,130 MNEs’ legal existence is owed to reforms in company law, starting at the end of the n ­ ineteenth century, which enabled companies to hold shares in other companies.131 Without the ability to hold shares in other corporations, multinational corporate groups would not have been conceivable. It was, however, the technological advancements and economic conditions in the twentieth century that enabled businesses to operate truly across borders.132 It is more difficult to ascertain the nationalities of corporations within a MNE, as MNE members or groupings of members may have different types and strengths of links to more than one state.133 Vagts describes the MNE as ‘a structure made up of many corporations each incorporated under the laws of some nation and tied together by links of stock ownership and other contractual arrangements.’134 Typically, an MNE is led by a parent company which can be described as ‘the entity at the top of a firm that assumes responsibility for functions like strategic planning, corporate communications, tax, legal, marketing, finance, human resources and information technology.’135 The OECD Guidelines for Multinational Enterprises describe that MNEs come in different shapes and sizes: They usually comprise companies or other entities established in more than one country and so linked that they may coordinate their operations in various ways.

129 PT Muchlinski, Multinational Enterprises and the Law 10; M Wilkins ‘The History of Multinational Enterprise’ (all the parent enterprises of the pre-nineteenth-century multinationals appear to be traders (and shippers) or bankers or individual investors, including entrepreneurial partnerships and family groups. There were direct investments abroad by these ‘parent’ enterprises in manufacturing, mining, and plantations.) K Miles, The Origins of International Investment Law 36, 40 (states that the Dutch overseas trading company was more progressed from other trading companies in terms of internal management and structure. Investors of the Dutch overseas trading company was composed of ‘shareholders’ and ‘managers’ seated in Amsterdam. The ‘managers’ seated in Amsterdam exercised similar functions to those of a parent company of a modern MNE.) 130 See for more on this in the context of IIL, J Bonnitcha, LNS Poulsen, and M Waibel, The Political Economy of the Investment Treaty Regime (Oxford, Oxford University Press, 2017) 34–46. 131 PT Muchlinski, Multinational Enterprises and the Law 34–35; PI Blumberg, ‘Accountability of Multinational Corporations: The Barriers Presented by Concepts of the Corporate Juridical Entity’ (2000–2001) 24 Hastings International & Comparative Law Review 297, 302. 132 PT Muchlinski, Multinational Enterprises and the Law 9, 35. 133 CD Wallace, The Multinational Enterprise and Legal Control: Host State Sovereignty in an Era of Economic Globalization (New York, Martinus Nijhoff Publishers, 2002) 9. See also Muchlinski’s assessment of nationality of multinational corporations under the diplomatic protection framework PT Muchlinski, ‘The Diplomatic Protection of Foreign Investors: A Tale of Judicial Caution’ 347. 134 DF Vagts, Transnational Business Problems 113–4. 135 K Foss, NJ Foss and PC Nell, ‘MNC organizational form and subsidiary motivation problems: Controlling intervention hazards in the network MNC’ (2012) 18 Journal of International Management 247–259, fn 1.

104  Distinguishing Features of Corporations for Purposes of Nationality While one or more of these entities may be able to exercise a significant influence over the activities of others, their degree of autonomy within the enterprise may vary widely from one multinational enterprise to another. Ownership may be private, State or mixed.136

According to Muchlinski the most distinct features of MNEs include the following: … although in many respects they resemble various type of uninational companies, MNEs differ in their capacity to locate productive facilities across national borders, to exploit local factor inputs thereby, to trade across frontiers in factor inputs between affiliates, to exploit their know-how in foreign markets without losing control over it, and to organize their managerial structure globally according to the most suitable mix of divisional lines of authority.137

Muchlinski divides MNEs into three main legal forms: equity-based groups, joint ventures, and MNEs created through contractual arrangements, including distribution and production agreements and public-private partnerships. Equity based groups include ‘companies linked by shares held by the parent company and its intermediate holding companies.’138 The internal structure of different equity based groups may take different forms and they are the most typical type of MNE.139 This may in turn affect the analysis of the nationality of a corporation.140 MNEs in the form of joint ventures are created by two or more independent entities,141 and may or may not have separate legal personality from their joint venture partners.142 Contractual MNEs exist where a company or entity ‘can exert a significant influence over another or at least [is] so linked as to coordinate their operations.’143 The sophisticated MNE structures frequently make use of shell corporations or other vehicles144 incorporated in various tax or regulatory havens for the purpose of taking advantage of certain taxation, regulatory or investment privileges.145 Shell corporations do not conduct business in the classic sense,

136 2011 OECD Guidelines for Multinational Enterprises, I. Concepts and Principles para 4. 137 P T Muchlinski, Multinational Enterprises and the Law 8. 138 Ibid 56. 139 Ibid. 140 See ch 7, Section III. 141 PT Muchlinski, Multinational Enterprises and the Law 66. 142 DF Vagts, Transnational Business Problems 472. 143 PT Muchlinski, Multinational Enterprises and the Law 52. 144 OECD, Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes 2001 17, 22 (other vehicles include Trusts, Partnerships and Foundations, but most commonly used vehicles are shell corporations). 145 JA Brickley and LD Van Drunen, ‘Internal Corporate Restructuring: An Empirical Analysis’ (1990) 12 Journal of Accounting and Economics 251, 252–261 (provides that among the reasons of organisational structuring within a firm are tax and regulatory frameworks.); PT Muchlinski, Multinational Enterprises and the Law 300–302; PM Protopsaltis, ‘The Challenge of the Barcelona Traction Hypothesis: Barcelona Traction Clauses and Denial of Benefits Clauses in BITs and IIAs’ (2010) 11(4) Journal of World Investment and Trade 561, 562.

The Corporation in a Global Economy  105 but they hold shares or other interests in other companies. They are created for various legitimate and illegitimate purposes.146 It has been estimated that 20,000 intermediate shell companies were created in the Netherlands by MNEs to benefit from fiscal and other legal regimes.147 The Netherlands happens to be one of the most popular gateway jurisdictions for investment treaty protection, due to their wide network of BITs and double-taxation treaties coupled with the enabling rules on corporations.148 In the context of international investment, shell corporations are used as vehicles to hold shares in other entities and have ‘no significant assets or operations’149 of their own. Structuring investments in a particular way to benefit from a favourable investment protection framework is not considered illegal or illegitimate. Investors will not be sanctioned for choosing the best available structure. However, the use of shell corporations and regulatory havens add a layer of complication to determining a corporate investor’s nationality. While such practices may be legal, I argue in this book that in assessing an investor’s nationality they should not play a decisive role. Uses of such vehicles as a conduit in IIL is discussed in detail in Chapters 5, 6, and 7. Although the corporation has evolved into a sophisticated organisation involving a cluster of companies acting as a group or unit, legal structures supporting the company have mostly just evolved to the extent they enable and facilitate profit making and smooth functioning of markets.150 Various areas of law lay down special rules for corporate groups, such as laws on bribery and corruption, securities, tax and competition.151 There are also international soft

146 Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes, 13 (legitimate purposes include tax benefits and illegitimate purposes include money laundering). 147 R van Os, R Knottnerus, Dutch Bilateral Investment Treaties: A Gateway to ‘treaty shopping’ for investment protection by multinational companies (October 2011) SOMO, 4. 148 F Weyzig, ‘Tax treaty shopping: structural determinants of Foreign Direct Investment routed through the Netherlands’ (2013) 20 International Tax and Public Finance 910, 913 (explains that ‘The Netherlands is the world’s largest conduit country for FDI. At the end of 2009, FDI diverted via the Netherlands amounted to approximately €1,600 billion. This corresponds to 13% of global inward FDI stock.’ [footnotes omitted]) 149 Financial Action Task Force, Misuse of Corporate Vehicles including Trusts and Company Services Providers, 13 October 2006, 24. 150 CD Wallace, The Multinational Enterprise and Legal Control 11 (states that ‘In actual fact the MNE, operating through its individual corporate entities, is subject variously to the laws of each and every state in which it does business. It is only the enterprise as a composite unit – that is, in the sum of all its individual corporate parts – that does not come under the control of a single comprehensive external authority.’); PI Blumberg, The Multinational Challenge to Corporation Law 232; PT Muchlinski, Multinational Enterprises and the Law 77–78; K Pistor, The Code of Capital 70–76. 151 P Acconci, ‘Determining the Internationally Relevant Link Between a State and a Corporate Investor: Recent Trends concerning the Application of the ‘Genuine Link’ Test’ (2004) 5(1) Journal of World Investment and Trade 139 147. The concept of ‘single economic entity’ was developed by the European Court of Justice in the context of European Union competition law. See Case T-112/05 Akzo Nobel NV v Commission [2007] ECR II-5049, [2008] 4 CMLR 321 [57]-[58] (single economic entity is used to define the composition of firms within the same corporate group); European Commission Guidelines on the applicability of Article 101 of the Treaty on the ­Functioning of the European Union to horizontal cooperation agreements OJ [2011] C 11/1 (‘When

106  Distinguishing Features of Corporations for Purposes of Nationality law instruments on MNEs such as the OECD Guidelines for Multinational Enterprises, which offer piecemeal solutions to specific problems associated with MNE activities and were developed through a series of reactions to the problems encountered in those areas over time. However, with the exception of a few jurisdictions, laws governing companies do not yet sufficiently deal with corporate groups domestic or multinational.152 This very limited legal recognition and lack of clarity on MNE governance as a unit present challenges in ascertaining the nationality of corporate investors under IIL, which are often MNEs. I will discuss the way forward in ascertaining MNE investors’ nationality in detail in Chapter 7.153 IV. CONCLUSION

In this chapter, I unpacked the distinguishing features of corporations which critically influence the attribution of nationality to corporate entity. This chapter demonstrated two layers of complications for ascertaining a corporation’s nationality based on a genuine connection with a state. The first one is raised by the fundamental features of corporate personhood. Corporations having a separate legal personality from their shareholders, their perpetual existence, and ability to acquire shares in other companies blur the scene as to the substantial interests involved which should be determinants of a corporate investor’s nationality. The second complication is raised by the legal tools of the global free market economy that enable and encourage risk taking. Legal frameworks that allow the creation of layers of shell corporations and the uses of regulatory or tax havens to re-route investments render opaque the genuine beneficiaries, though not necessarily ultimate beneficiaries, of an investment activity which should be decisive for attributing nationality. The analysis of corporate nationality in the following chapters of this book will be wary of these complications raised by corporate personhood and the legal tools of the global market economy that aim to minimise risk for investors.

a company exercises decisive influence over another company they form a single economic entity’, this includes ‘sister companies, that is to say, companies over which decisive influence is exercised by the same parent company’). See also A Daehnert, ‘Lifting the corporate veil: English and German Perspectives on group liability’ 394 (‘… the United Kingdom has many laws that affect groups but no law on groups as such.’) 152 KJ Hopt, ‘Legal Elements and Policy Decisions in Regulating Groups of Companies’, in CM Schmitthoff and F Wooldridge (eds), Groups of Companies (London, Sweet and Maxwell 1991) 81 (such as the German rules on Konzernrecht). For a comparative study of group liability in Germany and England see A Daehnert, ‘Lifting the corporate veil: English and German Perspectives on group liability’. 153 Section III.

Part II

Understanding Corporate Nationality

108

4 Corporate Nationality in the Context of Diplomatic Protection and War-Time Sanctions

I

n Chapter 2, I discussed the use of nationality as a legal bond in international law for individuals and objects, including corporations. This introductory analysis showed that the nationality a corporation holds can have important legal consequences under international law.1 It also showed that compared to the nationality of individuals, ships and aircraft, there are no established legal standards applicable to determining a corporation’s nationality. What we find instead are piecemeal solutions in certain areas of national and international law, as I demonstrate in this chapter. At the international level, the cause of this relative uncertainty can be traced to the international law principle that it is a right of every state to determine who its nationals are, be these individuals or objects. Yet, subject to a few exceptions,2 there are no general rules on acquisition and loss of nationality by corporations in domestic systems akin to the rules of nationality under which individuals, ships or aircraft acquire nationality.3 Little substantive guidance is offered to international courts and tribunals when they have to identify what nationality a company possesses. The purpose of this chapter is to explore the instances where nationality has been applied as the legal bond linking corporate actors to a state. The primary focus of the analysis is the attribution of nationality to corporations in the context of diplomatic protection. This begins with an analysis of the ICJ’s approach in cases involving diplomatic protection of companies and the relevant provisions of the ILC Draft Articles on Diplomatic Protection.4 This is followed by a snapshot of state practice on the nationality of companies in their diplomatic protection policies and in their bilateral or multilateral post-conflict settlement agreements. Finally, this section analyses the uses of nationality

1 Ch 2, Section II(B). 2 An exception to this from the major jurisdictions is France; See Art L 225-97 of the French Commercial Code (sets out the conditions for change of a company’s nationality). 3 See ch 2, Section II(B). 4 ILC Draft Articles on Diplomatic Protection Sixty-first Session, 2006 Supplement No 10 (A/61/10).

110  Corporate Nationality in Context as a determinant for the applications of domestic war time sanctions. These include sanctions such as the winding up of enemy businesses, seizure of enemy property and the collection of enemy debts by appointed custodians. Throughout, the analysis highlights how core features and governing law of companies impacts assessment of nationality. Despite the lack of established legal standards, the analysis in this chapter demonstrates that sources and practice of international law and domestic laws indicate that a link beyond incorporation is often sought when determining whether a company is linked to a state with the bond of nationality. International investment arbitration (IIA) tribunals frequently take into consideration the limited international law guidance on corporate nationality in their own analysis. At times this guidance is treated as authoritative in IIA decisions and at other times tribunals find these sources inapplicable to the questions before them, due to international investment law (IIL) being lex specialis. While these are discussed in detail in the following chapters, here, I will establish how other areas of law have approached the question of corporate nationality. This will assist in the following chapters when assessing the relevance and value of the approaches to corporate nationality adopted in other areas as well as evaluating the accuracy of IIA tribunals’ construction and application of these standards. I.  DETERMINING CORPORATE NATIONALITY UNDER THE PRINCIPLES OF DIPLOMATIC PROTECTION

‘Diplomatic protection’ refers to a state’s right to protect its nationals from harm suffered as a result of a violation of international law by another state vis-à-vis the former state’s national.5 The two preconditions for extending diplomatic protection are the link of nationality6 and the exhaustion of local remedies.7 International law recognises the right of states to extend diplomatic protection to legal persons in addition to individuals.8 As a general principle, a state cannot provide diplomatic protection to persons other than its nationals, individuals or legal persons alike.9 As such, nationality is a prerequisite for a state to extend

5 See, Art 1 of the ILC Draft Articles on Diplomatic Protection; Art 3(1)(b) of Vienna Convention on Consular Relations, signed 24 April 1963 and entered into force on 19 March 1967, 500 UNTS 95 (recognises a state’s right to extend diplomatic protection to its nationals). 6 Panevezys-Saldutiskis Railway (Estonia v Lithuania) (Judgment) 1939, PCIJ Series A/B, No 76, 16; Art 3 (1) of the ILC Draft Articles on Diplomatic Protection provides that ‘The State entitled to exercise diplomatic protection is the State of nationality.’ UN International Law Commission ‘First report on diplomatic protection’ by Special Rapporteur JR Dugard, 7 March 2000 A/CN.4/506, 5, 12. 7 UN International Law Commission ‘Second report on diplomatic protection’ by Special Rapporteur JR Dugard, 28 February 2001 A/CN.4/514, 2. 8 See Barcelona Traction, Light and Power Co Ltd (Belgium v Spain) (Judgment) 5 February 1970 [1970] ICJ Rep 3. 9 Panevezys-Saldutiskis Railway (Estonia v Lithuania) (Judgment) 28 February 1939, PCIJ Series A/B, No 76, 16 (‘… in the absence of a special agreement, it is the bond of nationality between the

Diplomatic Protection and Corporate Nationality  111 diplomatic protection to a corporation vis-à-vis another state.10 This requirement raises the question of how nationality is attributed to corporations so as to ascertain the state which has the power to extend diplomatic protection to an aggrieved corporation. It is a well-established principle of international law that it is for each state to determine who its nationals are.11 One would expect this to be the starting point of analysis of corporate nationality for international courts and tribunals. But this has not been the case in practice. Although the right of states to determine who their nationals are has been explicitly endorsed for individuals, ships, and aircraft in case law and treaty texts,12 there is no direct reference to this principle in international materials concerning corporate nationality. In fact, the ILC Draft Articles on Diplomatic Protection prescribes substantive standards on how to determine a corporation’s nationality, rather than leaving this to the state in question.13 The lack of deference to national rules can be explained by the almost absence of principles at the domestic level on acquisition of nationality for corporations analogous to individuals, ships, and aircraft. When the issue of a corporation’s nationality comes before an international court or tribunal, determination of nationality has not benefited from direct guidance from domestic law on corporate nationality. International courts and tribunals do, however, rely on domestic law standards on corporate personhood in their analysis of corporate nationality.14 There have been numerous international claims involving protection of corporations;15 however, only a few of these claims raised contentious issues concerning the nationality of the corporation. In the following sections, I will analyse how corporate nationality has been determined in landmark international decisions and in state practice on diplomatic protection. In the final part of this section, I will discuss the relevant portions of the ILC Draft Articles on state and the individual which alone confers upon the State the right of diplomatic protection …’); J Crawford, Brownlie’s Principles of Public International Law 8th edn (Oxford, Oxford University Press, 2012) 702. Some exceptions are accepted in international law where a State is able to extend diplomatic protection to non-nationals. For instance, pursuant to art 8 of the ILC Draft Articles on Diplomatic Protection a State may extend diplomatic protection to a stateless person under the conditions set forth therein. 10 Art 9, ILC Draft Articles on Diplomatic Protection See eg, Interhandel (Switzerland v United States) (Judgment) 21 March 1959, [1959] ICJ Rep 6; Electricity Company of Sofia and Bulgaria (Belgium v Bulgaria) (Order) 26 February 1940, PCIJ Series A/B No 80; Societe Commerciale de Belgique (Belgium v Greece) (Judgment) 15 June 1939, PCIJ Series A/B No 78; Panevezys-Saldutiskis Railway; Factory at Chorzów (Germany v Poland) (Indemnity) (Merits) 13 September 1928 PCIJ Series A No 17; Canavero (Italy v Peru) (Award of the Tribunal) 2 May 1912 PCA Case No 190-01, 11 RIAA 397. 11 Ch 2 Section I. 12 See ch 2. 13 Art 9. 14 See ch 3 on the principles governing corporate personality. 15 See n 10; Panevezys-Saldutiskis Railway (Estonia v Lithuania) (Here, the PCIJ considered the question of the impact of state succession on corporate nationality under the Treaty of Tartu between the Russian Socialist Federated Soviet Republic and Estonia.).

112  Corporate Nationality in Context Diplomatic Protection which aim to codify the existing principles of international law on diplomatic protection.16 A.  Barcelona Traction Case The most well-known and detailed decision of the ICJ analysing the nationality of companies is the Barcelona Traction decision.17 Even though the central issue in the judgment was whether the shareholders of a company were entitled to diplomatic protection separate from the company whose rights have been violated,18 in making its decision, the ICJ examined the principles of separate personality and the issue of lifting the corporate veil in order to determine the nationality of Barcelona Traction, a company with links to more than two states. Barcelona Traction was a corporation incorporated and headquartered in Canada since 1911 and carrying out business in Spain.19 Its shareholders were largely Belgian natural and legal persons at the time of the dispute. Belgium claimed that Spain’s alleged violation of Barcelona Traction’s rights constituted violation of its Belgian shareholders’ rights, and amounted to a violation of Belgium’s rights under international law.20 Since the espousal of an individual’s or a corporation’s claim is contingent upon having the nationality link, one of the key questions before the ICJ was whether Belgium had the link of nationality with Barcelona Traction. The ICJ first examined whether there was a breach of the Belgian shareholders’ rights making a strong emphasis on the separate personality principle. It arrived at the conclusion that a breach of a corporation’s rights does harm the interests of the shareholders ultimately; however, this does not mean that there is a breach of the shareholders’ rights which would

16 J Crawford, Brownlie’s Principles on Public International Law 701; CF Amerasinghe, Diplomatic Protection (Oxford, Oxford University Press, 2008) 62. 17 Barcelona Traction para 31 (The Court phrased the problem regarding the nationality of ­Barcelona Traction as follows: ‘Thus the court has to deal with a series of problems arising out of a triangular relationship involving the State whose nationals are shareholders in a company incorporated under the laws of another State, in whose territory it has its registered office; the State whose organs are alleged to have committed against the company unlawful acts prejudicial to both it and its shareholders; and the State under whose laws the company is incorporated, and in whose territory it has its registered office.’). 18 Barcelona Traction para 37 (At the time, there was no express rule in international law addressing the issue of shareholder diplomatic protection.). 19 F Fontanelli and G Bianco. ‘Barcelona Traction Share’ in J Hohmann and D Joyce (eds) ­International Law’s Objects (Oxford, Oxford University Press, 2018) 144. 20 It is widely accepted that, in the context of diplomatic protection, violation of the foreign corporation’s internationally protected rights by the host state amounts to the violation of the home state’s rights; See, JR Dugard, First report on diplomatic protection; Mavrommatis ­Palestine Concessions Case (Greece v United Kingdom) (Jurisdiction) 1924 P.C.I.J., Series A, No 2, 12 (‘By taking up the case of one of its subjects and resorting to diplomatic action or international judicial proceedings on his behalf, a state is in reality asserting its own right – its right to ensure, in the person of its subjects, respect for the rules of international law.’).

Diplomatic Protection and Corporate Nationality  113 justify a diplomatic claim by the shareholders’ state of nationality. Only in the case of a direct infringement of the shareholders’ rights, the state of the shareholders’ nationality would have the right to provide diplomatic protection. This, however, would not amount to the protection of a corporation, but of its shareholders. Having rejected the possibility of a direct infringement of the Belgian shareholders’ rights arising from the acts of Spain vis-à-vis Barcelona Traction, the ICJ proceeded to examine whether Belgium was entitled to extend diplomatic protection on the ground that Barcelona Traction itself should be considered a Belgian national by virtue of its shareholders’ nationality. The question before the ICJ was whether the place of incorporation would determine the state of nationality of Barcelona Traction or whether the nationality of its shareholders was decisive of the nationality of the company. Due to the absence of international law standards on corporations, the ICJ relied on the general principles accepted in domestic laws concerning corporations. In fact, the ICJ stated in this respect: … whenever legal issues arise concerning the rights of States with regard to the treatment of companies and shareholders, as to which rights international law has not established its own rules, it has to refer to the relevant rules of municipal law.21

Thus, in the absence of a treaty provision or other rule of international law on issues involving corporations, the ICJ applied general principles of law recognised in international law to the question of corporate nationality.22 It should be pointed out here that at no point in the judgment, the ICJ appears to have considered whether Belgian law or Canadian law prescribed any substantive standards on corporate nationality and if any whether these should be decisive. Having avoided considering whether Belgian law or Canadian law attributed nationality to companies, the ICJ resorted to domestic law standards on lex societatis, the separate personality and limited liability principles to analyse corporate nationality.23 The question, though, remains as to which domestic laws should be regarded as representative of the ‘general principles of law’ by the ICJ, particularly on the issue of lex societatis, as there are two different widely accepted rules on lex societatis.24 In this particular case, the ICJ primarily relied on the incorporation theory to determine the nationality of Barcelona Traction, however, with the caveat that there had to be some real connection between the

21 Barcelona Traction para 38. 22 Pursuant to the Art 38(1)(c) of the International Court of Justice Statute, the Court shall apply, inter alia, ‘the general principles of law recognized by civilized nations’. See also C Tams and A Tzanakopoulos, ‘Barcelona Traction at 40: the ICJ as an agent of legal development’ (2010) 23(4) Leiden Journal of International Law, 788. 23 Barcelona Traction paras 39–43; LJ Lee, ‘Barcelona Traction in the 21st Century: Revisiting Its Customary and Policy Underpinnings 35 Years Later’ (2006) 42(2) Stanford Journal of International Law 237, 242. 24 See ch 3 Section II discussing the incorporation theory and the real seat theory.

114  Corporate Nationality in Context place of incorporation and the company beyond mere registration.25 It is not clear from the judgment what would constitute a ‘real connection’ between a state and a company. In the case of Barcelona Traction, the court stated that the company was closely and permanently connected to Canada as it had been incorporated in Canada for 50 years, where it had its registered office, accounts and share registers and held its board meetings.26 Tams and Tzanakopoulos refer to this test as ‘incorporation plus x’, which requires the company to be incorporated in and have some real connection to the state in question. Amerasinghe has interpreted the reference of the ICJ to ‘registered office’ as referring to the ‘seat of management’ of the company.27 It can be misleading to construe a reference to ‘registered office’ as automatically equivalent to ‘seat of management’, since the registered office may merely be an address indicated in incorporation documents where no actual management activities take place.28 The ‘seat of management’ ordinarily refers to the real seat of the company, while its registered office is ordinarily in its place of incorporation. This is a crucial distinction that is often ignored by IIA tribunals dealing with corporate nationality. Often, in applying the Barcelona Traction standard, IIA tribunals have considered the place of incorporation and registered office decisive of corporate nationality, without evaluating whether the ‘seat of management’ was actually located at the registered office.29 This crucial distinction will be central to the proposals presented in Chapter 7 on corporate investors’ nationality. In analysing the nationality concept further, the ICJ delved into corporate personhood and examined the possibility of lifting the corporate veil in an attempt to attribute nationality of the shareholders’ nationality to the company. The ICJ maintained that as a rule shareholders’ nationality played no role in determining the corporation’s nationality and veil lifting should be limited to situations where it can be ‘justified and equitable in certain circumstances or for certain purposes.’30 The ICJ emphasised the separate personality principle and stated that the corporate veil can only be pierced under exceptional circumstances recognised in domestic laws, such as prevention of the ‘misuse of the privileges of legal personality, as in certain cases of fraud or malfeasance, to protect third persons such as a creditor or purchaser, or to prevent the evasion of legal requirements or of obligations.’31

25 Barcelona Traction para 71; C Tams and A Tzanakopoulos, ‘Barcelona Traction at 40’ 788. 26 Barcelona Traction para 71. See also F Fontanelli and G Bianco ‘Barcelona Traction Share’ 147. 27 CF Amerasinghe, Diplomatic Protection 122 (Although at 133, he explains that a registered office may be mere fiction). 28 See ch 3 Section II. 29 See ch 5 Section I(A). 30 Barcelona Traction para 64, (Specifically, the ICJ held that shareholders’ state of nationality may exercise diplomatic protection on behalf of the company if the company has ceased to exist, or if the company’s state of nationality is lacking capacity to take action on the company’s behalf). 31 Barcelona Traction para 56.

Diplomatic Protection and Corporate Nationality  115 Among the exceptions to separate personality principle that were found in international law, the ICJ referred to the exercise of veil lifting for the treatment of enemy property during and after the two world wars, and to nationalisations of foreign property in the aftermath of decolonisation.32 According to the ICJ none of the circumstances justifying piercing the corporate veil were present in this case, and concluded that Barcelona Traction could not be considered a Belgian national by virtue of its shareholders’ nationality. In this case, only Canada could extend diplomatic protection to Barcelona Traction as the state of nationality determined on the basis of the ‘incorporation plus x’ standard.33 B.  ELSI Case The ELSI decision is the second key international decision on diplomatic protection of corporate nationals.34 It bears many similarities to the cases discussing corporate nationality in the IIL context. In this case, the Chamber of the ICJ examined whether the requisition of the assets of Raytheon-Elsi S.p.A by Italy amounted to a violation of the Treaty of Friendship, Commerce and Navigation between the United States and Italy (FCN Treaty). Raytheon-Elsi was a company incorporated and carrying out business in Italy. It was wholly-owned by US corporations, Raytheon and Machlett. Even though the link of nationality between the US and Raytheon-Elsi was never contested during the proceedings and the Chamber neither discussed the issue of nationality nor the issue of corporate veil, the ELSI decision is of relevance because it involved the espousal of a claim belonging to two corporate shareholders who were US nationals under a friendship, commerce and navigation treaty (‘FCN Treaty’), an instrument considered as the forerunner of investment treaties. The basis of the US’ right to provide diplomatic protection to Raytheon and Machlett for the lossess they incurred as a result of Italy’s actions towards an Italian corporation, Raytheon-Elsi, was the provision in the FCN Treaty granting the parties the right to espouse a claim for actions against corporations incorporated in the territory of the other Contracting Party, but controlled by the nationals of the claimant Contracting Party.35 Having an express provision 32 Barcelona Traction paras 59–61. 33 Barcelona Traction para 70 (‘The traditional rule attributes the right of diplomatic protection of a corporate entity to the state under the laws of which it is incorporated and in whose territory it has its registered office. These two criteria have been confirmed by long practice and by numerous international instruments.’); LJ Lee, ‘Barcelona Traction in the 21st Century: Revisiting Its Customary and Policy Underpinnings 35 Years Later’ 238 (‘… certain members of the ICJ believed that the incorporation rule best protected the interests of developing countries’.). 34 Case concerning Elettronica Sicula SpA (ELSI) (United States of America v Italy) (Judgment) 20 July 1989 [1989] ICJ Rep 15. 35 Art 3(2) of the FCN Treaty reads: ‘The nationals, corporations and associations of either High Contracting Party shall be permitted, in conformity with the applicable laws and regulations within the territories of the other High Contracting Party, to organize, control and manage corporations

116  Corporate Nationality in Context in the FCN Treaty listing the persons to be protected gave the US a right to extend diplomatic protection to Raytheon and Maclett, who were treated as US corporate nationals, for the damages incurred by Raytheon-Elsi. This case is distinguished from the other two judgments discussed in this section, namely the Barcelona Traction and Diallo judgments, because the US’s standing as the injured party was based on a treaty and not the customary international law on diplomatic protection.36 The ICJ did not consider the shareholders’ nationality as decisive for Raytheon-Elsi’s nationality. This was not necessary because under the FCN Treaty the shareholders’ state of nationality had direct standing to bring a diplomatic protection claim for the actions against the company.37 This is why the Court did not investigate Raytheon-Elsi’s nationality, and departed from the principle established in the Barcelona Traction decision on the distinction between direct rights and mere interests of the shareholders.38 The judgment, however, does not explicitly state based on what links Raytheon and Machlett were considered US nationals. It is likely to be based on their places of incorporation in the US in Delaware and Connecticut,39 as the FCN Treaty extended protection to companies created or organised under the laws of one of the contracting parties.

and associations of such other High Contracting Party for engaging in commercial, manufacturing, processing, mining, educational, philanthropic, religious and scientific activities. Corporations and associations, controlled by nationals, corporations and associations of either High Contracting Party and created or organized under the applicable laws and regulations within the territories of the other High Contracting Party, shall be permitted to engage in the aforementioned activities therein, in conformity with the applicable laws and regulations, upon terms no less favorable than those now or hereafter accorded to corporations and associations of such other High Contracting Party controlled by its own nationals, corporations and associations.’ 36 See Case concerning Ahmadou Sadio Diallo para 87 (This was emphasised by the ICJ in the Case concerning Ahmadou Sadio Diallo, while analysing whether shareholders are entitled to diplomatic protection under customary international law, that the ELSI decision does not reflect the customary international law, as the ICJ applied the provisions of the FCN Treaty therein.). 37 In his separate opinion to the ELSI decision Judge Oda stated that the US could espouse the claim of ELSI directly under the FCN Treaty, instead of espousing the claim of Raytheon and Machlett. 38 In his separate opinion to the ELSI decision Judge Oda criticises this due to the lack of interference with direct rights of the shareholders based on the facts of the case. Judge Oda states that it is not clear whether the FCN treaty is aiming at departing from the general principle of law on the distinction between the direct rights and mere interests of the shareholders or to grant additional rights to foreign shareholders. He concludes that ‘Raytheon and Machlett certainly could, in Italy, ‘organize, control and manage’ corporations in which they held 100 per cent of the shares – as in the case of ELSI – but this cannot be taken to mean that those United States corporations, as shareholders of ELSI, can lay claim to any rights other than those rights of shareholders guaranteed to them under Italian laws as well as under the general principles of law concerning companies. The rights of Raytheon and Machlett as shareholders of ELSI remained the same and were not augmented by the FCN Treaty. Those rights which Raytheon and Machlett could have enjoyed under the FCN Treaty were not breached by the requisition order, because that order did not affect the ‘direct rights’ of those United States corporations, as shareholders of an Italian company, but was directed at the Italian company of which they remained shareholders.’ 39 ELSI para 133.

Diplomatic Protection and Corporate Nationality  117 C.  Diallo Case Most recently, the ICJ analysed the question of corporate nationality in the Diallo40 case. Its analysis closely follows the principles set out in Barcelona Traction.41 Mr Ahmadou Sadio Diallo, a Guinean national had been settled and conducting business in the Democratic Republic of Congo (the ‘DRC’)42 from 1964. Mr Diallo had been conducting his business activities through two companies incorporated in the DRC. Those companies had been involved in a number of disputes for the recovery of debts owed by other companies operating in the DRC as well as with the DRC Government itself. In 1995, Mr Diallo was arrested and deported from the DRC on the grounds that his ‘presence and conduct ha[d] breached public order in Zaire, especially in the economic, financial and monetary areas …’43 Guinea espoused Mr Diallo’s claim against the DRC arising from the alleged violations committed by the DRC. A portion of Guinea’s claim was based on the harm caused to the two companies as a result of the unpaid debts, even though Guinea was extending diplomatic protection to Mr Diallo and not to the companies. The ICJ summarised the claim as follows: Guinea seeks through its action to exercise its diplomatic protection on behalf of Mr. Diallo for the violation, alleged to have occurred at the time of his arrest, detention and expulsion, or to have derived therefrom, of three categories of rights: his individual personal rights, his direct rights as associé in Africom-Zaire and Africontainers-Zaire and the rights of those companies, by substitution.44

The ICJ was asked to address the question of whether Guinea had established a nationality link in order to be in a position to espouse the companies’ claims on the basis of Guinea being the shareholder’s state of nationality. In analysing the arguments raised in this respect, the ICJ emphasised that the developments in the field of investment treaty practice allowing direct shareholder claims for the company’s losses do not affect the rules of customary international law on diplomatic protection concerning shareholders and corporate nationality.45 In that respect, the ICJ followed the rule established in Barcelona Traction and held that the shareholders’ state of nationality does not have the right to espouse the claim of the corporation by ‘substitution’ under customary international law. The Court did not investigate the nationality of the two companies involved

40 Case concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo) (Preliminary Objections) (Judgment) 24 May 2007 [2007] ICJ Rep 582. 41 P Muchlinski, ‘The Diplomatic Protection of Foreign Investors: A Tale of Judicial Caution’ in Binder, C, Kriebaum, U, Reinisch, A and S Wittich (eds) International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford, Oxford University Press, 2009) 359. 42 Formerly the Republic of Zaire. 43 Diallo para 15. 44 Ibid, 31. 45 Ibid, 88–89.

118  Corporate Nationality in Context and just considered them Congolese.46 The relevant portion of the ICJ’s analysis was whether substitution of the nationality of the shareholders to the nationality of the company was possible when the harm is caused by the state in which the company is incorporated. It was stated on substitution that: The theory of protection by substitution seeks indeed to offer protection to the foreign shareholders of a company who could not rely on the benefit of an international treaty and to whom no other remedy is available, the allegedly unlawful acts having been committed against the company by the State of its nationality. Protection by ‘substitution’ would therefore appear to constitute the very last resort for the protection of foreign investments.

The ICJ held that customary international law did not contain such an exceptional ground that would allow protection by ‘substitution’ in a case like the one argued by Guinea, and therefore, Guinea did not have the right to espouse the claims that arose from the alleged breaches against the companies.47 Further analysing this exception, the ICJ recognised that it would only apply if the companies’ incorporation in the DRC were ‘required by it as a precondition of doing business there’.48 On the facts of Mr Diallo’s case, this latter requirement was not fulfilled.49 D.  State Practice and Post-Conflict Claims Commissions State practice in leading common law jurisdictions indicates that in determining whether to extend diplomatic protection to a corporation or not, states look for a close link between the state and the corporation based on substantial direct or indirect ownership by nationals.50 In the UK, having a substantial link is not treated as a legal requirement, but applied as a matter of policy in practice.51 46 Ibid, para 94. 47 Diallo para 89. On the other hand, the Court held that it has jurisdiction to settle the dispute regarding the direct violation of the Guinean shareholder’s rights by the Democratic Republic of Congo, as well as those arising from the violation of his individual rights, see paras 64–67. 48 Diallo para 91 (the ICJ referred to Art 11 (b) of the ILC Draft Articles on this point). 49 Diallo para 92. 50 UN International Law Commission ‘Fourth Report on Diplomatic Protection’ by Special Rapporteur JR Dugard, 13 March 2003 A/CN.4/530 para 52 fn 130; RB Lillich and BH Weston (eds), International Claims Contemporary European Practice (Charlottesville, University Press of Virginia, 1982) 3; Barcelona Traction, (Separate Opinion of Judge Jessup) 186; LJ Lee, ‘Barcelona Traction in the 21st Century’ 282–283; J Crawford, Brownlie’s Principles on Public International Law 706. 51 See D Harris, ‘The Protection of Companies in International Law in Light of the Nottebohm Case’, (1969) 18(2) International and Comparative Law Quarterly 275, 302 (‘It is well established in the practice of United States and the United Kingdom in particular that protection is not normally offered unless there is much more than mere incorporation to warrant it.’); C Warbrick, ‘Protection of nationals abroad’ (1988) 37(4) International and Comparative Law Quarterly 1002, 1007. Comments and observations received from Governments in relation to the ILC Draft Articles on Diplomatic Protection, DOCUMENT A/CN.4/561 and Add. 1–2, 49 (available at http://legal. un.org/ilc/documentation/english/a_cn4_561.pdf); U.S. Restatement (Third) of Foreign Relations Law § 213 (1987), [d].

Diplomatic Protection and Corporate Nationality  119 In major civil law jurisdictions state practice indicates that diplomatic protection will be extended by the state where the real seat of the corporation is located, which sometimes needs to be reinforced by a more substantial link.52 Direct or indirect shareholding interest in the company are the commonly used indicators of substantial link.53 A test of substantial link was also applied by States in post-conflict settlement agreements for determining beneficiaries. The admissibility of claims from corporations under the lump sum agreements concluded after the two world wars were subject to a test of substantial link.54 In most instances, this substantial link was based on shareholding, but there are rare examples of the seat of management being decisive of substantial links. The latter was applied in a claim before the Anglo-German Mixed Arbitral Tribunal, where a company whose shareholders, founders and directors were all British, but the company was treated as a German national due to its incorporation under German law and having its seat of management in Germany.55 Similarly, in the context of seizure of enemy property for purposes of reparation, the peace treaties concluded after the two world wars have determined nationality based on the beneficial ownership.56 Investigation into the direct or indirect shareholders’ or beneficial owners’ nationality does require looking behind the corporate veil. Article 7(1) of the Claims Settlement Declaration57 between the US and Iran refers to incorporation plus direct or indirect shareholding of at least 50 per cent in the company by the nationals of the state of incorporation. In light of this provision, the Iran-US Claims Tribunal determined nationality of corporate claimants with reference to genuine and substantial links of the corporation to the state of nationality.58 Based on these examples, where nationality is used as a connecting factor, state practice indicates that having only the place of incorporation or the real seat in a state may not alone be sufficient for that state to attach consequences to those links at the international level.

52 LJ Lee, ‘Barcelona Traction in the 21st Century’ 277–281. 53 RB Lillich and BH Weston, 71; JR Dugard ‘Fourth Report on Diplomatic Protection’ para 52 fn130; Barcelona Traction, (Separate Opinion of Judge Jessup) 186. 54 C Warbrick, ‘Current Legal Developments’ 1007; RB Lillich and BH Weston, 146. 55 Chamberlain and Hookham, Limited v Solar Zahlerwerke, G.m.b.H. (No II Recueil des ­Decisions, p 722). 56 I Seidl-Hohenveldern, Corporations in and under International Law (Cambridge, Cambridge University Press, 1993) 28; Art 297Treaty of Versailles, (Signed 28 June 1919). 57 Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran (Claims Settlement Declaration), 19 January 1981. The Claims Settlement Declaration was made under the Algiers Accords which ended the Embassy hostage crisis and established an arbitration tribunal to settle existing disputes between the two countries and their nationals. See Iran-United States Claims Tribunal www.iusct.net/. 58 See Flexi-Van Leasing, Inc. v The Government of the Islamic Republic of Iran, Claim No 36 (Order of Dec. 15, 1982) 1 Iran-US C.T.R. 455.

120  Corporate Nationality in Context E.  The ILC Draft Articles on Diplomatic Protection According to Article 3(1) of the ILC Draft Articles, the nationality of a person determines which state is entitled to exercise diplomatic protection. Deviating from the general principle of international law that each state shall determine who its nationals are, Article 9 of the ILC Draft Articles stipulates that for the purposes of diplomatic protection, a corporation’s nationality shall be determined based on its place of incorporation. However, the incorporation criterion is not decisive ‘when the corporation is controlled by nationals of another State or States and has no substantial business activities in the State of incorporation, and the seat of management and the financial control of the corporation are both located in another State …’.59 These additional criteria were included by the drafters of the Articles to ensure fairness in recognition that if a corporation’s link to a state is tenuous, it is unlikely for that state to be willing to espouse a diplomatic claim on that corporation’s behalf.60 However pragmatic this justification is, the alternative formulation in Article 9 and the commentary interpreting its meaning and purpose narrows the application of the alternative formulation. The commentary to Article 9 explains that the deviation from the incorporation rule is only allowed if the conditions relating to control, absence of substantial business activities in the incorporation state, seat of management and financial control are met cumulatively. If these are not met cumulatively, even if a corporation is incorporated as a shell corporation, its place of incorporation will determine its nationality. The influence of the Barcelona Traction’s reference to incorporation with the condition that the company has a real connection to its place of incorporation can be seen in the ILC Draft Articles. But the Draft Articles’ requirement for all the elements of the real connection to exist cumulatively is more permissive of nationality being determined based on tenuous links than the ICJ’s incorporation plus X approach in Barcelona Traction. In the commentary to Article 9, the Draft Articles acknowledge that as with natural persons, it is up to each state to determine who its corporate nationals are. Yet, the articles themselves provide no explicit recognition of a state’s right to choose a criterion other than those stipulated in Article 9 to determine its corporate nationals. For instance, the Articles make no room for a state to determine under its own national law corporate nationality based only on shareholding rights regardless of place of incorporation or seat of management. I stated earlier in this chapter that it is rare to see domestic law prescribing the standards of nationality for corporations. This can explain the ILC Draft Articles’ deviation from the standard accepted for natural persons. Yet, there 59 Art 9 of the ILC Draft Articles on Diplomatic Protection. 60 Art 9 ILC Draft Articles on Diplomatic Protection with commentaries para 4. Art 10 of the Draft Articles also stipulate that the corporation must have held the nationality of the home state continuously from the date of the injury until the date of the presentation of the claim.

Control Criterion for Domestic Wartime Sanctions  121 is no recognition in the Articles or the commentary of this deviation from the original international law standard on nationality. The ILC Draft Articles do not clarify, in commentary, based on which criteria control, location of management and financial control would be determined. In order to identify the real seat and the place of financial control of a corporation, it may be necessary to look behind the corporate veil to identify its shareholders, especially for companies owned by other companies. With regard to the protection of shareholders separate from the corporation, the Draft Articles follow the ICJ’s approach in Barcelona Traction and allow shareholder protection on behalf of the company only in exceptional circumstances.61 If the shareholders have suffered direct injury to their rights, Article 12 recognises the right of the shareholders’ state of nationality to espouse the shareholders’ claim. Since IIL instruments typically give direct standing to shareholders recognising their rights as a protected investment, they clearly deviate from diplomatic protection standards when it comes to shareholder claims and nationality. II.  CONTROL CRITERION FOR DOMESTIC WARTIME SANCTIONS

Nationality was one of the determining elements for identifying the enemy alien character of corporations during the two world wars.62 During the World War I, in France, nationality was one of the decisive factors in determining the enemy character for both natural persons and legal entities.63 The United 61 Art 11 reads: ‘A State of nationality of shareholders in a corporation shall not be entitled to exercise diplomatic protection in respect of such shareholders in the case of an injury to the corporation unless: (a) The corporation has ceased to exist according to the law of the State of incorporation for a reason unrelated to the injury; or (b) The corporation had, at the date of injury, the nationality of the State alleged to be responsible for causing the injury, and incorporation in that State was required by it as a precondition for doing business there.’ Another exception is found in Art 12: ‘To the extent that an internationally wrongful act of a State causes direct injury to the rights of shareholders as such, as distinct from those of the corporation itself, the State of nationality of any such shareholders is entitled to exercise diplomatic protection in respect of its nationals.’ 62 Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd (Daimler) (1916) 2 AC 319 (Nationality was not the sole factor for attributing enemy character to a person. This was stressed by Lord Atkinson in the Daimler decision as, ‘It is well established that trading with the most loyal British subject, if he be resident in Germany, would, during the present war, amount to trading with the enemy, and be a misdemeanour if he carried on without the consent of the Crown; the reason being that the fruits of his action result to a hostile country and so furnish his resources against his own country.’) Barcelona Traction (Separate Opinion of Judge Jessup) 183. For an account of the law after WWI see AD McNair, ‘The National Character and Status of Corporations’ (1923–1924) 4 British Yearbook of International Law 44. See for an example of relevance of control GG Jones, ‘Nationality and Multinationals in Historical Perspective’ (2005) Harvard Business School Working Paper No 06-052, 18 (‘One of Britain’s large petroleum distribution companies – the British Petroleum Company – turned out to be largely controlled by the Deutsche Bank. Both sides sequestrated such foreign-owned companies and often sold them to local firms. Thus the British Petroleum Company was sold to be Anglo-Persian Oil Company – in which the British government had taken a 51 per cent shareholding in 1914 …’). 63 The other factor taken into account in certain situations was domicile; ML Lewis, ‘Domicile as a Test of Enemy Character’ (1923-1924) 4 British Yearbook of International Law 60, 76.

122  Corporate Nationality in Context States Trading with the Enemy Act of 191764 and in the UK Trading with the Enemy Act 193965 provide that the place of incorporation, the place where the company conducts its business activities and the nationality of controllers of the company will be the decisive factors in determining the enemy character of a company. Although the term ‘nationality’ was not used in direct reference to corporations in war-time legislation in the Anglo-American world, references to nationality are found in case law. In the leading Daimler66 case, the House of Lords discussed whether ­Continental Tyre and Rubber Co. was an English company or whether it should be considered a German company, ie an enemy entity. Continental was a company incorporated in England, selling tyres produced in Germany by a German company that held the majority of the shares in Continental. The remaining of the shares, except for one, and the management of the company were held by German nationals resident in Germany. The question before the Court was whether Continental could have access to English courts to collect its debts during wartime despite the sanctions denying this right to enemies. For this purpose, the Court had to ascertain whether Continental was an enemy under the UK Trading with the Enemy Act of 1914. Although the legislation provided that ‘enemy character attaches only to those incorporated in an enemy country’,67 the Court was determined to look beyond the place of incorporation. In the words of Lord Parker: …, in transferring the application of the rule against trading with the enemy from natural to artificial persons, something more than the mere place or country of registration or incorporation must be looked at.68

That ‘something more’ for the House of Lords in the Daimler case was the concept of ‘control’. It was held that a company incorporated in England may assume an enemy character, if its agents or the persona de facto in control of its affairs are resident in an enemy country, or, wherever resident, are – adhering to the enemy or taking instructions from or acting under the control of enemies; and any person knowingly dealing with a company in such a case is trading with the enemy. The character of individual shareholders cannot of itself affect the character of the company; but the enemy character of individual shareholders and their conduct may be material on the ­question 64 Section 2, ‘… any corporation incorporated within such territory of any nation with which the United States is at war or incorporated within any country other than the United States and doing business within such territory.’ 65 Section 2, ‘(1) Subject to the provisions of this section, the expression ‘enemy’ for the purposes of this Act means – (c) any body of persons (whether corporate or unincorporate) carrying on business in any place, if and so long as the body is controlled by a person who, under this section, is an enemy, (d) any body of persons constituted or incorporated in, or under the laws of, a State at war with His Majesty; and (e) as respects any business carried on in enemy territory, any individual or body of persons (whether corporate or unincorporate) carrying on that business; …’. 66 (1916) 2 AC 307. 67 Ibid, 332. 68 Ibid, 339.

Conclusion  123 whether the company’s agents or the persons de facto in control of its affairs are in fact adhering to, taking instructions from, or acting under the control of enemies.

The United States Supreme Court also adopted the control test in Clark v ­Uebersee Finanz-Korporation, A.G. in relation to World War II sanctions.69 Uebersee was incorporated and had its principal place of business in Switzerland, a neutral state. Uebersee filed the suit to reclaim the property seized by the Alien Property Custodian under the Trading with the Enemy Act 1941, alleging that Uebersee is neither an enemy nor ally of an enemy. The Court acknowledged the possibility of looking behind the corporate veil to identify the controlling interest in a company where the enemy had organised itself behind a corporate front in a friendly or neutral state in order to conceal its enemy character for purposes of economic warfare.70 In regards to Uebersee, it ruled that Uebersee was not an enemy corporation as it has not been owned or controlled, directly or indirectly, in whole or in part, by an enemy or ally of an enemy. In the words of the Court this company was ‘free of all enemy taint.’71 War-time is a time of extremes, and departure from peace-time standards are accepted within the boundaries of the law. The cases discussed in this section show a strong scrutiny by courts into the real interests behind corporate entities under the extreme circumstances present at the time. Such a high level of scrutiny may not apply in peace time. But it is clear from the analysis of state practice and diplomatic protection principles, that even during peace time states require genuine links to espouse corporate claims. III. CONCLUSION

Whether for the necessity to attribute the company to a state for ascertaining the law governing the organisational issues, or to determine the state that will provide diplomatic protection to the company vis-à-vis another state, companies are linked to states by the bond of nationality for various purposes. However, due to the unique and evolving characteristics of corporations and the absence of explicit national standards on corporate nationality, uncertainty remained on the method determining the nationality of a company at the international level. Several criteria have been used alone or in combination with each other at the domestic and international level. France, as the only major jurisdiction that explicitly uses nationality as a determinant of lex societatis, refers to the real seat doctrine as the criterion for nationality. International principles on diplomatic protection prioritise the place of incorporation but require the consideration of additional factors, if incorporation provides a tenuous link. The nationality of controlling shareholders has been adopted most commonly as a decisive factor 69 M Domke, ‘‘Piercing the Corporate Veil’ in the Law of Economic Warfare’ (1955) Wisconsin Law Review 77, 77. 70 Clark v Uebersee Finanz-Korporation, A.G. 332 U.S. 480 (1947) 484–485. 71 332 U.S. 480 (1947) 482.

124  Corporate Nationality in Context in the extreme circumstances of conflicts, but it also appears in state practice on diplomatic protection, despite being at odds with the basic principle underlying company law, ie, the principle of separate legal entity. Relying as a general rule primarily on shareholders’ nationality has been considered contrary not only to the separate personality principle, but it has been considered harmful to legal certainty and foreseeability since controlling influence may be exercised by several shareholders or change hands relatively speedily.72 On the other hand, from a state’s point of view, in situations where it must identify the nationality of a company to, for instance, extend diplomatic protection or grant overseas investment financing, it has a legitimate interest in knowing whether the company is genuinely linked to that state. Otherwise it may well find itself providing diplomatic protection to a company that is more closely connected to the state against which it makes the claim. The analysis often begins by looking at the place of incorporation of the entity in question, but incorporation alone may not capture a substantial link between a state and a corporation that should be the basis of the bond of nationality. Recognising this reality, the ICJ in Barcelona Traction, the ILC Draft Articles and states in their diplomatic protection practice have required an additional link, to avoid nationality being determined based on tenuous links, which demonstrates a ‘real’ or ‘substantial’ connection beyond mere incorporation.73 An important consideration missing from the sources analysed in this chapter on corporate nationality is the scarcity of references to the transnational context in which the corporations in question operate. Ascertaining a corporation’s nationality is made more challenging by the stretch of business enterprises across borders in the form of MNEs as well as with the increasing use of shell corporations based in regulatory havens.74 The interpretation of corporate nationality in various instances analysed in this chapter typically concentrate analysis on the individual entities within a corporate group without paying due attention to its existence as part of a multi-national collective whose certain constituent parts may be vehicles of convenience. The analysis of corporate investors’ nationality in the following chapters considers the effect of these features of transnational business activity in the analysis of corporate nationality.

72 This was considered a risk by the ICJ in Barcelona Traction and so it was held in obiter that giving shareholders’ state of nationality a right to diplomatic protection, save for exceptional circumstances ‘could create an atmosphere of confusion and insecurity in international economic relations’ see para 96. 73 See G D’Agnone ‘Determining the nationality of companies in ICSID Arbitration’ in A Annoni and S Forlati (eds) The Changing Role of Nationality in International Law (London, Routledge, 2013) 162 (arguing that it is necessary to identify a ‘genuine’ link between the state and the corporation for purposes of nationality.) Barcelona Traction, (Separate Opinion of Judge Jessup) 184 (Argues that the doctrine of effective link should also be applied in determining national character of corporations.). 74 See ch 3 Section III for an overview.

5 Corporate Investors’ Nationality under the ICSID Convention and Investment Treaties

I

n this chapter, I investigate how investment arbitration tribunals have interpreted corporate nationality, both under the ICSID Convention1 and under investment treaty claims arbitrated under other rules. This in depth critical review of the arbitral awards reveals that the application of ‘nationality’ to corporate entities under IIL has given ample opportunities to investors to utilise strategic corporate structuring to benefit from IIL protections that would not have been available to them otherwise. The awards do not investigate nor reveal conclusive evidence that corporate structuring was done for benefitting from IIL protections. The reasons for such structuring may include tax planning, tax avoidance, or wealth management,2 as well as access to a favourable investment treaty’s protection.3 What the case law reveals is that the current formulation of IIL standards on corporate nationality, and the interpretation of these standards by arbitral tribunals allow investors to nationality shop by utilising existing corporate structures or create new ones to benefit from investment treaty protections offered by home states on extremely tenuous links. In rare cases, tribunals have also allowed nationality to be determined based on corporate restructuring done after an investment dispute became very imminent or after a dispute has already arisen.4 In other instances, the links to the alleged

1 This covers ICSID claims brought under an investment contract, national investment law, as well as an investment treaty as the source of consent. 2 JA Brickley and LD Van Drunen, ‘Internal Corporate Restructuring: An Empirical Analysis’ (1990) 12 Journal of Accounting and Economics 251, 252–261 (provides that among the reasons of organisational structuring within a firm are tax and regulatory frameworks.) PT Muchlinski, Multinational Enterprises and the Law 2nd edn (Oxford, Oxford University Press, 2007) 300–302. 3 J Baumgartner, Treaty Shopping in International Investment Law (Oxford, Oxford University Press, 2016) 8–9. 4 See, eg, the analysis below of Mobil Corporation, Venezuela Holdings, B.V., Mobil Cerro Negro Holding, Ltd., Mobil Venezolana de Petróleos Holdings, Inc., Mobil Cerro Negro, Ltd., and Mobil Venezolana de Petróleos, Inc. (Mobil) v Bolivarian Republic of Venezuela (Venezuela) (Decision on Jurisdiction) (ICSID Case No ARB/07/27, 10 June 2010).

126  Corporate Nationality under ICSID and Investment Treaties home state of the investor may not be necessarily tenuous, but still not represent the true nationality of the investor.5 Why does all this matter? Should all investors not have access to IIL protections regardless of their nationality and if so, should they not be allowed to utilise corporate structuring to claim a particular nationality that will provide them the best protection available?6 As discussed in the introduction and further in Chapter 6, there are several reasons for arguing against an expansionist view. In essence, such an approach to nationality goes against the foundational rationale of ‘international’ investment protection. First, the justification for this regime’s existence is to protect ‘foreign’ investors against political risk when investing overseas, as ‘foreignness’ is viewed by the system as a vulnerability7 which justifies an additional layer of protection that domestic investors do not receive. Second, the regime is built on the promise of protection on a reciprocal basis. Allowing protection based on artificially constructed nationalities undermine the reciprocity of protection and the negotiated balance of investment treaties,8 as well as blurring the premise of foreign nationality as a vulnerability. On this brief background, the first part of this chapter is dedicated to analysing how ICSID arbitral tribunals have applied and interpreted ICSID Convention’s nationality requirement for corporate investors. This analysis is based on a content review of 126 ICSID decisions rendered in the English language up to November 2018. This includes cases where ICSID tribunals are constituted based on investment treaty consent. While the Convention provides for a nationality requirement, it does not provide the method through which this nationality is to be determined. International law adopts the principle that every state has the right to determine under its own law who its nationals are, to the extent it is within the parameters of international law.9 When it comes to corporate investors, domestic laws provide little direct assistance on the question of nationality. It was decided during the Convention’s drafting that it would remain silent on this issue.10 The drafters chose to leave ‘nationality’ undefined thinking that doing otherwise would unnecessarily limit the meaning of the term and cause jurisdictional controversies.11 Instead, it is this lack of definition that

5 See, eg, the analysis below of Autopista Concesionada de Venezuela C A (Aucoven) v Bolivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/00/5, 27 September 2001). 6 See for a seminal work supporting this view SW Schill, The Multilateralization of International Investment Law (Cambridge, Cambridge University Press, 2009). 7 See G Ünüvar and A Küçüksu, ‘From Protection to Governance of Foreign Investment: Vulnerability Theory as a Paradigm Shift in International Investment Law’ 27 December 2019 EJIL:Talk www.ejiltalk.org/from-protection-to-governance-of-foreign-investment-vulnerability-theory-as-aparadigm-shift-in-international-investment-law/. 8 See Introduction. 9 See ch 2. 10 CH Schreuer et al, The ICSID Convention: A Commentary 2nd edn (Cambridge, Cambridge University Press, 2009) 82–83. 11 CH Schreuer et al, The ICSID Convention 264.

The ICSID Convention Article 25(2)(b) Requirement  127 has caused divergent jurisprudence to develop on corporate nationality creating considerable uncertainty. What emerges from the case law analysis below is a lack of clarity, and at times lack of principled reasoning or any reasoning at all. The second portion of the chapter provides an overview of the investment treaty practice on corporate investors when these are applied by tribunals constituted under other arbitration rules. Investment treaties do provide more clarity on the criteria to be applied in determining whether a corporate investor qualifies as a protected investor. Yet the interpretation of these criteria and limitations to protection such as denial of benefits clauses, have given rise to an erratic jurisprudence to emerge on corporate beneficiaries of IIL. The investment treaty practice on personal scope has begun to evolve in a clear direction that tightens explicitly the definition of investor companies or enterprises, responding to a backlash to arbitral interpretations widening the personal scope of investment treaties. The findings of this chapter are the basis for the critique developed in Chapter 6 and inform the solutions proposed in the final Chapter 7. I.  THE ICSID CONVENTION ARTICLE 25(2)(B) REQUIREMENT: OBJECTIVE BUT RARELY ADDRESSED

Article 25(2)(b) of the ICSID Convention identifies the class of persons that fall under the category of ‘nationals of another Contracting State’ without, however, defining what is meant by ‘nationality’. It divides legal persons into two groups: those that have the nationality of a Contracting State other than the host Contracting State party to the dispute, and those that have the nationality of the host state party to the dispute but are under foreign control. It reads as follows: (2) ‘National of another Contracting State’ means: (b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and 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.

Lack of guidance in the ICSID Convention as to how a corporation’s nationality is to be determined leaves intact the uncertainties identified in Chapters 212 and 4 on corporate nationality. The Convention’s Preliminary Draft referred to two possible criteria: the incorporation or seat test on the one hand and the control test on the other hand.13 But these options prompted an intensive debate

12 Section 13 CH

II(B). Schreuer et al, The ICSID Convention 279.

128  Corporate Nationality under ICSID and Investment Treaties between the delegates, and the subsequent First Draft of the Convention chose to remain silent on the issue of corporate nationality, merely referring to the agreement of the parties on this question.14 The final text does not mention any criterion, except for the second part of Article 25(2)(b) that refers to a control test for companies that are nationals of the host state.15 The investor’s nationality is an objective jurisdictional requirement under the Convention,16 the existence of which must be established by the tribunal even when there is no objection by the parties to nationality of the investor.17 It is also stipulated in Article 48(3) of the Convention that the tribunal shall address all questions submitted to it and state the reasons upon which its decisions are based. The most striking finding when reviewing the content of arbitral decisions was the frequency of the instances where assessment of corporate nationality was superficial18 or even absent.19 Decisions containing superficial assessments

14 Ibid. 15 Ibid. 16 See ch 1. 17 Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka (Award) (ICSID Case No ARB/00/2, 15 March 2002) para 56 (‘As a preliminary matter, the question of the existence of jurisdiction based on consent must be examined proprio motu, …’); Fisheries Jurisdiction Case (Spain v Canada) (Jurisdiction of the Court) Judgment of 4 December 1998, [1998] ICJ Rep 432 paras 37–38 (‘The Court points out that the establishment or otherwise of jurisdiction is not a matter for the parties but for the Court itself. Although a party seeking to assert a fact must bear the burden of proving it, this has no relevance for the establishment of the Court’s jurisdiction, which is a ‘question of law to be resolved in the light of the relevant facts’.’) 18 See, eg, Mr. Hassan Awdi, Enterprise Business Consultants, Inc. and Alfa El Corporation v Romania, (Award) (ICSID Case No ARB/10/13, 2 March 2015); Mamidoil Jetoil Greek ­Petroleum Products Societe S.A. v Republic of Albania (Award) (ICSID Case No ARB/11/24, 30 March 2015); Burlington Resources Inc. v Republic of Ecuador (Decision on Jurisdiction) (ICSID Case No ARB/08/5, 2 June 2010); Helnan International Hotels A/S v Arab Republic of Egypt (Decision of the Tribunal on Objection to Jurisdiction) (ICSID Case No ARB/05/19, 17 May 2006); SGS Société Générale de Surveillance S.A. v Republic of the Philippines (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/02/6); Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea (Award) (ICSID Case No ARB/84/1, 21 April 1986); Asian Agricultural Products Ltd. v Republic of Sri Lanka (Final Award) (ICSID Case No ARB/87/3, 15 June 1990). 19 AGIP S.p.A. v People’s Republic of the Congo (Award) (ICSID Case No ARB/77/1); SGS Société Générale de Surveillance S.A. v Islamic Republic of Pakistan (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/01/13, 6 August 2003); Maritime International Nominees Establishment v Republic of Guinea (Award) (ICSID Case No ARB/84/4, 6 January 1988); ­Ceskoslovenska Obchodni Banka AS v The Slovak Republic (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/97/4, 24 May 1999); Salini Costruttori SpA and Italstrade SpA v The Hashemite Kingdom of Jordan (Decision on Jurisdiction) (ICSID Case No ARB/02/13, 9 November 2004); LESI, S.p.A. and Astaldi, S.p.A. v People’s Democratic Republic of Algeria ­(Decision on Jurisdiction) (ICSID Case No ARB/05/3, 12 July 2006); Joy Mining Machinery Limited v The Arab Republic of Egypt (Award on Jurisdiction) (ICSID Case No ARB/03/2011, 6 August 2004); Inceysa Vallisoletana S.L. v Republic of El Salvador (Award) (ICSID Case No ARB/03/26, 2 August 2006); ATA Construction, Industrial and Trading Company v The Hashemite Kingdom of Jordan (Award) (ICSID Case No ARB/08/2, 18 May 2010); Inmaris Perestroika Sailing ­Maritime Services GmbH and Others vUkraine (Decision on Jurisdiction) (ICSID Case No ARB/08/8, 8 March 2010); Tradex Hellas SA v Republic of Albania (Decision on Jurisdiction) (ICSID Case No ARB/94/2, 24 December 1996); Desert Line Projects LLC v The Republic of Yemen (Award) (ICSID

The ICSID Convention Article 25(2)(b) Requirement  129 refer to the claimant company’s nationality, but fail to state the reasons why the claimant’s nationality was determined as such.20 Decisions lacking any reference to the corporate investor’s nationality are particularly common for investments falling under the first part of Article 25(2)(b), though some examples are also found in cases falling under the second part.21 Some of the cases that lack reference to nationality of the investor made reference to the place of incorporation or seat, without, however, a finding on nationality.22 Others did not even mention any affiliation of the company to a state.23 Mere reference to an investor’s place of incorporation and head office cannot suffice for satisfying the obligation of the tribunal to establish the existence of the jurisdictional requirements.

Case No ARB/05/17, 6 February 2008); Commerce Group Corp. and San Sebastian Gold Mines, Inc. v The Republic of El Salvador, (Award) (ICSID Case No ARB/09/17, 14 March 2011); Electrabel S.A. v Republic of Hungary, (Decision on Jurisdiction, Applicable Law and Liability) (ICSID Case No ARB/07/19, 30 November 2012); Toto Costruzioni Generali S.p.A. v The Republic of Lebanon (Decision on Jurisdiction) (ICSID Case No ARB/07/12, 11 September 2009); Churchill Mining PLC and Planet Mining Pty Ltd v Indonesia (Decision on Jurisdiction) (ICSID Case No ARB/12/14 and 12/40, 24 February 2014); Tulip Real Estate and Development Netherlands B.V. v Republic of Turkey, (Award) (ICSID Case No ARB/11/28, 10 March 2014); Emmis International Holding, B.V., Emmis Radio Operating, B.V., MEM Magyar Electronic Media Kereskedelmi és Szolgáltató Kft. v The Republic of Hungary (Award) (ICSID Case No ARB/12/2, 16 April 2014); OI European Group B.V. v Bolivarian Republic of Venezuela (Award) (ICSID Case No ARB/11/25, 10 March 2015) (Despite the Claimant describing the investor being threatened by the Respondent’s government for being a US national in several parts of its arguments, the claim was brought by a Netherlands based corporation under a Dutch treaty and the tribunal have not made a finding on nationality at all). 20 See, eg, SGS Société Générale de Surveillance S.A. v Republic of the Philippines (Decision of the Tribunal on Objections to Jurisdiction) (The claimant was referred to as a large Swiss corporation at the outset of the award; however, no mention of its place of incorporation or seat was made. The decision did not include an analysis of the jurisdiction ratione personae, except for a sentence providing that nationality or effective control of the investor was not at dispute.) 21 Adriano Gardella S.p.A. v Ivory Coast (Award) (ICSID Case No ARB/74/1, 29 August 1977); Noble Ventures, Inc. v Romania (Award) (ICSID Case No ARB/01/11, 12 October 2005); PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v Republic of Turkey (Decision on Jurisdiction) (ICSID Case No ARB/02/5, 4 June 2004); Bosh International, Inc and B&P Ltd Foreign Investments Enterprise v Ukraine (Award) (ICSID Case No ARB/08/11, 25 October 2012); M.C.I. Power Group L.C. and New Turbine, Inc. v Republic of Ecuador (Award) (ICSID Case No ARB/03/6, 31 July 2007); Occidental Petroleum Corporation and Occidental Exploration and Production Company v The Republic of Ecuador (Decision on Jurisdiction) (ICSID Case No ARB/06/11, 9 September 2008). 22 These decisions referred to facts such as the type of the company, its place of incorporation, seat or stock exchange listing, or its shareholders or place in a group of companies. See Empresa Eléctrica del Ecuador, Inc. v Republic of Ecuador (Award) (ICSID Case No ARB/05/09, 2 June 2009); Tradex Hellas SA v Republic of Albania (Decision on Jurisdiction) (ICSID Case No ARB/94/2, 24 December 1996); İçkale İnşaat Limited Şirketi v Turkmenistan, (Award) (ICSID Case No ARB/10/24, 8 March 2016). 23 SGS Société Générale de Surveillance S.A. v Islamic Republic of Pakistan (Decision of the Tribunal on Objections to Jurisdiction) (The tribunal confirmed its jurisdiction under the Convention, but did not make any reference to the nationality requirement. Nor was there any mention of the place of incorporation or seat of the investor, or persons that control the company. Despite its failure to identify the affiliation of the investor with a state, the tribunal held that the Switzerland-Pakistan BIT was applicable to the dispute. This implies that the tribunal considered the investor a national of Switzerland.)

130  Corporate Nationality under ICSID and Investment Treaties ICSID decisions that fail to determine the nationality of the investor fail to address whether the Convention’s jurisdictional requirements have been met.24 Without a sound assessment of the jurisdictional requirements, tribunals risk annulment of their decisions under Article 52(1) of the Convention, which lists ‘manifest excess of powers’ by the tribunal and ‘failure to state reasons on which the decision is based’ as grounds for annulment.25 Even when there is no application for annulment on these grounds, a failure to state the reasons showing the jurisdictional requirements diminish the credibility of a tribunal’s decision and is detrimental to the legitimacy of the system of investment arbitration.26 This chapter does not go into further analysis of the decisions lacking an assessment of nationality, as these provide no guidance on the interpretation of corporate nationality. The focus will instead be on the awards that determine nationality explicitly under Article 25 and provide an identifiable reasoning. A.  Investment Without a Locally Incorporated Entity: The First Part of Article 25(2)(b) The first part of Article 25(2)(b) identifies companies that are nationals of another Contracting State as eligible investors for ICSID jurisdiction. It typically covers corporate investors that do not have a separate corporate existence in the host state either because their place of incorporation or real seat or both are outside the host state. In other words, the investment is carried out by the foreign corporate investor without a local subsidiary. Increasingly, this part is invoked by investors who rely on their direct or indirect shareholding in a host state entity as protected investment.27 Few scholars have offered interpretations of the first part of Article 25(2)(b). Some of the literature has treated the subject briefly as part of a larger discussion on jurisdiction, merely expressing preferences of suitable criteria.28 Other pieces have looked into the subject in more detail, but largely reciting the ­arbitral jurisprudence without an in depth analysis and critique.29 Some have opted

24 Arts 25, 41 and 48(3) of the ICSID Convention. 25 Though none of the decisions listed in fn 18 and 19 have actually been submitted for annulment on nationality grounds. 26 See ch 6 Section III(B). 27 See ch 6 Section I(B) for a discussion of this. 28 M Sornarajah, ‘Power and Justice in Foreign Investment Arbitration’ (1997) 14(3) Journal of International Arbitration 103; CF Amerasinghe, ‘Dispute Settlement Machinery in Relations between States and Multinational Enterprises – With Particular Reference to the International Centre for Settlement of Investment Disputes’ (1977) 11 International Lawyer 45; GR Delaume, ‘ICSID Arbitration and the Courts’ (1983) 77 American Journal of International Law 784. 29 CH Schreuer et al, The ICSID Convention 279; AC Sinclair, ‘The Substance of Nationality Requirements in Investment Treaty Arbitration’ (2005) 20(2) ICSID Review – Foreign Investment Law Journal 357; G D’Agnone ‘Determining the nationality of companies in ICSID Arbitration’

The ICSID Convention Article 25(2)(b) Requirement  131 for the place of incorporation and seat as the determinant of nationality for ­corporate investors that fall under this first part.30 Some have advocated that while the standard analysis would focus on the place of incorporation or seat, ICSID tribunals should be flexible in their approach to nationality, as different circumstances may require application of different tests based on ‘some adequate connection’ between the private party and the state.31 ‘Control’ has also found support as an additional or alternative factor to determine c­ orporate nationality.32 One author considers the possibility that a corporate investor could have multiple nationalities, in which case he recommends the application of the ‘operative’ or ‘effective’ nationality, which would have to be identified after having determined the state to which the company is most closely connected.33 There is little guidance as to the indicators of a ‘close connection’. This diversity of scholarly interpretations is mirrored in ICSID arbitral decisions. I will now turn to ICSID arbitral decisions to explore how tribunals have interpreted the meaning of corporate nationality. i.  ICSID Arbitral Decisions ICSID decisions falling under the first part of Article 25(2)(b) generally rely on the place of incorporation or seat in order to determine the nationality of corporate investors. There is very little evidence of actual application of the seat criterion by ICSID tribunals, even though they regularly refer to the

in A Annoni and S Forlati (eds) The Changing Role of Nationality in International Law (London, Routledge, 2013) 153; RF Hansen, ‘The Systemic Challenge of Corporate Investor Nationality in an Era of Multinational Business’ (2010) 1(1) Revue d’arbitrage et de mediation/Journal of Mediation and Arbitration 81. 30 CH Schreuer et al, The ICSID Convention 279–280; GR Delaume, ‘ICSID Arbitration and the Courts’, 793–794; GR Delaume, ‘ICSID Arbitration in Practice’ (1984) 2 International Tax & Business Law 58, 62; CF Amerasinghe, ‘The International Centre for Settlement of Investment Disputes and Development Through the Multinational Corporation’ (1976) 9 Vanderbilt Journal of Transnational Law 793, 807. 31 CF Amerasinghe, ‘The International Centre for Settlement of Investment Disputes and Development through the Multinational Corporation’ 808; See also, CF Amerasinghe, ‘Dispute Settlement Machinery in Relations between States and Multinational Enterprises’ 53; AC Sinclair, ‘The Substance of Nationality Requirements’ 367. 32 M Sornarajah, ‘Power and Justice in Foreign Investment Arbitration’ 125 (In his view, actual controllers of the investment should always be identified in assessing nationality.); P Muchlinski, ‘Corporations and the Uses of Law: International Investment Arbitration as a Multilateral Legal Order’ (2011) Oñati Socio-Legal Series, v. 1, (n 4), 19; G D’Agnone ‘Determining the nationality of companies in ICSID Arbitration’ 161–163 (Argues that ‘control … should play an active role in determining corporate nationality’); RF Hansen, ‘The Systemic Challenge of Corporate Investor Nationality in an Era of Multinational Business’; A Alexeyev and S Voitovich, ‘Tokios Tokelés Vector: Jurisdictional Issues in ICSID Case Tokios Tokelés v. Ukraine’ (2008) 9(6) Journal of World Investment and Trade 519, 524, 526. 33 CF Amerasinghe, ‘The International Centre for Settlement of Investment Disputes and Development through the Multinational Corporation’ 809.

132  Corporate Nationality under ICSID and Investment Treaties applicability of the criterion.34 It appears that the seat criterion is understood in many awards as referring to the statutory seat of the company or in other words to its registered address.35 Some decisions refer to the ‘principal office’ without, however, specifying what they mean by this. ‘Principal office’ could refer to the ‘registered office’, ie statutory seat or to the real seat.36 Tribunals have also referred to combinations of various conditions such as incorporation, seat and real economic activities.37 In cases that do not involve an objection to nationality by the respondent state, tribunals simply state the nationality of the investor and the link on the basis of which they determined the nationality. In some cases, the nationality of the claimant corporation was determined based on their place of incorporation and registered address or principal office.38 In other cases, the tribunal only relied on the place of incorporation of the corporate investor.39 More exceptional links mentioned alongside incorporation and/or seat include stock

34 A recent exception to this is found in CEAC Holdings Limited v Montenegro, (Award) (ICSID Case No ARB/14/8, 26 July 2016) (The tribunal considered whether the investor corporation has its seat in Cyprus, as the applicable Cyprus-Serbia and Montenegro BIT required the investor to be incorporated and having its seat in Cyprus to be considered a Cypriot investor.) 35 Mera Investment Fund Limited v Republic of Serbia (Decision on Jurisdiction) (ICSID Case No ARB/17/2, 30 November 2018) paras 87–92 (The tribunal in this case treated the registered office as the seat of the Claimant corporation which was indirectly wholly owned by two Serbian natural persons, nationals of the host State); CEAC v Montenegro para 148 (The tribunal found that the Claimant was unable to prove that it actually had its registered address in Cyprus, and as a result it did not have its seat in Cyprus.) 36 See ch 3 Section II on this. Exceptionally, the tribunal provided a detailed analysis of the real seat in Tenaris S.A. and Talta – Trading e Marketing Sociedade Unipessoal Lda. v Bolivarian Republic of Venezuela, (Award) (ICSID Case No ARB/11/26 29 January 2016); for a contrary approach to Tenaris see Orascom TMT Investments S.à r.l. v People’s Democratic Republic of Algeria (Final Award) (ICSID Case No ARB/12/35, 31 May 2017) para 298 (Diminishing siege social to the statutory seat). 37 SGS Société Générale de Surveillance S.A. v The Republic of Paraguay (Decision on J­urisdiction) (ICSID Case No.ARB/07/29, 12 February 2010) para 75. 38 Saipem S.p.A. v People’s Republic of ­Bangladesh (Decision on Jurisdiction and Recommendation on Provisional Measures) (ICSID Case No ARB/05/7, 21 March 2007) para 2 (The Claimant was considered a national of Italy.) Gustav F W Hamester GmbH & Co KG v Republic of Ghana (Award) (ICSID Case No ARB/07/24, 18 June 2010) paras 1, 95 (The tribunal referred to the ­Claimant’s place of incorporation and the registered address and on that basis determined that it was a German corpo­ ration.) Middle East Cement Shipping and Handling Co SA v Arab Republic of Egypt (Award of the Tribunal) (ICSID Case No ARB/99/6, 12 April 2002). Impregilo S.p.A. v Islamic Republic of Pakistan (Decision on Jurisdiction) (ICSID Arbitral T ­ ribunal Case No ARB/03/3, 22 December 2003). 39 Oko Pankki Oyj, VTB Bank (Deutschland) AG and Sampo Bank Plc v The Republic of Estonia (Award) (ICSID Case No.ARB/04/6, 19 November 2007) paras 2, 199 (The tribunal referred to the place of incorporation of the three claimants to establish nationality.); Kaiser Bauxite Company v Jamaica, (Decision on Jurisdiction and Competence) (ICSID Case No ARB/74/3, 6 July 1975) para 17 (By virtue of its incorporation in the US, the Claimant was treated as a national of the US.); Garanti Koza LLP v Turkmenistan (Decision on Objection to Jurisdiction for Lack of Consent) (ICSID Case No ARB/11/20, 3 July 2013); Vigotop Limited v Hungary (Award) (ICSID Case No ARB/11/22, 1 October 2014) para 253; Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V. v Kingdom of Spain, (Award) (ICSID Case No ARB/13/31, 15 June 2018); Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain (Award) (ICSID Case No ARB/14/1, 16 May 2018); CDC Group plc v Republic of Seychelles (Award) (ICSID Arbitral Tribunal Case No ARB/02/14, 17 December 2003); GEA Group Aktiengesellschaft v Ukraine (Award) (ICSID Arbitral

The ICSID Convention Article 25(2)(b) Requirement  133 exchange listing,40 origin of capital,41 and the belonging of the company to a group of companies.42 In decisions where the respondent state challenged the claimant’s nationality, tribunals have generally dedicated more effort to assessing the nationality of the investor. In some of these cases, tribunals decided nationality on the basis of the place of the investor’s incorporation.43 In other cases, incorporation was complemented with the real seat and/or the nationality of controllers of the claimant.44 Many awards rely on the meaning of investor found in the investment treaty invoked by the claimant to determine the nationality of the investor under the ICSID Convention.45 These awards replace the Article 25’s personal jurisdiction conditions with the personal access conditions of the investment treaty invoked by the claimant. Some awards do not explicitly make a nationality finding, but instead imply the nationality of the claimant by applying a particular investment treaty to the dispute.46 I analyse three awards below ­representative of the

Tribunal Case No ARB/08/16, 31 March 2011); Malicorp Limited v The Arab Republic of Egypt (Award) (ICSID Arbitral Tribunal Case No ARB/08/18, 7 February 2011). 40 Pantechniki S.A. Contractors & Engineers (Greece) v The Republic of Albania (Award) (ICSID Case No ARB/07/21, 30 July 2009) para 6 (The Claimant was referred to as a Greek company based on its stock exchange listing in the Athens Stock Exchange.) 41 Prosper Weil Dissenting Opinion to Tokios Tokelés v Ukraine (Decision on Jurisdiction) (ICSID Case No ARB/02/18, 29 April 2004). 42 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v Islamic Republic of Pakistan (Decision on Jurisdiction) (ICSID Case No ARB/03/29, 14 November 2005) paras 2–3, 78 (The tribunal referred to the investor’s place of incorporation and principal office, as well as to its parent company to determine its nationality); F-W Oil Interests, Inc. v The Republic of Trinidad and Tobago (Award) (ICSID Case No ARB/01/14 3 March 2006) paras 5, 121 (The tribunal relied on the place of incorporation of the claimant and the place of incorporation of its parent company as a basis of nationality.) 43 Mihaly v Sri Lanka para 1, KT Asia Investment Group B.V. v Republic of Kazakhstan (Award) (ICSID Case No ARB/09/8, 17 October 2013) (Even though the Claimant entity was ultimately owned by a Kazakh national, tribunal found the claimant had the appropriate nationality); Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. (BIVAC) v The Republic of Paraguay (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No.ARB/07/9, 29 May 2009); Tokios Tokelés v Ukraine. 44 Niko Resources (Bangladesh) Ltd v People’s Republic of Bangladesh, Bangladesh P ­ etroleum Exploration and Production Company Limited, Bangladesh Oil Gas and Mineral C ­ orporation (Decision on Jurisdiction) (ICSID Case No ARB/10/11 and ARB/10/18 19 August 2013) para 169 (reference to the place of both incorporation and head office); Alpha Projektholding GmbH v Ukraine (Award) (ICSID Case No ARB/07/16, 8 November 2010) paras 335, 343 (The tribunal referred to the Claimant’s place of incorporation and registered place of business as basis of nationality. In addition, the tribunal referred to the fact that the entity was controlled by Austrian natural and legal persons.) 45 H&H Enterprises Investments Inc. v Arab Republic of Egypt (The Tribunal’s Decision on Respondent’s Objections to Jurisdiction) (ICSID Case No ARB/09/1, 5 June 2012); ADC Affiliate Limited and ADC & ADMC Management Limited v The Republic of Hungary (Award of the Tribunal) (ICSID Case No ARB/03/16, 2 October 2006); Plama Consortium Limited v Republic of Bulgaria (Decision on Jurisdiction) (ICSID Case No ARB/03/24, 8 February 2005); Gambrinus, Corp. v Bolivarian Republic of Venezuela (Award) ICSID Case No ARB/11/31, 15 June 2015). 46 Telenor Mobile Communications A.S. v The Republic of Hungary (Award) (ICSID Case No ARB/04/15, 13 September 2006); Wena Hotels Ltd. v Arab Republic of Egypt (Award) (ICSID Case No ARB/98/4, 8 December 2000) (The Tribunal made no explicit determination of Wena Hotels Ltd.’s nationality; however, found jurisdiction under the UK-Egypt BIT); Dan Cake S.A. v Hungary, (Decision on Jurisdiction and Liability) (ICSID Case No ARB/12/9, 24 August 2015) para 71.

134  Corporate Nationality under ICSID and Investment Treaties ICSID tribunals’ approach to nationality under the first part of Article 25(2)(b): Perenco v Ecuador, BIVAC v Paraguay, and Tokios Tokeles v Ukraine. a.  Perenco v Ecuador This case is worth reviewing for it highlights a persistent problem in the way ICSID tribunals approach the nationality requirement. Despite explicitly distinguishing between the personal scope of the investment treaty and the personal jurisdiction of the tribunal under the ICSID Convention, this tribunal proceeded to assess personal jurisdiction solely with reference to the investment treaty provisions defining ‘investor’. This was done in great detail in two separate decisions issued by the tribunal,47 but yet the analysis focused on the investment treaty only and not the ICSID Convention. The Perenco tribunal provided a description of the claimant’s upstream ownership as follows: Perenco Ecuador Limited (‘Perenco’) is a company duly incorporated under the laws of the Commonwealth of the Bahamas. The Parties do not appear to contest that Perenco was the wholly-owned subsidiary of Perenco Gabon S.A., a company incorporated in the Bahamas, at the time Perenco commenced these proceedings before ICSID. In turn, 92.5% of the shares of Perenco Gabon S.A. were held by Perenco S.A., another company incorporated in the Bahamas. One-hundred percent of the shares of Perenco S.A. were held by another Bahamas registered company, Perenco International Limited, and 92.9% of the shares of Perenco International Limited were held by the estate of the late Hubert Perrodo, a French national.48

After Mr Perrodo’s death in 2006, his estate remained suspended under the applicable French law. His four heirs were all French nationals.49 Perenco had been awarded a contract to explore and exploit hydrocarbons in Ecuador, and had formed a consortium with another entity, which was also awarded a contract to explore and exploit hydrocarbons in the same blocks.50 Perenco held 53.7 per cent interest in one block and 57.5 per cent interest in the other.51 When the claimant invoked the investment treaty between France and ­Ecuador as a basis of consent to ICSID arbitration, Ecuador argued that Perenco was not a national of France under the investment treaty. The tribunal stated that the investment treaty did not use the term ‘nationality’ for corporations, but instead linked them to a state via their place of incorporation or seat, or by

47 Perenco Ecuador Ltd. v The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Decision on Jurisdiction) (ICSID Case No ARB/08/6, 30 June 2011) and Perenco Ecuador Ltd v The Republic of Ecuador (Decision on Remanining Issues of Jurisdiction and on Liability) (ICSID Case No ARB/08/6, 12 September 2014). 48 Perenco v Ecuador (Decision on Jurisdiction) para 3. 49 Ibid, para 4. 50 Ibid, para 13. 51 Ibid.

The ICSID Convention Article 25(2)(b) Requirement  135 the nationality of their controllers.52 The tribunal did not explicitly determine the nationality of the claimant under the Convention and focused its discussion on the personal scope of its jurisdiction to the requirements of the investment treaty. It appears, however, that the tribunal considered the claimant a French national under the ICSID Convention by virtue of its ultimate ownership by French nationals, applying the control test found in the investment treaty, since it accepted the France-Ecuador BIT as the basis of consent for ICSID jurisdiction. The tribunal in this case meticulously assessed the corporate structure and relationships forming the investment. Despite all the diligence of the tribunal in unpacking the identity of the investor, the ICSID Convention’s requirements were subsumed into the investment treaty’s requirements. As I argue below in Chapter 6,53 arbitral tribunals assessing their jurisdiction under Article 25 of the ICSID Convention must begin their analysis of nationality from the stipulations of Article 25(2)(b). While the Convention does leave room for party autonomy in terms of agreeing on the method for determining the investor’s nationality, an investment treaty invoked by the investor cannot be automatically considered as embodying such an agreement for purposes of ICSID jurisdiction. The investment treaty sets the personal scope requirements of its own application to an investor’s investment. It does not set the personal jurisdiction requirements of the ICSID Convention. The Perenco tribunal’s analysis should have started by first assessing whether it had personal jurisdiction to settle the dispute under the Convention’s own terms. Since the claimant in this case was Perenco Ecuador Limited, which is a company incorporated in the Bahamas, the tribunal would have to apply the first leg of Article 25(2)(b) to determine the nationality of the claimant. Here, the tribunal would have to explicitly indicate which criterion it considers appropriate to determine a corporate investor’s nationality. If it would consider the incorporation criterion as applicable, then the claimant would be treated as a national of the Bahamas and the tribunal could not assume jurisdiction on the basis of consent given in the Ecuador-France BIT. If the tribunal considered that the nationality of the claimant shall be determined based on control, it would have to state what it deems as ‘control’, eg whether it should be based on direct shareholding or ultimate ownership, or any other criteria. If, due to ultimate ownership, it considered Mr Perrodo’s estate as in control of the claimant, only then can the claimant be treated as a national of France and the Ecuador-France BIT can form the basis of consent to ICSID’s jurisdiction. The Perenco tribunal has not engaged in such an analysis and as a result the reasoning of its decision on jurisdiction is arguably defective.

52 Ibid, para 88. See ch 6 Section I for a discussion on investment treaty definitions of ‘investor’ and the nationality requirement of the ICSID Convention. 53 Section I(A).

136  Corporate Nationality under ICSID and Investment Treaties b.  BIVAC v Paraguay Although the BIVAC v Paraguay tribunal provided an in-depth analysis of its personal jurisdiction, it did not identify the person of the ‘investor’ with ­sufficient clarity, thereby failing to provide a solid interpretation of Article 25(2)(b) in relation to the facts of the case. The claimant, BIVAC BV, was a company incorporated in the Netherlands and operated under the BIVAC Group which has its headquarters in France.54 The parent company BIVAC SA of France was authorised by an Executive Decree issued by Paraguay’s Ministry of Finance (‘MoF’) to enter into a contract with the MoF for provision of certain technical services.55 However, BIVAC BV was identified in the contract as the contracting partner.56 Furthermore, the BIVAC group incorporated a subsidiary in Paraguay, BIVAC Paraguay SA, to act as a liaison office to carry out the operations under the contract.57 As a result of Paraguay’s default in payment, BIVAC BV initiated ICSID proceedings invoking the Netherlands-Paraguay BIT. Paraguay made a late objection to the personal jurisdiction of the tribunal, stating that the party to the dispute was not BIVAC BV, but was BIVAC SA and that the NetherlandsParaguay BIT was not applicable.58 This objection was based on the contention that the contract was between BIVAC SA and Paraguay, and not between BIVAC BV and Paraguay as asserted by the claimant. The tribunal issued two separate decisions on jurisdiction.59 In its first decision on jurisdiction, the tribunal stated that the parties were not in dispute regarding the test to be applied to determine nationality of a corporation.60 The nationality of a legal entity was to be determined by its place of incorporation, and not by the nationality of its controllers.61 The initial view of the tribunal was that BIVAC BV was the claimant and the party in interest to the dispute and it was a Dutch national by virtue of its incorporation in the Netherlands. This view was confirmed in the second decision on jurisdiction, this time under the Convention and not the investment treaty. The tribunal held that BIVAC BV was the disputing party and a national of the ­Netherlands under Article 25(2)(b) of the ICSID Convention by virtue of its place of incorporation.62 It was concluded that there was no reason why the Dutch nationality of the claimant should be disregarded.63 54 BIVAC v Paraguay para 53. 55 Ibid, para 7. 56 Ibid. 57 Ibid, paras 7, 99, 101. 58 Ibid, para 50; Agreement between the Kingdom of the Netherlands and the Republic of Paraguay on encouragement and reciprocal protection of investments signed on 29 October 1992, entered into force on 1 August 1994. 59 BIVAC v Paraguay (Further Decision on Objections to Jurisdiction) (ICSID Case No ARB/07/9, 9 October 2012). 60 BIVAC v Paraguay (Decision of the Tribunal on Objections to Jurisdiction) para 53. 61 Ibid. 62 BIVAC v Paraguay (Further Decision on Objections to Jurisdiction) para 93. 63 Ibid, paras 93–94.

The ICSID Convention Article 25(2)(b) Requirement  137 The crucial shortcoming of this award is that the tribunal did not consider the existence of a locally incorporated subsidiary. The tribunal treated the issue of nationality as one falling under the first prong of Article 25(2)(b) of the Convention. In this case, however, a local subsidiary with more than 70 employees was established for purposes of this investment.64 Had the tribunal taken into consideration the existence of the local subsidiary, it could have requested the local subsidiary to join as a claimant and assess the investor’s nationality under the second part of Article 25(2)(b) of the Convention which refers to the control criterion for locally established subsidiaries.65 In that case, an examination of control, instead of incorporation, may have produced a different outcome as to the nationality of the investor. Had the tribunal analysed which entity controlled the local subsidiary, it may have found that the investment was controlled by the French parent company and as a result the investor was a national of France. In that case, the tribunal would lack jurisdiction due to lack of consent via the Netherlands-Paraguay BIT, but it could consider the possibility of the consent requirement being satisfied under the France-Paraguay BIT. Alternatively, it may have found that BIVAC BV controlled the local subsidiary, in which case the Netherlands-Paraguay BIT would apply. But the tribunal has not carried out such an analysis. c.  Tokios Tokelés v Ukraine Tokios Tokelés v Ukraine, the most well-known case dealing with corporate nationality in ICSID arbitration, raises some fundamental questions about the personal reach of international investment protection. Here the claimant was a closed joint stock company established under the laws of Lithuania in 1991.66 There is no indication in the facts presented by the tribunal in the award that this was a shell corporation. 99 per cent of the claimant’s shares and two-thirds of its management were composed of Ukrainian nationals.67 In 1994, the claimant incorporated a wholly owned subsidiary, Taki spravy, in Ukraine.68 Tokios alleged that Ukraine breached its obligations under the Ukraine-Lithuania BIT through various actions it took against Taki spravy. Although the case was initially filed by Taki spravy as co-claimant, it was removed as a claimant from

64 BIVAC v Paraguay (Decision of the Tribunal on Objections to Jurisdiction) para 100. 65 For a critique of the same issue see A Yilmaz, Case Note on ICSID Case No ARB/10/5: Tidewater v Venezuela, Decision on Jurisdiction, (2013) 20 Australian International Law Journal 197. A similar approach is seen in Generation Ukraine Inc v Ukraine (Award) (ICSID Case No ARB/00/9, 16 September 2003) [para 1.1] Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v Republic of Kazakhstan (Award) (ICSID Case No ARB/05/16, 29 July 2008). 66 Tokios Tokelés v Ukraine para 1. 67 Tokios Tokelés v Ukraine para 21. See Mera Investment v Serbia for a similar set of circumstances involving nationals of the host State roundtripping their investment via a corporation incorporated in a country with an invetsment treaty with the host state. 68 Tokios Tokelés v Ukraine para 2.

138  Corporate Nationality under ICSID and Investment Treaties the case upon ICSID’s request due to the lack of an agreement between Taki spravy and the Ukraine to treat the former as a national of another Contracting State.69 Even though Taki spravy was the direct victim of the actions of the defendant state, it was not treated as a claimant investor in the Ukraine. Thereafter, the sole claimant and investor was Tokios and its nationality was assessed under the first part of Article 25(2)(b). The tribunal held that interpreting Article 25(2)(b) in light of the Vienna Convention on the Law of Treaties70 would call for application of the incorporation criterion to the assessment of the claimant’s nationality. In the tribunal’s view, siège social or place of incorporation would be the determining criteria for corporate nationality.71 The tribunal decided that an assessment based on the claimant’s place of incorporation or siège social led to the conclusion that the claimant was a national of Lithuania.72 There was no reference to what siège social meant and the tribunal’s assessment of the claimant’s nationality based on the siège social criterion was done on the basis of the registered address of the claimant found on its official corporate documents.73 The tribunal failed to recognise that siege social is not determined by a registered office, but by considering the management activities carried out from that location.74 This constitutes a serious error in the tribunal’s interpretation of the claimant’s nationality. Upon request of the respondent to look behind Tokios Tokeles’ corporate veil, the tribunal discussed what it called the ‘equitable doctrine of veil piercing’ and whether this doctrine, ‘to the extent recognized in customary international law, should override the terms of the agreement between the Contracting Parties’75 found in the BIT. The tribunal based its understanding of the doctrine on the Barcelona Traction decision of the ICJ, which required proof of the misuse of privileges of legal personality, the evasion of legal requirements or obligations through the company, or the need to protect third persons, before the doctrine could be applied. The tribunal found that in the claimant’s case, none of these grounds had existed and thus there was no justification to look behind the veil.76 Two major legal errors can be identified in this analysis. First, there is no evidence provided in the award that customary international law deals with or recognises the doctrine of veil piercing.77 The Barcelona Traction judgment’s evaluation of the doctrine refers to the ‘general principles of law recognised 69 Ibid, para 8. 70 Vienna Convention on the Law of Treaties (VCLT) 1155 UNTS 331, 8 ILM 679 (1969). 71 Tokios Tokelés v Ukraine para 42. 72 Ibid, para 43. 73 Ibid. 74 See ch 3 Section II(B). 75 Tokios Tokelés v Ukraine para 53. 76 Ibid, para 56. 77 See on the identification of customary international law: ‘Draft conclusions on identification of customary international law, with commentaries’ UN A/73/10 (Yearbook of the International Law Commission, 2018, vol II, Part Two).

The ICSID Convention Article 25(2)(b) Requirement  139 by civilised nations’ as incorporated in Article 38 of the Statute of the ICJ.78 There is no reference in that judgment on any recognition of the issue as part of customary international law. In fact, the ICJ clearly stipulates that there are no international law principles on the issue, as such it refers to the domestic law standards on the question of corporate personality.79 What the ICJ instead identifies as custom is that ‘the right of diplomatic protection of a company belongs to its national state’ and not to its shareholders.80 But it is important to r­ ecognise that customary international law does not provide substantive standards on how to determine the company’s nationality and under what circumstances the corporate veil can be pierced.81 Second, in analysing whether the grounds for lifting the veil identified in Barcelona Traction would be applicable in this case, the tribunal has not actually considered why the claimants had ­incorporated Tokios Tokeles in Lithuania. The reasons may not constitute misuse of legal personality, but the tribunal should have enquired this before reaching a conclusion. In his dissenting opinion, the president of the tribunal also interpreted Article 25(2)(b) under the VCLT and emphasised that the object and purpose of the Convention was to promote and protect foreign investment. The decision, in his opinion, had attributed nationality without considering the origin of capital and nationality of owners and controllers.82 According to him, interpretation of Article 25(2)(b) in accordance with the VCLT required looking into the origin of capital in determining the nationality of the investor.83 The dissenter argued that effect must be given to the economic reality over and above the legal structure of the investment and that in this case the reality was that a Ukrainian investor was claiming against the Ukrainian state under a dispute settlement mechanism created for settling foreign investor-state disputes.84 In the dissenter’s words: Once again, this is not a question of alleging, or sanctioning, any misconduct or fraud of either Tokios Tokeles or its subsidiary Taki spravy, or their management. This is only and exclusively a question of giving effect to the object and purpose of the ICSID Convention and, if I may say so, of preserving its integrity.85

The conclusion of the dissenting opinion was that the decision extended the jurisdiction of the ICSID tribunal beyond its outer limits, by refusing to take

78 Barcelona Traction, Light and Power Co Ltd (Belgium v Spain) (Judgment) 5 February 1970 [1970] ICJ Rep 3, para 38. 79 Ibid, paras 37–38. 80 Ibid, paras 88–93. 81 For further reading on this see, P Dumberry, ‘The legal standing of shareholders before arbitral tribunals: has any rule of customary international law chrystallised?’ (2010) 18(3) Michigan State Journal of International Law 353. 82 Prosper Weil Dissenting Opinion to Tokios Tokelés v Ukraine (Decision on Jurisdiction) paras 6, 11, 19. 83 Ibid, para 20. 84 Ibid, para 23. 85 Ibid, para 25.

140  Corporate Nationality under ICSID and Investment Treaties into account the economic realities of the investment and the real object and purpose of the Convention. The dissenting opinion recognises the foundational rationale of IIL and its reciprocal nature, yet the majority view undermines these core issues by formulating a decision based on a flawed legal analysis. This is another case where the outcome could have been different had the tribunal considered the investor’s nationality under the second part of Article 25(2)(b) due to there being a locally incorporated subsidiary,86 Taki spravy. Depending on what would have constituted control in the eyes of the tribunal, it may have found that control rested with nationals of the host state.87 It would then lack jurisdiction due to lack of foreign nationality and lack of consent (as the Lithuania-Ukraine BIT would not be applicable). B.  The Second Part of Article 25(2)(b): Foreign-controlled Host State Entities The second part of Article 25(2)(b) covers investors which carry out activities in the host state through a separate local corporate entity.88 The investor is thus prima facie considered a national of the host state, but may be treated as a foreign national if it is controlled by foreign nationals. In order for the corporate investor to be considered a national of the host state, it must at least have some sort of establishment in the host state to carry out its activities. The Convention stipulates that the host state may agree to treat a host state entity as a foreign national because of ‘foreign control’, even though it would otherwise be considered a national of the host state. This part of the Article requires application of the ‘control’ test to determine the nationality of the investor; however, it is not clear from the Convention what is meant by ‘control’.

86 See also Telenor v Hungary (Award); The Rompetrol Group N.V. v Romania (Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility) (ICSID Case No ARB/06/3, 18 April 2008); Champion Trading Company, Ameritrade International Inc., James T Wahba, John B Wahba and Timothy T Wahba v Arab Republic of Egypt (Decision on Jurisdiction) (ICSID Case No ARB/02/9, 21 October 2003). 87 The tribunal may also have found that the Lithuanian owner of the Ukrainian subsidiary exercises control, in which case the outcome would be the same as it has been in the award. 88 Decisions that involve such entities but do not make any reference to nationality under the Convention are Adriano Gardella S.p.A. v Ivory Coast (Award) (ICSID Arbitral Tribunal Case No ARB/74/1, 29 August 1977); Noble Ventures, Inc. v Romania (Award) (ICSID Arbitral Tribunal Case No ARB/01/11, 12 October 2005); PSEG Global, Inc., The North American Coal C ­ orporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v Republic of Turkey (Decision on Jurisdiction) (Award) (ICSID Arbitral Tribunal Case No ARB/02/5, 4 June 2004); Bosh International, Inc and B&P Ltd Foreign Investments Enterprise v Ukraine (Award) (ICSID Arbitral Tribunal Case No ARB/08/11, 25 October 2012); M.C.I. Power Group L.C. and New Turbine, Inc. v Republic of Ecuador (Award) (ICSID Case No ARB/03/6, 31 July 2007); Occidental Petroleum Corporation and Occidental Exploration and Production Company v The Republic of Ecuador (Decision on Jurisdiction) (ICSID Case No ARB/06/11, 9 September 2008).

The ICSID Convention Article 25(2)(b) Requirement  141 Three conditions must be fulfilled for the second part of Article 25(2)(b) to apply:89 (1) Investment must be carried out by a company which is a national of the host state; (2) The said company must be under foreign control (‘objective requirement’); (3) Due to this control, the parties must have agreed to treat the host state entity as a national of another Contracting state (‘subjective requirement’). Whether the tribunal will find these conditions to be satisfied will in turn depend on the way it approaches the following four questions: (i) What ­criterion should be used in order to consider a company to be a host state national?; (ii) What are the indicators of control and, more particularly, what level of ownership in the upstream ownership structure of the local entity is decisive of control?; (iii) What would constitute the parties’ agreement on treating the host state entity a national of another Contracting State due to foreign control?; (iv) What criterion will be applied to determine the controller’s nationality? Each question will be discussed in turn. i.  Nationality of the Host State Entity There is consensus in academic literature that incorporation or having seated in the host state would make the investor a national of the host state.90 Typically, the host state entity would have existence in the host state beyond mere incorporation, as it carries out the protected business activities in the host state. The few arbitral awards which actually address this question follow the same approach and determine nationality of the host state entity based on its place of incorporation or seat.91 In Letco v Liberia, the dispute was submitted by the Liberian Eastern Timber Corporation (‘LETCO’), in its own name and on behalf of its subsidiary, Letco Lumber Industry Corporation (‘LLIC’).92 LETCO, the host

89 See National Gas S.A.E. v Arab Republic of Egypt, (Award) (ICSID Case No ARB/11/7, 3 April 2014) para 131; Vacuum Salt Products Ltd. v Republic of Ghana (Award) (ICSID Case No ARB/92/1, 16 February 1994). 90 CH Schreuer et al, The ICSID Convention 298; R Dolzer and C Schreuer, Principles of International Investment Law 2nd edn (Oxford, Oxford University Press, 2012) 47; GR Delaume, ‘ICSID Arbitration and the Courts’ 794; J Schokkaert and Y Heckscher, ‘Protected Investors Nationality’ (2009) 10(5) Journal of World Investment and Trade 699, 720; A Broches, ‘The Convention on the Settlement of Investment Disputes, Some Observations on Jurisdiction’ (1966) 5 Columbia Journal of Transnational Law 263, 267; M Sornarajah, The International Law on Foreign Investment 324. 91 Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais (Award) (ICSID Case No ARB/81/2, 21 October 1983) (The local entity (SOCAME) was a national of Cameroon by virtue of its incorporation); Aguaytia Energy LLC v Republic of Peru (Award) (ICSID Case No ARB/06/13, 11 December 2008) para 35; Burimi SRL and Eagle Games SH.A v Republic of Albania (Award) (ICSID Case No ARB/11/18, 29 May 2013) para 110. 92 Liberian Eastern Timber Corporation (LETCO) v Republic of Liberia (Award) (ICSID Case No ARB/83/2, 31 March 1986) 26 I.L.M. 647 1987, 653 (The tribunal refused to exercise jurisdiction over LLIC, because it was not a party to the dispute settlement clause, thus the element of consent was missing.)

142  Corporate Nationality under ICSID and Investment Treaties state entity, was a company incorporated under the laws of Liberia.93 The tribunal established that LETCO was, by virtue of its incorporation, a Liberian national but it was considered a French national due to its control by French nationals.94 Similarly, in Santa Elena v Costa Rica, the tribunal held that Santa Elena was a national of the host state by virtue of its place of incorporation, but was to be considered a national of the US as a majority of its shareholders were US citizens.95 In SOABI v Senegal, the tribunal, applying the real seat rule, held that SOABI was a national of Senegal by virtue of the location of its head office. It pointed out that the criteria for determining corporate nationality were the head office and place of incorporation, though the nationality of shareholders or controllers could be used in determination of nationality in exceptional circumstances.96 The tribunal explained that the second part of Article 25(2)(b) of the Convention made an exception to this principle, by including the entities that are nationals of the respondent state, but are controlled by nationals of other Contracting States, to be treated as a national of the state of their controllers, if the respondent state agreed to treat them so.97 Similarly, in Amco v Indonesia,98 the tribunal referred to the actual seat of the host state entity as decisive. In that case, the claimants were Amco Asia Corporation (‘Amco Asia’), incorporated in the US, Pan American Development Limited (‘Pan American’), incorporated in the US and P.T. Amco Indonesia (‘P.T. Amco’), incorporated in Indonesia. The tribunal stated that due to its place of incorporation and its registered and actual seat, P.T. Amco was a national of Indonesia but it should be treated a national of the US by reason of its control by US nationals. Among all the cases reviewed for this chapter, typically the older generation ICSID awards that are based on contractual consent explicitly assessed the nationality of the host state entity. These are the awards that apply and interpret the second part of Article 25(2)(b) as it should be, considering each of the four questions outlined above. They begin their assessment from the host state company and then make their way upwards to discover the controllers of the investment. These awards are in the minority, and most awards skip this step even where the dispute involves a host state entity which carries out the investment. As explained in the previous section, many ICSID cases involving host state entities are brought directly by direct or indirect shareholders under an investment treaty. Such claims invoke shareholders’ interests in the host state

93 Ibid, 649. 94 Ibid, 652. 95 Compañiá del Desarrollo de Santa Elena, S.A. v The Republic of Costa Rica (Award) (ICSID Case No ARB/96/1, 17 February 2000) paras 1, 16. 96 Société Ouest Africaine des Bétons Industriels (SOABI) v Senegal (Decision on Jurisdiction) (ICSID Case No ARB/82/1, 1 August 1984) para 29. 97 Ibid. 98 Amco Asia Corporation and others v Republic of Indonesia (Decision on Jurisdiction) (ICSID Case No ARB/81/1, 25 September 1983).

The ICSID Convention Article 25(2)(b) Requirement  143 entity as the protected investment, and not the business carried out by the host state entity.99 This investment treaty route based on shareholding eliminates the relevance of the host state entity to the personal jurisdiction of the tribunal. Yet many of these claims request full damages for violations of investment treaty standards inflicted on the host state entity’s operations.100 Even though the standing of a shareholder claimant is typically based on its ‘shares’ as investment, these shareholder claims do not necessarily request damages for the impact of the host state actions on the share value and dividends. These should be ‘reflective loss’ claims,101 but the damages requested are often not based on the reflective loss but instead based on the direct losses suffered by the host state entity. There is a mismatch between the damages claimed and the investor filing the case as claimant. The necessity to distinguish between the loss suffered by the shareholder and the loss suffered by the company carrying out the investment was acknowledged by the tribunal in EnCana v Ecuador.102 But many arbitral awards involving shareholder claims do not make this distinction in identifying damages. In many of these ‘reflective loss’ cases, the host state entity may have s­ tanding to bring claims, but investors strategically choose to bring the claim as a shareholder claim so as to benefit from the protection of an investment treaty of their choosing. Often this involves utilisation of a shell holding company incorporated in a home state having a favourable investment treaty with the host state. This way the investor avoids the application of the ‘foreign control’ test under second part of Article 25(2)(b), as the claim is brought under the first part of Article 25(2)(b) based on shareholding as ‘protected investment’, rather than being based on the host state entity’s activity as ‘protected investment’.103 The implications of this strategic choice of shareholders as claimants on the evaluation of the protected investors’ nationality will be analysed in detail in Chapter 6.104

99 See E Cosar Demirkol, ‘Admissibility of Claims for Reflective Loss Raised by the Shareholders in Local Companies in Investment Treaty Arbitration’ (2015) 30(2) ICSID Review 391, 392. 100 Mobil Corporation v Venezuela. 101 V Korzun, ‘Shareholder claims for reflective loss: How international investment law changes corporate law and governance’, (2018) 40(1) University of Pennsylvania Journal of International Law 190; D Gaukrodger, ‘Investment Treaties and Shareholder Claims for Reflective Loss: Insights from Advanced Systems of Corporate Law’ (2014) 2 OECD Working Papers on International Investment 3. 102 EnCana Corporation v Republic of Ecuador, LCIA Case No UN3481, UNCITRAL, Award (3 February 2006) para 118. 103 G Bottini, ‘Indirect Claims under the ICSID Convention’ (2007) 29(3) University of Pennsylvania Journal of International Law 563, 571 (Views shareholder claims outside of Art 25(2)(b)’s second portion incompatible with the ICSID Convention). See Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v The Argentine Republic, (Decision on Jurisdiction) (ICSID Case No ARB/09/121 December 2012) para 225. 104 Section I(B).

144  Corporate Nationality under ICSID and Investment Treaties ii.  Indicators of Control and the Investment Ownership Structure Most of the controversy and uncertainty in IIL on corporate nationality concentrates around the question of what constitutes control. Whether or not the parties raise arguments on foreign control, the tribunal must check that such foreign control indeed exists at its own initiative to confirm its jurisdiction. The first question on control concerns the indicators of control: Is it shareholding, voting rights, management rights, capital investment or some combination of these? The second question relates to where control rests in the upstream ownership structure of an investment. This question arises when shareholding is taken as a primary indicator of control and the host state entity’s upstream ownership structure is formed of multiple layers. In such cases, it becomes necessary to determine whether control rests with the immediate shareholders of the host state entity or with indirect shareholders in further layers of the ownership structure. Tribunals should consider not only whether the immediate shareholders have the potential to control the host state entity but also whether they actually exercise this control.105 If they do not, there still remains the question of whether one must look beyond the immediate shareholders to identify indirect shareholders and/ or those exercising actual ‘control’. As for the indicators of control, there is agreement in the literature that various factors, such as voting rights, management rights, shareholding or a combination of these may be taken into account depending on each individual case.106 Another indicator of control could be origin of funds as suggested by the dissenting arbitrator in Tokios Tokelés v Ukraine, though this has found little support in the literature and later arbitral decisions.107 Some investment treaties define the meaning of control which is often considered by ICSID tribunals the parties’ agreement on what control means. For instance, the bilateral investment treaty between Japan and Colombia stipulates that control may be exercised by more than 50 per cent equity ownership or by having the power to name a company’s majority of directors or otherwise direct its actions.108 Among the factors considered by arbitral tribunals, shareholding rights are most commonly applied as the determinant of control. The second key issue about control is locating the site of control in the upstream ownership structure of the host state entity. Assessment of control,

105 See Aucoven v Venezuela (The potential to control was found sufficient). 106 CH Schreuer et al, The ICSID Convention 327; R Dolzer and CH Schreuer, Principles of International Investment Law 54; AC Sinclair, ‘The Substance of Nationality Requirements in Investment Treaty Arbitration’ 373; CF Amerasinghe, ‘Interpretation of Article 25 (2)(B) of the ICSID Convention’ in RB Lillich and CN Brower (eds) International Arbitration in the 21st Century: Towards Judicialization and Uniformity? (New York, Transnational Publishers, 1994) 240. 107 Prosper Weil Dissenting Opinion para 20. 108 Art 1(c), Agreement between Japan and the Republic of Colombia for the Liberalization, Promotion and Protection of Investment, signed on 12 September 2011 and entered into force in 11 September 2015.

The ICSID Convention Article 25(2)(b) Requirement  145 according to some scholars,109 must be approached with recognition of economic realities rather than with the formalistic attitude adopted to determine corporate nationality under the first part of Article 25(2)(b). According to this view, the actual controllers must be ascertained; whether they are direct or indirect shareholders, in order to prevent exploitation of the dispute settlement mechanism by nationals of the host state or non-contracting states.110 Schreuer voices his concern regarding the flexible approach taken by some ICSID tribunals and other scholars regarding the identification of the controlling person or entity where the corporate veil piercing is pursued only until a foreign control satisfactory for jurisdiction is established.111 Amerasinghe supports such a flexible interpretation: What is relevant is to establish foreign control by nationals of a contracting State, and it should be possible to do this by any reasonable means possible. Clearly, there is no reason to search further than is necessary in a given case, and it is appropriate that the search end when the proper foreign control has been established. It is, thus, unnecessary to limit the search to one step or even two steps.112

Amerasinghe’s approach can be charactarised as pro-jurisdiction, in that he prioritises establishing jurisdiction of the arbitral tribunal over the economic realities of the ownership structure. This flexible approach in favour of finding jurisdiction has been largely followed by arbitral tribunals. a.  Indicators of Control in ICSID Arbitral Decisions The ICSID Convention is silent on the determinants of ‘foreign control’.113 Most commonly, tribunals consider share ownership114 to determine the legal or natural person controlling the host state entity. Tribunals consider both direct and indirect shareholding. If one exists, the parties’ agreement on indicators of control will also be taken into account by the tribunal. Tribunals typically consider clauses on ‘control’ found in an investment contract or in an applicable investment treaty as the parties’ agreement on the meaning of control.

109 CH Schreuer et al, The ICSID Convention 323; M Sornarajah, The International Law on Foreign Investment 3rd edn (Cambridge, Cambridge University Press, 2010) 384–85. 110 CH Schreuer et al, The ICSID Convention 323; M Sornarajah, The International Law on Foreign Investment 385–87. 111 CH Schreuer et al, The ICSID Convention 323. 112 CF Amerasinghe, ‘Interpretation of Article 25 (2)(B) of the ICSID Convention’ 236; D AR QC Williams, ‘Jurisdiction and Admissibility’ in Muchlinski, P, Ortino, F and Schreuer, C H (eds), The Oxford Handbook of International Investment Law (Oxford, Oxford University Press, 2008) 896–897 (Taking the same approach). 113 Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (18 March 1965) (‘Report of the Executive Directors’) (also does not shed any light on foreign control.) 114 Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v Plurinational State of Bolivia, (Decision on Jurisdiction) (ICSID Case No ARB/06/2, 27 September 2012) para 195.

146  Corporate Nationality under ICSID and Investment Treaties It is important to note that foreign control is an objective requirement of jurisdiction under the Convention. The parties’ agreement on foreign control will not be effective if foreign control does not exist in reality.115 Such an analysis of whether the agreement on control corresponds with the real situation was carried out by the tribunal in Tanzania Electric Supply Co. Ltd. v Independent Power Tanzania Ltd. (‘IPTL’). In that case, the claimant was an entity wholly owned by the United Republic of Tanzania.116 The respondent was a company incorporated in Tanzania in the form of a joint venture company created by two companies, one incorporated in Tanzania and the other in Malaysia.117 The claimant initiated the ICSID proceedings, invoking the ICSID dispute resolution clause found in the Power Purchase Agreement (‘PPA’) between the parties. It was agreed in the dispute resolution clause of the PPA that even though IPTL was a company incorporated in Tanzania, it would be considered a foreign controlled entity, ‘unless the amount of the voting stock in IPTL held by non-Tanzanian investors should decrease to less than fifty per cent of its voting stock.’118 The tribunal, applying the clause found in the PPA, held that the nationality requirement of the ICSID Convention was satisfied, as IPTL ‘has at all material times been owned and controlled to the extent of at least 70% by nationals of Malaysia.’119 The arbitral tribunal’s analysis here constitutes a good example of upholding the parties’ agreement on how to determine control while at the same time ensuring that the agreed foreign control objectively exists. While it is generally accepted that foreign control should objectively exist, within that different weights have been accorded to the objective and subjective dimensions of foreign control. In Aucoven v Venezuela, the tribunal stated that it would uphold the parties’ agreement on control as long as it was based on reasonable criteria and did not result in an abusive use of the Convention. In that case, the claimant was incorporated in Venezuela.120 It was founded by ICA, a Mexican engineering and construction firm, which held 99 per cent of the claimant’s shares, and a Venezuelan investment bank, Baninsa, which held 1 per cent of the claimant’s shares.121 ICA was a company within a Mexican conglomerate.122 ICA’s parent company’s123 shares were traded on the New York Stock Exchange and the Bolsa Mexicana de Valores.124 Aucoven’s ownership structure was

115 Vacuum Salt v Ghana, paras 36–38. See also TSA Spectrum de Argentina, S.A. v Argentine Republic, (Award) (ICSID Case No ARB/05/5, 19 December 2008) paras 139, 156. 116 Tanzania Electric Supply Co. Ltd. v Independent Power Tanzania Ltd. (Final Award) (ICSID Case No ARB/98/8, 12 July 2001) para 1. 117 Ibid, para 2. 118 Ibid, para 10. 119 Ibid, para 13. 120 Aucoven v Venezuela para 1. 121 Ibid, paras 8–9. 122 Ibid, para 10. 123 Empresas ICA Sociedad Controladora, S.A. de C.V. 124 Aucoven v Venezuela para 11.

The ICSID Convention Article 25(2)(b) Requirement  147 amended over the course of the project as a result of a group restructuring.125 Such a restructuring required the approval of the host state under the investment contract. Upon approval by the Venezuelan Government after lengthy negotiations, 75 per cent of Aucoven’s shares were transferred to Icatech, a company incorporated in the US within the same conglomerate. The rest of the shares remained in ICA’s ownership initially, and the Venezuelan authorities refused to approve a later request from ICA to transfer the remaining shares to Icatech.126 Parties’ disagreement on nationality in Aucoven arose from the dispute settlement clause of the concession agreement. The clause provided that if the majority shareholder or shareholders of the claimant were to become nationals of an ICSID Contracting State, any disputes would be submitted to the Centre’s jurisdiction. The respondent argued that the shift in majority shareholding of the claimant could not activate the above dispute settlement clause, as it was an intra-group shift and the ultimate and actual control remained in the hands of the Mexican parent and Mexico was not an ICSID Contracting State.127 The tribunal held that the dispute settlement clause in question did not refer to control, but referred to majority shareholding, which was in the hands of Icatech.128 On the objective jurisdictional requirements of Article 25 the tribunal stated that: … to determine whether these objective requirements are met in a given case, one needs to refer to the parties’ own understanding or definition. As long as the criteria chosen by the parties to define these requirements are reasonable, i.e. as long as the requirements are not deprived of their objective significance, there is no reason to discard the parties’ choice.129

In light of this, the tribunal held that foreign control should be interpreted flexibly, taking into account different rights such as shareholding or voting.130 Its task was limited to determine whether the parties ‘defined foreign control on the basis of reasonable criteria’ and make sure the Convention was not invoked abusively.131 The tribunal did not take the Mexican nationality of the claimant’s directors or its actual and effective control by the Mexican parent as decisive, because the parties expressly referred to shareholding as the decisive criterion, and this was considered a choice within the objective limits of ICSID jurisdiction.132 The tribunal’s final decision on control undermines the ­principle

125 Ibid, 17. 126 Ibid, para 27. 127 Ibid, para 85. 128 Ibid, paras 86–87. 129 Ibid, para 99. 130 Ibid, para 113. 131 Ibid, para 116. 132 Ibid, para 121 (‘Direct shareholding confers voting right, and, therefore, the possibility to participate in the decision-making of the company. Hence, even if it does not constitute the sole criterion to define ‘foreign control’, direct shareholding is certainly a reasonable test for control.’)

148  Corporate Nationality under ICSID and Investment Treaties that itself articulated regarding when the parties’ agreement on control can be disregarded. It is reasonable to apply the criterion of majority shareholding chosen in the investment contract between ICA and Venezuela. But the outcome of its application deprives the requirement of ‘foreign control’ of its objective significance when it in fact leads to the treatment of a Mexican business group as a foreign investor in Mexico. In National Gas v Egypt, the tribunal confirmed that foreign control must exist independently from the parties agreement.133 It then distinguished cases where indirect and actual control of the host state entity is exercised by host state nationals from cases where indirect control is in the hands of nationals of a third ICSID Contracting State, ie not in the hands of the host state nationals or nationals of the state where the immediate corporate shareholder of the host state entity is incorporated. The tribunal held that if indirect control is in the hands of host state nationals, it would be a violation of the Convention to allow a claim to proceed. Whereas if indirect control is held by a third ICSID Contracting State national, it would be consistent with the Convention to uphold the parties agreement to treat the investor a foreign national, since both the direct shareholders and indirect ones are nationals of ICSID states, albeit of different ones. If this approach of the National Gas tribunal was applied in the Aucoven case above, the case would have been dismissed on the grounds of lack of personal jurisdiction, since the indirect shareholders were nationals of the host state. While this may be a sound approach to control in cases where consent to ICSID arbitration is found in an investment contract, it will not be useful in cases where consent is found in an investment treaty. The case before the tribunal was brought under the UAE-Egypt BIT. The claimant was an Egyptian company with the majority of its shareholding in the hands of a UAE company. The UAE company was owned by a dual Egyptian-Canadian national. The tribunal dismissed the case for lack of jurisdiction, as the parties’ agreement on control found in the BIT could not cure the jurisdictional defect created by the actual controller being a national of Egypt. If, however, the owner of the UAE company was a Canadian national only, would the tribunal have found jurisdiction? Canada has been an ICSID Contracting State since 2013, but it does not have a BIT in force with Egypt. If the foreign control is in the hands of a Canadian national or company via indirect ownership, can the claimant still invoke the UAE-Egypt BIT as a basis of consent? This possibility shows that the tribunal’s distinction fails to address the challenges created by investors’ reliance on investment treaties as the basis of consent to ICSID arbitration. The links between consent and nationality are crucial in investment treaty based ICSID arbitration and the issues arising from the interaction of these requirements are discussed in detail in the following chapter.



133 National

Gas v Egypt, paras 131–137.

The ICSID Convention Article 25(2)(b) Requirement  149 Shareholding is the most commonly used criterion by arbitral tribunals if the parties have not agreed on the meaning of ‘foreign control’. In AES Summit v Hungary, for instance, the tribunal clearly established control based on ownership of shares.134 In this case, the tribunal explicitly stated that the first claimant, a company incorporated in the UK, controlled the second claimant, a company incorporated in Hungary, as the former held 99 per cent shareholding in the latter.135 Some tribunals have also taken into consideration the composition of the host state entity’s management in addition to shareholding when assessing control. In LETCO v Liberia, the tribunal, in assessing the existence of French control of LETCO, referred to 100 per cent direct shareholding by French nationals coupled with effective control of the company by French nationals.136 The effective control determination was made based on the fact that the majority, if not all, of LETCO’s directors were French nationals at all times.137 This is a more sensible approach to determining ‘foreign control’, as it allows the genuine links to prevail over artificial links in determining the nationality of the investor. Arbitral awards sometimes lack explicit statements on the nationality of the foreign investor, though they may refer to the shareholding arrangements involved. For instance, in Railroad Development v Guatemala, the tribunal described the claimant as a company that controlled and owned 82 per cent of the shares in Ferrovías Guatemala, the host state entity incorporated in Guatemala; though, no explicit finding on nationality was made.138

134 AES Summit Generation Limited and AES-Tisza Erömü Kft v The Republic of Hungary (Award) (ICSID Case No ARB/07/22, 23 September 2010) paras 6.1.4–6.1.6. See also, Duke Energy Electroquil Partners & Electroquil S.A. v Republic of Ecuador (Award) (ICSID Case No ARB/04/19, 18 August 2008); Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v The Republic of Peru (Award) (ICSID Case No ARB/03/4, 7 February 2005) (The claimants were two companies, one incorporated in Chile; the other incorporated in Peru but owned more than 98% by the first company. The instrument of consent invoked by the claimant was the Peru-Chile BIT. The tribunal held that the first company was a Chilean national, without providing the reason for its determination, and that the second company was, by virtue of its ownership, also to be considered a Chilean national under the BIT. The tribunal did not make a finding on its personal jurisdiction under the ICSID ­Convention); MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile (Award) (ICSID Case No ARB/01/7, 25 May 2004) (The tribunal referred to the claimant companies as a Malaysian company and a Chilean company. The basis of consent invoked by the claimants was the investment treaty between Malaysia and Chile. The respondent did not raise any objections as to the ­nationality of the claimants; however, the tribunal emphasised that MTD was a company incorporated in Malaysia with its seat and operations therein. Therefore, it was held that MTD was a national of another contracting state within the meaning of the Convention. MTD Chile, on the other hand was a national of Malaysia, by virtue of its whole ownership by MTD and application of Art 25(2)(b) of the ICSID Convention and Art 6(2) of the relevant investment treaty.) 135 The first claimant was considered a national of the UK because it was incorporated and had its principal place of business in London and the second claimant, although it was incorporated and had its principal place of business in Hungary, it was considered a national of the UK because it was 99% owned and controlled by the first claimant. 136 LETCO v Republic of Liberia (Award) 652. 137 Ibid, 653. 138 Railroad Development Corporation v Republic of Guatemala (Decision on Objection to CAFTA Article 10.20.5) (ICSID Case No ARB/07/23, 17 November 2008) para 1.

150  Corporate Nationality under ICSID and Investment Treaties Besides shareholding, voting rights, management and the origin of funds have also been considered under Article 25(2)(b) as indicators of control. In Millicom v Senegal, the first claimant was Millicom International Operations B.V. (Millicom), a company incorporated in the Netherlands.139 The second claimant, Sentel GSM, was a company incorporated in Senegal.140 Both claimants were part of the Millicom International Cellular S.A. Group, a company incorporated in Luxembourg.141 Millicom BV was a wholly owned subsidiary of the parent company and Sentel GSM was wholly and indirectly owned by Millicom BV. The dispute was jointly filed by the host state entity, Sentel GSM, and by its indirect shareholder Millicom BV under the Netherlands-Senegal BIT as well as under the investment contract between Sentel GSM and the host state. The tribunal assessed its jurisdiction to hear the dispute separately for each claimant. It first considered whether it had jurisdiction to hear the dispute against Millicom BV. It was held that Millicom BV was a Dutch national under the Senegal-Netherlands BIT142 and it indirectly controlled Sentel due to its indirect shareholding of Sentel through two other Dutch holding companies.143 The tribunal emphasised that Sentel’s shares had always been held by subsidiary companies of the Luxembourg parent which were Dutch nationals.144 It separately assessed whether Sentel GSM was under foreign control within the meaning of the second half of Article 25(2)(b) of the ICSID Convention. Interestingly, besides shareholding, the tribunal focused on the origin of funds that were put into Sentel GSM’s business and considered this as an indicator of who controls the company.145 The tribunal established that the direct and indirect ownership of Sentel GSM was at all times largely or fully at the hands of nationals of ICSID Contracting States, although without specifying which particular entity was in control.146 In determining whether Sentel GSM was a foreign controlled entity, the tribunal considered the facts such as the knowledge of the host state from the outset that Sentel GSM was predominantly owned by entities ‘domiciled in the N ­ etherlands or regions connected thereto.’147 Furthermore, the tribunal considered the dealings of the host state with the Luxembourg parent company even after Sentel GSM started operations in Senegal. While the tribunal duly established foreign control by looking closely at the facts surrounding

139 Millicom International Operations BV and Sentel GSM SA v The Republic of Senegal (Decision on Jurisdiction of the Arbitral Tribunal) (ICSID Case No ARB/08/20, 16 July 2010) para 1. 140 Ibid, para 2. 141 Ibid, para 3. 142 Accord relatif à l’encouragement et la protection des investissements entre le Royaume des Pays-Bas et la République du Sénégal signed 3 August 1979, entered into force 5 May 1981. 143 Ibid, para 83. 144 Ibid, para 84. 145 Ibid, para 109. 146 Ibid. 147 Ibid, para 111.

The ICSID Convention Article 25(2)(b) Requirement  151 ­ wnership, source of funds, and management, it made confusing statements as o to the nationality of the controlling interests. It made a vague reference to the Netherlands and connected regions, and then referred to the connections to the Luxembourg parent company. While it concluded that indirect control was exercised by Millicom BV over Sentel GSM, it made inconsistent statements as to the nationality of Sentel GSM’s foreign controller. The tribunal empasised both the Dutch links and the Luxembourg links, but it took the Dutch links as decisive of control. Even though the ICSID tribunal treated the investment as Dutch, it is notable that a final settlement was agreed between the parent company, Millicom International Cellular S.A. Group and Senegal in this dispute.148 b.  Upstream Ownership and Actual Control in ICSID Arbitral Decisions The most contentious issue in awards involving the second part of Article 25(2)(b) concerns which person or corporation at the upstream ownership structure of the host state entity is deemed to control the investment and so determines the investor’s nationality. In these cases, the search for control revolves around the discussion of whether tribunals should seek for the actual controllers or for persons that have the legal right to control but do not exercise any actual control over the host state entity. In answering these questions tribunals often discuss the veil piercing doctrine and the nature of shell corporations. In this section, I identify the three approaches taken by tribunals on the questions of type of control and the levels of ownership or shareholding. The first approach takes the nationality of the immediate shareholders as decisive of the investor’s nationality and finds it unnecessary to search for actual control.149 The second approach searches for the actual control of the host state entity within the upstream ownership structure and does not hesitate to look beyond the immediate shareholders of the host state entity.150 Focusing neither on the immediate shareholders nor on the actual controllers of the host state entity, the third approach locates control in a company which benefits from a particular investment treaty within the upstream ownership structure of the host state entity.151

148 See BusinessWire ‘Millicom International Cellular: Millicom and the Republic of Senegal Jointly Terminate All Legal Proceedings’ Stockholm, 12 October 2012 www.businesswire.com/news/ home/20121011006531/en/Millicom-International-Cellular-Millicom-Republic-Senegal-Jointly#. Ux8acPl_uwI. 149 These decisions include American Manufacturing & Trading Inc (AMT) v Republic of Zaire (Award) (ICSID Case No ARB/93/1, 21 February 1997); Railroad Development Corporation v Guatemala (Second Decision on Objections to Jurisdiction) (ICSID Case No ARB/07/23, 18 May 2010); Empresas Lucchetti v Peru; MTD Equity v Chile; AES Summit v Hungary. 150 See Fraport AG Frankfurt Airport Services Worldwide v Republic of the Philippines (Award) (ICSID Case No ARB/03/25, 16 August 2007). 151 See Mobil Corporation v Venezuela; Tidewater Inc, Tidewater Investment SRL, Tidewater Caribe, CA, Twenty Grand Offshore, LLC, Point Marine, LLC, Twenty Grand Marine Service, LLC, Jackson Marine, LLC, Zapata Gulf Marine Operators, LLC v Bolivarian Republic of ­Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/10/5, 8 February 2013); Cemex Caracas

152  Corporate Nationality under ICSID and Investment Treaties Immediate shareholders and the potential to control – Decisions falling under this category take a rather pragmatic approach and locate control at the immediate shareholders of the host state entity, regardless of whether this entity is actually exercising control over the investment. These tribunals find the immediate shareholder’s potential ability to exercise control sufficient for purposes of Article 25(2)(b). The most representative examples of the first group are the Aucoven v Venezuela and AMCO v Indonesia cases. In the former case, the tribunal located control at the immediate level of shareholding without looking into whether the immediate shareholder of the host state entity, Icatech, actually exercised control over the activities of the host state entity. The tribunal stated that the Convention left it to the parties’ discretion to draw the boundaries of ‘foreign control’, and that there was no requirement of actual and effective control by the Convention.152 The parties had determined in the concession agreement the method for determining control based on the immediate shareholders’ nationality and the tribunal upheld that choice.153 The tribunal also rejected the respondent’s arguments that Icatech, the immediate shareholder of Aucoven, was a corporation of convenience, stating that it was a corporation founded well before the concession was granted and that its place of incorporation was not a national of a tax or regulatory haven.154 As I argued above in the previous section, the tribunal’s approach in Aucoven fails to appreciate that the application of the parties’ agreement on ‘control’ in this instance allowed a domestic investor to access a legal protection mechanism reserved for foreign investors. In Amco v Indonesia, the basis of consent invoked by the claimants was the ICSID clause found in the investor’s Investment Application and the investment promotion legislation of Indonesia.155 The tribunal stated that the host state entity P.T. Amco was a national of Indonesia, and then went on to identify the controlling interest in P.T. Amco for purposes of ICSID’s jurisdiction.156 The respondent argued that P.T. Amco was not controlled by its sole s­ hareholder Amco Asia, a company incorporated and seated in the US. Instead, P.T. Amco was controlled by Mr Tan, a Dutch national, through Amco Asia’s sole

I­nvestments BV and Cemex Caracas II Investments BV v Bolivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/08/15, 30 December 2010); ConocoPhillips ­Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v ­Bolivarian Republic of Venezuela, (Decision on Jurisdiction and Merits) (ICSID Case No ARB/07/30, 3 September 2013); RREEF Infrastructure (G.P.) Limited and RREEF Pan-European ­Infrastructure Two Lux S.à r.l. v Kingdom of Spain (Decision on Jurisdiction) (ICSID Case No ARB/13/30, 6 June 2016). 152 Aucoven v Venezuela para 113. 153 Ibid, para 117. 154 Ibid, para 123. 155 Amco Asia v Indonesia para 5. 156 Ibid, para 14.

The ICSID Convention Article 25(2)(b) Requirement  153 shareholder Pan American, a company incorporated in Hong Kong and wholly owned by Mr Tan.157 With regard to this argument, the tribunal held: To take this argument into consideration, the Tribunal would have to admit first that for the purpose of article 25-2(b) of the Convention, one should not take into account the legal nationality of the foreign juridical person which controls the local one, but the nationality of the juridical or natural persons who control the controlling juridical person itself: in other words, to take care of a control at the second, and possibly third, forth, or xth degree. Such a reasoning is, in law, not in accord with the Convention.

Both tribunals have refused to look beyond the immediate shareholders of the host state entity stating that the Convention did not require looking beyond immediate shareholders to identify control. Indeed, the Convention does not have such an explicit requirement. There is also no guidance in the Convention as to whether within the meaning of Article 25(2)(b) control means potential to control or actual exercise of control. But it must also be noted that the Convention has not elected to use the term foreign shareholders or owners, but instead explicitly refers to foreign ‘control’. The choice of control instead of shareholding or ownership in this context suggests action by its possessor beyond merely holding of shares or ownership interest. Actual Controllers – In contrast to the Aucoven and AMCO tribunals’ approach, decisions falling under this category search for the legal or natural person exercising actual control over the host state entity and the investment.158 These tribunals do not hesitate to look beyond the corporate veil of the immediate shareholders in order to locate the actual controller. The cases best describing the second approach are Banro American v DRC,159 and SOABI v Senegal.160 In Banro American v DRC the claimants were two companies, one established in the US, Banro American, and the other in the DRC, SAKIMA. SAKIMA was a wholly owned subsidiary of Banro American, which in turn was a subsidiary of Banro Resources. The ICSID claim was filed by Banro American, even though the investment contract containing the ICSID dispute settlement clause was between Banro Resources and the DRC. Banro Resources was incorporated and headquartered in Canada. The tribunal laid out two scenarios regarding

157 Ibid, para 14. 158 See for a detailed analysis of how control can be evidenced Guardian Fiduciary Trust, Ltd. v Former Yugoslav Republic of Macedonia (Award) (ICSID Case No ARB/12/31, 22 September 2015). 159 Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v Democratic Republic of the Congo (Award) (ICSID Case No ARB/98/7, 1 September 2000). Excerpts of the award published on 17 ICSID Review – Foreign Investment Law Journal 382 (2002). 160 See also for tribunals that emphasised the relevance of actual control Burimi SRL and Eagle Games SH.A v Republic of Albania (Award) (ICSID Case No ARB/11/18, 29 May 2013) paras 115–121; Standard Chartered Bank v United Republic of Tanzania (Award) (ICSID Case No ARB/10/12, 2 November 2012) para 200; TSA Spectrum v Argentine Republic paras 147–148.

154  Corporate Nationality under ICSID and Investment Treaties its personal jurisdiction. In the first scenario, if the tribunal treated Banro ­American as the claimant, then the nationality requirement would be satisfied as the tribunal considered Banro American a US national, a national of an ICSID Contracting State. If the local subsidiary was controlled by Banro American, it would also be considered a US national under the Convention. However, in this scenario the consent requirement would be missing, as the instrument of consent to ICSID jurisdiction was executed between Banro Resources and the DRC. If the tribunal treated Banro Resources as the actual claimant, after looking beyond the corporate veil of both the local entity and Banro American, then the nationality requirement would not be satisfied. This is because the tribunal considered Banro Resources a Canadian national and Canada was not an ICSID Contracting State at the time. The tribunal finally held on this point that even though there was an ICSID clause in the agreement between Banro Resources and the DRC, this clause had been without effect since its inception due to Banro Resources’ being a Canadian national. The Banro tribunal stressed that ICSID tribunals’ competence was not decided on formal appearances. Tribunals would rule based on a realistic assessment of the actual circumstances surrounding the case and the actual relationships between the companies involved. And for this reason, the tribunal stated that ICSID tribunals were ‘more willing to work their way from the subsidiary to the parent company, rather than the other way around.’161 It was held that ‘consent expressed by a subsidiary is considered to have been given by the parent company, the actual investor, whose subsidiary is merely an “instrumentality”.’162 Although the tribunal did not determine explicitly which entity was exercising actual control over SAKIMA, its statements show that it did not consider the potential to control sufficient to determine foreign control of the local entity and nationality of the investor. It is, however, not clear from the award what elements in addition to shareholding would contribute to the determination of actual control. In SOABI v Senegal, the claimant was a company incorporated in Senegal to carry out the investment.163 All of its shares were owned by Flexa, a company incorporated in Panama with its head office in Geneva. Flexa, in turn, was controlled by Belgian nationals. The agreement between SOABI and Senegal included an ICSID dispute resolution clause which was the basis of consent invoked by SOABI. Senegal objected to the ICSID tribunal’s personal jurisdiction asserting that SOABI was controlled by a Panamanian company and thus did not meet the nationality requirements of the Convention, Panama not being an ICSID Contracting State at the time.164 SOABI in its reply contended that it was indeed controlled by a Panamanian company, but the Panamanian company

161 Banro 162 Ibid. 163 See

American v DRC 6.

also AMT v Zaire, paras 3.15, 5.15 (Taking a similar approach to determining control.) v Senegal para 16.

164 SOABI

The ICSID Convention Article 25(2)(b) Requirement  155 was in turn controlled by Belgian nationals. In assessing the nationality of the claimant, the tribunal underlined that the Convention lacked a definition of the term ‘nationality’ and that it was left to each state to determine whether a company was its national or not.165 In regards to level of ownership, the tribunal held that the Convention was not solely concerned with the direct control of the local entity by its immediate shareholders, and that taking the opposite approach would be contrary to the purpose of the ICSID Convention.166 It was natural that investors may choose to channel their investments ‘through intermediary entities while retaining the same degree of control over the national company as they would have exercised as direct shareholders of the latter.’167 For these reasons, the tribunal held that since on the date parties consented to submit their dispute to ICSID, Flexa168 was controlled by Belgian nationals, so was SOABI. The tribunal decided that SOABI was a Belgian national. While these decisions search for the actual controllers to determine nationality of the claimant, it is not clear from the awards how actual exercise of control is evaluated. Tribunals like SOABI look at the ultimate individual shareholders behind the investment. On the other hand, tribunals like Banro treat the parent company as the actual controller. Tribunals may adopt one approach or the other depending on the size and complexity of the corporate structures behind the host state entity. To provide greater clarity on the criteria applied, tribunals should indicate the factors that determine the exercise of actual control by the relevant shareholders. The pro-jurisdiction approach – Decisions falling under the third category can be described as outcome led, ie, concerned with finding the satisfactory nationality for jurisdictional purposes, rather than searching for control based on principled legal reasoning. This approach is typically seen in awards involving investment treaty consent. The claimant corporations in these cases are often selected by the investor to file the investment claim due to their ability to invoke a particular investment treaty. In some of these cases, the host state entity does not appear as a co-claimant,169 and in others it does.170 These claims are often filed by indirect shareholders, who are neither the ultimate shareholders nor do they exercise actual control, often invoking their shares as the ‘protected investment’. Tribunals check eligibility for protection based on the rules found in the investment treaty invoked by the claimant, and merely pay lip-service to the ICSID Convention’s requirements. 165 Ibid, para 29. 166 Ibid, para 35. 167 Ibid, para 37. 168 Ibid, paras 44–45 (The tribunal also held that Flexa was a corporation of convenience, and it was known to Senegal that the foreign interests of the project were held by Belgian nationals). 169 Mobil v Venezuela. 170 Aguas del Tunari, S.A.(AdT) v. Republic of Bolivia (Decision on Jurisdiction) (ICSID Case No.ARB/02/3, 21 October 2005); Milicom v Senegal; Cemex v Venezuela.

156  Corporate Nationality under ICSID and Investment Treaties To an external observer viewing these claims under the second part of Article 25(2)(b), it appears as that the tribunals locate control at a random entity within the upstream ownership structure of the host state entity based on that entity’s potential right to exercise control. The only explanation for finding that the claimant entity controls the investment, and not the other possible entities within the upstream structure, appears to be the existence of an investment treaty that covers the claimant entity. In this category, I examine below the decisions by the Mobil v Venezuela and AdT v Bolivia tribunals. Mobil v Venezuela – This case concerned Exxon Mobil’s investments in Venezuela under two agreements with the Venezuelan state-owned petroleum company: the ‘Cerro Negro Agreement,’ which granted the right of producing and upgrading of extra-heavy crude oil in the Orinoco Oil Belt, and the ‘La Ceiba Agreement,’ which granted the right to explore oil without the participation of the state-owned petroleum company. Participation in the Cerro Negro Agreement was made by Mobil Produccion e Industrializacion de Venezuela, Inc., a Delaware corporation, and in the La Ceiba Agreement by Mobil Venezolana de Petroleos, Inc, a Bahamas corporation. Following the nationalisation of the Cerro Negro and La Ceiba projects by the Venezuelan Government in 2007, a dispute was submitted to the ICSID tribunal under the Venezuela-Netherlands BIT.171 In 2005, amid serious changes that were taking place in the Venezuelan oil industry, the claimants created ‘Venezuela Holdings B.V.’ in the Netherlands and in 2006 inserted this corporation into the existing investment structure of the two Venezuelan projects. This altered the original upstream ownership structure of the investment. The investment structure had become as follows: Mobil Corporation (Delaware) owned 100% of the Venezuela Holdings B.V. (Dutch), which owned 100% of the Mobil Cerro Negro Holding Ltd. (Delaware), which owned 100% of Mobil Cerro Negro Ltd. (Bahamas), which finally owned 41 2/3% interest in the Cerro Negro Project. Mobil Corporation (Delaware) owned 100% of the Venezuela Holdings B.V. (Dutch), which owned 100% of the Mobil Venezolana de Petroleos Holdings, Inc. (Delaware), which owned 100% of the Mobil Venezolana de Petroleos, Inc. (Bahamas), which finally owned 50% interest in the La Ceiba Association.

Based on this new ownership structure, the investment claim against ­Venezuela was filed by the various corporations within the Exxon Mobil group, c­ laiming that the investor was a Dutch national. In its objections to jurisdiction, ­Venezuela, inter alia, contended that the Dutch corporation was a ‘corporation of convenience’, and the claimant was abusing the corporate form, and thus, the tribunal does not have jurisdiction under the ICSID Convention on the basis 171 Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Venezuela, entered into force 1 November 1993, terminated on 1 November 2008.

The ICSID Convention Article 25(2)(b) Requirement  157 of consent found in the Venezuela-Netherlands BIT.172 The claimants asserted that the Dutch entity was not a ‘corporation of convenience created for the sole purpose of gaining access to ICSID jurisdiction’. According to the claimants the Dutch entity controlled the investment as well as the other corporations involved in the ownership structure of the two projects, and thus the investor should be considered a Dutch national protected by the Venezuela-Netherlands BIT.173 The claimant contended that there was no basis for piercing the corporate veil of the Dutch entity in search for control.174 Yet the claimant provided no reasons why, under the ICSID Convention, the tribunal should not treat the investor as nationals of the Bahamas or the US, despite the presence of Bahamas and Delaware corporations within the upstream structure of the two projects. Some of these were directly and indirectly owned by the Dutch entity, and the Dutch entity itself was owned directly and indirectly by US corporations. The tribunal found that the Dutch company controlled the Delaware and Bahamas corporations within the meaning of Article 1(b)(iii) of the BIT, because these corporations were wholly owned, directly or indirectly, by the Dutch Claimant.175 The Protocol to the BIT made clear in its paragraph 1 and Article 1(b)(iii) that ownership of capital in a legal person is an indicator of a person’s ability to exercise control over that legal person. With this explicit guidance from the BIT, the tribunal did not consider it necessary to evaluate whether control was exercised in fact.176 In the tribunal’s view, the Bahamas and US corporations also ‘must be deemed’ Dutch nationals under the VenezuelaNetherlands BIT by virtue of the Article 1(b)(iii) of the BIT, because they were directly and indirectly controlled by the Dutch claimant.177 That subsection of the BIT allows treating companies as nationals of the Netherlands if, despite being incorporated in a non-Contracting State, they are controlled directly or indirectly by Dutch companies or persons.178 The tribunal did not consider the possibility of the Bahamas or the US subsidiaries’ exercise of control over the investment, as it failed to analyse the

172 Mobil v Venezuela para 27. 173 Ibid, paras 40–41; Art 1 of the BIT reads as follows: ‘For the purpose of this Agreement […] (b) The term ‘nationals’ shall comprise with regard to either Contracting Party: (i) national persons having the nationality of that Contracting Party; (ii) legal persons constituted under the law of that Contracting Party; (iii) legal persons not constituted under the law of that Contracting Party, but controlled directly or indirectly, by natural persons as defined in (i) or by legal persons as defined in (ii) above’. 174 Mobil v Venezuela para 40 (The claimant asserted that ‘Venezuela Holding is not a ‘corporation of convenience’ created for the sole purpose of gaining access to ICSID jurisdiction’. According to the claimants, the objection raised on that basis by Venezuela fails both on factual and legal grounds. There is no legal basis for imposing nationality requirements extraneous to the Treaty or for disregarding the nationality of those holdings. There is no more legal basis for piercing Venezuela Holding’s corporate veil.) 175 Ibid, para 153. 176 Ibid, para 160. 177 Ibid, para 153. 178 Ibid.

158  Corporate Nationality under ICSID and Investment Treaties functions of each corporation in the upstream ownership structure of the investments. Instead, its legal analysis on personal jurisdiction dominantly focused on the Dutch claimant under the terms of the Dutch BIT. The tribunal paid lip service to the ICSID Convention’s Article 25 and failed to fully engage with an analysis of the investor’s nationality under the Convention. This approach to personal jurisdiction and corporate nationality allowed the investor to pre-determine the contours of the legal analysis by filing its ICSID claim by a subsidiary as claimant under a particular investment treaty that explicitly covers that subsidiary as a protected investor in the host state. In such cases, tribunals have given themselves the green light to ignore the full ownership structure of the investment and focus on the claimant subsidiary and the investment treaty terms, regardless of whether that subsidiary can genuinely be considered the ‘investor’ under the ICSID Convention. In the Mobil case, the tribunal’s analysis ran downstream from the Dutch entity towards the Venezuelan entities. Within that structure, the shares held by the Dutch entity in the US and the Bahama subsidiaries were considered ­‘investments’ protected by the BIT and at the same time the tribunal considered the US and Bahamas subsidiaries protected investors who should be treated as Dutch nationals.179 The tribunal failed to explain how the US and Bahamas entities can be considered protected ‘investments’ of the Dutch entity under the BIT and at the same time protected ‘investors’ under the BIT alongside the Dutch entity. More importantly, the tribunal’s treatment of the BIT terms on ‘nationality’ as the parties’ agreement on nationality under the Convention constitutes a serious flaw in the legal analysis of its personal jurisdiction.180 The tribunal considered this case under the first part of Article 25(2)(b) and treated the BIT terms as the parties’ agreement on how the investor’s nationality would be determined. This allowed the tribunal to assess control under the terms of the BIT, which provides a very flexible definition of control and explicitly allow control to be determined by direct or indirect shareholding. This also allowed the tribunal to ignore the role of the Mobil Corporation (Delaware) which was a co-claimant in this case which wholly owned the Dutch entity. Had the tribunal first evaluated the investor’s nationality independently under the ICSID Convention’s Article 25, it would have to justify explicitly why the Dutch intermediary rather than the Bahamas entities as the immediate participants in the projects or the ultimate US parent company of the Exxon Mobil group was considered the ‘investor’. The tribunal had no legal basis for considering the investor a Dutch national under the ICSID Convention. I argue in the next chapter, that the automatic application of an investment treaty’s nationality definition is a flawed methodology to determine the nationality of the investor under the ICSID Convention.



179 Ibid, 180 Ibid,

para 165. para 157.

The ICSID Convention Article 25(2)(b) Requirement  159 Aguas del Tunari v Bolivia – In Aguas del Tunari (‘AdT’) v Bolivia, the c­ laimant was incorporated in Bolivia to carry out the water concession granted to a consortium of investors.181 The basis of consent invoked by the claimant was the Bolivia-Netherlands BIT.182 AdT’s ownership structure at the time the concession was granted was as follows: –– 20 per cent of the shares in AdT were divided between four Bolivian companies; –– 25 per cent of the shares were owned by Riverstar International, S.A. of Uruguay which was in turn 100 per cent owned by Abengoa of Spain; –– 55 per cent of the shares were owned by International Water Ltd (‘IW Ltd’) of the Cayman Islands, which in turn was wholly owned by Bechtel Enterprise Holding, Inc., a company incorporated in the US.183 Following the execution of the concession agreement, Bechtel decided to join its water management project in Bolivia with Edison S.p.A. of Italy, which would obtain 50 per cent shareholding in IW Ltd. As part of this venture a new ownership structure was established for IW Ltd. After the restructuring, IW Ltd was migrated from the Cayman Islands to Luxembourg, where it became IW S.a.r.l. 55 per cent of the shares in AdT were no longer held by a Cayman Islands corporation, but were held by a Luxembourg corporation. IW S.a.r.l. was owned wholly by International Water (Tunari) B.V. (‘IWT B.V.’) of the Netherlands, which was owned wholly by International Water Holdings B.V. (‘IWH B.V.’) of the Netherlands. The latter was owned 50 per cent by Edison S.p.A and 50 per cent by Baywater Holdings B.V. of the Netherlands, which in turn was owned wholly by Bechtel Holdings, Inc. AdT asserted in its claim that even though it was incorporated in Bolivia, it was a national of the Netherlands as it was controlled directly and indirectly by nationals of the Netherlands.184 Bolivia argued that AdT was not a national of the Netherlands as defined by the investment treaty and was not controlled directly or indirectly by nationals of the Netherlands, but instead was controlled by Bechtel, a national of the US.185 The claimant contended that ownership of shares was sufficient to establish control, while Bolivia contended that mere ownership and the potential to exercise control was not sufficient, and an actual exercise of those powers was necessary.186 The tribunal’s analysis focused on the

181 AdT v Bolivia para 53. 182 Ibid, para 76; Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Bolivia entered into force 1 November 1994, terminated on 1 November 2009. 183 Ibid, para 60. 184 Ibid, para 81. 185 Ibid, para 85. 186 Ibid, para 221.

160  Corporate Nationality under ICSID and Investment Treaties investment treaty definition of ‘nationality’ and ‘foreign control’, rather than on the meaning of those terms under the ICSID Convention. The tribunal treated the BIT definition of control as the parties’ agreement of foreign control under the ICSID Convention.187 It also held that the ICSID jurisprudence on ‘foreign control’ under Article 25 of the Convention would not apply in a case where the parties have agreed on the meaning of ‘control’ in an investment treaty.188 As the nationality of the claimant depended on the nationality of its controller, the tribunal moved on to interpret the term ‘control’ as used in the investment treaty in accordance with Article 31 of the Vienna Convention on the Law of Treaties. It held that the ordinary meaning of control would comprise of both actual exercise of control and the potential to control by virtue of share ownership.189 The tribunal stated in regard to direct and indirect control that: The phrase, ‘directly or indirectly’, in modifying the term ‘controlled’ creates the possibility of there simultaneously being a direct controller and one or more indirect controllers. The BIT does not limit the scope of eligible claimants to only the ‘ultimate controller’.190

Upon this background, the tribunal concluded that legal capacity to control a company was sufficient to satisfy the requirement set forth by the investment treaty.191 The tribunal stated that this interpretation of the treaty was also within the limits of the ICSID Convention’s jurisdictional requirement on nationality.192 The tribunal failed to state the reasons why the potential to control by the Dutch entities based on indirect 55 per cent shareholding was decisive of AdT’s foreign nationality, as opposed to the other direct and indirect shareholders of AdT which also had, by the tribunal’s own admission, the potential to control the investment. The tribunal held that the direct control of the company rested with IW S.a.r.l., a Luxembourg corporation.193 Once the tribunal moved beyond the direct control of the company, it is not clear why the indirect control of the company was limited by the two Dutch entities, which were owned and controlled by other entities in their upstream ownership structure. Had the tribunal looked beyond the Dutch entities, it would have found that neither Edison S.p.A, nor Bechtel held a majority stake in the Dutch entities, thus it is possible that neither had the sole control over the claimant. This would require assessment of other indicators of control besides shareholding, such as how voting or management rights have been allocated among the owners of AdT.



187 Ibid,

para 285. para 286. 189 Ibid, para 227. 190 Ibid, para 237. 191 Ibid, para 264. 192 Ibid, para 285. 193 Ibid, para 317. 188 Ibid,

The ICSID Convention Article 25(2)(b) Requirement  161 The only explanation for this tribunal’s decision on control is that treating AdT as a Dutch national allowed the tribunal to exercise jurisdiction over the dispute under the Netherlands-Bolivia BIT. The tribunal’s passing reference to the purpose of the BIT to stimulate investments between the two countries as one of the justifications of its interpretation of control is a clear indication that its particular interpretation of ‘control’ was geared towards finding Dutch nationality so that the investor could have its case heard by the ICSID tribunal and benefit from the BIT’s substantive standards.194 The tribunal’s reference to the stimulation of investment between the two BIT contracting states as one of the justifications of its decision on control is simply unconvincing, as there is no evidence that any of the constitutive parts of AdT’s ‘investment’ flowed from the Netherlands to Bolivia in this case. It is clear that the funds, know-how, or the assets making up the investment have not come from the Dutch entities. In real economic terms, no contributions seem to have come from the Netherlands into the setting up or running AdT’s business in Bolivia.195 In such circumstances, how can one consider that the treatment of AdT as a Dutch national contributes to the stimulation of investment between the two countries, when there is no evidence of this investment flowing into Bolivia from the Netherlands? If the tribunal considered AdT a national of any of the other direct or indirect shareholders in the upstream ownership structure which, by the tribunal’s own admission, also had the potential to exercise control over the investment, this would jeopardise the application of the Dutch BIT. At the time the dispute was filed in 2001, Bolivia’s investment treaty with Luxembourg was not yet in force. The investment treaty between Bolivia and Spain, in force at the time of dispute, did not contain an investment arbitration clause. The investment treaty between Bolivia and the US had not yet entered into force at the time the dispute arose in 2000. The only other treaty that could have allowed AdT to file an ICSID arbitration was the Bolivia-Italy treaty. But the Italian BIT did not explicitly define ‘control’ nor did it explicitly protect ‘indirect shareholders’, such as Edison S.p.A. It is clear from the foregoing that the tribunal’s assessment of ‘control’ and ‘nationality’ was tipped in favour of the Dutch entities due to the availability of the protection under the Netherlands-Bolivia BIT. c. Summary The questions of level of ownership and indicators of control in determining an investor’s nationality have generated highly confusing and incoherent

194 Ibid para 247. 195 This point was made by the tribunal in Standard Chartered v Tanzania at 228: ‘It is difficult to see how the treaty’s protections could promote investment by nationals of a Contracting State if the national of the Contracting State had no role in deciding to make the investment, funding the investment, or controlling or managing the investment after it was made.’

162  Corporate Nationality under ICSID and Investment Treaties i­nterpretations by ICSID tribunals. In the name of simplifying matters, some tribunals took a rather formalistic approach and treated immediate shareholders of the host state entity as controllers. Their reasoning was that the immediate shareholders have the potential to exercise control, and as such, there is no need to investigate further. Other tribunals rejected such a formalistic approach and hold that actual controllers must be identified. To this end, they did not hesitate to go beyond the immediate shareholders and sometimes even seek the ultimate owners of the investment. Actual control in those cases requires an ingredient in addition to shareholding, such as exercise of management rights, or capital investment. A third group of decisions located control neither with the immediate shareholders nor sought to identify the actual controllers. These decisions located control at the entity incorporated in the home state party to the investment treaty invoked by the claimant. The interpretation of the concepts of ‘nationality’ and ‘control’ in these arbitral awards appears to have a predetermined objective, in that they follow a path of interpretation that enables the application of a particular investment treaty. The interpretation is derived from the outcome sought, rather than the outcome being reached through interpretative exercise. iii.  Nationality of the Controlling Entity in ICSID Arbitral Decisions Regardless of which approach is adopted to determining foreign control, the question remains as to how tribunals should determine the nationality of the company that is deemed to exercise control from outside the host state. One can expect that this will be done by reference to the controlling entity’s place of incorporation or seat, as these two criteria are generally used as determinants of corporate nationality. Arbitral awards rarely state explicitly the criterion they apply in order to determine the nationality of the controlling entity. In LETCO v Liberia, although the tribunal treated LETCO as a French national by virtue of its controllers’ nationality, there was no indication in the award on the identity of LETCO’s shareholders or directors.196 It is not clear whether the shareholders were legal entities or natural persons, or based on which criterion they were treated as French nationals. In AES v Hungary, the tribunal explicitly stated the nationality of the controlling company, which was also a co-claimant, based on its place of incorporation.197 In Aucoven v Venezuela, the tribunal stated, in regards to the objective requirement of nationality in general, that various criteria were used in international law and practice to determine corporate nationality. The most widely used criteria were the place of incorporation or registered office, while the effective



196 LETCO 197 AES

v Liberia 652–653. Summit v Hungary, para 6.1.4.

The ICSID Convention Article 25(2)(b) Requirement  163 seat or place of central administration was also taken into account at times.198 The tribunal itself adhered to the incorporation criterion in determining the controlling entity Icatech’s US nationality.199 In AMCO v Indonesia, the tribunal held that it had jurisdiction over P.T. Amco, as Amco American – the foreign controller – was a national of the US based on its place of incorporation or seat.200 The tribunal stated that this conclusion could have been different only if there was fraud or misrepresentation involved in the claimants’ side regarding their nationality.201 In this regard, the tribunal held that: Indeed, the concept of nationality is there a classical one, based on the law under which the juridical person has been incorporated, the place of incorporation and the place of the social seat. An exception is brought to this concept in respect of juridical persons having the nationality, thus defined, of the Contracting state party to the dispute, where said juridical persons are under foreign control. But no e­ xception to the classical concept is provided for when it comes to the nationality of the foreign controller, even supposing – which is not at all clearly stated in the Convention – that the fact that the controller is the national of one or another foreign State is to be taken into account (in fact, it could be so where for political or economical reasons, it matters for the Contracting State to know the nationality of the controller or controllers, and where it is proven that would the Contracting State have known this nationality, it would not have agreed to the arbitration clause; such a situation might possibly be met in exceptional instances, but has by no means been proven, and not even alleged, in the instant case).202

Although there are not many ICSID decisions explicitly stating the reasons behind the decision on the nationality of the controlling entity, the decisions analysed in this section indicate that the principles applicable to determining nationality of the corporate investors under the first part of Article 25(2)(b) are also applied to determining nationality of the controlling entity under the second part of Article 25(2)(b). It is important for tribunals to state the criterion they apply to determine the nationality of the controlling entity, as that nationality will be decisive of the investor’s nationality. Together with the tribunal’s approach to the indicators of control, the standard applied to determining the controlling entity’s nationality may allow investors to utilise shell c­ orporate vehicles to invoke investment treaties as the basis of consent to ICSID’s

198 Aucoven v Venezuela para 107; Phoenix Action Ltd v The Czech Republic (Award) (ICSID Case No ARB/06/5 15 April 2009) para 65 (Confirmed Israeli nationality of the claimant based on its place of incorporation and permanent seat; however, there is no indictation as to on what basis the permanent seat of the company was determined.) 199 Aucoven v Venezuela para 134. 200 See also Quiborax v Bolivia, para 70. 201 Amco v Indonesia para 14. See also Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt (Decision on Jurisdiction and Dissenting Opinion) (ICSID Case No ARB/84/3, 27 November 1985) published on 3 ICSID Reports 131 (1995) para 46. 202 Amco v Indonesia para 14.

164  Corporate Nationality under ICSID and Investment Treaties j­urisdiction. If a tribunal considers direct or indirect shareholding alone as an indicator of control and determines the shareholder company’s nationality based on its place of incorporation, investors will be able to invoke the protection of any favourable investment treaty of the host state via strategic corporate structuring involving shell corporations located in such home states with favourable treaties with the host state. iv.  Parties’ Agreement on Foreign Control in ICSID Arbitral Decisions Besides identifying the foreign controller and its nationality, arbitral tribunals have to ensure that the parties have agreed to treat the host state entity as a national of another ICSID Contracting State because of foreign control. There is wide acceptance in arbitral awards that this agreement need not be explicit. It could be an implicit agreement derived from an ICSID dispute settlement clause in the agreement between the parties.203 Many tribunals accept that even an ICSID arbitration clause without an explicit agreement on nationality implies that the investor is considered foreign by the host state. For instance, in ­Millicom v Senegal, the tribunal held that Senegal agreed to treat Sentel GSM, the host state entity, as a foreign investor when it signed a concession agreement with Sentel GSM that included an ICSID dispute settlement clause.204 Explicit consent to treatment as a foreign investor because of foreign control could also appear in the investment treaty.205 With the proliferation of investment treaties, this has become the most common way of consenting to investment arbitration, including the host state’s consent to treat the host state entity as a foreign investor because of foreign control. The literature, however, is divided on the question of implicit agreements. Scholarly views criticise the ICSID tribunals’ sympathy to implicit agreements asserting that an agreement on foreign nationality can be valid only if it is done explicitly in the most unambiguous terms.206 Schreuer and Amerasinghe, however, admit that since the consent is the ‘cornerstone’ of ICSID arbitration, if the host state was in direct contact with the investor with whom it signed an investment agreement including an ICSID dispute settlement clause, it may be

203 Holiday Inns S.A. and others v Morocco, (Decision on Jurisdiction) (ICSID Case No ARB/72/1, 12 May 1974), Amco v Indonesia, Klöckner v Cameroon; LETCO v Liberia, Vacuum Salt v Ghana. 204 Millicom v Senegal para 113. 205 See, ie, Art VII(8) of the Treaty between United States of America and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investment signed on 14 November 1991 and entered into force on 20 October 1994. 206 CH Schreuer et al, The ICSID Convention 301; A Broches, ‘Arbitration Clauses and Institutional Arbitration, ICSID: A Special Case’, in Commercial Arbitration, Essays in Memoriam Eugenio Minoli (Torino: Unione Tipografico-editrice Torinese, 1974) 69, 76; P Lalive, ‘The First ‘World Bank’ Arbitration (Holiday Inns v Morocco) – Some Legal Problems’ (1980) 51(1) British Yearbook of International Law 123, 139–140; GR Delaume, ‘ICSID Arbitration in Practice’ 63; M Sornarajah, The International Law on Foreign Investment 381–82.

How do Investment Treaties Link Corporate Investors to States?  165 possible to infer the agreement on foreign nationality from such a clause.207 In those instances of direct contact, the host state or its agents are aware of who the investor is and therefore they may have implicitly agreed to treat the investor as a foreign national by simply agreeing to an ICSID dispute settlement clause. It is difficult to support the same approach when the tribunals infer the parties’ agreement to arbitrate from an investment treaty. I discuss this point further in Chapter 6.208 II.  HOW DO INVESTMENT TREATIES LINK CORPORATE INVESTORS TO STATES?

Meeting the personal scope requirements of an investment treaty brings an investor one step closer to invoking the substantial and procedural rights contained in the treaty.209 While the ICSID Convention uses ‘nationality’ as the link connecting a corporate investor to a state, investment treaty practice is not uniform on this. Some investment treaties use the link of nationality for corporate investors, but many do not. This section provides an overview of both types of investment treaty practice and their application by arbitral tribunals in a non-ICSID context where the constraints of the ICSID Convention on nationality are not applicable to determining personal jurisdiction.210 A. ‘Nationals’ International investment treaties rarely refer directly to the ‘nationality’ of corporate investors in order to define their personal scope. When they do, ‘nationality’ itself is determined by explicit reference to criteria such as place of incorporation, seat, real/substantial economic activities, ownership, control or centre of management. Nationality is most commonly adopted in several

207 CH Schreuer et al, The ICSID Convention 305; CF Amerasinghe, ‘Interpretation of Article 25 (2)(B) of the ICSID Convention’ 231–232; R Dolzer and C H Schreuer, Principles of International Investment Law 51–52. 208 Section I(A). 209 Who qualifies as a protected investor will not be decided only on the basis of the personal scope requirements but will also be influenced by material and temporal limits of that treaty – this is discussed in some detail in ch 1 Section II. 210 Even for treaties which do not refer to nationality for corporate investors, the personal scope requirements of those treaties have influenced arbitral tribunals’ assessment of nationality under the ICSID Convention. I argue in ch 6 Section I(A) that in order for an investment treaty to constitute the parties’ consent to ICSID arbitration, the investor definition in the investment treaty invoked as basis of consent needs to align with the ICSID Convention’s nationality requirement. If the application of the two standards do not offer the same outcome in terms of the investor’s nationality, the investment treaty cannot constitute the basis of consent to ICSID arbitration.

166  Corporate Nationality under ICSID and Investment Treaties Dutch investment treaties.211 For instance, the Laos-Netherlands BIT, defines in Article 1(b) ‘nationals’ to include legal persons constituted under the law of the home state or constituted under the laws of another country, but indirectly or directly controlled by nationals (natural or legal persons) of the home state. The question of corporate nationality under this investment treaty was considered by the arbitral tribunal in Lao Holdings v Laos, a case filed under the ICSID Additional Facility Rules.212 The applicable BIT opts primarily for the test of incorporation for corporate nationality, but alternatively allows the application of the control test if a claimant is not incorporated in the home state, but is controlled, directly or indirectly, by the nationals of the home state. The tribunal in Lao Holdings held that the claimant was a national of the Netherlands under the BIT, as it was duly incorporated in the Netherlands ­Antilles. The tribunal did not take into consideration the nationality of the claimant’s direct and indirect controllers, as the BIT wording was clear on incorporation. The respondent’s objection to jurisdiction was based on the allegation that the tribunal did not have temporal jurisdiction as ‘the investor was not a national of the Netherlands’ at the time the dispute arose between the parties, and as such it could not invoke the protections of the treaty.213 This jurisdictional objection was dismissed however, as the tribunal held that the legal dispute had arisen after the claimant’s change of nationality, and therefore fell within the scope of the treaty. This dispute is an example of how other requirements regarding the scope of applicability of a treaty, ie material and temporal scope might be influenced by the question of nationality or might influence the assessment of nationality. This will be discussed further in Chapter 6.214 B.  ‘Investors’, ‘Enterprises’, and ‘Companies’ Personal scope of many investment treaties is defined with reference to terms such as ‘investors’, ‘enterprises’ or ‘companies’ of a contracting party. The term ‘nationality’ often does not appear to link corporate investors to a state party. Within such investment treaties, ‘nationality’ is used only with reference to

211 See Art 1(b) of the Agreement on promotion and protection of investments between the Government of the Kingdom of the Netherlands and the Government of the Kingdom of Bahrain signed 05 February 2007, entered into force 01 December 2009. Another example of nationality being used in relation to corporate investors is in Agreement on Promotion, Protection and Guarantee of Investments amongst the Member States of the Organization of the Islamic Conference, signed 5 June 1981 and entered into force February 1988. It stipulates in Article 6 that the nationality of a legal person investor will be determined with reference to its place of incorporation. 212 Lao Holdings N.V. v The Lao People’s Democratic Republic (Decision on Jurisdiction) (ICSID Case No ARB(AF)/12/6, 21 February 2014). 213 Lao Holdings N.V. v The Lao People’s Democratic Republic, para 65. 214 Sections I(B) and (C).

How do Investment Treaties Link Corporate Investors to States?  167 natural persons. This is a surprising observation as it is common to see arbitral awards215 or leading scholars216 referring to corporate nationality in the context of a particular treaty that does not actually use the ‘nationality’ in relation to corporate investors. Even though the treaties falling under this group refer to ‘investors’, ‘companies’, ‘entities’, or ‘enterprises’ rather than nationality, the connecting factors they adopt are the same as the treaties that adopt the nationality link for corporations.217 These include, place of incorporation, seat of the company, place of substantial economic activity, and the nationality of controllers or a combination thereof. For instance, the UK Model BIT defines a company of a party as ‘corporations, firms and associations incorporated or constituted under the law in force in any part of the United Kingdom …’, thus opting for the incorporation test. The Germany-Bulgaria BIT opts instead for the seat test to define juridical person investors protected by the treaty.218 The BIT between Montenegro and the Netherlands adopts the incorporation as well as the control test alternatively. For the control test, it allows ‘legal persons not constituted

215 Tokios Tokeles v Ukraine, para 42 (The tribunal finds that ‘the definition of corporate nationality in the Ukraine-Lithuania BIT, on its face and as applied to the present case, is consistent with the Convention’. Ukraine-Lithuania BIT defines corporate investors of a party, but does not refer to nationality for corporations. The tribunal goes on to state that the definition of nationality found in the BIT acts as the parties’ definition of corporate nationality under the ICSID Convention, despite the lack of such a definition in the BIT); EDF (Services) Limited v Romania, (Award) (ICSID Case No ARB/05/13 8 October 2009) (This is another example where the tribunal refers to the nationality of the corporate investor under the BIT, even though the applicable UK-Romania BIT contains no reference to nationality for companies). See also Gold Reserve Inc. v Bolivarian Republic of ­Venezuela, (Award) (ICSID Case No ARB(AF)/09/1, 22 September 2014) para 252 (The tribunal states that the Canadian nationality of the investor company will be determined by applying the incorporation test pursuant to Art 1(g) of the Canada Venezuela BIT, even though the BIT does not refer to nationality of legal entities); MNSS B.V. and Recupero Credito Acciaio N.V v Montenegro (Award) (ICSID Case No ARB(AF)/12/8, 4 May 2016) paras 178, 180 (Refers several times to the nationality of the corporate investors, even though the Netherlands-Yugoslavia BIT does not attribute nationality to corporate investors); The Rompetrol v Romania para 82 (This is an ICSID case but tribunal in evaluating the nationality requirement of the convention keeps referring to the parties’ definition of nationality found in the Netherlands-Romania BIT which does not speak of corporate nationality, but merely defines legal person investors). 216 R Dolzer and C Schreuer, Principles of International Investment Law, 48 (eg refers to the 2012 US Model BIT’s definition of ‘enterprise of a party’ when discussing how corporate nationality is determined under IIL, despite that BIT not using nationality as the relevant link for corporate investors.) C McLachlan, L Shore and M Weiniger, International Investment Arbitration: Substantive ­Principles (Oxford, Oxford University Press, 2010) 142 (eg similarly to Dolzer and Schreuer mentions UK Model BIT’s definition of ‘company’ in discussing nationality of companies, despite nowhere in the UK Model BIT text nationality is attributed to companies.) AC Sinclair, ‘The Substance of Nationality Requirements in Investment Treaty Arbitration’ (2005) 20(2) ICSID Review – Foreign Investment Law Journal 357; SW Schill, The Multilateralization of International Investment Law 222–223. 217 As such, little practical difference exists between the two models. 218 Art 1(3)(2) Federal Republic of Germany and Bulgaria Treaty concerning the reciprocal encouragement and protection of investments, signed on 12 April 1986, entered into force on 10 March 1988.

168  Corporate Nationality under ICSID and Investment Treaties under the law of that Contracting Party but controlled, directly or indirectly, by persons [who are natural or legal persons of that Contracting party.]’219 Defining personal scope of an investment treaty based solely on place of incorporation allows potentially any company within the upstream ownership structure of the investment to invoke the protection of an applicable treaty.220 The protection would also extend to shell corporations, as incorporation does not require the investor to have substantial business activities or its real seat in the place of incorporation. This was the case in Gold Reserve v Venezuela where the tribunal held that the claimant qualified as a protected investor under the Canada-Venezuela BIT221 since it was incorporated in Canada, despite having its real seat in the US and having no apparent genuine business activities in Canada.222 According to the tribunal, the latter factors did not play a role in determining its personal jurisdiction, as the wording of the applicable investment treaty was clear and did not require consideration of those factors. This was not a case settled under the ICSID Convention, and as such, the jurisdictional requirements of the Convention were not considered. But as seen in the earlier sections of this chapter, ICSID tribunals have frequently applied investment treaty definitions of ‘investor’ to determine the nationality of the claimant under the ICSID Convention without requiring additional links to the home state. Tribunals are unlikely to read into requirements that are not explicitly prescribed by the treaty when assessing the personal scope of a treaty, even in cases where the claimant corporation is ultimately owned or controlled by nationals of the host state.223 Arbitral tribunals have widely accepted that a corporation of convenience can invoke an investment treaty that extends its protection to any entity incorporated in the home state,224 even if the ultimate owners are nationals of the host state.225 There is a possibility for dismissal of the claim if the claimant’s invocation of the treaty constitutes an abuse of rights or the respondent state is able to invoke a denial of benefits clause to exclude such investments. These possibilities are discussed in the next chapters.

219 Art 1(b)(ii) and (iii) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Federal Republic of Yugoslavia signed on 29 January 2002 and entered into force on 1 April 2004. 220 See, ie, Flemingo DutyFree Shop Private Limited v Republic of Poland, UNCITRAL Award 12 August 2016, para 332. 221 Agreement between the Government of Canada and the Government of the Republic of Venezuela for the promotion and protection of investments, signed 1 July 1996, entered into force 28 January 1998. 222 Gold Reserve v Venezuela para 252. 223 See also Yukos Universal Limited (Isle of Man) v The Russian Federation (Interim Award on Jurisdiction and Admissibility) (PCA Case No AA 227, 30 November 2009) paras 413–415. 224 MNSS B.V. v Montenegro paras 176–182. 225 A11Y LTD. v Czech Republic (Decision on Jurisdiction) (ICSID Case No UNCT/15/1, 29 June 2018) paras 122–124.

How do Investment Treaties Link Corporate Investors to States?  169 It suffices to note here that abuse of rights objections have only been ­successful in very exceptional circumstances,226 and the arbitral case law on denial of benefits clauses is not emerging as a consistent body.227 Less frequently, investment treaties adopt the seat criterion as a sole factor determining personal scope of an investment treaty. An example of this can be found in Article 1(3)(2) of the Germany-Bulgaria BIT. The question arises as to how a tribunal should determine a company’s seat. The ST-AD v Bulgaria228 tribunal applied this provision to determine their personal jurisdiction. The tribunal’s answer to the personal application of the treaty was very brief, merely confirming that the claimant was a German investor as it was a company ­incorporated in Germany with its registered office there, thereby fulfilling the seat requirement. While the tribunal in that case dismissed the case for lack of jurisdiction on other grounds,229 its interpretation of the ‘seat’ test in assessing the personal scope of the treaty appears flawed. Having a seat in a Contracting State requires more than incorporation and registered address as discussed in chapter three above. Tribunals must identify the seat of management and core activities in their search for the real seat. Increasingly, investment treaties rely on a combination of connecting factors to define their personal scope in relation to corporate investors. The most recent model investment treaty practice demonstrates that states are moving towards tightening the personal scope of their investment treaties as far as these apply to corporate investors. Most recently, the Netherlands Model Investment Agreement published in 2019 requires that corporate investors covered by the treaty shall be incorporated and having substantial business activities in the relevant Contracting State.230 Whereas the 2004 Dutch Model BIT referred to corporate investors that are incorporated in the Netherlands without the additional requirement of having substantial business activities. The 2019 Model also lists indicators of ‘substantive business activity’ to include, inter alia, having the registered office and/or administration, or having its headquarters or management established in that country.231 Although the inclusion of ‘substantive business activity’ appears to be tightening personal scope compared to the 2004 Model, the indicators of substantive activity listed in the 2019 Model undermines this objective. Among the indicators of substantive business activity, the 2019 Model lists the presence of the registered office. The inclusion of registered office in

226 See, eg, Transglobal Green Energy, LLC and Transglobal Green Energy de Panama, S.A. v The Republic of Panama (Award) (ICSID Case No ARB/13/28, 2 June 2016) and Philip Morris Asia Limited v The Commonwealth of Australia, (Award on Jurisdiction and Admissibility) (PCA Case No 2012–12, 17 December 2015). 227 See ch 7 Section II. 228 ST-AD GmbH (Germany) v The Republic of Bulgaria, (Award on Jurisdiction), (UNCITRAL PCA Arbitration, 18 July 2013). 229 Including lack of temporal jurisdiction and abuse of process. 230 Art 1(b)(iii). 231 Art 1(c)(i).

170  Corporate Nationality under ICSID and Investment Treaties the list of substantive business activities is likely to continue to allow Dutch corporate vehicles from being used as gateways to treaty shopping.232 The 2016 Indian Model treaty follows the same standard as the 2019 Dutch Model, linking a corporate investor to the home state based on incorporation and having substantial business activities in the territory of the home state.233 Additionally, The Indian Model includes a denial of benefits clause which allows the state parties to deny benefits to investors owned or controlled, directly or indirectly by persons of a non-party or the host state; or corporate vehicles that were established or restructured with the primary purpose of treaty shopping.234 India’s earlier investment treaty practice adopted the incorporation standard without additional links or the possibility of the host state to exercise denial of benefits.235 The Model also expressly stipulates that only investments made and operated in good faith will be covered by the protection of the treaty.236 A lack of good faith argument can potentially be made to support the invocation of the denial of benefits clause on treaty shopping grounds. Succeeding in a lack of good faith argument alone is not an easy task due to the high thresholds required by arbitral tribunals to demonstrate lack of good faith237 and the generally accepted assumption that treaty shopping prior to a dispute is legitimate. But, when the good faith requirement is read together with the denial of benefits clause, it is more likely to be successfully invoked by a host state. India has terminated most of its existing investment treaties and is currently negotiating a new treaty programme based on its new model treaty.238 The 2012 US Model treaty refers to an ‘enterprise of a party’ as an enterprise incorporated under the law of that party and carrying out substantial business activities in that state. The 2004 Canadian Model Treaty and the investment chapter of the EU-Canada Comprehensive and Economic Trade Agreement (‘CETA’) follow the same standard as the US Model, but the 2014 Canadian Model Treaty only refers to incorporation in defining a covered enterprise

232 See ch 3 Section II for a discussion of ‘registered office’. 233 India Model BIT, Art 1.5(a). See the Indian Model’s approach implemented in India-Belarus BIT (2018) Art 1.6 also states that ‘The concept of substantial business activity shall require a overall examination of all circumstances on a case-by-case basis.’ 234 India Model BIT Art 35. See Art 35 Treaty between the Republic of Belarus and the Republic of India on Investments, signed 24 September 2018. 235 See, eg, Agreement between the Government of the Republic of India and the Government of the Lao People’s Democratic Republic for the promotion and protection of investments, terminated 22 March 2017; Agreement between the Government of the Kingdom of Sweden and the Government of the Republic of India for the Promotion and Reciprocal Protection of Investments, terminated 22 March 2017. 236 India Model BIT, Art 1.4. 237 See ch 6 Section I (C) and ch 7 Section I for a further discussion. 238 P Ranjan, H Vardhana Singh, K James and R Singh ‘India’s Model Bilateral Investment Treaty: Is India Too Risk Averse?’ Brookings India Impact Series No 082018 2018, 10, available at www. brookings.edu/wp-content/uploads/2018/08/India%E2%80%99s-Model-Bilateral-InvestmentTreaty-2018.pdf.

How do Investment Treaties Link Corporate Investors to States?  171 without a mention of substantial business activities. Both the Canadian and the US models contain denial of benefits clauses that allow host states to exclude from the personal scope of the treaty enterprises that lack genuine connections to the home state. EU-Singapore Investment Agreement also adopts incorporation and real seat tests combined with substantive business operations.239 Several Swiss BITs require that companies are incorporated in the home state and ‘have their seat, together with real economic activities,’ in the home state.240 In Alps Finance v Slovak Republic, the tribunal applied these criteria to determine whether the claimant was an investor within the meaning of the Slovak-Swiss BIT. It was held that a company merely incorporated in ­Switzerland without its seat and real economic activities there would not qualify as a protected investor under the treaty.241 Had the applicable treaty adopted an incorporation test, the claimant would have qualified as a protected ­investor. This is one of the rare cases where an arbitral tribunal sought a claimant to prove it has its actual seat in the place of incorporation, not only its registered office. The tribunal recognised that the state parties intended to exclude from treaty-protection ‘mailbox’ or ‘paper’ companies’ by opting for the seat and real economic activities criteria.242 1987 ASEAN Investment Protection Agreement243 required a company to be incorporated and have its effective management in territory of the same Member State to benefit from the agreement’s protection when investing in other ASEAN States. The 1987 agreement was replaced in 2012 by the ASEAN Comprehensive Investment Agreement which adopts the incorporation criterion to define corporate investors, but also introduces a denial of benefits clause (in Article 19) to limit the potentially widening effects of the incorporation clause. The 1987 Agreement was applied by an arbitral tribunal in Yaung Chi Oo v Myanmar to determine whether the claimant was a Singaporean company.244 The claimant company was established and effectively managed in S­ ingapore several years before the investment was made in Myanmar. After the ­establishment of the investment in Myanmar, the director of Yaung Chi Oo moved to Myanmar to manage the investment, which appears to be the

239 Art 1(2)(5). 240 Art 1(2)(b) Agreement between the Republic of Colombia and the Swiss Confederation on the Promotion and Reciprocal Protection of Investments, signed 17 May 2006, entered into force 6 October 2009; Art 1(1)(b) Agreement between the Czech and Slovak Federal Republic and the Swiss Confederation on the promotion and reciprocal protection of investments, signed 5 October 1990, entered into force 7 August 1991. 241 Alps Finance and Trade AG v Slovak Republic (Award) (UNCITRAL Award IIC 489, 2011) paras 215–218. 242 Alps Finance v Slovak Republic para 231. 243 The 1987 ASEAN Agreement for the Promotion and Protection of Investments signed 15 December 1987. 244 Yaung Chi Oo Trading Pte. Ltd. v Government of the Union of Myanmar, (Award) (ASEAN I.D. Case No ARB/01/1, 31 March 2003).

172  Corporate Nationality under ICSID and Investment Treaties only business of the claimant during the period of the investment. During that period, Yaung Chi Oo had a resident director in Singapore and complied with the local company law requirements, despite receiving instructions from its managing director, resident in Myanmar, for day to day management. The tribunal observed that since the claimant was a small business, it was reasonable for the manager to relocate to the host state to run the investment. The tribunal held that ‘there is a presumption that ‘effective management’ once established is not readily lost’.245 The tribunal was not persuaded by the respondent’s argument that the effective management of the claimant entity moved to Myanmar after the investment was made. This is an exceptional case involving a small sized enterprise, but nevertheless raises some important issues as to the circumstances under which an investor might be still considered foreign, despite being managed from the host state. It also raises important questions as to what is meant by ‘effective management’ in investment treaties. In such cases, it is important to draw a distinction between the management of the foreign corporate claimant and management of its investment in the host state. It is likely that most locally incorporated investments will be managed locally for at least the day to day running of the investment and will have their real economic activities there. If the primary or sole business of a corporate investor is the investment in the host state, it is likely that most of the corporate investor’s activity will relate to that investment. The situation is different in the typical investment treaty case involving a larger corporate investor established in one state which makes several investments in various jurisdictions. In such cases, the corporate investor will have wider ranging activities than the investment in dispute. A most common combination of links found in investment treaties is an adoption of the incorporation and/or seat criterion with an alternative option of the control criterion (direct or indirect), without requiring substantial business activities.246 Under these treaties, a company established and/or seated in a third country that is controlled, directly or indirectly by a national or a company of the home state will qualify as a protected investor. Some treaties in this category expressly define what constitutes ‘control’.247 Some seek control to

245 Ibid, para 52. 246 Art 1(2)(b) Agreement between the Austrian Republic and the Ukraine on the Promotion and Mutual Protection of Investments, signed 8 November 1996, entered into force 1 December 1997; Art 1(3) Agreement between the Government of the Federal Republic of Ethiopia and the Government of the Republic of France for the reciprocal promotion and protection of investments, signed 25 June 2003, entered into 7 August 2004; Agreement between the Government of Hong Kong and the Government of Australia for the Promotion and Protection of Investments, signed 15 September 1993, entered into force, 15 October 1993 (only in respect to Hong Kong, this treaty also brings within its protection entities incorporated under the laws of a non-party but are owned or controlled by physical persons who have the right of abode in Hong Kong.) 247 France-Ethiopia BIT provide in the Protocol to the BIT that ‘Direct or indirect control of a legal person may be established in particular in the following cases – the status of subsidiary; – a percentage

How do Investment Treaties Link Corporate Investors to States?  173 be effective,248 and others leave it open to interpretation.249 This mixed approach is found in many Dutch BITs opting primarily for incorporation, but also offering an alternative control test for businesses not incorporated in the home state, but controlled by nationals or companies of the home state. These rules allow the investment treaty to capture within its scope intermediary subsidiaries incorporated in non-Contracting States between the home state national or entity and the host state company carrying out the investment.250 Their function is to expand the personal scope of the investment treaty to accommodate for different types of corporate structure. The evolution of investment treaty practice in relation to ‘covered’ corporate investors demonstrates that states are increasingly aware of the pitfalls of using incorporation as the sole link to determine the personal scope of their treaties. They increasingly include links beyond incorporation in their investment treaties to minimise instances of their treaties being invoked by investors based on tenuous links with the home state. This demonstrates that states have taken notice of arbitral tribunals systematically expanding their jurisdiction by allowing nationality shopping practices to prevail despite respondent states’ persistent objections to the normalisation of this practice. The impact of this growing tightening of personal scope standards in relation to corporate investors on arbitral interpretations of corporate nationality are yet to be seen. The interpretation of the arbitral tribunal in Alps Finance v Slovak Republic is an indicator that the tighter personal scope requirements may have the potential to limit the use of nationality shopping by investors. However, even if additional criteria such as having a seat or substantial business activities in addition to incorporation are included in investment treaties, tribunals may interpret these concepts generously to allow more corporations to be covered by the treaty. A recent example of this can be seen in the Mera Investment v Serbia decision. The tribunal held that the Cyprus-Serbia BIT’s reference to a covered investor having its seat in a Contracting State could be satisfied by having a registered office in Cyprus, without the need for showing the seat of management being located in the registered office. In this case, the Cyprus entity which filed the claim was owned indirectly by two Serbian natural persons. Neither the ultimate ownership by host state nationals nor the Cyprus entity being a shell corporation without a real seat in Cyprus changed the outcome that the investor was treated as Cypriot by the tribunal under the applicable investment treaty. This is a warning sign that unless the relevant treaty provisions more explicitly tighten the personal scope

of direct or indirect equity participation, notably exceeding 50% allowing an effective control; – direct or indirect possession by nationals or companies of a Contracting Party of voting rights allowing for a decisive position in the executive bodies, or a decisive influence on its activity.’ 248 Art 1(2)(c) Colombia-Switzerland BIT. 249 Hong Kong-Australia BIT. 250 See, ie, Mobil v Venezuela tribunal’s application of the Netherlands-Venezuela BIT to capture US and Bahamas subsidiaries within the treaty’s personal scope, para 153.

174  Corporate Nationality under ICSID and Investment Treaties by limiting protection to corporations having, eg, their effective management and substantive and actual business operations with a sufficient number of staff in the home state, tribunals may continue to expand the personal coverage of investment treaties based on the most tenuous links. III. CONCLUSION

This chapter attempted to shed light on the arbitral interpretation of ‘nationality’ for corporations under the ICSID Convention and the personal scope of investment treaties for corporate investors under the investment treaty regime. Like any other legal question open to interpretation in international investment law, corporate nationality has been decided in several different ways. In nonICSID investment treaty cases, tribunals exclusively apply the investment treaty wording on ‘investor’, ‘nationals’, ‘enterprises’, or ‘companies’. Denial of benefits clauses or abuse of process objections may exclude an ostensibly protected investor from the treaty’s personal scope. These will be discussed in detail in the following chapters. ICSID Convention awards paint a more complex picture on the meaning of corporate nationality than non-ICSID ones. Although, there is some level of outcome consistency on the question of corporate nationality in ICSID awards often consisting of finding satisfactory nationality, the paths taken by tribunals to reach those outcomes vary significantly. In some awards, no mention of nationality is made, even though it is an objective jurisdictional requirement of the ICSID Convention which must be established by the tribunal at its own initiative.251 In others, no reasoning is provided, or the reasons given are superficial at best. These are typically observed in claims where the respondent state has not challenged the investor’s nationality. More detailed reasoning is most commonly present in awards for claims that involve an objection to the jurisdiction or admissibility of the claim on personal jurisdiction or abuse of process grounds. Another pattern emerging from these awards is that arbitral tribunals tend to provide more detailed reasoning to their decisions on nationality if the arbitration is based on an investment contract than they do when the source of consent is found in an investment treaty. When compared with arbitral tribunals’ assessment of individual investors’ nationality,252 tribunals’ assessment of corporate investors’ nationality is much

251 This obligation of the tribunals was confirmed by the Annulment Committee in Hussein Nuaman Soufraki v The United Arab Emirates (Decision of the ad hoc Committee on the Application for Annulment of Mr Soufraki) (ICSID Case No ARB/02/7, 5 June 2007) para 60 (‘… international tribunals have the right – and indeed the obligation – to determine the existence of treaty-required nationality as a jurisdictional requirement by reference to the laws of the State whose nationality is claimed.’ [Emphasis added].) 252 See ch 6 Section II(B).

Conclusion  175 less substantial and clear than the inquiry into individuals’ nationality. While tribunals are more willing to disregard prima facie evidence when assessing an individual’s nationality and search beyond formal appearances for purposes of their jurisdiction, formal and artificial links are readily accepted to define corporate nationality. It is only if the respondent can prove that the formal appearances were created with ill-intention such as fraud, misrepresentation or malfeasance that tribunals are willing to look beyond the artificial links.253 Here again, if an investment treaty is the instrument of consent, the formal links adopted in that treaty may explain the reliance on such links. In the next chapter, I discuss the reasons for and the consequences of the patterns of practice and thinking identified in this chapter.



253 Tokios

Tokelés v Ukraine para 55.

176 

Part III

Problems and Solutions

178

6 Exposing the Fault Lines

C

hapter 5 mapped and analysed the patterns of interpretation emerging from the arbitral jurisprudence and investment treaty practice on nationality and other links connecting a corporation to a state for purposes of defining the personal reach of investment protection treaties. The case and treaty analysis shows an erratic picture on nationality of corporate investors in IIL. A key finding is that the connecting factors adopted by a treaty or a tribunal, eg nationality, incorporation, or seat, are only but one factor influencing whether an investor falls within the personal scope of protection of IIL instruments vis-a-vis a respondent host state. The interpretation of what constitutes consent and protected investment, as well as the temporal reach of a treaty has transformed the nationality analysis in a large group of cases. A careful disentangling of these access requirements reveals serious methodological and interpretative flaws in the jurisprudence on corporate nationality. Building on the patterns identified in Chapter 5, in this chapter I expose the fault lines emerging from the arbitral jurisprudence on corporate nationality and discuss the implications of these. In the first part of this chapter, I discuss and critique the interpretative and methodological choices of arbitral tribunals which has shaped the predominant IIL approach to corporate nationality and personal jurisdiction. In the first section, I discuss two fundamental methodological flaws in arbitral interpretations of corporate nationality for purposes of jurisdiction under the ICSID Convention. The first one arises from the increasingly blurring lines, in arbitral awards, between the ICSID Convention’s jurisdictional requirements and investment treaty clauses on personal scope. ICSID tribunals regularly apply investment treaty definitions of ‘investor’ to determine the nationality of the corporate claimant under the ICSID Convention. In doing so, tribunals treat the investment treaty definition of ‘investor’ as the parties’ agreement on ‘nationality’ under the ICSID Convention. I argue here that ‘investor’ definitions of investment treaties cannot be treated as the parties’ agreement on nationality under the ICSID Convention and that the latter’s nationality requirement should be evaluated independently from investment treaty’s investor definition. This flawed methodology is a key factor enabling corporate investors to benefit from ICSID dispute settlement based on artificially constructed nationalities. The second methodological flaw, present both in ICSID and non-ICSID procedures, concerns the framing of a legal issue that primarily concerns personal

180  Exposing the Fault Lines scope of protection as a question of material and/or temporal scope. When an investment treaty is invoked as a source of consent, material and temporal limits of that treaty also influence who qualifies as a protected i­nvestor, a­ longside the personal scope requirements. A definition of investment that includes direct or indirect shareholding can bring the entire upstream ownership of a host state investment within the personal scope of a treaty. This gives the choice to an investor to select which entity within that structure would be standing as a claimant in an investment treaty claim. Temporal scope becomes relevant when assessing whether an investor’s acquisition of a new nationality may or may not be timed right to bring it under the coverage of a treaty. I argue that in many of the cases falling in these categories, the issues that were framed as a material or temporal scope issue would have been more effectively dealt with as a personal scope issue. In the second section, I critique the erosion of the concept of ‘nationality’ for corporate investors under IIL. The first cause of this erosion is the view expressed, implicitly or explicitly, in arbitral awards and scholarly work that ‘nationality’ is becoming increasingly irrelevant as the link connecting an investor to its home state under IIL. This repeatedly expressed view not only minimises ‘nationality’ as a requirement of jurisdiction, but it also operates to justify a very broad and formalistic view of nationality which tolerates the most tenuous links as the basis of corporate nationality. I challenge this view and argue that n ­ ationality remains relevant to determining personal scope of protection under IIL, and when determined on the basis of a genuine link, nationality is an appropriate connecting factor for corporations in the IIL context. The second cause of erosion is the differential treatment of corporations and individuals in arbitral awards when it comes to the rigour of analysis and the expected strength and genuineness of connection to their state of nationality. Typically, arbitral tribunals engage in a more rigorous analysis to establish individual investors’ nationality and ensure that the required nationality in fact exists, whereas they typically treat the question of nationality for corporations superficially and settle for tenuous links between corporate investors and their home state. In the final part, I discuss the ramifications of the fault lines presented in the earlier parts of this chapter. Firstly, the current approach of arbitral ­tribunals to corporate nationality enables investors to use multiple dispute resolution channels in parallel to pursue a host state for the same loss. This may involve parallel diplomatic interventions by the actual home state of an investor alongside an investment treaty claim based on a different nationality invoked via treaty shopping. It may also involve multiple arbitration claims for the same loss by different entities within the upstream ownership structure under different bases of consent. Finally, I discuss the damage inflicted on the legitimacy of the international investment arbitration system by the jurisdictional excesses resulting from the interpretative and methodological flaws in determining corporate investors’ nationality.

Methodological Flaws  181 I.  METHODOLOGICAL FLAWS

A.  Blurred Lines between the ICSID Convention’s Jurisdictional Requirements and Investment Treaty Clauses on Personal Scope Statistics show that 76 per cent of all cases filed up to 30 June 2019 under the ICSID Convention and ICSID Additional Facility rules have invoked an investment treaty as the basis of consent to arbitration.1 Among all the cases filed in 2019, treaty consent is invoked in 85 per cent of the cases.2 It is safe to say that most ICSID arbitrations are based on investment treaty consent. A careful reading of ICSID arbitral awards dealing with corporate nationality reveals that investment treaty definitions of ‘investor’ have largely replaced the ICSID Convention’s nationality requirement found in Article 25. Tribunals often apply the investment treaty definition of ‘investor’ when determining whether the investor is ‘a national of another ICSID Contracting State’. This way the ICSID Convention’s nationality standard gets subsumed into the ‘investor’ definition of the investment treaty invoked by the claimant. The two treaties are treated as a single legal instrument for purposes of personal scope of application, without duly considering their separate applicability requirements. The ICSID Convention sets out its own jurisdictional requirements in its Article 25, including ‘nationality’.3 Investment treaties contain substantive and procedural standards applicable to the treatment of investments from one contracting state into another contracting state. These treaties set their own personal and material access requirements.4 The procedural rights afforded to an investor under an investment treaty typically includes a right of recourse to one or more fora for the settlement of disputes arising out of the treaty. These options may include the courts of the host state, ICSID arbitration or arbitration conducted under other institutional rules. An aggrieved investor within the scope of application of an investment treaty may have a variety of choices to file a claim against the host state.5 This, however, does not mean that the jurisdictional 1 ICSID Caseload – Statistics Issue 2019-2. 2 Ibid. 3 See ch 1 Section I(B). 4 Ibid Section II. 5 J Pohl, K Mashigo and A Nohen, ‘Dispute settlement provisions in international investment agreements: A large sample survey’ (2012) OECD Working Papers on International Investment, No 2012/2, OECD Investment Division 8 (‘56% of the treaties offer investors the possibility to choose from among at least two arbitration fora. The number of fora that treaties offer investors to choose from has increased over time; ICSID and ad hoc arbitral tribunals established under UNICTRAL rules are by far the most frequently proposed fora.’) Where the investment treaty only provides for ICSID arbitration as a dispute settlement mechanism, the investor can still challenge the host state in its national courts for failing to comply with the commitments it made under the treaty. For instance, Art 8 of the France-Nicaragua BIT (Accord Entre Le Gouvernement De La Republique Francaise Et Le Gouvernement De La Republique Du Nicaragua Sur L’Encouragement Et La Protection ­Reciproques Des Investissements, entered into force in 31 March 2000) only provides ICSID arbitration.

182  Exposing the Fault Lines requirements of the chosen forum will automatically be satisfied, merely because the investor has satisfied the applicability requirements of an investment treaty referring to that forum. Each forum will have its own jurisdictional requirements. If, for instance, the investor choses to resort to national courts, even if it falls under the scope of the investment treaty,6 it must also satisfy the jurisdictional requirements of the national court found in the domestic l­egislation on jurisdiction and competence of courts. The same applies when investors rely on investment treaty dispute ­settlement clauses as the basis of consent to ICSID’s jurisdiction. Consent to ICSID arbitration under an investment treaty can only be operational if the ICSID Convention’s other jurisdictional requirements, ie nationality, investment and the home and host states’ adherence to the Convention, have also been duly met.7 Commenting on the consent requirement of the ICSID Convention, one author states in this connection that ‘the multiplication of BITs should not alter the real intention of the drafters of the Washington Convention.’8 Even if a large number of investment treaties define a corporate investor in a particular way, this should not alter the meaning of corporate nationality under the ICSID Convention. An investor wishing to enforce the substantive protections of an investment treaty can always resort to the national courts of the host state or to other arbitral fora contained in the treaty, should it fail to meet the ICSID Convention’s jurisdictional requirements.9 This is not the typical approach found in arbitral awards, however. Often claimants invoke an investment treaty as the instrument of consent and tribunals treat the definition of investor provided in the

6 See ch 1 Section II. 7 J Fouret ‘Denunciation of the Washington Convention and Non-Contractual Investment Arbitration: Manufacturing Consent to ICSID Arbitration?’ (2008) 25(1) Journal of International Arbitration 71, 83 (Presents a similar view with regard to the consent requirement of Art 25 of the Convention and investment treaty-based consent. She argues that ‘Authors advocating that consent derives from BITs interpret these BITs instead of interpreting the Washington Convention. However, it is the multilateral instrument, the founding charter of the ICSID that decides what is considered as consent for the jurisdictional purposes of the ICSID and not bilateral agreements concluded between two states.’) See A Tzanakopoulos, ‘Denunciation of the ICSID Convention under the General International Law of Treaties’, in R Hofmann and CJ Tams (eds), International Investment Law and General International law: From Clinical Isolation to Systemic Integration? (Baden/Baden, Nomos, 2011) 90 (‘The distinction drawn between a right created under the ICSID Convention (the right to arbitrate before ICSID created by mutual consent under Article 25) and one created under a BIT is crucial when considered under the prism of the general international law of treaties …’). 8 J Fouret, ‘Denunciation of the Washington Convention and Non-Contractual Investment ­Arbitration’ 83. 9 Murphy Exploration and Production Company International v Republic of Ecuador (Award on Jurisdiction) (ICSID Case No ARB/08/4, 15 December 2010) paras 85–89 (The tribunal upheld the argument of the claimant that by withdrawing from the ICSID Convention, the respondent could not terminate the BIT; therefore, the offer for ICSID arbitration provided in the BIT would remain valid even after the respondent denounced the Convention. Clearly, withdrawal from the ICSID Convention would not terminate the BIT. The protections provided by the BIT would continue to benefit investors falling under its scope. However, being no longer a party to the ICSID Convention would prevent investors from taking up the offer of ICSID arbitration after the denouncement of the Convention.).

Methodological Flaws  183 investment treaty as the parties’ agreement on the meaning of corporate nationality for purposes of jurisdiction under the Convention.10 This latter approach accommodates nationality shopping practices that allow an investor to invoke the nationality of a state with which it has only artificial links, particularly if the investment treaty adopts ‘incorporation’ as the connecting factor. Tribunals and scholars supporting this approach justify this view by stating that states are masters of investment treaties. According to this view, if investment treaty contracting states choose artificial links to decide the personal scope of their treaties, they must bear the consequences of this sovereign choice.11 The argument goes that had states wished to limit nationality shopping, they could have adopted more substantive links when defining covered corporate investors. I argue here that this is a flawed method for determining corporate nationality under the ICSID Convention. It is flawed because, first, it unjustifiably replaces the ICSID Convention’s nationality requirement with the investment treaties’ definitions of ‘investor’. Most investment treaties do not use the word ‘nationality’ in relation to corporate investors.12 As such, it is difficult to support the claim that investment treaty clauses defining ‘investors’, ‘companies’, or ‘enterprises’ could constitute parties’ agreement on nationality under the ICSID Convention. Yet, often arbitral awards consider the investment treaty definition of ‘investor of a Contracting Party’ or ‘company of a Contracting Party’ as the parties’ agreement on nationality under the ICSID Convention.13 Even in treaties that use ‘nationality’ in relation to corporate investors, and which may be treated as the parties’ agreement on nationality, such an agreement ‘cannot create a nationality that does not exist’.14 A legally sound approach would require the 10 See Tokios Tokelés v Ukraine paras 24–26. See also, A Sinclair, ‘ICSID’s Nationality Requirements’ (2008) 23(1) ICSID Review – Foreign Investment Law Journal 65–66; R Thorn and J Doucleff, ‘Disregarding the Corporate Veil and Denial of Benefits Clauses: Testing Treaty Language and the Concept of ‘Investor’’ in M Waibel et al (eds), The Backlash Against Investment Arbitration: Perceptions and Reality (The Netherlands, Kluwer Law International, 2010) 5–6, fn 5; A Romanetti, ‘Defining Investors: Who Is Eligible to Claim?’ (2012) 29(3) Journal of International Arbitration 231, 232–33. 11 J Baumgartner, Treaty Shopping in International Investment Law (Oxford, Oxford University Press, 2016) 34–37; The Rompetrol Group N.V. v Romania (Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility) (ICSID Case No ARB/06/3, 18 April 2008) paras 81, 83. 12 See ch 5 Section II on this. 13 Empresas Lucchetti v Peru (Award) (ICSID Case No ARB/03/4, 7 February 2005) para 15; Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. v The Republic of Paraguay (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/07/9, 29 May 2009) para 53; Millicom International Operations BV and Sentel GSM SA v The Republic of Senegal (Decision on Jurisdiction of the Arbitral Tribunal) (ICSID Case No ARB/08/20, 16 July 2010) [83]; Perenco Ecuador Ltd. v The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Decision on Jurisdiction) (ICSID Case No ARB/08/6, 30 June 2011) paras 86, 106. There are other investment treaties that provide a definition of ‘national’, such as the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Venezuela, but these definitions also define simply the boundaries of the relevant investment treaty’s personal scope and not the ICSID Convention’s. 14 CH Schreuer et al, The ICSID Convention: A Commentary 2nd edn (Cambridge, Cambridge University Press, 2009) 283.

184  Exposing the Fault Lines tribunal to first ascertain the nationality of the investor independent from the parties’ agreement, as it may be expressed in the investment treaty, to determine whether the agreed nationality is the actual nationality of the investor.15 Second, this flawed methodology legitimises nationality shopping for ICSID jurisdiction by highlighting that it is merely a consequence of the collective sovereign decision of investment treaty contracting states. While states are masters of their treaties, in the IIL context this view must be tempered by the following three observations: (1) recent empirical studies have shown that at least in developing states, officials did not sign investment treaties with a full understanding of the commitment they were making, let alone the potential consequences of opting for ‘incorporation’ to define personal scope.16 This finding can be supported further by (2) the frequent objections by states in investment disputes to investors gaining access to personal jurisdiction of ICSID tribunals via nationality shopping combined with (3) the evolution of the investment treaty practice showing that states are increasingly opting for tighter personal access requirements. To counteract nationality shopping, host states have argued that the investor’s corporate planning constituted an abuse of process,17 that a genuine link was lacking between the investor and its home state,18 that the tribunal should look behind the corporate veil,19 that there was no investment ‘made’,20 that the timing of corporate restructuring rendered the claim outside temporal jurisdiction.21 But states have rarely succeeded in these objections. As articulated by St John, the way investment treaty practice and arbitration developed has made ‘a reversal of course difficult for governments. Even though states remain masters of their treaties, the obstacles to governments exercising control grow over time’22 This remains true for how far the personal jurisdiction of 15 In Hussein Nuaman Soufraki v The United Arab Emirates (Award) (ICSID Case No ARB/02/07, 7 July 2004), (The claimant had signed the concession agreement as a Canadian national; however, the tribunal did not treat him as a national of Canada based on this instrument. Instead, the tribunal took the matter into its own hands and investigated Mr Soufraki’s nationality independent of what he claimed to be in the concession agreement (Canadian) or what he claimed to be during the arbitral proceedings (Italian)). 16 LNS Poulsen, Bounded Rationality and Economic Diplomacy: The Politics of Investment T­reaties in Developing Countries (Cambridge, Cambridge University Press, 2015). 17 Tidewater Inc., Tidewater Investment SRL, Tidewater Caribe, C.A., Twenty Grand Offshore, L.L.C., Point Marine, L.L.C., Twenty Grand Marine Service, L.L.C., Jackson Marine, L.L.C. and Zapata Gulf Marine Operators, L.L.C. v The Bolivarian Republic of Venezuela (Decision on ­Jurisdiction) (ICSID Case No ARB/10/5, 8 February 2013). 18 Mobil Corporation, Venezuela Holdings, B.V., Mobil Cerro Negro Holding, Ltd., Mobil ­Venezolana de Petróleos Holdings, Inc., Mobil Cerro Negro, Ltd., and Mobil Venezolana de Petróleos, Inc. v Bolivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No.ARB/07/27, 10 June 2010) para 27. 19 Tokios Tokelés v Ukraine. 20 Gold Reserve Inc. v Bolivarian Republic of Venezuela, (Award) (ICSID Case No ARB(AF)/09/1, 22 September 2014). 21 Philip Morris Asia Limited v The Commonwealth of Australia, (Award on Jurisdiction and Admissibility) (PCA Case No 2012-12, 17 December 2015.). 22 T St John The Rise of Investor-State Arbitration: Politics, Law, and Unintended Consequences (Oxford, Oxford University Press, 2018) 22.

Methodological Flaws  185 ICSID tribunals have been stretched with the proliferation of investment treaties as bases of consent to ICSID’s jurisdiction. Nevertheless, states are increasingly moving towards adopting substantial links to define personal scope of their new or renegotiated investment treaties.23 But even if states, as the masters of their treaties, take stock and reform their treaty commitments, it is important to acknowledge the crucial role of arbitral tribunals on what ‘corporate nationality’ means under IIL as the masters of investment treaty and ICSID Convention terms’ interpretation. Arbitral tribunals remain the masters of interpretation of the reformed treaties’ terms.24 The real impact of such reformed treaties, adopting substantial links to determine their personal scope, on nationality shopping is yet to be seen in arbitral jurisprudence. In ICSID claims invoking investment treaty consent, a legally sound approach would require that the tribunal first assesses whether the claimant is a national of a Contracting State under the ICSID Convention, independently from the investment treaty definition of investor.25 If the nationality determined pursuant to the Convention is of the home state party to the investment treaty under which the claimant also qualifies as a protected investor, only then it should be justified for an ICSID tribunal to assume personal jurisdiction on the basis of consent found in the investment treaty. Only when both outcomes correspond, the investor should be able to benefit from the ICSID dispute settlement clause found in an investment treaty. If they do not correspond, then the investor will have to resort to other available dispute settlement mechanisms to enforce its rights guaranteed under the investment treaty. Tribunals can follow this method also when assessing nationality under the second part of Article 25(2)(b), which requires agreement of the parties on foreign control. According to the method proposed here, if the investment treaty provision on dispute settlement invoked by the claimant allows for host state entities to be treated as foreign as a consequence of foreign control,26 this could be considered the parties’ agreement on foreign control under Article 25 of the Convention, provided that the finding on foreign control under the

23 See, ie, CETA Art 8.1; Morocco- Nigeria BIT Art 1; Netherlands Model BIT Art 1. 24 See, eg, Orascom TMT Investments S.à r.l. v People’s Democratic Republic of Algeria (Final Award) (ICSID Case No ARB/12/35, 31 May 2017) para 298 (Despite the applicable treaty adopting incorporation plus siege social as the determinant of personal scope, the tribunal’s interpretation diminished siege social to the statutory seat). 25 See, eg, Biwater Gauff (Tanzania) Ltd (Biwater) v United Republic of Tanzania (Award), (ICSID Case No ARB/05/22, 24 July 2008) paras 246–249; Lanco International Inc v The Argentine Republic (Jurisdiction of the Arbitral Tribunal) (ICSID Case No ARB/97/6, 8 December 1998) para 472. See also, A Tzanakopoulos, ‘Denunciation of the ICSID Convention’ 91 (‘An arbitration clause in a BIT is at best (depending on the wording) a right extended by states reciprocally to nationals of each other, respectively, and as such does not constitute a right vested as a result of performance of the ICSID Convention; it does not ‘result from’ the Convention.’). 26 As in Art 8(2) of the Agreement between the Government of the United Kingdom of Great ­Britain and Northern Ireland and the Government of the Republic of Belarus, signed on 1 March 1994, entered into force 28 December 1994.

186  Exposing the Fault Lines ­ onvention indicates that the investor, ie the foreign controller, is a national of C the i­ nvestment treaty Contracting State in question. B.  Impact of the Meaning of ‘Investment’ on the Assessment of Nationality Investment treaties typically contain broad definitions of ‘investment’, covering a broad range of assets owned or controlled directly or indirectly, including shares and stocks. Defining ‘investment’ in this way has the effect of broadening the personal scope of investment protection treaties, bringing minority and/or indirect shareholders within the personal scope of protection.27 In early investment arbitrations pre-dating the proliferation of investment treaties, the meaning of investment was understood more narrowly by arbitral tribunals, and shareholding alone did not constitute investment as understood in the context of IIL.28 The protection of shareholders would exclusively be an issue of personal jurisdiction, and not material jurisdiction.29 Combined with the personal jurisdiction rules on nationality, this often meant that typically minority investors (direct or indirect) would be unable to bring an independent claim as ‘investor’. Broad definitions of investment in treaties have been interpreted by tribunals to bring indirect shareholders or controllers of investments within the treaty’s scope of protection,30 even if the treaty definition of investor does not explicitly refer to indirect ownership or control.31 Under the investment treaty framework, indirect or direct minority shareholders can advance their own independent claims against the host state, as long as they invoke their shares as ‘investment’, and not the business activity carried out in the host state. Most claims filed against Argentina in the aftermath of the 2001 financial crisis were based on

27 See Standard Chartered Bank v United Republic of Tanzania (Award) (ICSID Case No ARB/10/12, 2 November 2012) paras 70–80, 197–201 (Demonstrates the impact of what constitutes investment on who qualifies as investor); J Baumgartner, Treaty Shopping 141 (Explains that investor and investment definitions mutually influence each other and have a combined effect in determining the treaty’s scope of application). 28 Vacuum Salt Products Ltd. v Republic of Ghana (Award) (ICSID Case No ARB/92/1, 16 ­February 1994) (The tribunal here did not allow the minority shareholder to be treated as an investor within the meaning of the Convention. Had the case been filed under an investment treaty invoking shares in the local company as the protected investment, the percentage of ownership would not have mattered for purposes of jurisdiction.). 29 See, eg, Vacuum Salt v Ghana; Société Ouest Africaine des Bétons Industriels v Senegal (­Decision on Jurisdiction) (ICSID Case No ARB/82/1, 1 August 1984). 30 See GAMI Investments v Mexico (Final Award) (NAFTA -UNCITRAL IIC 109 (2004) 15 November 2004). 31 Hesham Talaat M. Al-Warraq v The Republic of Indonesia (Award) (UNCITRAL, IIC 718 (2014) 15 December 2014) paras 503, 511–12 (In this award, the tribunal held that the claimant would qualify as an investor under the OIC Agreement, despite a lack of reference to indirect owners of an investment as a protected category of investors, as the definition of investment was sufficiently broad to cover indirect share ownership as a protected investment); see also European American Investment Bank AG v Slovak Republic, (Second Award on Jurisdiction) (PCA Case No 2010-17, 4 June 2014) para 321.

Methodological Flaws  187 shareholding as investment in local entities.32 All these claims involved direct or indirect, minority or majority shareholding interest of investors in Argentinian companies protected by the treaty definition of ‘investment’ containing direct or indirect shareholding. In each case, Argentina raised the same challenges as to the standing of the shareholder claimant as an investor, each time invoking Barcelona Traction’s shareholder rule.33 And in each case the issue boiled down to the question of whether shareholders were entitled to protection under the applicable investment treaty and the ICSID Convention. The answer was always positive, because covered investments were defined broad enough to capture indirect and minority shareholders. While the protection of shareholders per se is not a problem, when combined with lax treatment of corporate nationality, this can result in an unwarranted expansion of IIL instruments’ coverage. Due to the broad investment definitions, parties and tribunals may choose to formulate an issue that should relate to

32 Enron Corporation and Ponderosa Assets, L.P. v Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB01/3, 14 January 2004); AES Corporation v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/02/17, 26 April 2005); Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/09/1, 21 December 2012); Azurix Corp v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/01/12, 8 December 2003); CMS Gas Transmission Company v The Republic of Argentina, (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/01/8, 17 July 2003); Lanco International Inc v The Argentine Republic (Jurisdiction of the Arbitral Tribunal) (ICSID Case No ARB/97/6, 8 December 1998); LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc v Argentine Republic (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/02/1, 30 April 2004);Siemens A.G. v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/02/8, 3 August 2004), Sempra Energy International v The Argentine Republic (Decision on Objections to Jurisdiction) (ICSID Case No ARB/02/16, 11 May 2005); Camuzzi International S.A. v The Argentine Republic (Decision on Objection to Jurisdiction) (ICSID Case No ARB/03/2, 11 May 2005); Continental Casualty Company v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/03/9, 22 February 2006); El Paso Energy International Company v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/03/15, 27 April 2006); Impregilo S.p.A. v Argentine Republic (Award) (ICSID Case No ARB/07/17, 21 June 2011); Hochtief AG v The Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/07/31, 24 October 2011); Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v Argentine Republic (Decision on Jurisdiction) (ICSID Case No ARB/03/19, 3 August 2006); Wintershall Aktiengesellschaft v Argentine Republic (Award) (ICSID Case No ARB/04/14, 8 December 2008); Total S.A. v The Argentine Republic (Decision on Objections to Jurisdiction) (ICSID Case No ARB/04/01, 25 August 2006); Telefónica S.A. v The Argentine ­Republic (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/03/20, 25 May 2006); another decision available under this category is IBM World Trade Corporation v República del Ecuador (Decision on Jurisdiction and Competence) (ICSID Case No ARB/02/10, 22 December 2003) (Here the tribunal described the claimant as a national of the US because it was a company established under the laws of New York, US. The claim was based on the US-­Ecuador bilateral investment treaty. IBM carried out its investment in Ecuador through a wholly owned subsidiary incorporated in Ecuador, IBM del Ecuador C.A. The respondent objected to the jurisdiction of the tribunal asserting that its relationship was with IBM Ecuador and not with IBM. Ecuador argued that it never gave consent to treat IBM Ecuador as a national of another Contracting State under Art 25(2)(b) of the Convention. The tribunal dismissed this objection on the grounds that the claim was filed by IBM and not IBM Ecuador, therefore, it was not necessary to search for such consent under Art 25(2)(b).) 33 See ch 4 Section I (A).

188  Exposing the Fault Lines personal scope instead as a material scope issue. In Rusoro v Venezuela, the Canadian corporate claimant was controlled by Russian nationals, and this was a publicly known fact as the tribunal acknowledges in its award.34 But this did not alter the tribunal’s finding that the investment was protected under the Canada Venezuela BIT, as it was the Canadian corporation that participated through direct and indirect shareholdings in the Venezuelan mining entities. The fact that the Canadian investor was in turn controlled by Russian individuals did not deprive the Canadian company of the protection afforded to it under the BIT, since the meaning of investment was broad enough to bring an intermediate shareholder within the scope of the treaty. The dispute over whether this was a Russian or a Venezuelan investment was settled as a material scope issue and not a personal one.35 If a treaty does not cover indirect shareholders within its ‘investor’ definition, and if the meaning of investment in a treaty is not broad enough to cover participation through indirect shareholding, the protection of such a treaty should not normally extend to indirect shareholders.36 The tribunal in Guaracachi v Bolivia took a different approach. In that case, one of the claimants was an indirect shareholder of the host state investment. The applicable UK-Bolivia BIT was silent on indirect ownership both with regards to the investment and the investor definitions. Bolivia argued that the UK claimant could not be treated as an investor making an investment in Bolivia within the meaning of the treaty as it was not a direct shareholder. The tribunal disagreed and held that the definition of investment found in the BIT was broad enough to cover indirect shareholding, even if it did not expressly stipulate so.37 In the tribunal’s view, this was a reading consistent with the purpose of the BIT, ie promotion and protection of investment, and if the Contracting States intended to exclude indirect investments, they would exclude them expressly in the BIT.38 Beyond any ownership rights, it has also been recognised in investment treaty jurisprudence that a claimant may be considered a qualifying investor with an investment in the host state without holding direct or indirect ownership ­interests in a corporate entity that carries out the investment. In Société Générale v Dominican Republic, the arbitral tribunal accepted that under the applicable treaty, the rights held by the claimant over the local operating company would qualify as an investment, despite having no direct or indirect formal ownership

34 Rusoro Mining Limited v The Bolivarian Republic of Venezuela, (Award) (ICSID Case No ARB(AF)/12/5, 22 August 2016) para 353. 35 An investment treaty also exists between Russia and Venezuela providing similar protections and was in force at the time of the alleged breaches. 36 Except in an ICSID Convention arbitration, when the indirect shareholders qualify as the ‘foreign controller’ of the investment under the ICSID Convention, and the parties have agreed to treat the investor ‘foreign’. 37 Guaracachi America, Inc. and Rurelec PLC v The Plurinational State of Bolivia, (Award) (UNCITRAL, PCA Case No 2011-17, 31 January 2014) para 352. 38 Ibid, para 353.

Methodological Flaws  189 of the local entity.39 Within a very complex investment structure established for the investment, the claimant, through its affiliates and under various contractual arrangements, exercised management control over the investment and was entitled to returns primarily in the form of a management fee linked to the success of the investment (calculated based on 90 per cent of the available cash for distribution).40 This is quite different than classic types of equity based foreign investment protected under the international investment regime, where some level of direct or indirect ownership of the entity carrying out the investment in the host state would be present in a case like this one involving an electricity distribution business. While some investment treaties might include a very broad definition of investment covering any forms of participation in a company or rights to receive any benefits having economic value,41 it is rare to see an investment claim arising from the treatment of a local operating company by a claimant who does not hold any form of ownership over that local entity. These cases demonstrate that the broad definitions of what constitutes a qualifying investment in investment treaties has changed the way tribunals assess and parties argue personal scope of protection and jurisdiction. Prior to the proliferation of investment treaty-based arbitrations, in claims involving a host state entity carrying out the investment, typically, the analysis of personal jurisdiction followed an upstream direction beginning with the host state entity. The protected ‘investment’ would be the business carried out by the host entity, not the ownership of shares in that entity. The design of upstream ownership structure of that investment was a question of personal jurisdiction. Who controlled, directly or indirectly, the host state entity would determine if the investor was a foreign national covered by IIL protections. In other words, the analysis would begin from the host state entity and move upstream. Direct or indirect ownership of shares or stocks in a locally incorporated entity were not in themselves treated as an ‘investment’. This has changed with investment treaties broadening the definition of investment to include shares and stocks, as well as other types of participation or interests held in a local entity. A claimant no longer has to invoke the business in the host state as the investment, since its shareholding can alone qualify as a protected investment. This way the personal jurisdiction analysis transforms to follow a downstream direction and becomes intertwined with the meaning of investment. The question asked is not who controls the host state entity carrying out the investment. Instead, the question asked is whether the claimant is a

39 Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de ­Electricidad del Este, S.A. v The Dominican Republic, (Award on Preliminary Objections to ­Jurisdiction) (LCIA Case No UN 7927 19 September 2008). 40 Ibid, para 27. 41 Art 1, Entre Le Gouvernement De La République Française Et Le Gouvernement De La ­République Dominicaine Sur L’encouragement Et La Protection Réciproques Des Investissements Signed 14 January 1999, entered into force 23 January 2003.

190  Exposing the Fault Lines national or a company of the investment treaty Contracting State and whether that person has made an investment in the host state in the form of holding shares or stocks in a local business. The latter approach to personal and material scope of protection brings a much larger number of investors under the international investment protection regime. It also gives more flexibility to the investor to pick a corporate entity within the upstream structure of the investment as the ‘claimant’, without having to prove actual control of the investment by that entity. In such cases, respondent states often, and unsuccessfully, raise an objection to the personal or material eligibility of the claim. These objections are often dismissed by arbitral tribunals, even if there are several intermediate companies between the claimant and the host state located in third state territories that are not covered by the investment treaty invoked by the claimant.42 Tribunals consider that location of the intermediaries or parent companies irrelevant, as they are not the claimant of the case before them. Challenges to the personal or material reach of an investment treaty by attempting to show that the claimant does not own or control the investment due to the presence of other direct or indirect shareholder entities located in different countries in the upstream structure of the investment have consistently failed in investment treaty arbitrations. This will remain an unwinnable argument so long as tribunals consider indirect or direct shareholding or control a question of ‘investment’ and follow a downstream direction in analysing the identity of the investor. This approach to shareholding as investment combined with a determination of nationality based on incorporation unjustifiably extends the scope of an investment treaty to an unlimited number of claimants who strategically pick or create a convenient entity to file an investment treaty claim. It also fails to duly differentiate between the damages suffered by an investor as a shareholder and damages suffered by the host state entity carrying out the investment.43 I argue here that arbitral tribunals should engage in an upstream analysis of the identity and nationality of the investor. To determine whether, for ICSID arbitrations, the investor is a national of another ICSID Contracting State, and for nonICSID treaty arbitrations, the investor is a national or a company of the other state party, the tribunal should begin its analysis from the host state entity, and search upstream as to who owns or controls the investment. The shareholding as investment approach is suitable, if the claimant is a minority shareholder, who is a national or an investor of a covered state, genuinely claiming for the loss of value in their shares and dividends, but not for majority shareholders who control the host state business activity and makes an investment treaty claim for the entire loss suffered by the host state entity as a result of the alleged host state violations.



42 See, 43 Ch

eg, Guararachi v Bolivia para 362; Mobil v Venezuela. 5 Section I(B).

Methodological Flaws  191 C.  The Impact of Temporal Scope on the Assessment of Nationality Temporal scope of application of an investment treaty concerns the dates within which an investment treaty would be deemed applicable to an investor’s investment in the host contracting state. Temporal scope of an investment treaty can influence whether a claimant is considered an investor within the meaning of that treaty, especially if there is a question over whether the claimant was a covered investor at the time the dispute arose or became foreseeable. This may happen in two ways. First, arbitral tribunals take into consideration the timing of an ownership structuring or restructuring by an investor when deciding whether to classify the conduct of the investor as legitimate, abusive, or a matter of lack of temporal scope, and thus allow or deny a claim to proceed. The second concerns an objection that the claimant has not ‘made’ an investment in the territory of the host state, and therefore it cannot invoke the investment treaty. In examining the second objection, tribunals consider temporal requirements together with material and personal requirements. i.  Timing of Treaty or Nationality Shopping Foreign investors frequently adopt corporate ownership structures that will provide their business the best possible regulatory framework, including on taxation, investment treaty protection, or repatriation of profits. In the investment treaty context, treaty shopping refers to the practice of investors routing their investments in a host state through corporate entities located in countries having favourable investments treaties with that host state.44 Treaty shopping might allow host state nationals to re-route their investments via an investment treaty partner state (so called ‘round-tripping), allow nationals of states without an investment treaty with the host state to invoke third state investment treaties (eg the so called Dutch gateway or the Dutch sandwich), or it might allow investors to access a higher set of protections than provided by their own state’s investment treaty with the host state.45 The arbitral jurisprudence has not been sufficiently clear and consistent on how to deal with treaty shopping. Still, a few patterns can be identified in 44 J Baumgartner, Treaty Shopping 12 (Treaty shopping should thus be understood to include all legal operations aimed at invoking or creating a qualifying nationality and/or a qualifying investment, for example by structuring or restructuring an investment or by otherwise conferring an entitlement or property right to an investment, with a view to benefitting from a particular ­international investment agreement granting an investor direct standing (ius standi).’ R van Os and R Knottnerus, Dutch Bilateral Investment Treaties: A Gateway to ‘treaty shopping’ for investment protection by multinational companies (October 2011) SOMO 9 (defines treaty shopping as ‘the conduct of foreign investors in acquiring the benefits of investment treaties in their actual or planned host state through third countries, through which their investment needs to be routed.’) E Zuleta et al, ‘Treaty Planning: Current Trends in International Investment Disputes that Impact Foreign Investment Decisions and Treaty Drafting’ in MA Fernandez-Ballesteros and D Arias (eds) Liber Amicorum Bernardo Cremades (Madrid, La Ley, 2010). 45 J Baumgartner, Treaty Shopping 13–14.

192  Exposing the Fault Lines arbitral jurisprudence. The starting point of almost every discussion of treaty shopping in arbitral awards is that it is legitimate for an investor to structure its investment in ways that will afford it the highest possible protection.46 The law does not prohibit treaty shopping, though some treaties attempt to avoid or minimise it by requiring substantive links for personal scope or including denial of benefits clauses. In most cases where the treaty language is permissive, the question turns on the timing and the purpose of this practice. If corporate planning enabling access to IIL protections was done at the time of making the investment, or any time after that but before a dispute becomes reasonably or highly foreseeable, arbitral tribunals usually respect such corporate planning.47 If it was done after a dispute becomes reasonably or highly foreseeable, and for the sole or primary purpose of gaining access to investment treaty protections, tribunals may categorise it as an abuse of rights.48 Finally, if it was done after the alleged breach by the host state became known to the investor, it may be considered a bar to the claim due to falling outside the temporal limits of a treaty. While these are the patterns identified in this research, these are not certain categories, as not all tribunals have been consistently following this taxonomy.49 In this book, I take a different approach to dealing with treaty shopping. While I acknowledge that it is not illegitimate or illegal for investors to treaty shop, I disagree with the approach that the question of treaty shopping to be considered solely as a matter of temporal scope or timing of corporate structuring. I argue that treaty shopping should primarily be a question of personal scope under investment treaties and as a matter of nationality under the ICSID Convention. For states wishing to minimise treaty shopping, a more effective solution would be to limit personal scope and jurisdiction based on substantial links to the home state, such as nationality determined based on a genuine link. This approach is delineated in Chapter 7.50 Arbitral tribunals have not taken this approach, and, as discussed below, generally preferred to analyse the issue of treaty shopping primarily as a matter of temporal scope of protection. 46 Philip Morris v Australia, paras 540–45; Tidewater v Venezuela para 204; Renée Rose Levy and Gremcitel S.A. v Republic of Peru, (Award) (ICSID Case No ARB/11/17, 9 January 2015) para 184; Aguas del Tunari, S.A. v Republic of Bolivia (Decision on Respondent’s Objections to Jurisdiction) (ICSID Case No ARB/02/3, 21 October 2005) para 330; J Baumgartner, Treaty Shopping 1. 47 An exception to this can be seen in TSA Spectrum de Argentina S.A. v Argentine Republic (Award) (ICSID Case No ARB/05/5, 19 December 2008) paras 155–62 (The tribunal in that case did not consider treaty shopping a temporal jurisdiction issue, but considered it a personal jurisdiction issue and found that the Dutch holding vehicle did not control the investment.). 48 Philip Morris v Australia, para 539 (‘Under the case law, the abuse is subject to an objective test and is seen in the fact that an investor who is not protected by an investment treaty restructures its investment in such a fashion as to fall within the scope of a treaty in view of a specific foreseeable dispute.’). 49 Phoenix Action Ltd v The Czech Republic (Award) (ICSID Case No ARB/06/5 15 April 2009) (In this case, the tribunal considered the issue of treaty shopping as a question of material jurisdiction and assessed whether the claimant made a bona fide investment.). 50 Section III.

Methodological Flaws  193 It has generally been viewed legitimate to structure or restructure investments in a particular way to benefit from an investment treaty that gives access to the strongest possible legal protection, except when the timing of the structuring raises suspicions.51 It is not entirely clear in arbitral jurisprudence as to what the critical date is for crossing into the realm of illegitimate structuring from legitimate corporate planning. There is also confusion about when restructuring justifies finding a claim inadmissible due to abuse of rights and when it justifies dismissing the claim on lack of temporal jurisdiction. Two critical dates have been taken into consideration in assessing these issues: the date when a dispute or a breach becomes reasonably foreseeable, and the date when the alleged breach takes place. Some tribunals have also distinguished between the date of the breach and the date the dispute arose, as the latter might be on a later date than the breach.52 In Philip Morris v Australia, the tribunal observed that ‘at least as far as one-time acts are concerned, the dispute normally follows the alleged breach’.53 Some tribunals held that if the restructuring is done after the date of the alleged breach, the claim will fall outside the temporal scope of the applicable treaties.54 In such cases, there is no need to consider an abuse of rights challenge. On the other hand, if the restructuring is done after a dispute becomes reasonably foreseeable but before the date of the alleged breach, ­invocation, by a claimant, of an investment treaty that only became applicable after the restructuring may constitute an abuse of rights, though the tribunal’s temporal jurisdiction is not deemed affected. In some cases, tribunals have found that abuse of rights and lack of temporal jurisdiction co-exist. In ST-AD v Bulgaria, the tribunal found that it lacked temporal jurisdiction, as all the events giving rise to the alleged breach took place before the claimant became an investor. The tribunal also stated that the claimant committed an abuse of process, because the alleged investment was transferred to a company incorporated in Germany, for the sole purpose of gaining BIT protection, after the dispute had already arisen. The tribunal held that even if it had found jurisdiction, the claim would be inadmissible due to the abuse of process committed by the investor, as it had merely repackaged a domestic dispute as a foreign one via nationality shopping.55 51 Philip Morris v Australia, paras 540–45; Tidewater v Venezuela para 184; Mobil v Venezuela para 204; Gremcitel v Peru, para 184; Aguas del Tunari v Bolivia, para 330. See also S Schreuer, ‘Nationality Planning’ in A Rovine (ed) Contemporary Issues in International Arbitration and Mediation (Leiden, Martinus Nijhoff, 2013) 17; SW Schill and HL Bray, ‘Good Faith Limitations on Protected Investments and Corporate Structuring’ in AD Mitchell, M Sornarajah and T Voon (eds) Good Faith and International Economic Law (Oxford, Oxford University Press, 2015) 105. 52 See Philip Morris v Australia, para 532. 53 Ibid. 54 Gremcitel v Peru para 149; Philip Morris v Australia, para 532. 55 ST-AD GmbH v Republic of Bulgaria (Award on Jurisdiction) (UNCITRAL, PCA Case No 2011-06, 18 July 2013) para 423. See also Philip Morris v Australia, para 539 (‘Although it is sometimes said that an abuse of right might also exist in the case of restructuring in respect of an existing dispute, if the dispute already exists, then a tribunal would normally lack jurisdiction ratione temporis.’).

194  Exposing the Fault Lines a.  When does a Dispute become Reasonably Foreseeable? Many tribunals have, in principle, accepted that nationality shopping might give rise to an abuse of rights, if it is done after a dispute becomes reasonably foreseeable. But it is no easy task to determine when a dispute becomes reasonably foreseeable to a claimant. It is a highly factual question, and it leaves a wide interpretative discretion to the arbitral tribunal. Some tribunals have attempted to unpack the meaning of reasonable foreseeability. The Philip Morris v Australia tribunal explained that ‘a dispute is foreseeable when there is a reasonable prospect, …, that a measure which may give rise to a treaty claim will materialise.’56 The first step would be to determine what would constitute a dispute. According to the Philip Morris v Australia tribunal a dispute in the legal sense is a disagreement about rights, not merely about policy.57 In that case, the tribunal found that the invocation of the Hong Kong-Australia BIT by the claimant constituted an abuse of rights, as the corporate restructuring was done after a dispute had become reasonably foreseeable following the announcement by the Australian Government that they intended to introduce Plain Packaging ­ Measures.58 While the Philip Morris v Australia tribunal’s analysis gives some content to foreseeability, it still remains quite abstract. Certainly, the facts of a particular dispute will be essential to giving a more concrete meaning to foreseeability, but there is still likely to be variation in the way the words ‘reasonable prospect’ is interpreted. As a general guide, what emerges from arbitral awards is that they consider the subjective and objective elements of foreseeability together. The investor’s knowledge and understanding of the possibility of a dispute and when, objectively, one might reasonably suspect a dispute becoming a real possibility need to be considered cumulatively. A claimant may overcome the timing challenge if the acts of the state constituting the alleged violations are continuous or composite acts that carry on to the post restructuring period, since the investment treaty becomes applicable to acts taking place after acquisition of the investment by a qualifying investor (or national).59 It is important to distinguish here between acts that occur at a single time but have continuous effects from acts that have a continuous character.60 In the former case, it should not be possible to overcome the temporal limits by relying on continuing effects. In the latter case, the act extends over a period during which it continues to be in breach of international law.61

56 Philip Morris v Australia para 554. 57 Ibid, para 566. 58 Ibid. 59 See, eg, Société Générale v Dominican Republic. 60 International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, November 2001, Supplement No 10 (A/56/10), chp.IV.E.1 art 14. 61 Ibid.

Methodological Flaws  195 This is not a straightforward distinction, and a lot depends on the facts and the approach of the arbitral tribunal.62 In Rosinvest v Russia for instance, the ­claimant acquired an investment where the dispute was nothing but foreseeable, since the continuous acts of the alleged breaches had already been occurring several years prior to the acquisition.63 The claimant was an investment fund specialising in speculative investments and purchased Yukos shares in the middle of a major dispute between the original Yukos shareholders and the Russian Government. The tribunal did not consider the timing of the share purchase as relevant to temporal jurisdiction nor consider the allegation of abuse of rights. Instead, the tribunal considered the issue of timing of the share purchase only relevant to the assessment of quantum of damages. Tribunals have, in assessing foreseeability or existence of a breach, distinguished between multiple distinct disputes that appear as a single dispute with continuing effects.64 In Tidewater v Venezuela, the investor inserted a Barbadian entity within the ownership structure of its investment which made it eligible to invoke the Barbados-Venezuela BIT. In this case, a contractual dispute arose between the parties prior to the restructuring. Soon after the restructuring, the respondent expropriated the investor’s investment. The respondent argued that the two disputes were connected, and the restructuring was made in anticipation of the dispute with the sole purpose of creating ICSID jurisdiction.65 The claimant opposed to this, arguing that the expropriation was not a continuation of the contractual dispute. The tribunal held that the contractual dispute was separate from the dispute arising out of expropriation of the investor’s business. The tribunal also held that the expropriation was not reasonably foreseeable at the time of the restructuring, despite all the ongoing turmoil and expropriations in the Venezuelan oil industry.66 As a result, the invocation of the treaty and the ICSID Convention did not constitute an obstacle to its temporal jurisdiction or an abuse of rights. The Tidewater tribunal’s approach to foreseeability is ­difficult to reconcile with the Philip Morris tribunal’s approach. The latter viewed an announcement of intent by Australia to introduce plain packaging rules sufficient to trigger reasonable foresight, while the Tidewater tribunal required for expropriation being imminent due to the conduct of Venezuela ­vis-a-vis Tidewater’s business specifically.

62 Mondev International Ltd. v United States of America (Award) (ICSID Case No ARB(AF)/99/2, 11 October 2002); Técnicas Medioambientales Tecmed v United Mexican States (Award) (ICSID Case No ARB(AF)/00/2, 29 May 2003). 63 RosInvestCo UK Ltd. v. The Russian Federation (Final Award) (SCC Case No 079/2005, 12 September 2010) paras 404–409. 64 Mobil v Venezuela; Tidewater v Venezuela. 65 Tidewater v Venezuela para 144. 66 Ibid, paras 198–195.

196  Exposing the Fault Lines b.  Purpose of Restructuring While timing is an important element in the assessment of abuse, it does not alone determine the existence of abuse. Tribunals have established that all the circumstances of a case will be taken into account alongside timing.67 In that respect, tribunals consider the investor’s reasons for restructuring. It is not an easy task to ascertain the intent behind the restructuring. According to the Philip Morris v Australia tribunal ‘it would not normally be an abuse of right to bring a BIT claim in the wake of a corporate restructuring, if the restructuring was justified independently of the possibility of bringing such a claim.’68 If, alongside gaining access to investment treaty protection, the restructuring was beneficial for tax purposes or management efficiency, the invocation of the treaty may not be considered an abuse of rights. According to the Philip Morris tribunal access to an investment treaty need not be the sole purpose, but it should at least be the main and determinative reason. Other tribunals held that there would be an abuse of rights if the sole purpose of the restructuring is access to an investment treaty.69 In Vincent Ryan v Poland,70 the abuse of rights objection was formulated as a challenge to personal jurisdiction.71 The investment was, at all times, owned or controlled by US nationals or companies. The US-Poland treaty’s personal scope extends to companies constituted under the laws of a Contracting State.72 There was no dispute that the claimant was a company incorporated in the US, thus satisfying the personal scope requirement of the BIT. The tribunal dismissed the respondent’s objection of abusive restructuring holding that the investment was at all times protected by the US-Poland BIT regardless of which entities involved owned it. While the timing of the ownership change alone could have justified an objection to temporal coverage if one considers the dispute had already existed prior to the acquisition of the investment by the claimant, it is clear that the determinative reason for the ownership change was not access to the US-Poland

67 Ibid, para 147. 68 Philip Morris v Australia paras 570, 584 (On the facts of this case, the tribunal held that the only determinative reason for the restructuring was gaining access to the BIT. Tax and other business reasons advanced by the claimant in their pleadings were not proved to be the determinative factors for the claimant’s restructuring.). 69 Phoenix Action v Czech Republic paras 140–42. 70 Vincent J. Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v Republic of Poland (Award) (ICSID Case No ARB(AF)/11/3, 24 November 2015). 71 The same formulation is found in MNSS B.V. and Recupero Credito Acciaio N.V v Montenegro (Award) (ICSID Case No ARB(AF)/12/8, 4 May 2016), paras 90–93 (It was alleged that the Dutch corporate claimant was only inserted into the ownership structure after the dispute had already arisen or was already looming. The respondent challenged the tribunal’s personal jurisdiction due to this alleged abusive forum shopping. It was alleged that the investor was in reality a UK investor and there existed no BIT between the UK and Montenegro that would allow an investment treaty claim.) 72 The Treaty between the United States of America and the Republic of Poland Concerning Business and Economic Relations, signed 21 March 1990, entered into force 6 August 1994 Art I(1)(a).

Methodological Flaws  197 BIT, as both before and after the change of ownership, the investment was held by US companies.73 c.  Admissibility or Jurisdiction? It is not uncommon to see jurisdiction and admissibility being used interchangeably in investment arbitration.74 It is important to distinguish between an admissibility objection on an abuse of rights ground and a jurisdictional objection based on whether the claimant qualifies as a protected investor under an investment treaty. In non-ICSID investment treaty arbitration75 the latter objection is in fact an objection to jurisdiction for lack of consent. This is because the primary source of a non-ICSID tribunal’s jurisdiction is the parties’ consent, unlike ICSID arbitration where there are additional objective jurisdictional requirements set out in the ICSID Convention’s Article 25. For non-ICSID procedures, investment treaty consent can only be valid if the claimant falls within the personal, material, and temporal scope of an investment treaty. Otherwise, it cannot be a beneficiary to the arbitration agreement found in the treaty, and the arbitral tribunal will not have jurisdiction due to lack of consent. However, even where consent is formally found, a tribunal may still find the claim inadmissible, if it finds that the claimant committed an abuse of rights. For ICSID procedures, beyond the requirements of the investment treaty being satisfied to establish consent, the ICSID Convention’s own personal, material and temporal requirements must be independently satisfied for jurisdictional purposes. The distinction between jurisdiction and admissibility in this context was helpfully unpacked by Brabandere.76 He states that if ‘filing a claim constitutes an “abuse of right”, and thus amounts to an “abuse of process”’ this will give rise to inadmissibility, while lack of jurisdiction will be the case if the investment or the investor status was acquired in breach of the principle of ‘good faith’.77 In this view, the lack of jurisdiction cases are not abuse of rights cases, as there was no real right to file a claim in the first place that can be used abusively. These cases instead amount to ‘an abuse of system of investment arbitration.’78 Tribunals and disputing parties often do not make this distinction. According to Brabandere, abuse of rights/process cases involve qualifying investor filing frivolous claims or filing multiple parallel proceedings to increase chances of recovery.79

73 Vincent Ryan v Poland para 202. 74 See ch 1 Section I. 75 Inclusive of ICSID Additional Facility arbitration where the respondent state is an ICSID state, but the investor is not a national of an ICSID state. 76 E De Brabandere, ‘‘Good Faith’, ‘Abuse of Process’ and the Initiation of Investment Treaty Claims’, (2012) 3(3) Journal of International Dispute Settlement 609. 77 Ibid, 620. 78 Ibid. 79 Ibid, 630–35.

198  Exposing the Fault Lines I argue that the facts presented in many arbitral awards touching on corporate nationality or structure should be categorised as pertaining to lack of personal scope or jurisdiction. But in most awards, the issue discussed is framed as an abuse of rights issue or a matter of temporal or material scope of an investment treaty regardless of whether the outcome is a jurisdictional one or an admissibility one. There are two challenges to making a success of Brabandere’s taxonomy. First, in most abuse of process claims, the investor and the investment satisfy the applicability requirements found in the investment treaty due to the broad and permissive definitions provided. These claims often satisfy the literal reading of the treaty, but it is the facts surrounding existence of a qualified investment and investor that point to a lack of good faith and give reasons for refusing to allow the claimant’s claim to proceed. Second, proving lack of good faith in acquisition of an investment or investor status under a treaty is not a simple task, especially when thresholds applied by tribunals for lack of good faith are high due to nationality shopping being viewed a legitimate corporate practice. In arbitral awards dealing with an abuse of rights objection arising from corporate restructuring, tribunals quickly confirm their personal jurisdiction, and then assess the abuse of rights objection separately. In many awards that deal with the abuse of rights objection, it is the acquisition of the investor status that is problematic, so it should go to the jurisdiction of the tribunal, and not to the admissibility of the claim, if Brabandere’s method is followed. But the same conduct can also fall under abuse of rights, if an investor who meets the loose applicability standards of the investment treaty files a claim, but it has acquired the investor status only after restructuring corporate ownership in anticipation of the dispute. As discussed in the next chapter, all these complications involved in the abuse of rights analysis render it ineffective for dealing with the undesirable types of nationality shopping. I discuss in the next chapter in detail why the question of nationality shopping should be tackled, primarily, as a matter of personal scope and jurisdiction. ii.  Investments ‘Made’ in the Territory of the Host State Another argument that has been raised, albeit unsuccessfully, by host states to challenge nationality shopping by investors is that the investor has not ‘made’ an investment in the territory of the host state.80 This is an objection that links the material, personal, and temporal scope of a treaty. The essence of the objection is that the investment treaty only protects investments that are ‘made’ in

80 Flemingo DutyFree Shop Private Limited v Poland (Award) (UNCITRAL PCA IIC 883 (2016) 12 August 2016); Mr. Franz Sedelmayer v The Russian Federation, (Arbitration Award) (SCC Case No 106/1998, 7 July 1998); Gold Reserve v Venezuela; A11Y LTD. v Czech Republic (Award) (ICSID Case No UNCT/15/1, 29 June 2018); Guaracachi v Bolivia; Mera Investment Fund Limited v ­Republic of Serbia (Decision on Jurisdiction) (ICSID Case No. ARB/17/2, 30 November 2018) paras 106–110.

Erosion of the Concept of ‘Nationality’  199 the territory of the host state, and not the investments that have been acquired through indirect shareholding after the investment was already made. In other words, the argument is that if an investor has acquired indirect shareholding in a host state entity via corporate restructuring, it cannot be considered to have made an investment within the meaning of the treaty. This is particularly ­relevant in treaties that refer only to protecting the investments ‘made’, and not to those ‘acquired’ or ‘transferred’. Investment treaty definitions of investment are often so broad that it is difficult for host states to make a success of this argument. Host states raised this challenge in cases where no payment or nominal payment was made for the acquisition of the shares concerned. In A11Y v Czech Republic the respondent argued that the claimant did not make an investment, since it acquired an already existing investment of a local investor for no consideration via corporate restructuring. The tribunal held that the applicable treaty did not prescribe the way an investment shall be made to fall under the treaty’s scope. According to the tribunal, the investor would be protected if it held an investment in the host state, regardless of the manner it was acquired.81 In Guaracachi v Bolivia, the tribunal held that acquisition of indirect shareholding in an investment would qualify as an investment ‘made’ in the territory of the host state within the applicable BIT.82 By acquiring the shares previously owned by other entities, an investor also acquires the investment treaty protection available for the investments made prior to the acquisition.83 Although the applicable treaty did not explicitly refer to indirect shareholding, the tribunal held that the treaty intended to protect such investments. It adopted a broad definition of investment and held that it would be contrary to the purpose of the treaty to promote foreign investment had the tribunal excluded indirect investments from the scope of the treaty.84 As argued in the following chapter, these claims of nationality shopping would be more effectively dealt with if they are formulated and resolved as a personal scope and jurisdiction issue, rather than as a material and temporal scope issue. II.  EROSION OF THE CONCEPT OF ‘NATIONALITY’

A.  Decreasing Importance of Nationality for Corporations – Is Nationality the Right Connecting Factor? Several scholars have expressed that the importance of ‘nationality’ has decreased in international investment law as a basis for accessing rights guaranteed under



81 A11Y

Ltd v Czech Republic, paras 134–140. v Bolivia para 351.

82 Guaracachi 83 Ibid. 84 Ibid,

para 353.

200  Exposing the Fault Lines investment treaties, including right to access ICSID dispute settlement.85 Some scholars allude to the decreasing importance of nationality by focusing their analyses only on investment treaty descriptions of ‘investor’ to define personal scope of protections under IIL.86 This is also a common pattern in many arbitral awards.87 Despite an express reference to ‘nationality’ in Article 25 of the ICSID Convention as a condition of ICSID arbitration tribunals’ personal jurisdiction, arbitral awards increasingly lack rigour in assessing the nationality of corporate investors. Another group of scholars emphasise the relevance of nationality and the importance of searching for the true nationality of corporate investors, at least in cases brought under the ICSID regime.88 Is ‘nationality’ really losing its relevance for determining personal scope of IIL protections? If so, should it be regarded as irrelevant by arbitral tribunals? From the early days of modern IIL, the concept of nationality used in the ICSID Convention was distinguished from the concept as used in the context of international law on diplomatic protection.89 Broches stated during the drafting of the ICSID Convention that: The significance of nationality in traditional instances of espousal of a national’s claim should be distinguished from its relatively unimportant role within the framework of the Convention. In the former case, the issue of nationality is of substantive importance as being crucial in determining the right of the State to bring an international claim, while under the Convention it is only relevant as regards the capacity of the investor to bring a dispute before the Centre.90

Article 25 of the ICSID Convention indeed prescribes the conditions for dispute settlement under the auspices of the Centre; however, there is more to it than

85 AC Sinclair, ‘The Substance of Nationality Requirements in Investment Treaty Arbitration’ (2005) 20(2) ICSID Review – Foreign Investment Law Journal 357, 362; AC Sinclair, ‘ICSID’s Nationality Requirements’ 62 (‘… bond of nationality frequently seems to be diminished in significance to a mere formality.’); SW Schill, The Multilateralization of International Investment Law (Cambridge, Cambridge University Press, 2009) 221. 86 See, ie, D AR QC Williams, ‘Jurisdiction and Admissibility’ in P Muchlinski, F Ortino and CH Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford, Oxford University Press, 2008) 889–901. 87 See section I(A) above. 88 M Sornarajah, ‘Power and Justice in Foreign Investment Arbitration’ (1997) 14(3) Journal of International Arbitration 103; P Muchlinski, ‘Corporations and the Uses of Law: International Investment Arbitration as a Multilateral Legal Order’ (2011) Oñati Socio-Legal Series, v 1, n 4, 19 Other commentators acknowledging the significance of nationality under the ICSID mechanism and in the larger context of investment arbitration include C Marian, ‘Who is Afraid of Nottebohm? Reconciling the ICSID Nationality Requirement for Natural Persons with Nottebohm’s ‘Effective Nationality’ Test’ (2011) 28(4) Journal of International Arbitration 313; M Feldman, ‘Setting Limits on Corporate Nationality Planning in Investment Treaty Arbitration’ (2012) 27(2) ICSID Review – Foreign Investment Law Journal 281–302. 89 See above ch 4 Section I on corporate nationality under the principles of diplomatic protection. 90 A Broches, Chairman’s Report on the Preliminary Draft of the Convention, July 9, 1964, doc Z11, reprinted in II Documents Concerning the Origin and Formulation of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID 1968) 579–582.

Erosion of the Concept of ‘Nationality’  201 simply making use of ICSID’s facilities.91 Compliance with Article 25 brings all relevant parties within the scope of the Convention and creates ICSID ­jurisdiction to the exclusion of any other method of dispute settlement. Once within the scope of the Convention, the investor, the home state and the host state acquire certain rights and obligations. For instance, where the Convention is applicable, the home state is obliged to refrain from extending diplomatic protection to its nationals under international law.92 The host state and the investor will be deprived from the right to appeal any decisions made by a duly constituted ICSID tribunal. Most importantly, the ICSID tribunal will be competent to resolve the dispute at the exclusion of all other potential venues, such as the national courts of the host state. While other institutional arbitration also takes disputes outside national courts, the arbitral process and the awards produced can be challenged and set aside at national courts on a wider list of grounds than what is available under the ICSID annulment process.93 The ICSID Convention isolates dispute settlement completely from any review by national courts. In the investment treaty context, investor’s nationality is of substantive importance in determining the applicable substantive standards of protection and methods of calculating damages. Although those who support the decreasing role of nationality do not consider it completely irrelevant to the determination of ICSID’s jurisdiction, they highlight the insignificance of the concept within the investment dispute settlement framework, thus paving the way for a broad interpretation of the concept favourable to the investors.94 Schill, for instance, advances the argument that nationality is ‘becoming an increasingly irrelevant criterion’ as a decisive factor for access to investment treaty protections, due to the broad definitions of ‘investor’ in investment treaties and the convenience for investors to structure their investment to gain access to investment treaty protection as a result of wide definitions.95 He argues that since the purpose of investment treaties is to increase investment inflows, it should be unimportant for host states ‘what relations a corporate investor has to the state of its incorporation.’96 Even though in his writings he refers to nationality in the context of investment treaty protection, rather than the ICSID Convention, his argument is premised on the assumption that the investment treaty definition of investor constitutes the agreement of the parties on nationality under the ICSID Convention.97 This argument overlooks the fact that the investment treaty definitions of investor and investment merely 91 ICSID’s facilities can be used under the ICSID Additional Facility Rules, in cases where the Convention’s jurisdictional requirements are not met. 92 Art 27 ICSID Convention. 93 See, eg, Art V Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) entered into force on 7 June 1959. 94 AC Sinclair, ‘The Substance of Nationality Requirements in Investment Treaty Arbitration’ 388; AC Sinclair, ‘ICSID’s Nationality Requirements’ 62–63. 95 SW Schill, The Multilateralization of International Investment Law 221. 96 Ibid, 228. 97 Ibid, 222–223 (Providing examples from the ICSID jurisprudence in support of his argument.).

202  Exposing the Fault Lines prescribe the conditions for access to investment treaty protections. As discussed in the previous section, satisfaction of the investment treaty definition of ‘investor’ does not automatically translate into satisfaction of the ICSID Convention’s nationality requirement. Another problem with the argument that the links a corporation has with its state of incorporation should be unimportant for the host state is that it undermines the reciprocity of investment protection between ICSID Contracting States.98 When tribunals disregard the nature of relations the corporate investor has with its alleged home state and these relations happen to be based on artificial links, then the actual investors behind the corporate claimant could be nationals of non-ICSID states, or nationals of the host state, or nationals of a state with which the host state does not have an investment treaty. A lax approach to nationality also goes against the foundational logic of IIL that a ‘foreign’ investor should be provided ‘international’ protection due to the political risks involved in investing in a foreign state’s territory, as it opens up the possibility of local investors using shell corporations to round-trip their investments through the host state’s investment treaty partners’ territories. The review of ICSID awards in Chapter 5 clearly demonstrates that some tribunals have completely failed to take the nationality requirement into consideration as a condition of their jurisdiction or undermined the importance of it as an objective jurisdictional requirement of the Convention.99 A group of ICSID awards have not made any determination on the nationality of the investors whatsoever. Another group of awards determined their personal jurisdiction under the Convention, which is linked to ‘nationality’, on the basis of the ‘investor’ definitions found in investment treaties.100 These approaches in arbitral awards echo the academic positions on nationality being a mere formality for corporate investors. This lax approach to nationality has been challenged in academic literature.101 A critique of Schill’s approach is found in Muchlinski’s work.102 Muchlinski argues that Schill’s arguments represent an approach aiming to ‘ensure that national regulatory action is kept under as tight a control as possible so as to reduce investment risk to a minimum’ by, inter alia, broadening the personal and subject matter jurisdiction of the investment arbitration tribunals.103 He points to the expansive effect of the formalistic approach to corporate nationality by simply looking at the place of incorporation or principle seat of the company.104 98 See, Introduction. 99 Ch 5, section I. 100 Ch 5, section I. 101 See, M Sasson, ‘Nationality of an Investor’, in Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between International Law and Municipal Law (The Netherlands, Kluwer Law International, 2010) 51 (nationality is the relevant link connecting corporations to a state for purposes of personal jurisdiction of ICSID.). 102 See P Muchlinski, ‘Corporations and the Uses of Law’. 103 Ibid, 14. 104 Ibid, 16.

Erosion of the Concept of ‘Nationality’  203 This enables investors to structure their investments through the intermediary of shell companies established in states that have an investment treaty, or a more favourable investment treaty, with the host state, the so called ‘treaty shopping’ practice.105 According to Muchlinski this approach ‘exposes the host country to the risk of claims by persons or entities that it would not otherwise accept as investors within its borders had the true nationality of the controllers been known when the investment was made.’106 In investment treaty and arbitration practice the use of nationality as a link for connecting corporations to a home state has indeed been decreasing. Investment treaties rarely refer to nationality for corporate investors. It is justifiable for an arbitral tribunal applying such an investment treaty to avoid the question of corporate nationality, unless the arbitration is conducted under the ICSID Convention. But the arbitral awards reviewed in this book shows that such a distinction is not typically made between ICSID and non-ICSID procedures. As long as the ICSID Convention is being applied as it currently stands, it is not up to academic commentators or arbitral tribunals to eliminate or reduce to a formality the nationality requirement. It remains relevant both in terms of the ICSID Convention’s jurisdictional requirements and also in terms of the foundational logic of foreign investors’ protection under international law and the operation of investment treaty arbitration founded upon reciprocal state consent. As analysed in Chapter 2, nationality is not a link typically used for connecting corporations to a state. While national laws and international law explicitly attribute nationality and prescribe methods by which nationality should be attributed to individuals, ships and aircraft, these sources of law largely remain silent on corporate nationality.107 Yet nationality has been used as and remains to be an appropriate concept in linking corporations to a state for purposes of international law in a world made up of nation-states. Nationality can be useful in identifying the rights holders under IIL, despite and even because of globalisation that brings about increasingly multi- and trans-nationalised business activity. Certain devices of economic globalisation, such as uses of special purpose vehicles or shell corporations located in off-shore or other jurisdictions with convenient tax and corporate frameworks, dilute and hide the real identity of investors that claim to be an investor or a national of a particular state.108 Nationality can be an ever more useful legal tool to identify the real beneficiaries of an investment that are entitled to IIL protection, if the nationality of a corporate investor is determined based on a genuine link. As I discussed in Chapter 2, nationality is a bond that, in principle, requires a genuine ­connection.

105 Ibid; KT Asia Investment Group B.V. v Republic of Kazakhstan (Award) (ICSID Case No ARB/09/8, 17 October 2013) para 19. 106 P Muchlinski, ‘Corporations and the Uses of Law’ 18–19. 107 On this, see ch 2 section II(B). 108 See ch 3 section III on shell corporations and regulatory havens.

204  Exposing the Fault Lines ­ orporations and corporate groups may be linked to several states in different C closeness. Some of these links may be artificial and others substantial. Use of nationality based on a genuine connection can serve an important function in rigorously defining the personal limits of the current system of foreign investment protection in an ever globalising economy. B.  Differential Treatment of Nationality-Shopping for Individual Investors’ v Corporate Investors’ Nationality Arbitral tribunals generally show a greater willingness to look beyond formal appearances when they assess individual investors’ nationality.109 This is in stark contrast with the standard approach to corporate investors’ nationality.110 This double standard was explicitly admitted by the Soufraki v UAE tribunal which dealt with a claim under the Italy-UAE BIT by an individual investor who claimed to be a dual national of Canada and Italy. The respondent challenged the Italian nationality of the claimant. Mr Soufraki produced certificates provided to him in various instances proving his Italian nationality as well as a statement by the Italian Ministry of Foreign Affairs endorsing his Italian nationality. The tribunal held that these only constituted prima facie evidence and that it had the competence to look behind the certificates and decide for itself whether Mr Soufraki was an Italian national. Interestingly, the tribunal also stated in obiter that: had Mr. Soufraki contracted with the United Arab Emirates through a corporate vehicle incorporated in Italy, rather than contracting in his personal capacity, no problem of jurisdiction would now arise.111

According to this tribunal an artificial link to Italy via a shell corporation would carry more weight than Mr Soufraki’s Italian passport for purposes of arbitral jurisdiction. The willingness of the Soufraki tribunal to uphold nationality shopping via a corporate vehicle is a clear demonstration of how easily a suitable nationality can be acquired by a corporate investor. This demonstrates a flawed understanding of ‘nationality’ as it applies to corporations. This double standard is most stark when applied in the context of host state nationals. Tribunals tend to be more permissive when nationals of host states have invested in the home state via shell corporations incorporated in investment

109 Waguih Elie George Siag and Clorinda Vecchi v The Arab Republic of Egypt (Decision on Jurisdiction and Partial Dissenting Opinion of Professor Francisco Orrega Vicuña) (ICSID Case No ARB/05/15, 11 April 2007); C Marian, ‘Who is Afraid of Nottebohm?’ 316 fn 23 (Legislative history of the Convention confirms that drafters envisioned that any certificates of nationality provided by the investor would be regarded merely as prima facie evidence rather than conclusive proof.) See also ch 2 Section I(C). 110 An exception to this is found in Central European Aluminium Company (CEAC) v Montenegro, (Award) (ICSID Case No ARB/14/8, 26 July 2016). 111 Soufraki v United Arab Emirates para 83.

Erosion of the Concept of ‘Nationality’  205 treaty partner jurisdictions.112 In contrast, there has been less sympathy to treaty shopping by individual claimants who hold host state nationality but attempt to utilise investment treaty protections by invoking residence in the home state, where this is possible in the applicable treaty,113 or have dual nationality of the home and host states.114 In the dual nationality scenario, if the ICSID Convention finds application, there is an explicit legal basis in Article 25(2)(a) that excludes dual nationals of the host state from the personal scope of the Convention. But arbitral practice shows that the obstacle created by host state nationality can be sidestepped by investing via a corporate vehicle incorporated in an investment treaty partner state. A comparison of the reasonings on personal scope of protection of the Uzan v Turkey award and the Yukos v Russia award demonstrates this double standard clearly. Both cases involved investments by nationals of the host state. Both investors invoked the Energy Charter Treaty (‘ECT’) as the basis of consent to arbitration. In Yukos, the investment was channelled via shell corporations located in the Isle of Man and Cyprus. The Uzan claim was made by an individual investor invoking its residence in France so as to be qualified as an investor under the ECT, which the ECT permitted as a basis of personal access to protection. In the latter case, the tribunal dismissed the claim as the claimant was not a resident of France when he made the investments but had relocated to France later. This was a shortcoming based on temporal scope. But in obiter, the tribunal stated that the purpose of the ECT was to protect international investors and that it ‘was intended to protect Investors investing into Turkey, not nationals within Turkey who made investments in their own country.’115 The tribunal also stated that ‘a subsequent change in residence [cannot] transform the Claimant into an Investor with respect to investments already made’. This view is sound, but it is also is in stark contrast with some of the cases involving shell corporate claimants that are ultimately owned by host state nationals (so called ‘roundtripping’). Tribunals often hold that the plain ­wording and context given to the words in a definition of a corporate investor in an investment treaty militates against excluding these such corporate claimants from treaty protection.116 As long as the formal treaty requirements are s­ atisfied, these awards have held that the investments were ‘international’ enough to be protected by the treaty, despite the reality behind the formal appearances s­ howing

112 KT Asia v Kazakhstan; Rompetrol v Romania; Yukos Universal Limited (Isle of Man) v. The Russian Federation (Interim Award on Jurisdiction and Admissibility) (PCA Case No AA 227, 30 November 2009). 113 Cem Cengiz Uzan v Republic of Turkey, (Award on Respondent’s Bifurcated Preliminary Objections) (SCC Case No V 2014/023, 20 April 2016). 114 Ibid; Dawood Rawat v The Republic of Mauritius, (Award on Jurisdiction) (PCA Case No 2016–20, 6 April 2018); Champion Trading Company, Ameritrade International, Inc. v Arab Republic of Egypt, (Decision on Jurisdiction) (ICSID Case No ARB/02/9, 21 October 2003). 115 Uzan v Turkey para 152. 116 Mera v Serbia paras 149–151.

206  Exposing the Fault Lines that the investor is not a foreign investor or an investor of the treaty partner.117 The prevalence of formal appearances as sufficient basis for c­ orporate investors’ protection is often justified by pointing out that the treaty parties could have chosen to determine personal protection for corporations based on substantial links, but they have not done so. In Yukos v Russia, the claimant companies were ultimately owned and controlled by Russian nationals. The investment was made in Russia by its own nationals. The tribunal held here that the plain wording of the treaty was clear in that there was no room for looking beyond the corporate claimants.118 The tribunal said in obiter that the treaty unambiguously picked the incorporation criterion to establish its personal scope and the tribunal was not at liberty to apply external standards. It was accepted also here by the tribunal that the ECT’s goal is to promote foreign investment and not domestic investments channelled via foreign shell corporations. But it also held that the wording of the treaty was clear and neutral, and did not leave room for the arbitral tribunal to interpret the terms ‘so as exclusively to apply to foreign investment’.119 It is not possible to reconcile these two statements by the Yukos tribunal. In justifying its refusal to uphold the application of the ECT’s denial of benefits clause to the investors because the claimant entities were owned by Russian nationals, the tribunal simply held that giving effect to Russia’s invocation of the clause with retrospective effect would not be compatible with the objective of the Charter to promote long-term cooperation and investments within the region.120 This reasoning is neither well explained, nor convincing. The reality of this case is that the investments in dispute were not from another ECT state. No issue of international investment promotion under the treaty could arise in that particular case, when the investment was at all times ultimately owned and managed by host state nationals. It is clear from the foregoing that tribunals adopt a rigorous analysis of individual investors’ nationality as opposed to the formalistic approach to corporate nationality. Although IIL tribunals often explicitly distinguish the nationality rule under the principles of diplomatic protection from IIL ­standards,121 there still is an implicit adherence to the international law standards on individuals’ nationality in awards concerning individual investors.122 This is particularly so in terms of tribunals’ assessment of existence of the claimed nationality under international law, despite the prima facie evidence of that claimed nationality.123 117 KT Asia v Kazakhstan; Rompetrol v Romania; Yukos v Russia. 118 Yukos v Russia para 413. 119 Ibid, para 435. 120 Ibid, para 458. 121 See, eg, Mr Saba Fakes v Republic of Turkey (Award) (ICSID Case No ARB/07/20, 14 July 2010) paras 68–69. 122 See ch 2 Section I(C). 123 See ch 2 Section I(C).

Ramifications of the Methodological and Interpretative Flaws  207 For corporate investors, tribunals do not adhere as closely to the diplomatic protection principles on corporate nationality. There is no convincing justification for these different positions between individual and corporate claimants on how permissive tribunals should be towards nationality shopping. While the formalistic approach to corporate investors can be prima facie justified by referring to treaties adopting the ‘incorporation’ criterion as the basis of personal scope, there is still room for looking beyond formal appearances. This can be done either through interpreting the ICSID Convention’s nationality requirement based on a genuine link, where the Convention is applicable, or where applicable, interpreting a denial of benefits clause, such as the one in the Yukos case, to give effect to the genuine link principle. III.  RAMIFICATIONS OF THE METHODOLOGICAL AND INTERPRETATIVE FLAWS

A.  Parallel Claims i.  Diplomatic Intervention Under Article 27 of the ICSID Convention, home states shall refrain from intervening through diplomatic protection while there are on-going ICSID proceedings between an investor and the host state. States treat corporations as their nationals for purposes of diplomatic protection when the corporation has a substantial link with them beyond incorporation.124 While the proliferation of investment treaties have made it very unlikely for home states to espouse a diplomatic claim to protect their corporate nationals vis-à-vis host states, diplomatic interventions and claims are still available to home states to protect their nationals abroad. A formalistic approach to corporate nationality by an arbitral tribunal may give rise to diplomatic interventions parallel to the IIL claim for the same alleged violation, particularly because the state extending diplomatic protection is likely to adopt a substantial link to deciding corporate nationality. In such cases, the latter state will not be compelled to refrain from intervening, if it is not recognised by the ICSID arbitration tribunal as the investor’s home state under the Convention because of the tribunal and the home state adopting different links to determining corporate nationality. This effectively runs contrary to the Convention’s purpose for depoliticisation of investment disputes and exposes the host state to parallel dispute settlement efforts. This can be prevented if tribunals determine the nationality of the investor based on a genuine link and not in complete isolation from general international law.



124 See

ch 4 Section I(D).

208  Exposing the Fault Lines Amongst the cases analysed in this book, three cases involved known parallel diplomatic interventions. In BIVAC v Paraguay, the respondent stated that there were on-going diplomatic negotiations between Paraguay and France regarding the same dispute.125 The Netherlands did not take part in those negotiations, though the arbitral tribunal considered the investor a Dutch company.126 The BIVAC tribunal regarded an intervention by the President of France in the dispute as irrelevant to the assessment of the investor’s nationality.127 The tribunal stated that the intervention of the French President and the non-intervention by the Dutch authorities merely ‘indicates a difference in the political culture of different countries but does not determine the legal reality of different members within a group of companies.’ This is the entire reasoning of the BIVAC tribunal on why it considered the French intervention irrelevant to determining the nationality of the claimant. The dismissal of the French intervention as a matter of ‘political culture’ fails to address the legal standards applied by states, most importantly the genuine link rule, on determining corporate nationality for purposes of diplomatic protection. The different standards applied by the tribunal and France to determine the nationality of the corporation allowed the same claim to be pursued through two separate routes. In Aucoven v Venezuela, the Mexican Government intervened to settle the disagreements between the claimant and the respondent both before and after the share transfer to Icatech, the US subsidiary, and even after the claim was filed with the ICSID.128 While Aucoven was pursuing a claim before ICSID based on Icatech’s US nationality, Mexico was involved in diplomatic negotiations as the state of nationality of Aucoven’s parent company. The tribunal characterised the Mexican Government’s diplomatic moves, not as diplomatic interventions, but instead as efforts of Mexico to help settle the dispute.129 No reasoning is provided in the award on what grounds the tribunal made such a distinction between diplomatic intervention and the efforts of a state to settle a dispute. The tribunal stated that even if Mexico’s attempts were to constitute diplomatic protection, this would not have a bearing on the tribunal’s jurisdiction because ‘denial of jurisdiction is not a remedy available in the context of Article 27.’130 Indeed, denial of jurisdiction is not a remedy available under Article 27; however, the existence of parallel diplomatic moves by a state other than the state recognised by the tribunal as the investor’s state of nationality is a strong sign that the tribunal’s assessment of nationality was flawed. Though these parallel claims are not frequent occurrences, they help in showing importance of opting for 125 BIVAC v Paraguay paras 47, 52. 126 Ibid. 127 BIVAC v Paraguay (Further Decision on Objections to Jurisdiction) (ICSID Case No ARB/07/9, 9 October 2012) para 92. 128 Autopista Concesionada de Venezuela C A (Aucoven) v Bolivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/00/5, 27 September 2001) paras 35–36. 129 Ibid, para 138. 130 Ibid, para 140.

Ramifications of the Methodological and Interpretative Flaws  209 genuine links to determine corporate investors’ nationality in investment treaties or by arbitral tribunals. In Banro Resources v DRC, the tribunal was more cautious in assessing the nationality of the investor. Parallel to Banro American’s ICSID claim under US nationality, the Canadian Government initiated diplomatic exchanges with the DRC for the same dispute as the parent company of the Banro Group was headquartered in Canada. Here, Canada, being a non-ICSID state at the time, was not bound by the Convention; therefore, its intervention could not violate the ICSID Convention. However, the tribunal stated that the exclusion of ­diplomatic protection was aimed at depoliticisation of investment disputes and this should be interpreted as ‘foreclosing the investor from using a plurality of channels’131 to settle the dispute. In this case, the DRC was confronted with both a diplomatic intervention and an ICSID claim regarding the same dispute. The tribunal held that it could not allow the requirements of nationality imposed by the Washington Convention to be neutralized by investors who are seeking to avail themselves, depending on their own interests at a given point of time, simultaneously or successively, of both diplomatic protection and ICSID arbitration, by playing on the fact that one of the companies of the group does not have the nationality of a Contracting State party to the Convention, and can therefore benefit from diplomatic protection by its home State, while another subsidiary of the group possesses the nationality of a Contracting State to the Convention and therefore has standing before an ICSID tribunal.132

The Banro tribunal has duly recognised that the legal standards applied to determining corporate nationality can open up the possibility of the investor pursuing parallel claims for the same alleged violation. It treated the presence of a diplomatic intervention by a state on behalf of the investors a valid legal consideration for purposes of determining corporate nationality under the ICSID Convention. Investment arbitration tribunals presented with allegations of diplomatic interventions concerning the same investment treaty claim should take the intervention into account when determining the nationality of the investor. While the presence of a parallel diplomatic intervention may not be conclusive proof of the investor’s nationality, it should be one of the key considerations in the nationality analysis. ii.  Multiple Arbitration Claims Investors have advanced parallel or multiple arbitration claims concerning the same grievance under different investment treaties to improve their chances

131 Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v Democratic Republic of the Congo (Award) (ICSID Case No ARB/98/7, 1 September 2000). Excerpts of the award published on 17 ICSID Review – Foreign Investment Law Journal 382 (2002) 10. 132 Ibid, 12.

210  Exposing the Fault Lines of recovery.133 Typically, each individual claim is advanced by a shareholder at a different level in the upstream ownership structure of an investment.134 Such parallel claims are primarily made possible by the expansive formulation of investment treaties’ application requirements, tribunals’ adherence to formalistic appearances in determining corporate nationality, and following a downstream approach to the investment’s corporate structure in interpreting their personal jurisdiction. As described by one prominent arbitration practitioner, the permissive approach by tribunals to such multiple or parallel claims is ‘highly prejudicial to a respondent’ and constitutes an ‘abuse of process.’135 The TCW v Dominican Republic136 and Société Générale v Dominican Republic137 cases provide a good example to unpack the problem of multiple claims. Two separate claims relating to the same dispute were initiated by investors, the latter under the France-DR BIT and the former under CAFTA-DR, within the same year. In TCW the claimants claimed that the investors were US corporations, and in Société Générale the investors claimed to be French corporations. Claimants in both cases even had legal representation from the same law firm. And both claimants argued that they controlled the investment in the Dominican Republic.138 When the two claims are assessed separately under their respective applicable investment treaties, they may both pass the jurisdictional threshold if the investment treaties contain a permissive language on the meaning of investor and investment.139 In fact, in Société Générale, the tribunal has accepted that the claimant was a protected investor under the France-Dominican Republic treaty and has found the claim admissible, despite being made aware about the parallel CAFTA-DR arbitration. The tribunal did not consider this a relevant issue to be considered at the jurisdictional phase. No decision on ­jurisdiction was made in the TCW case. Both disputes were settled by the parties eventually before an award on ­liability was made. The TCW claim was filed nine months after the Société Générale 133 See CME Czech Republic BV v Czech Republic, (Partial award and separate opinion) (IIC 61 (2001) 14 March 2003) and Ronald S Lauder v Czech Republic (Final award) (IIC 205 (2001) 3 September 2001); TCW Group, Inc. and Dominican Energy Holdings, L.P. v The Dominican ­Republic, (Consent Award) (PCA Case No 2008-06, 16 July 2009); Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, S. A. v The Dominican Republic (Award on Preliminary Objections to Jurisdiction) (LCIA Case No. UN 7927, 19 September 2008); Ampal-American Israel Corporation and Others v Arab Republic of Egypt, (Decision on Jurisdiction) (ICSID Case No ARB/12/11 1 February 2016); Yosef Maiman, Merhav (Mnf) Ltd, Merhav Ampal Group Ltd, and Merhav Ampal Energy Holdings Limited Partnership v The Arab Republic of Egypt, (PCA Case No 2012-26). 134 E Gaillard, ‘Abuse of Process in International Arbitration’ (2017) 32(1) ICSID Review 17, 17. 135 Ibid, 22–23. 136 TCW v Dominican Republic. 137 Société Générale v Dominican Republic. 138 In TCW v Dominican Republic, (Statement of Claim) para 15 (The claimant argues that it indirectly owns and controls the investment in DR.); In Société Générale v Dominican Republic, paras 23–30 (The claimant argues that it controls the very same investment in the Dominican Republic.). 139 E Gaillard 23 (States also that in these types of multiple claims, ‘Taken in isolation, the initiation of none of these proceedings is problematic, as each reflects the ordinary operation of the agreement to arbitrate contained in each investment treaty.’).

Ramifications of the Methodological and Interpretative Flaws  211 claim was filed. In its statement of claim, TCW waived its right to initiate or continue any parallel claims.140 Since it was not a claimant in the Société Générale arbitration, this technically was a valid waiver. In the Société Générale arbitration, the claimant describes TCW as a non-equity affiliate, through which it controls the investment in the Dominican Republic.141 In its objections to jurisdiction in the TCW arbitration, the respondent stated that there are three parallel arbitral proceedings filed against it ‘predicated on virtually identical facts and allegations and seeking effectively the same relief’.142 Two of the three arbitrations were under investment treaties, and the third was under a concession agreement which was signed by TCW’s subsidiary. Technically all three arbitrations might be found admissible in isolation from each other, as they concern separate claimants under separate instruments of consent.143 The question remains as to whether there can be two different investors controlling the same investment in the host state entitled to bring IIL claims. This is different than a case of two investors jointly controlling an investment and acting as co-claimants. In these cases, both claimants have argued that they own and exclusively control the investment in the Dominican Republic. In the TCW – Société Générale example, both of the applicable investment treaties adopted terms which could prevent such parallel claims. The CAFTA-DR applicable in the TCW dispute allowed a host state to deny benefits to an investor who had no substantial business activities in the host state or was controlled by persons of a non-party.144 The France-DR BIT adopted an incorporation and social seat test to determine the protected corporate investor. Both of these terms did not prevent the investor from filing two parallel arbitrations for the same dispute. The TCW case was settled before an award on jurisdiction can be made,145 and the Société Générale claim did not seem to have moved beyond the jurisdictional phase after the settlement of the TCW claim.146 It may be that the prospect of defending against two separate investment claims for the same dispute encouraged the host state to settle the dispute rather than wasting its resources in arbitrating duplicate claims. The collection of flaws in arbitral tribunals’ analyses of the identity and nationality of a protected investor discussed in this chapter make it possible for multiple entities to claim for the same loss against a host state.147 Gaillard rightfully observed that ‘To prevail in the overall dispute, the host State must win each of the arbitrations brought against it, while the investor need only succeed 140 TCW v Dominican Republic, (Statement of Claim) para 24. 141 Société Générale v Dominican Republic para 114. 142 TCW v Dominican Republic (Respondent’s memorial on jurisdiction) para 2. 143 TCW v Dominican Republic (Claimants’ Counter-Memorial on Jurisdiction) para 11. 144 Art 10.12. 145 TCW v Dominican Republic (Consent Award). 146 E Whitsitt, TCW Group settles with the Dominican Republic Investment Treaty News 14 ­February 2010, www.iisd.org/itn/2010/02/10/twc-group-settles-with-the-dominican-republic-2/. 147 This is different to cases where multiple minority owners/shareholders bring claims for their share of the loss arising from the same violation – here all claimants are claiming for the entire loss.

212  Exposing the Fault Lines before any one of the tribunals to prevail.’148 This was certainly the case in CME v Czech Republic and Lauder v Czech Republic saga. Only one of the claims prevailed, and that was sufficient to recover the investor’s losses. These tactics by investors have been viewed as contributing to enhancement of rule of law within host states, as they put extra pressure on host states to respect the widest range of investment treaty standards.149 The rule of law impacts of IIL are empirically contested,150 but even if one assumes positive rule of law effects can be achieved by wider coverage of IIL, when wider application is achieved via manipulation of the investment treaty framework, it is difficult to accept that the ends justify the means. Solutions offered to overcome the problem of parallel arbitration claims have so far included applying the abuse of process doctrine,151 or introducing a lis pendens or res judiciata type mechanism into investment arbitration, or urging tribunals to take ‘a non-formalistic approach to investor identity’.152 I argue in the next chapter that the most effective solution to eliminating p ­ arallel arbitration-arbitration and arbitration-diplomatic claims would be moving away from the formalistic approach to investor identity and define corporate nationality based on genuine links, return to the upstream approach in determining the identity and nationality of the investor, and firm up the denial of benefits clauses within investment treaties. iii.  Damage to the Legitimacy of International Investment Arbitration A wide consensus exists today that the system of international investment arbitration is going through a legitimacy crisis, though there are diverse views on the severity of and the reasons for this crisis.153 Various factors have been ­contributing to this legitimacy crisis, such as the excessive costs 148 E Gaillard 25. 149 SW Schill, Multilateralization of International Investment Law, 218–220. 150 M Sattorova, The Impact of Investment Treaty Law on Host States: Enabling Good G ­ overnance? (Oxford, Hart Publishing, 2018) 196; J Bonnitcha, LNS Poulsen, M Waibel, The Political Economy of the Investment Treaty Regime (Oxford, Oxford University Press, 2017) 167–172. 151 E Gaillard; H Wehland, ‘The Regulation of Parallel Proceedings in Investor-State Disputes’ (2016) 31(3) ICSID Review 576. 152 RF Hansen, ‘Parallel Proceedings in Investor-State Treaty Arbitration: Responses for TreatyDrafters, Arbitrators and Parties’ (2010) 73(4) Modern Law Review 523. 153 G Kahale III, ‘Is Investor-State Arbitration Broken?’, 7 Transnational Dispute Management (2012), available at www.transnational-dispute-management.com; M Langford, D Behn and OK Fauchald, ‘Backlash and State Strategies in International Investment Law’, in T GammeltoftHansen and T Aalberts (eds), The Changing Practices of International Law: Sovereignty, Law and Politics in a Globalising World (Cambridge University Press, 2018) 70; CN Brower and S Schill, ‘Is A ­ rbitration a Threat or a Boon to the Legitimacy of International Investment Law?’ (2009) 9 Chicago Journal of International Law 471; S Puig, ‘Recasting ICSID’s Legitimacy Debate: Towards a Goal-Based E ­ mpirical Agenda’ (2013) 36 Fordham International Law Journal 465; LE Trakman, ‘ICSID Under Siege’ (2013) 45 Cornell International Law Journal 603; M Waibel et al (eds), The Backlash Against Investment Arbitration: Perceptions and Reality (The Netherlands, Kluwer Law International, 2010); T Krever, ‘The Legal Turn in Late Development Theory: The Rule of Law and the World Bank’s Development Model’(2011) 52 Harvard International Law Journal 287; R van Os,

Ramifications of the Methodological and Interpretative Flaws  213 of arbitral proceedings,154 limited transparency, the elitism of the college of investment arbitrators,155 conflicts of interest caused by double-hatting of arbitrators and vested financial interests in the system of investment arbitration,156 incoherent and broad interpretation of substantive standards and lack of or inconsistent reasoning.157 Investment arbitration has also been criticised as being a tool for the imposition and maintenance of neoliberal policies over host states’ domestic economic governance,158 as well as a tool R Knottnerus, Dutch Bilateral Investment Treaties; P Eberhardt and C Olivet, Profiting from Injustice: How law firms, arbitrators and financiers are fuelling an investment arbitration boom, (November 2012) Corporate Observatory and the Transnational Institute; JW Yackee, ‘Pacta Sunt Servanda and State Promises to Foreign Investors Before Bilateral Investment Treaties: Myth and Reality’(2009) 32 Fordham International Law Journal 1550. 154 UNCTAD, Investor–State Disputes: Prevention and Alternatives to Arbitration (2010), 16–17 (‘Contrary to the expectations, it turns out that costs involved in investor–State arbitration have skyrocketed in recent years. This refers not only to the damages States must pay to foreign investors in the case of a violation of a treaty provision, but the costs for conducting arbitration procedures are extremely high, with legal fees amounting to an average of 60 per cent of the total costs of the case.’). 155 JW Yackee, ‘Pacta Sunt Servanda’ 1610-1 (States in regards to investment arbitration that ‘the decision-making has been placed primarily in the hands of an exceedingly small pool of super-elite, like-minded international lawyers who operate largely divorced from any local political process.’); P Eberhardt and C Olivet, Profiting from Injustice. 156 Some arbitrators assume the role of both arbitrators and counsels and the impact of this on their impartiality and objectivity have been questioned. See J Linarelli, ME Salomon and M Sornarajah, The Misery of International Law: Confrontations with Injustice in the Global Economy (Oxford, Oxford University Press, 2018) 163; N Bernasconi-Osterwalder L Johnson and F Marshall, Arbitrator Independence and Impartiality: Examining the dual role of arbitrator and counsel (2010) International Institute for Sustainable Development available at www.iisd. org/pdf/2011/dci_2010_arbitrator_independence.pdf; B Choudhury, ‘Recapturing Public Power: Is Investment Arbitration’s Engagement of the Public Interest Contributing to the Democratic Deficit?’ (2008) 41 Vanderbilt Journal of Transnational Law 775, 787 (Highlighting the lack of independence of arbitrators as an indicator of democratic deficit. In this respect it refers to tenure and financial security as hallmarks of independent judiciary and observes that ‘Although arbitrators are generally highly respected individuals who are well-versed in the area of international law, the market for appointments as an arbitrator is highly competitive and arbitral fees are very lucrative, heightening the need for arbitrators to be concerned about their reputations in order to ensure reappointment. Moreover, because arbitrators lack judicial tenure, many continue parallel careers as practicing attorneys … Because of this, arbitrators may seek to define investment terms expansively as a means of ensuring the continued viability of investment arbitration’). For empirical studies unpacking these claims see, S Puig, ‘Social Capital in the Arbitration Market’, (2014) 25 European Journal of ­International Law 387; M Langford, D Behn, and R Hilleren Lie, ‘The Revolving Door in International Investment Arbitration’ (2017) 20 Journal of International Economic Law 301. 157 F Ortino, ‘Legal Reasoning of International Investment Tribunals: A Typology of Egregious Failures’ (2012) 3(1) Journal of International Dispute Settlement, 31–52; P Lalive, ‘On the reasoning of International Arbitral Awards’ (2010) 1(1) Journal of International Dispute Settlement 55–65, 57; TH Cheng and R Trisotto, ‘Reasons and Reasoning in Investment Treaty Arbitration’ (2008–2009) 32 Suffolk Transnational Law Review 409, 412. 158 N Tzouvala, The Ordo-Liberal Origins of Modern International Investment Law: ­Constructing Competition on a Global Scale, in JD Haskell and A Rasulov (eds) European Yearbook of International Economic Law: New Voices and New Perspectives in International Economic Law (Cham, Springer. 2020), 37–54; M Sornarajah, ‘Toward Normlessness: The Ravage and Retreat of ­Neo-Liberalism in International Investment Law’ (2010) 2 Yearbook of International Investment Law and Policy 595. See also, D Schneiderman, Resisting Economic Globalization: Critical Theory and International Investment Law (Basingstoke, Palgrave Macmillan, 2013).

214  Exposing the Fault Lines for limiting the policy space of elected governments.159 In response to this growing legitimacy crisis, some states have begun abandoning investment arbitration,160 some states are attempting to improve investment arbitration,161 and on the whole, most states are introducing more detailed terms in their investment treaties to limit the interpretative radius of arbitral tribunals both on procedural and substantive protections.162 At the inter-governmental level, UNCITRAL is working on a reform program for investment arbitration that covers, inter alia, the issue of how to more effectively determine the personal scope of protection with regards to corporate investors.163 In this section, I analyse the relationship between the legitimacy of investment arbitration and the question of personal jurisdiction and scope. Here, I focus on the normative and the sociological dimensions of legitimacy.164 Normative legitimacy allows an institution to assert that it ‘has the right to rule’, while sociological legitimacy is about the public perception of that institution.165 Both dimensions of legitimacy and their relationship to each other have been subject to extensive scholarly analysis in the context of international ­governance,166 including the legitimacy of international law, international institutions and international courts and tribunals.167 Drawing on those works, 159 D Schneiderman, ‘Investing in Democracy? Political Process and International Investment Law’ (2010) 60(4) The University of Toronto Law Journal 909; G Van Harten, Sovereign Choices and Sovereign Constraints: Judicial Restraint in Investment Treaty Arbitration (Oxford, Oxford ­University Press, 2013). 160 Ie, See J Kurtz, ‘Australia’s Rejection of Investor-State Arbitration: Causation, Omission and Implication’ (2012) 27 ICSID Review 65; Bolivia, Ecuador and Venezuela have denounced the ICSID Convention. 161 The EU has proposed an Investment Court System as a response to fix the problems of investment arbitration. 162 See, ie, Art 8.9, Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, signed on 30 October 2016; Netherlands Model Investment Agreement (22 March 2019) Article 2(2) www. rijksoverheid.nl/ministeries/ministerie-van-buitenlandse-zaken/documenten/publicaties/2019/03/22/ nieuwe-modeltekst-investeringsakkoorden; Art 10 Agreement between The Slovak Republic and The Islamic Republic of Iran for the Promotion and Reciprocal Protection of Investments, signed 19 January 2016, entered into force 30 August 2017. 163 UNCITRAL Working Group III (Investor-State Dispute Settlement Reform) 36th Session Vienna, 29 October-2 November 2018, Possible reform of investor-State dispute settlement (ISDS): Consistency and related matters, A/CN.9/WG.III/WP.150 para 17. 164 D Bodansky, ‘Legitimacy in International Law and International Relations’ in JL Dunoff and MA Pollack (eds), Interdisciplinary Perspectives on International Law and International Relations: The State of the Art (Cambridge, Cambridge University Press, 2012) 326–27; Bonnitcha, Poulsen, Waibel, The Political Economy 233–243; RO Keohane, ‘Global governance and legitimacy’ (2011) 18(1) Review of International Political Economy 99. 165 Daniel Bodansky, ‘Legitimacy in International Law and International Relations’, 327; RO Keohane, Global governance and legitimacy, 99. 166 See for an overview D Bodansky, ‘Legitimacy in International Law’; RO Keohane, ‘Global governance’ 99; J Ferejohn, ‘Judicializing Politics, Politicizing Law’ (2002) 65 Law and ­Contemporary Problems 4. 167 A Follesdal, ‘Legitimacy Criticisms of International Courts: Not Only Fuzzy Rhetoric’ in W Sadurski, M Sevel and K Walton (eds) Legitimacy: The State and Beyond (Oxford, Oxford ­University Press, 2019); S Dothan, ‘How International Courts Enhance Their Legitimacy’ (2013),

Ramifications of the Methodological and Interpretative Flaws  215 here I will focus on legitimacy in the specific context of IIL and IIA, and more particularly, on how arbitral decisions on personal jurisdiction and corporate nationality contribute to the legitimacy crisis of the investment arbitration system.168 For an international tribunal, its sociological legitimacy is influenced by public support (including by states and their representatives, private parties, academics, judges and interest groups) for the court or tribunal’s judgments.169 In the sociological sense, the legitimacy of a court or a tribunal will be affected by how just, legally correct and unbiased their decisions are and how the judges or arbitrators are perceived by the members of the public, regardless of whether there is uniform support to specific rulings in specific cases.170 Public perception displays a more subjective view of legitimacy, as these perceptions may not necessarily be based on actual fairness, correctness and impartiality of the decisions.171 Whereas normative legitimacy can be a more objective measure as it is derived from the content of the decisions, the norms that the court or tribunal invokes, the accuracy of the legal analysis and the legal reasoning it applies.172 Perceptions of damaged normative legitimacy, whether these perceptions are well founded or not, are likely to influence sociological legitimacy. One of the fundamental legitimacy challenges for international courts and tribunals concerns the source and existence of their power to exercise authority. This is important because first these courts and tribunals receive their authority from states’ consent173 which typically has a clearly defined scope. Only within those tight boundaries of consent, the court can exercise authority. Second, international courts and tribunals are exercising public authority when they issue binding decisions on legal disputes involving state parties, and their decisions are likely to be limiting or preventing the exercise of public authority

14 ­Theoretical Inquiries in Law 456; E Voeten, ‘Public Opinion and the Legitimacy of International Courts’, 14 Theoretical Inquiries in Law 411; M Kumm, ‘The Legitimacy of International Law: A Constitutionalist Framework of Analysis’ (2004) 15(5) European Journal of International Law 907. 168 D Bodansky, ‘Legitimacy in International Law’ 332 (Suggesting a differentiated and contextual approach to studying normative legitimacy). 169 S Dothan, ‘How International Courts Enhance Their Legitimacy’; See also JG Merrills, International Dispute Settlement 5th edn (Cambridge, Cambridge University Press, 2011) 293. 170 S Dothan, ‘How International Courts Enhance Their Legitimacy’ 456–457; A Von Bogdandy and I Venzke, ‘In whose name? An Investigation of International Courts’ Public Authority and its Democratic Justification’ (2012) 23(1) European Journal of International Law 7. 171 Erik Voeten, ‘Public Opinion’, 414. 172 A Von Bogdandy and I Venzke, ‘In whose name?’ 15–16; S Dothan, ‘How International Courts Enhance Their Legitimacy’ 458; JG Merrills, International Dispute Settlement, 292–3 (‘Adjudication is authoritative because the decision is reasoned and the jurisdiction of the tribunal has been accepted by the parties.’) In the context of investment arbitration see F Ortino ‘Legal Reasoning of International Investment Tribunals’ 33 (‘… investment tribunals’ authority rests on the reasoning underlying their decisions: only if it is in accordance with reason (or it is reasonable), the decision has authority.’). 173 Legality of Threat or Use of Nuclear Weapons (Advisory Opinion) 8 July 1996, ICJ Reports 1996 226 [21] (The ICJ mentioned ‘the very basis of international law, which rests upon the principles of sovereignty and consent’).

216  Exposing the Fault Lines by the state.174 Such a limitation on public authority is seen problematic, if it overrides d ­ omestic policies crafted by democratically elected and accountable representatives in pursuit of legitimate governance objectives.175 It is absolutely crucial for the ­legitimacy of international courts to exercise the public authority granted to them within the defined limits of state consent constitutive of the courts’ authority. Diminished normative legitimacy arising from jurisdictional excesses can inflict serious damage on the sociological legitimacy of international courts and tribunals, including investment arbitration tribunals. Arbitral tribunals’ generous interpretation of the personal limits of their adjudicative authority pose a serious legitimacy challenge to the system of international investment arbitration.176 Jurisdictional excesses can affect the legitimacy of any international court or tribunal, but there are two specific reasons why these excesses arguably accentuate the legitimacy challenge in the context of investment arbitration. The first reason concerns the architecture of the international investment arbitration system. While states may be masters of their investment treaties, it must be emphasised that investment arbitrators are the masters of treaty interpretation without an external authority to effectively remedy their jurisdictional excesses. Instead, such excesses have to be dealt with internally within its diffused institutional architecture hoping that arbitrators will exercise self restraint in interpreting the scope of their powers.177 In the long term, contracting states of investment treaties and the ICSID Convention can collectively agree, as masters of treaties, to amend treaty terms and adopt more detailed or restrictive terms to limit the interpretative radius of arbitration tribunals. But this is a long-term solution with no guaranteed results in terms of how arbitral tribunals will interpret the ostensibly more restrictive terms in the reformed treaty, again, due to lack of an external authority that can intervene to remedy the excesses. The same issues of legitimacy regarding treaty interpretation and jurisdiction do apply to other international courts and tribunals. What makes jurisdictional excesses even more problematic in the IIL context is that, it is much harder to remediate systemic failings because unlike other international dispute resolution systems such as the WTO or ITLOS, there is not a central court or tribunal tasked with the interpretation of a treaty that

174 A Von Bogdandy and I Venzke,‘In whose name?’ 17–8. 175 D Schneiderman, ‘Investing in Democracy?’; A Kulick, ‘Investment Arbitration, Investment Treaty Interpretation, and Democracy’, (2015) 4(2) Cambridge Journal of International and Comparative Law 441. 176 Empirical studies demonstrate that investment arbitration tribunals have an increased tendency to decide in favour of their jurisdiction, G Van Harten, ‘Arbitrator Behaviour in Asymmetrical Adjudication: An Empirical Study of Investment Treaty Arbitration’ Osgoode Hall Law School Comparative Research in Law and Political Economy Research Paper Series Research Paper No 41/2012; KS McArthur and PA Ormachea, ‘International Investor-State Arbitration: An Empirical Analysis of ICSID Decisions on Jurisdiction’ (2008) 28 Review of Litigation 559. 177 See SW Schill, ‘Conceptions of Legitimacy of International Arbitration’ Amsterdam Law School Legal Studies Research Paper No 2017-17.

Ramifications of the Methodological and Interpretative Flaws  217 can develop a consistently evolving jurisprudence.178 The system operates on ad hoc tribunals constituted on the basis of host states’ standing offer to arbitrate which can be taken up by an unlimited number of private beneficiaries179 and the arbitral awards produced are not subject to a system of precedent or an appeals mechanism. There are as many arbitral tribunals as there are investment arbitration claims with no satisfactory mechanism to ensure accuracy and coherence of interpretation. While a small margin of inaccuracies and incoherence can be tolerated within a dispute resolution system, these are systemic problems in investment arbitration. As far as corporate nationality decisions are concerned, the analysis of case law in Chapter 5 demonstrates that there are serious flaws in methodology and interpretation. Because investment arbitration operates highly diffused and lacks a central mechanism to remedy jurisdictional excesses, it is crucial for arbitration tribunals to be highly vigilant and thorough in assessing their power to assume jurisdiction. Decisions based on flawed, lax, and inadequately reasoned analyses of personal, material, and temporal jurisdiction, and of consent inevitably damage the normative legitimacy of the system of investment arbitration. The second reason flows from the first one and concerns the ability of investment arbitration tribunals to normalise and legitimise artificially constructed investor nationalities and identities by repeatedly endorsing nationality shopping based on what Ortino describes as three egregious failures in interpretation: misuse of precedent, lack of internal consistency, and minimalism.180 To his typology, I would also add convenient formalism in the interpretation of corporate nationality. I argue in this book that the formalistic and permissive approaches to corporate nationality in arbitral jurisprudence and investment treaty texts gives rise to jurisdictional excesses. The difficulty in tackling these jurisdictional excesses within the system is that many of the arbitral rulings on corporate nationality, which I criticise in this book, fall into a grey area in which it is made to appear in the awards as the tribunal has the right to rule on the dispute, ie normative legitimacy, but the right to rule is endorsed on the basis of an interpretation of the legal text which is built on misplaced assumptions, such as the legitimacy of corporate planning and states being masters of their ­treaties. In this grey area, corporate claimants who were unlikely to be the intended beneficiaries of an investment treaty, but for manipulating their identity to meet the legal criteria of the investment treaty, are formally endorsed as beneficiaries. And while this manipulation itself can be considered lawful in

178 See ch 1 Section I(B); T St John The Rise of Investor-State Arbitration 8–9. 179 See G Van Harten, Sovereign Choices and Sovereign Constraints’ 7 (Describes investment treatybased arbitration as unique due to the ‘structure of consent on which the arbitrators’ authority is based.’ And further elaborates that ‘… arbitrators’ authority is triggered when a company or individual brings a claim and can demonstrate that it has the required foreign nationality and that it owns assets covered by the treaty.’). 180 F Ortino ‘Legal Reasoning of International Investment Tribunals’.

218  Exposing the Fault Lines terms of corporate law, it should not be considered a permissible path to access investment treaty protection. This is problematic normatively, but even if the approach of the tribunals in some cases can prima facie be considered legally correct, this ostensible legal correctness does not prevent damage to the public perception of the investment treaty framework and arbitration.181 The public witnessing a local business magnate posing as a foreign investor to take advantage of a privileged legal protection framework that involves excessive legal costs for the host state182 and awards a much larger compensation what would be available under domestic procedures or under the regional human rights mechanisms,183 can seriously undermine public support for the system. More so, if an investor who has manipulated its nationality to invoke an investment treaty challenges a host state measure taken by its democratically elected representatives for the protection or advancement of a public purpose, such as the protection of health or the environment. In such a case, the substance of the investor’s claim alone can create a backlash challenging the legitimacy of the system, but the manipulation of the corporate nationality to access investment treaty protection adds insult to the injury.184 The issue of nationality shopping is an important consideration for any IIL reform proposal to tackle the legitimacy concerns. It goes to the heart of the system of arbitration that compels host states to comply with the substantive investment treaty standards: consent. Arbitral tribunals derive their ad hoc authority to settle disputes from the consent of the parties.185 As discussed earlier in this chapter, consent, particularly, to ICSID arbitration founded in an investment treaty is tightly linked to the nationality of the beneficiary. Nationality of the investor is crucial to determining if it can invoke an investment treaty against the host state as a basis of consent. Any serious reform attempt should address the problems of legitimacy created by the egregious failures of interpretation through which arbitral awards are made to appear legally correct, ie that the tribunal has the right to rule on the dispute, but the right to rule can only be confirmed when the tribunal either conveniently adopts a strictly formal interpretation while wilfully ignoring the genuine interests behind the investment, or it simply follows a flawed methodology to justify its nationality finding. So long as the ostensible normative legitimacy in such cases is based on a flawed analysis of personal scope and jurisdiction ignoring the real ­identities of the investors, such awards are unlikely to gain sociological legitimacy. 181 Diminished legitimacy can impact negatively compliance with such decisions; See S Dothan, ‘How International Courts Enhance Their Legitimacy’ 458–459. 182 See A Yilmaz Vastardis ‘Investment Treaty Arbitration as Justice Bubbles’ in T Schultz and F Ortino (eds) The Oxford Handbook of International Arbitration (Forthcoming, Oxford ­University Press, 2020). 183 Yukos v Russia. See J Baumgartner, Treaty Shopping 61. 184 See J Baumgartner, Treaty Shopping 58, 61. 185 See ch 1 Section I(B).

Conclusion  219 To address the ­legitimacy concerns arising from personal scope of jurisdiction and related issues of consent, treaty and arbitral practice should seriously rethink their approach to corporate nationality, both in terms of interpretation of legal standards and methodology. IV. CONCLUSION

This chapter unpacked the methodological and conceptual flaws influencing the application and interpretation of the rules on corporate nationality in ­arbitral jurisprudence and the academic literature. The analysis shows that treaty ­wording and parties’ and arbitral tribunals’ framing of issues relating to the investor’s identity create a permissive legal framework for corporate investors to manipulate their nationality to gain access to IIL protections. The displacement of the ICSID Convention’s nationality requirement with the ‘investor’ definitions of investment treaties and the categorisation of issues pertaining to the investor’s identity as questions of material or temporal scope, or of abuse of rights provide a conducive environment to nationality shopping and legitimation of such practices to access IIL protections. The flaws discussed in this chapter not only undermine the foundational logic of extending international protection to foreign investors and the reciprocity of protection, but it also permits parallel proceedings to be lodged against host states for the same dispute. More importantly, the jurisdictional excesses arising from the flawed nationality analyses damage both the sociological and normative legitimacy of the system of investment arbitration. As long as states commit to international investment protection on a bilateral or regional basis, as opposed to multilateral protection, arbitral tribunals tasked with interpreting treaties should adopt a more rigorous approach to assessing their personal jurisdiction. States have been actively working towards moving away from conditioning access to investment treaty protections on tenuous connections to home states, adopting denial of benefits clauses and substantial links requirements in their investment treaties. Denial of benefits clauses and abuse of rights arguments have had very limited success in weeding out even the least acceptable types of nationality shopping. In the following chapter, I evaluate the solutions that have been proposed up to date to limit personal reach of treaties and treaty shopping. I argue that the way forward for maintaining the personal scope of international investment protection within reasonable limits requires correcting the methodological flaws identified in this chapter and conditioning personal scope for corporate investors to having the nationality of the home state ­determined based on a genuine link.

7 Evaluation of Responses to Nationality Shopping and the Way Forward

C

orporate nationality has widely been interpreted in a formalistic and permissive manner by IIA tribunals. The flaws embedded in such interpretations and their implications have been highlighted and discussed in Chapters 5 and 6. States have frequently objected to personal jurisdiction of arbitral tribunals due to lack of meaningful links between a corporation and its home state, but with limited success. These objections were framed in various ways, including arguments consisting of treaty shopping, abuse of rights, absence of genuine links, requests to pierce the veil or identify the origin of funds, challenges to the material or temporal scope relating to the investors’ identity. In response to the frequent failure of these arguments before arbitral tribunals, an increasing number of states are introducing clauses in new or renegotiated investment treaties that aim to mitigate opportunistic personal access to investment treaty protection. With respect to personal scope clauses, states are moving away from adopting only the ‘incorporation’ standard to define scope of personal access to adopting more substantial links. They also opt for more detailed personal access clauses that aim to iron out some of the uncertainties raised by brief and vague clauses.1 Denial of benefits clauses are another tool used by states to limit the personal scope of their investment ­treaties. These clauses are not new, but, as I discuss below, they have often been interpreted by tribunals in ways that render it difficult for states to invoke them once an investor initiates IIA and this undermines their purpose. In response, states have begun to insert more explicit terms on the invocation of denial of benefits clauses. Certain types of nationality shopping have been treated sceptically also by scholars. Some have argued that the doctrine of ‘abuse of rights’ is the best tool to deal with this problem.2 Others have advocated the introduction of more

1 See ch 5 section II(B). 2 E Gaillard, ‘Abuse of Process in International Arbitration’ (2017) 32(1) ICSID Review 17; J Baumgartner, Treaty Shopping in International Investment Law (Oxford, Oxford University Press, 2016).

Abuse of Rights – A Solution as Difficult as the Problem itself   221 substantial links into investment treaty clauses on personal scope.3 There have also been arguments supporting increased use of denial of benefits clauses, and the adoption of a combination of tools for most effectively defining personal scope.4 In this final chapter, I assess the strengths and weaknesses of the two key solutions proposed, abuse of rights and denial of benefits, to tackle nationality shopping and draw reasonable boundaries to the personal scope of IIL instruments. The chapter concludes with suggestions for most effectively addressing the questions relating to corporate investors’ identity and the challenges raised by attributing nationality to corporations under IIL. I propose the adoption of the ‘real seat’ standard to determine corporate nationality both for purposes of ‘nationality’ under the ICSID Convention and for purposes of defining the personal scope of an investment treaty. I discuss the reasons for the adoption of the real seat standard over incorporation and control standards. I then demonstrate how nationality of the corporate investor would have been decided had the tribunals applied the real seat standard in a select group of arbitral awards representative of different investment structure and ownership scenarios. I.  ABUSE OF RIGHTS – A SOLUTION AS DIFFICULT AS THE PROBLEM ITSELF

The abuse of rights doctrine has been invoked by host states and advocated by scholars5 as a legal tool to tackle access to investment treaty protection through the manipulation of a corporate investor’s identity and nationality. A question of abuse of rights typically arises in relation to an investment arbitration claim if, due to a lack of good faith in acquiring an investment or the investor status, an investor and an investment falling prima facie within the scope of a treaty may be deprived of its protection.6 Arbitral awards and legal commentary sometimes refer to this as abuse of process when it relates to the jurisdiction and/or admissibility of a claim.7 The good faith principle is central to an abuse of rights determination, a principle that attaches to all rights and obligations under international law.8 3 M Sornarajah, ‘Good Faith, Corporate Nationality, and Denial of Benefits’, in AD Mitchell, M Sornarajah and T Voon (eds) Good Faith and International Economic Law (Oxford, Oxford ­University Press, 2015) 139. 4 RF Hansen, ‘Parallel Proceedings in Investor-State Treaty Arbitration: Responses for TreatyDrafters, Arbitrators and Parties’ (2010) 73(4) Modern Law Review 523. 5 E De Brabandere, ‘‘Good Faith’, ‘Abuse of Process’ and the Initiation of Investment Treaty Claims’, (2012) 3(3) Journal of International Dispute Settlement 609, 612 (‘may fulfil an important function in shielding States and tribunals from abusive submissions’). 6 See Philip Morris Asia Limited v The Commonwealth of Australia, (Award on Jurisdiction and Admissibility) (PCA Case No 2012-12, 17 December 2015) paras 535, 550. 7 An issue of abuse of rights may also arise if certain conduct of the investor or the state is relevant to assessing the substance of a claim, See E De Brabandere, ‘Good Faith’ 616–17. 8 E De Brabandere, ‘Good Faith’; SW Schill and HL Bray, ‘Good Faith Limitations on Protected Investments and Corporate Structuring’ in AD Mitchell, M Sornarajah and T Voon (eds) Phoenix Action Ltd v The Czech Republic (Award) (ICSID Case No ARB/06/5 15 April 2009 para 107.

222  Evaluation of Responses to Nationality Shopping and the Way Forward Good faith, as an element of abuse of process has also been applied to prevent the misuse of a dispute settlement mechanism so as to eliminate unfairness to the other party and maintain the reputation/legitimacy of the mechanism.9 As it was discussed in Chapter 6,10 central to the assessment of lack of good faith in the nationality shopping context is the timing and the purpose of the corporate restructuring. Tribunals have to ascertain when a breach became foreseeable to an investor, as well as whether the sole or determinative reason for the restructuring was access to a particular investment treaty. In doing so, tribunals are not searching necessarily for bad faith or fraudulent intentions.11 If a tribunal finds a lack of good faith by an investor in carrying out a corporate restructuring gain to access to the protection of an investment treaty, this may negatively impact the jurisdiction of the arbitral tribunal or the admissibility of the claim.12 In theory, the abuse of rights doctrine can be a useful tool for drawing the external limits of IIL instruments’ personal scope. As explained by Baumgartner, a tool like this one can fulfil an important function of re-adjusting the balance of countervailing interests in a body of law like IIL that lacks central authority to adapt the law to changing conditions.13 In practice, however, its adoption as the primary solution to set reasonable limits to personal scope of protection in the IIL context is problematic for two reasons. The first concerns the nature and limitations of the abuse of rights doctrine itself: its content is vague, it requires delving into the motives of an investor,14 and assessing whether the rights of an investor are worthy of protection in light of its actions inevitably involves a substantial amount of subjective judgment. Tribunals are expected to apply this doctrine with restraint and the threshold for its application has indeed been high.15 In that sense, the abuse of rights doctrine can be best described as an emergency brake applied in the most unacceptable cases of nationality shopping, and rightly so.16 As a result, the abuse of rights doctrine cannot address a large portion of cases that involve an opportunistic acquisition of nationality by corporate investors without having a real connection to the state of incorporation. It is a doctrine reserved for extremes and one should not put too much faith in the concept of good faith to define the limits of personal scope of protection under IIL. 9 ILA Committee on International Commercial Arbitration, Interim Report: ‘Res judicata’ and Arbitration (2004) www.ila-hq.org/en/committees/index.cfm/cid/19. 10 Section I(C). 11 Sometimes the lack of good faith is unduly equated with the presence of bad faith, see M Sornarajah, ‘Good Faith’. The correct interpretation is provided by the tribunal in Philip Morris v Australia para 539. 12 See ch 6 Section I(C); see also Abaclat and Others v Argentine Republic, (Decision on Jurisdiction and Admissibility) (ICSID Case No ARB/07/5, 4 August 2011) paras 647–649; E De Brabandere, ‘Good Faith’ 610. 13 J Baumgartner, Treaty Shopping 203. 14 Ibid, 202. 15 Ibid, 203; Philip Morris v Australia para 539. 16 See on the use of abuse of rights as an exceptional tool for restraining nationality or treaty ­shopping, SW Schill and HL Bray, ‘Good Faith Limitations’.

Denial of Benefits Clauses  223 The second limitation of the abuse of rights doctrine in this area is that nationality shopping is highly tolerated in arbitral awards. There is a general acceptance that nationality shopping is neither problematic nor abusive even if it was done with a clear foresight of a dispute, because such acquisitions of nationality are not considered to violate the express terms of the applicable treaty. The reasoning in these decisions typically contain five pillars: (1) the treaty terms define a protected ‘investor’ with reference to a tenuous link, (2) states are masters of their treaties and if they wished to prevent nationality shopping, they would not have agreed to tenuous links to determine personal scope, (3) tribunals cannot add conditions to the treaty terms and ascribe intentions to contracting states that are not apparent from the treaty text and preamble, (4) it is natural and legitimate for investors to structure their investments to provide them with the best possible legal protection, (5) the purpose of investment treaties is to promote and increase investments, therefore, widening the number of investors receiving protection is in line with the purpose of investment treaties. The pillars (1) to (3) are problematic because for a conduct to be considered an abuse of rights, it need not violate the terms of the applicable treaty. In fact, as explained by Brabandere, an abuse of rights occurs where an investor technically has the right to invoke an investment treaty, but its use constitutes an abuse due to being acquired through an unacceptable path. Pillars (4) and (5) impose fundamental limitations to using the abuse of rights doctrine to set reasonable limits to personal scope of IIL protections: as long as arbitral tribunals consider that manipulating one’s identity and nationality is a legitimate way to access IIL protection, and not only is it legitimate, but it is also beneficial to the host state by increasing the flow of investments, it will be extremely difficult for host states to make an abuse of rights argument successfully. So long as arbitral tribunals consider nationality shopping an acceptable way to acquire IIL protection, the abuse of rights doctrine cannot assist effectively in drawing tighter boundaries to personal scope of protection under IIL. II.  DENIAL OF BENEFITS CLAUSES

Denial of benefits (‘DoB’) clauses in investment treaties allow host states to fully or partially exclude, from the protection of the treaty, corporate claimants who only have a tenuous link to the home state.17 A denial of benefits clause typically allows host states to exclude from the scope of the treaty corporate claimants who (1) are owned or controlled by third party nationals and do not

17 Art 15 Agreement between the Government of the United Arab Emirates and the Government of the Republic of Azerbaijan on the Promotion and Reciprocal Protection of Investments, signed 1 November 2006, entered into force 24 August 2007; CAFTA-DR Art 10.12; R Dolzer and C Schreuer, Principles of International Investment Law 2nd edn (Oxford, Oxford University Press, 2012) 55.

224  Evaluation of Responses to Nationality Shopping and the Way Forward have substantial business activity in their stated home state, the latter typically being their place of incorporation, and/or (2) are directly or indirectly owned or controlled by nationals (individual or corporate) of third states with which the host state does not maintain normal economic or diplomatic relations. DoB clauses are typically found in investment treaties signed by US, Canada, Japan, and Australia, as well as in the Energy Charter Treaty and the ASEAN ­Investment Agreement.18 There are two main types of DoB clauses in investment treaty practice: some operate to exclude protection of the entire treaty, and others only apply to substantive rights and not to dispute settlement, eg Article 17 of the Energy Charter Treaty. In the latter case, the arbitration tribunal retains the power to hear the dispute, but it is unclear as to what substantive standards an arbitral tribunal would apply to resolve a dispute if a respondent state successfully denies benefits of the substantive rights found in the treaty. DoB clauses can be effective in reserving access to investment treaty ­protections to investors that are genuinely linked to a home contracting state, especially in treaties that define protected ‘investor’ by reference to ­‘incorporation’. The underlying objective of the clause is to safeguard reciprocity between ­contracting states by excluding nationality shoppers from the scope of the treaty, who are not genuinely investors or nationals of the home state.19 Arbitral interpretation of these clauses have sometimes unduly undermined the purpose of DoB clauses. Two issues can be detected from the arbitral jurisprudence as impediments to successful use of DoB clauses to limit the personal scope of IIL protection: (1) ambiguities on how, when, and with what effect a host state can validly invoke a DoB clause and (2) ambiguities on what constitutes substantial links between an investor and its home state. Arbitral awards have been inconsistent on these issues, in small part because of the differences in treaty wording and for the most part due to different positions taken by tribunals in the absence of explicit language on these issues in treaties.20 A.  The Procedure for Invoking DoB Clauses A DoB clause does not automatically become activated. Unless treaty w ­ ording suggests otherwise, the host state must actively invoke it. The applicable

18 The recent India Model treaty also includes denial of benefits. UK, France, Germany, and the Netherlands do not typically include denial of benefits clauses in their treaties. 19 Limited Liability Company Amto v Ukraine, (Final Award) (SCC Case No 080/2005 26 March 2008) para 61; L Mistelis and C Baltag, ‘Denial of Benefits Clause and Article 17 of the Energy Charter Treaty’ (2009) 113(4) Penn State Law Review 1301, 1302; AC Sinclair, ‘The Substance of Nationality Requirements in Investment Treaty Arbitration’ (2005) 20(2) ICSID Review – Foreign Investment Law Journal 357, 385. 20 L Gastrell and P Le Cannu, ‘Procedural Requirements of ‘Denial of Benefits’ Clauses in ­Investment Treaties: A Review of Arbitral Decisions’ (2015) 30(1) ICSID Review 78.

Denial of Benefits Clauses  225 i­nvestment treaty may explicitly stipulate how and when a DoB clause can be effectively invoked, as well as whether it will have retroactive or prospective effects. This can help avoid most ambiguity in the application of DoB clauses. Most DoB clauses give the option to the host state to invoke the clause but remain silent on when this right can be validly exercised and the effects it will produce.21 Two main strands of interpretation emerge from the arbitral jurisprudence. The first strand of awards interprets and applies DoB clauses in light of the broader framework of predictability and transparency goal of investment ­treaties.22 According to this approach, a valid exercise of DoB by a host state must comply with the purpose of investment treaties to create a predictable investment framework for foreign investors. These awards consider DoB clauses to only have prospective effects.23 Some tribunals in this group have taken the position that invocation of a DoB clause as a timely objection in the jurisdictional phase of an arbitration is not sufficient to activate the clause for existing disputes. For instance, the tribunal in Khan Resources v Mongolia held that, under the ECT, host states must invoke DoB clauses consistently with their obligation to create transparent conditions for investors by giving ‘adequate notice to investors’.24 Plama v Bulgaria tribunal, dealing also with an ECT dispute, held that an investor ‘requires reasonable notice before making any investment in the host state whether or not that host state has exercised [the DoB clause under the relevant treaty].’25 For these tribunals, a DoB clause cannot be successfully invoked after the commencement of arbitral proceedings, as this would be incompatible with the investment treaty’s purpose of creating a favourable environment for long term investment.26 According to this line of awards, a DoB clause can only be effectively exercised through either a public announcement of the invocation of the clause or by direct notice to the relevant investor prior to an investor committing funds into a host state. Examples given in Plama include ‘a general declaration in a Contracting State’s official gazette …; or a statutory provision in a Contracting State’s investment or other laws; or even an exchange

21 Some treaties do provide more clarity. The South African Development Community’s Model BIT provides some clarity on the timing. It stipulates in Art 26 that the DoB clause can be invoked at any time though it is silent on whether invocation of this clause would have retroactive effects. It conditions invocation of this clause to an investor with only artificial links to the home state to prior notification and consultation with the other state party. Available at www.iisd.org/itn/ wp-content/uploads/2012/10/sadc-model-bit-template-final.pdf. 22 Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain (Award) (ICSID Case No ARB/14/1, 16 May 2018). 23 Ibid, para 239. 24 Khan Resources Inc., Khan Resources B.V. and CAUC Holding Company Ltd. v The Government of Mongolia and MonAtom LLC, (Decision on Jurisdiction) (PCA Case No 2011-09, 25 July 2012) para 427. 25 Plama Consortium Limited v Republic of Bulgaria (Decision on Jurisdiction) (ICSID Case No ARB/03/24, 8 February 2005) para 161. 26 See also Masdar v Spain paras 234–235.

226  Evaluation of Responses to Nationality Shopping and the Way Forward of letters with a particular investor or class of investors.’27 A slightly different approach was taken by the tribunal in Ascom v Kazakhstan. It held that to be effective, the DoB provision in the ECT must be invoked before a dispute arises.28 This latter finding is different than the approach taken by the Khan Resources and Plama tribunals which held that invocation of a DoB clause after an investment is made would frustrate the legitimate expectations of the investor.29 This is different than the Ascom tribunal’s approach that seems to allow invocation of the clause before a dispute arises but after the investment is made. A second group of awards have held that DoB clauses can have retrospective effect once they have been duly invoked. The state must exercise this right, at the latest, as a timely jurisdictional objection to the arbitral tribunal.30 These are cases applying DoB clauses in US investment treaties. Tribunals in this group have accepted that DoB clauses can operate with retrospective effects.31 Tribunals have held that retrospective effect given to DoB clauses does not violate the l­ egitimate expectations of an investor to invoke BIT protections, as the possibility for the host State to exercise the right in question is known to the investor from the time when it made it’s the [sic] investment, it may be concluded that the protection afforded by the BIT is subject during the life of the investment to the possibility of a denial of the BIT’s advantages by the host State.32

The difference between the decisions made under the ECT and the investment treaties among the nations of the Americas cannot be explained by differences in treaty wording. If the interpretation adopted by the Plama line of decisions are accepted on the timing and effects of DoB clauses, there will be little practical use for these clauses to reserve treaty protection to genuine investors of the home state. If host states only become aware of the manipulated identity of a claimant after they receive the notice of claim from a shell corporation acting as a claimant,33 it is unreasonable to expect that a host state could invoke a DoB clause vis-à-vis that particular investor prior to receiving the notice of arbitration. As articulated in some awards, giving retroactive effects to these clauses does not interfere with an investor’s expectations who purposefully channels its

27 Plama v Bulgaria para 161. 28 Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd v Republic of Kazakhstan (Award) (SCC Arbitration V (116/2010), 19 December 2013) para 745. 29 In this group see also Liman Caspian Oil BV and NCL Dutch Investment BV v Republic of Kazakhstan, (Award) (ICSID Case No ARB/07/14, 22 June 2010); Yukos Universal Limited (Isle of Man) v The Russian Federation (Interim Award on Jurisdiction and Admissibility) (PCA Case No AA 227, 30 November 2009). 30 Ulysseas, Inc. v The Republic of Ecuador (Interim Award) (UNCITRAL, PCA Case No 2009-19, 28 September 2010) para 172. 31 Ibid; Guaracachi America, Inc. and Rurelec PLC v The Plurinational State of Bolivia, (Award) (UNCITRAL, PCA Case No 2011-17, 31 January 2014) para 366. 32 Ulysseas v Ecuador para 173. 33 E Gaillard, ‘Abuse of Process’; Amto v Ukraine, para 65.

Denial of Benefits Clauses  227 investments via a BIT partner of the host state with which the investor has no genuine connections. Such an investor ‘knows exactly what its business activities are in a particular area’.34 If the existence of an investment treaty factors into the investment decisions, the investor ought to reasonably foresee that if that treaty contains a DoB clause the host state might deny the benefits of the treaty to investors who manipulated their nationality to access its protections. For DoB clauses to fulfil their intended purpose, arbitral tribunals should allow their invocation at the jurisdictional phase of a dispute with retrospective effects. B.  Substantial Business Activity Once the procedural requirements of activating a DoB clause are in place, the tribunal will assess the substantive requirements for denying benefits. The tribunal will assess whether the claimant has substantial business activities in the home state and if not, whether the claimant corporation is controlled by nonparty nationals. The burden to prove the facts pertaining to the control and nature of business activities falls on the host state invoking the clause.35 The question of control and the different understandings of control by tribunals have been discussed in Chapter 5,36 and will not be repeated here. The same issues on what constitutes control in the context of personal jurisdiction and how far into the ownership structure a tribunal shall search to identify control also arise in the interpretation of DoB clauses. There is no clarity in arbitral jurisprudence on DoB clauses about what constitutes control for purposes of denying benefits to an investor. Since the purpose of DoB clauses is to ensure treaty protection is given only to businesses which are genuinely connected to the home state, it would be appropriate and necessary for tribunals to interpret control in this context as ‘actual control’.37 The other substantive requirement relates to the nature and type of business activities conducted in the home state. There is no doubt that the purpose of DoB clauses is to give host states an option to exclude from the treaty scope investors that are not genuinely investors of the home state. It is for this reason that states have adopted the ‘substantial business’ requirement in DoB clauses.38 But little did contracting states know how broadly some arbitral tribunals would

34 Amto v Ukraine para 65. 35 Generation Ukraine, Inc. v Ukraine, (Award) (ICSID Case No ARB/00/9, 16 September 2003) para 15.7; Amto v Ukraine, para 65. 36 Section I(B). 37 Ibid. 38 See, eg, LM Caplan and JK Sharpe, ‘United States,’ in Chester Brown, (ed), Commentaries on Selected Investment Treaties (Oxford, Oxford University Press, 2013) 812 (Describing the purpose of DoB clauses as being ‘safeguards against the problem of treaty shopping through the creation of ‘sham’ enterprises.’)

228  Evaluation of Responses to Nationality Shopping and the Way Forward interpret this concept and undermine the purpose of DoB clauses to reserve protection of the treaty to investors having genuine links to the home state. The first known arbitral assessment of this element of the ECT’s Article 17 appears in AMTO v Ukraine. The respondent in that case contended that the claimant had no substantial business activities in Latvia. The tribunal was convinced that as a financial investment company the claimant had substantial business in Latvia as it rented office space in Latvia, held a bank account in a local bank and has paid the relevant local taxes, as well as social security contributions for the two full-time staff that the claimant employs in the country.39 The bank statements did not contain any evidence that payments were made from there for carrying out day-to-day business activities in Latvia. The claimant stated that it held shareholdings in various companies in other countries, but no evidence of this was presented. The tribunal held that, in the absence of guidance from the ECT, it would be guided by the purpose of Article 17 in interpreting ‘substantial business’. The purpose of this article was to exclude investors who adopted a ‘nationality of convenience’. It was held by the tribunal that ‘‘substantial’ in this context means ‘of substance, and not merely of form’. It does not mean ‘large’, and the materiality, not the magnitude of the business activity is the decisive question.’40 This description of the ‘substantial business activity’ came to be used frequently by later arbitral tribunals. In Masdar v Spain, the tribunal assessed whether the Dutch incorporated claimant had substantial business activities in the Netherlands. The respondent argued that the claimant was a mailbox company and did not have substantial business activities in the Netherlands. The tribunal referred to the AMTO tribunal’s understanding of ‘substantial’ which meant that the activities should be of substance and not merely of form, though the size of the activity was not of importance as long as the business conducted is material.41 The tribunal held that the claimant’s holding of substantial international assets was sufficient to show substantial business in the Netherlands. The respondent showed that the claimant was a typical shell company that had no permanent offices or employees in the Netherlands, other than an address and two board members who provide fiduciary services.42 The claimant argued that the fact that it is registered at a ‘virtual office’ and has no permanent employees was not indicative of its shell company standing.43 It had activities of ‘substance’ because it owned major investments in Spain and other countries.44 The Masdar ­tribunal’s interpretation of ‘substantial business activity’ stretching to cover shell corporations completely undermines the purpose and use of DoB clauses. For purposes of



39 Amto

v Ukraine, para 68. para 69. 41 Masdar v Spain para 253; AMTO v Ukraine para 69. 42 Masdar v Spain para 206. 43 Ibid, para 222. 44 Ibid, paras 223–24. 40 Ibid,

Denial of Benefits Clauses  229 interpreting ‘substantial business’ in the context of DoB clauses, tribunals should not rely on passive holding of investments by the claimant entity but instead investigate into the tangible business activities carried out by the claimant in the territory of the home state and beyond. In Guaracachi v Bolivia, the tribunal interpreted the same ‘substantial business’ requirement and held that a mailbox company holding shares in the local investment did not carry out substantial business activities in the US.45 The claimant argued that substantial did not mean large, but instead it meant material. This, it argued, was satisfied in this case as Guaracachi ‘conducted substantial commercial activities in the United States, since it maintains offices in said territory, holds shareholders’ meetings in Ohio as well as Board of ­Directors’ meetings, prepares the minutes of said meetings’.46 The Tribunal did not consider these as substantial activities in the home state. This reflects a more accurate interpretation of ‘substantial business activity’ and it is in stark contrast with the Masdar tribunal’s interpretation of the same concept. In Pac Rim v Cayman, the tribunal considered whether the claimant had substantial business activities in the US when [it] does nothing other than hold shares; that it has no employees; that it leases no office space; that it has no bank account [D2.445xx]; that it has no board of directors; that it pays no taxes in the USA; that it owns no tangible property or makes anything in the USA; and that it performs by itself no exploration activities from the USA.47

Despite the existence of substantial business activities in the US by the group of companies of which the claimant forms part, the tribunal’s analysis solely focused on the claimant’s activities, which was limited to holding shares in subsidiaries.48 The tribunal found that the claimant was ‘not a traditional holding company actively holding shares in subsidiaries but more akin to a shell company with no geographical location for its nominal, passive, limited and insubstantial activities.’49 In each of these cases, there were slight variations in the business activities carried out by the claimants reported by the tribunals. But, in none of these cases the activities reported can be qualified as ‘substantial’. While the AMTO tribunal was correct in interpreting the meaning of ‘substantial business activity’ by focusing on the materiality of the business and not to its size, the meaning it ascribed to ‘material’ business activity was problematic. Some of the later awards followed the materiality approach, but without taking into consideration where the business activities fell on the scale of materiality. Substantial means ‘of

45 Guaracachi v Bolivia, para 370. 46 Ibid, para 217. 47 Pac Rim Cayman LLC v The Republic of El Salvador (Decision on the Respondent’s Jurisdictional Objections) (ICSID Case No ARB/09/12, 1 June 2012) para 4.8. 48 Ibid, paras 4.63, 4.66. 49 Ibid, para 4.75.

230  Evaluation of Responses to Nationality Shopping and the Way Forward considerable importance’.50 It requires more than having any business ­activity in the home state. Substantial business activity should be high on the scale of materiality. A corporation having an address, holding substantial amount of assets, carrying out basic paperwork to comply with legal requirements of its place of incorporation and having a bank account from which transactions are carried out do constitute business activities, but these cannot be characterised as substantial business activities. To have substantial business activity in the home state, a corporate claimant must have either its real seat in that country and/or be carrying out substantial business operations in the relevant sector in that country, not merely holding assets. Interpretations which dilute the meaning of substantial business activity undermine the very purpose of DoB clauses to reserve protection to investors genuinely linked to the home state. Tribunals that refuse to give effect to DoB clauses often refer to the purpose of the treaty to promote and protect long term investments. That approach ignores the purpose of the DoB clause to maintain reciprocity of the investment treaty, and exclude investors who would not qualify as investors or nationals of the home state but for manipulating their identity and nationality. DoB clauses can be in theory an effective tool to ensure that the personal scope of IIL protections are determined based on genuine links between an investor and its home state. The incoherent arbitral jurisprudence reveals the challenges to its meaningful implementation. Both states and investors cannot form clear expectations as to how, when, and with what effects benefits can be validly denied. States which disagree with the Plama and Masdar lines of reasoning could tackle this problem by introducing highly prescriptive DoB clauses in future investment treaties, thereby leaving lesser room for interpretation to the arbitral tribunal as to the procedural and substantive requirements of a DoB clause. More detailed DoB clauses could explicitly prescribe the procedure for invoking DoB clauses as well as defining the concept of ‘substantial business activity’ in more detail with a clear description or a list of activities that alone or in combination do not constitute ‘substantial business’. III.  WAY FORWARD: RESTORING CONCEPTUAL AND METHODOLOGICAL RIGOUR TO ANALYSING CORPORATE INVESTORS’ NATIONALITY

In this last section of the book, I argue that the most appropriate link for connecting corporations to a state with the bond of nationality under IIL is the ‘real seat’ standard. I propose that this standard should also be adopted to define protected corporate investors in investment treaties by states wishing to impose sensible limits to the personal scope of their commitments and ensure that IIL protections operate on a genuinely reciprocal basis. Besides the a­ doption of the real seat



50 See

Cambridge Academic Content Dictionary.

Way Forward: Restoring Conceptual and Methodological Rigour  231 standard, it is crucial for arbitral tribunals to remedy the m ­ ethodological flaws affecting the analysis of personal scope of protection identified in Chapter 651 and restore rigour in the legal analysis of a corporate investor’s ‘nationality’. Tribunals should consider issues relating to an investor’s identity primarily as a matter of personal scope, and not as a matter of temporal or material scope.52 The material and temporal conditions of protection may also be relevant separately from a personal scope assessment or as part of it, but it is important to frame the issues pertaining to the identity of the investor correctly from the outset. Arbitral tribunals should also refrain from ­determining the nationality of a corporate investor under the ICSID Convention by reference to the ‘­ investor’ definition of the investment treaty invoked by a claimant. Instead, tribunals should first determine the investor’s nationality under the Convention by applying the real seat standard for claims falling under the first prong of A ­ rticle 25(2)(b) and the control standard for claims falling under the second prong of Article 25(2)(b).53 To ensure a rigorous analysis of corporate nationality, arbitral tribunals must acknowledge that a genuine link between a person and a state is foundational to the bond of nationality.54 It is common for states to require substantial connections, such as family ties, or a long period of residency and language requirements, to grant their nationality to individuals or espouse diplomatic claims on their nationals’ behalf. While the methods for attributing nationality to individuals do not apply to corporations55 the essence of these principles can shape our understanding of nationality as it applies to corporations. In the following sections, I discuss why the real seat standard is the most suitable ­genuine link for determining corporate nationality under IIL and discuss how the standard would be applied in IIL claims. A.  Why the Real Seat Standard? A corporation may have links to more than one state at the same time. It may be headquartered in one jurisdiction, have its place of incorporation in another jurisdiction, may conduct business activities in a third jurisdiction and may have controlling shareholders from a fourth. Each of these links, except for 51 Section I. 52 See ch 6 Section I. 53 See ch 6 Section I(A). 54 See ch 2. 55 If, by analogy, the jus soli and jus sanguinis principles are applied to corporations the result would be as follows: Corporations are born in the territory they are created. If the jus soli principle was applied, their nationality will be determined by their place of incorporation. They are created by their incorporators, and if the jus sanguinis principle was applied, they would obtain the nationality of their incorporators. If they were akin to naturalised individuals, there would be a set of requirements to be fulfilled before they could be considered a national of a state; See also, DF Vagts, Transnational Business Problems 2nd edn (New York, Foundation Press, 1998) 106.

232  Evaluation of Responses to Nationality Shopping and the Way Forward i­ncorporation, constitute substantial links. I argue here that the headquarters, ie the real seat, siege social, effective seat, represent the most stable substantial link to constitute the primary connecting factor for determining a corporate investor’s nationality under IIL. Experience in IIL shows that incorporation alone does not provide a stable and substantial link as a basis of nationality. The advantage of incorporation is its simplicity. It is formal, easy to establish, identify and prove. But it is this simplicity that lends itself to opportunistic use. Place of incorporation can be moved or a new one created relatively easily compared to the headquarters or the place where substantial business activities are carried out. In addition, incorporation does not require any substantive business activities to be carried out in the state of incorporation. A significant number of registered corporations around the world do not conduct any actual business or have an actual seat or any staff at their place of incorporation.56 This is not an unlawful practice under corporate law, but the precariousness of the link of incorporation makes it an inadequate and unreliable connection for determining nationality under IIL. Another possible connecting factor is the place where the corporation conducts substantive business activities. This provides a substantial link connecting a company to a state, since carrying out business is the primary activity of a company. However, a company may be carrying out substantive business in multiple jurisdictions at the same time. The question arises as to which of these jurisdictions should be decisive when deciding the corporation’s nationality. The corporation may be conducting business in different jurisdictions at the same level of intensity. In such instances, it is difficult to say with certainty which jurisdiction should determine the nationality of the corporate investor. Determining the nationality of a company based on the nationality of its actual controllers also poses various challenges. Control of a company may change hands more easily and frequently than place of headquarters. Control also requires disregarding the separate personality of the company from its shareholders, which triggers objections to piercing the corporate veil. IIA tribunals have frequently invoked the separate personality principle as a justification for applying the incorporation test to determine nationality of corporate investors, and rejected applying a control standard, except for expanding the scope of protection.57 In this respect, it has been held by arbitral tribunals58 that the 56 Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes, OECD 2001, 8 (The report found that a substantial amount of corporate vehicles incorporated in offshore jurisdictions are shell corporations.) 57 See ch 5 Section I(B). 58 See, ie, Tokios Tokelés v Ukraine (Decision on Jurisdiction) (ICSID Case No ARB/02/18, 29 April 2004); ADC Affiliate Limited and ADC & ADMC Management Limited v The R ­ epublic of Hungary (Award of the Tribunal) (ICSID Case No ARB/03/16, 2 October 2006); Aguas del Tunari, S.A.(AdT) v Republic of Bolivia (Decision on Jurisdiction) (ICSID Case No ARB/02/3, 21 October 2005); The Rompetrol Group N.V. v Romania (Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility) (ICSID Case No ARB/06/3, 18 April 2008); Autopista ­Concesionada de Venezuela C A (Aucoven) v Bolivarian Republic of Venezuela (Venezuela) (Decision on J­ urisdiction) (ICSID Case No ARB/00/5, 27 September 2001).

Way Forward: Restoring Conceptual and Methodological Rigour  233 corporate identity of a company should not be set aside by courts or tribunals unless it is allowed by the applicable treaty or if there is abuse or fraud by the corporation. Respondent states, on the other hand, made claims that the application of incorporation test was enabling corporations who frequently used shell corporations in pursuit of nationality shopping to abuse the investment treaty system.59 The ICSID Convention and many investment treaties make provision for application of the control test in defined circumstances. But rightly so, this is usually offered as ancillary method, where the primary method is not suitable to give effect to the purpose of the treaty. Taking stock from the diversity of approaches in the arbitral jurisprudence on control, it would be prudent for states to be more prescriptive in their future investment treaties as to what constitutes control. I propose here, as a primary method, the use of the real seat test to link a corporation to a state with the bond of nationality under IIL. The real seat of the company is where it has its central administration.60 It is where the will of the company is created. It is more than a mere presence on paper and it is unlikely to be established in more than one jurisdiction at a time, although this is possible. The real seat of a company is a place where important corporate activities concentrate. Though it is not tied to one jurisdiction forever and can be moved to another, this is not as easy and common as moving the place of incorporation or incorporating a shell corporation for the sole purpose of holding shares in other entities. When the real seat is moved, the will and the locus of management of the company will be moved to another jurisdiction, and this substantial change would justify a change in the company’s nationality. That would be similar to individuals’ acquisition of nationality by naturalisation after extended years of permanent residence in a state. In those cases, the individual’s actual and long-term settlement justifies the nationality change. By analogy, in the case of a corporation moving its real seat, the company moves its locus of management, where its corporate will is created, to a new jurisdiction and this would justify a change of nationality. According to this method, corporations can also have dual or multiple nationality, if they have spread their locus of management across more than one jurisdiction. For instance, the British-Dutch consumer goods company Unilever is co-headquartered in the UK and the Netherlands. A group such as Unilever could

59 See ch 5 Section I(B). See particularly, Mobil Corporation, Venezuela Holdings, B.V., Mobil Cerro Negro Holding, Ltd., Mobil Venezolana de Petróleos Holdings, Inc., Mobil Cerro Negro, Ltd., and Mobil Venezolana de Petróleos, Inc. v Bolivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/07/27, 10 June 2010); Tidewater Inc, Tidewater Investment SRL, Tidewater Caribe, CA, Twenty Grand Offshore, LLC, Point Marine, LLC, Twenty Grand Marine Service, LLC, Jackson Marine, LLC, Zapata Gulf Marine Operators, LLC v The B ­ olivarian Republic of Venezuela (Decision on Jurisdiction) (ICSID Case No ARB/10/5, 8 February 2013); ADC v Hungary Adt v Bolivia; Tokios Tokelés v Ukraine. 60 Where the place of incorporation and the central administration is in different jurisdictions the latter will determine the nationality of the company; see ch 3 Section II(B).

234  Evaluation of Responses to Nationality Shopping and the Way Forward be treated a dual national for purposes of IIL and benefit from investment treaties of both countries when investing overseas. In addition to the main headquarters, large corporations can also have regional or domestic headquarters in numerous places. Such scenarios are discussed further below. Determining corporate investors’ nationality with reference to their real seat is in harmony with the understanding of corporate nationality under the ­principles of international law on diplomatic protection. The standard applied by the ICJ to corporate nationality in Barcelona Traction was conceptualised by Tams and Tzanakopoulos as the ‘incorporation plus X’ rule.61 They assert that the ICJ in that case respected the separate corporate personality ­principle, ‘provided at least that there was some real connection going beyond mere ­registration’.62 The ILC Draft Articles on Diplomatic Protection also support this approach. It provides in Article 9 that: For the purposes of the diplomatic protection of a corporation, the State of nationality means the State under whose law the corporation was incorporated. However, when the corporation is controlled by nationals of another State or States and has no substantial business activities in the State of incorporation, and the seat of management and the financial control of the corporation are both located in another State, that State shall be regarded as the State of nationality.

Here, the Draft Articles also give priority to incorporation, but not without the support of a more substantial connection accompanying it.63 The essence of this approach is that incorporation must be accompanied by a substantial link to be considered decisive for nationality. The search for a genuine connection between a state and a corporation certainly is also in harmony with the principles applicable to nationality in domestic laws and international law. More importantly, searching for a real link is not in conflict with the purpose of investment treaties or the ICSID Convention. On the contrary, it is compliant with the purpose of investment treaties to create a legal framework for foreign investment protection on a reciprocal basis. Corporate nationality decided this way provides a balanced solution for investors and host states. It respects the principles on corporate personhood. But it also allows economic realities prevail over formal appearances. Setting a stricter standard for identifying the eligible investor within a corporate group, the real seat standard helps preserve reciprocity as it minimises opportunistic uses of corporate form to nationality shop, and further minimises the possibility of multiple parallel claims concerning the same dispute to be filed. Deciding corporate investors’ nationality based on their real seat also eliminates, to a

61 C Tams and A Tzanakopoulos, ‘Barcelona Traction at 40: the ICJ as an agent of legal development’ (2010) 23(4) Leiden Journal of International Law 787. 62 Ibid. 63 For more on this see ch 4 Section I(E).

Way Forward: Restoring Conceptual and Methodological Rigour  235 large extent, the need to consider whether investors are acting abusively, with ill intentions or fraudulently when they structure their investments in one way or the other.64 As discussed above, the concept of abuse of rights has rarely been effective in responding to the most unacceptable forms of nationality shopping. This is not surprising if one considers how inherently vague the concept of good faith is and how difficult it is to determine the existence or lack of it.65 In most cases where it has been invoked, the corporate claimant’s eligibility or nationality was decided based on its place of incorporation. Respondents, mostly unsuccessfully, challenged this finding arguing that the claimant was a corporation of convenience and that using such a corporate entity to invoke investment treaty protection should constitute an abuse of rights. The necessity to raise the abuse of rights argument would be largely eliminated if the tribunals determine the personal scope of protection by looking at the real seat of the corporate claimant, and not the place of incorporation. B. Real Seat Distinguished from Statutory Seat and Registered Address An important distinction to bear in mind when applying the real seat test is that it may be different from the place where a company has its statutory seat or registered address. Arbitral awards and academic literature frequently adopt the incorporation and/or seat tests when interpreting the ‘nationality’ of corporate investors’.66 Similarly, some investment treaties define ‘investor’ with reference to the incorporation and seat tests.67 In many instances, these two tests are used interchangeably with no regard to their distinct requirements. This is likely to be due to tribunals considering the seat of a company where its statutory seat or registered address is located. The registered address of a company is not necessarily the place of its real or social seat.68 In Aucoven v Venezuela, the tribunal made this distinction clearly when it stated that the most widely used criteria to determine the nationality of corporations in international law was the place of incorporation or registered office, while the effective seat or place of central administration was also taken into account at times.69 However, the tribunal

64 See A Yilmaz, Case Note on ICSID Case No ARB/10/5: Tidewater v Venezuela, Decision on Jurisdiction, (2013) 20 Australian International Law Journal 201–202. 65 M Sornarajah, ‘Good Faith’ 130. 66 See ch 5 Section I. 67 Art 1 Colombia- Switzerland BIT; Art 1 Ethiopia-France BIT. 68 M Perkams, ‘The Determination of Nationality of Investors in International Investment Agreements (IIAs) – Taking Stock of the Criteria Used in Modern Investment Law’ in The Determination of the Nationality of Investors under Investment Protection Treaties – A Preliminary Report published by The International Law Association German Branch Sub-Committee on Investment Law Working Group, 12–13. 69 Aucoven v Venezuela para 107.

236  Evaluation of Responses to Nationality Shopping and the Way Forward itself adhered to the incorporation criterion in determining the nationality of the corporate investor under the second half of Article 25 (2)(b).70 It is often not clear which type of seat is determinative for a tribunal. In Fedax N.V. v Venezuela, the tribunal pointed out that the claimant was a company incorporated and domiciled in Curacao, Netherlands Antilles, and therefore, was a national of the Netherlands Antilles on the necessary dates specified in the Convention.71 It is not clear from the decision whether the company was considered domiciled in the Netherlands Antilles simply because that is where its registered address was, or whether because it had was effectively domiciled in that country. Other tribunals referred to concepts such as principal office, siege social, effective seat, head office or actual seat as possible determinants of nationality; however, actual reliance on these links by tribunals when interpreting the meaning of nationality for corporate investors is not common practice.72 Even when these concepts are relied on, it is possible that the meaning of these concepts may be watered down in arbitral interpretations to capture corporations seemingly only having their registered address in the home state.73 In Orascom v Algeria,74 the tribunal interpreted siege social as used in the relevant investment treaty to mean ‘registered office’ and not the real or effective seat.75 The award provides a long and detailed reasoning for this interpretation of the concept autonomously under the investment treaty, based on the ordinary meaning of the term and supplementary means of interpretation. Furthermore, the tribunal held that even if it were to interpret siege social as the place of effective management, the test would still be satisfied by the claimant, as it did have its central administration located in the home state. Though the claimant’s statutory meetings and book-keeping were done in Luxembourg, a distinction was not made to the interpretation of siege social by the fact that this was a ‘holding company’ with no substantive activities of its own other than holding shares in other companies.76 The tribunal held that, due to the nature of the company, its management activities were understandably limited.77 The tribunal later found the case inadmissible holding that the claimant’s filing of this claim constituted an abuse of

70 Ibid, para 134. 71 Fedax N.V. v The Republic of Venezuela (Decision of the Tribunal on Objections to Jurisdiction) (ICSID Case No ARB/96/3, 11 July 1997) 37 I.L.M. 1378 (1998) para 17. 72 See, eg, Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v Islamic Republic of Pakistan (Decision on Jurisdiction) (ICSID Case No ARB/03/29, 14 November 2005) para 2. 73 See Niko Resources (Bangladesh) Ltd v People’s Republic of Bangladesh, Bangladesh Petroleum Exploration and Production Company Limited, Bangladesh Oil Gas and Mineral Corporation (Decision on Jurisdiction) (ICSID Case No ARB/10/11 and ARB/10/18 19 August 2013) paras 188, 191 (Located head office at the mailing address of the claimant). 74 Orascom TMT Investments S.à r.l. v People’s Democratic Republic of Algeria (Final Award) (ICSID Case No ARB/12/35, 31 May 2017). 75 Ibid, para 298. 76 Ibid, para 322. 77 Ibid.

Way Forward: Restoring Conceptual and Methodological Rigour  237 rights, as several other investment treaty claims covering the same loss were filed by other entities within the corporate structure, including one claim resulting in a settlement award.78 As I will show below, the approach to corporate nationality proposed in this book would first interpret siege social to mean real or effective seat as the concept is explained in Chapter 3.79 ­Particularly, since the laws of the home state, Luxembourg, define the concept to mean effective seat, the reference should be made to national law first to determine the nationality of a corporate entity. The second issue concerns how the siege social of a shell corporation can be determined. As I discuss below, for purposes of a nationality analysis under IIL, shell corporations cannot be deemed to have a real seat, as they do not carry out the substantive activities that would be carried out from the effective seat of a company. They are passive holders of interest. Therefore, the claimant in this case, as a shell company, cannot be considered to have a siege social, as it effectively does not carry out functions that are central to the concept. And finally, had the tribunal interpreted the concept of siege social as effective seat, there would be no need to engage in a complex abuse of rights analysis. In other instances where the real seat was referred to by tribunals, it is not possible to ascertain from the text of the award what was meant. In Tokios Tokeles, the respondent argued that the claimant’s siege social or administrative headquarters was located in the Ukraine.80 The tribunal acknowledged that the generally accepted rule was that siege social or place of incorporation would be the determining criteria for corporate nationality under the ICSID ­Convention.81 It was held that the claimant had its siege social in Lithuania, however, the tribunal gave no reasoning based on what criteria it located siege social in Lithuania. This lack of reasoning is problematic as the respondent had argued that the real seat of the company was located in the Ukraine.82 The distinction between the registered address and the real seat becomes especially important when dealing with shell corporations. The real seat doctrine links the legal person to the place where it has its centre of administration, and not based on the place of registration and statutory seat.83 If nationality is determined based on the latter, a shell corporation will be a national of its place of incorporation and statutory seat. While if it is determined based on its real seat, it will be a national of the place of its centre of administration or management. A shell company does not carry out actual business activities other than passively holding shares in other businesses, and its place of incorporation is usually chosen based on the legal convenience of the location, and not because



78 Ibid,

para 485. II(B). 80 Tokios Tokelés v Ukraine para 21. 81 Ibid, para 42. 82 Ibid, para 43. 83 See ch 3 Section II(B). 79 Section

238  Evaluation of Responses to Nationality Shopping and the Way Forward that is the place in which the core corporate decisions are made. Its place of incorporation or registered address will not be the locus of control and management of the interests it holds in other entities. It will not usually employ any staff there other than having directors who are appointed to satisfy the formalities of the applicable law.84 Such companies then cannot be considered to have their real seat at their place of incorporation. The location of their real seat will be elsewhere where the management decisions relating to the shell company are concentrated. Searching for the locus of management will likely require looking beyond the corporate veil of the shell corporation and possibly several layers of shell entities for purposes of identifying the locus of management.85 This does not mean that the existence of personality of such a corporation is denied.86 It is merely disregarded for purposes of nationality determination. C.  Application of the Real Seat Standard in IIL In this final section of the book, I will discuss how the real seat standard would operate in IIL to determine the nationality of corporate investors and the personal scope of protection. According to the real seat standard, a company’s place of central management and control is decisive of its nationality.87 This may or may not be at the same place as the corporation’s place of incorporation. States wishing to adopt this standard and avoid the standard being interpreted as a registered office should include sufficiently detailed terms in their treaties as to the meaning of real seat. If the company in question is a shell company without any meaningful business activities in its place of incorporation, its place of incorporation cannot be considered the location of its real seat, because such a company only has a passive presence and the active elements regarding the commercial and operational decisions and their implementation are unlikely to be based in the place of incorporation. While some essential elements for the functioning of the corporation, such as book-keeping and correspondence, will have to be based at the place of incorporation, these do not suffice to satisfy the real seat standard. Its place of incorporation is chosen for reasons of regulatory and fiscal convenience, and even if it has a physical presence and a limited

84 Ch 3 Section III. 85 On the identification principle, see ch 3 Section I(D). 86 For an approach that views the above as undermining the shell corporation’s existence see Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v Kingdom of Spain (Decision on Jurisdiction) (ICSID Case No ARB/13/30, 6 June 2016) para 145 (The term ‘shell company’ is often used as a short-hand reference to a commercial entity that has little or no activity apart from owning or controlling directly or indirectly assets. Unless there is a reason under the relevant municipal law or investment treaty to conclude otherwise, there is no basis under international law to accord such a commercial entity any less entitlement to the protections afforded under an investment treaty than any other commercial entity.) 87 See ch 3 Section II (B) on the indicators of real seat.

Way Forward: Restoring Conceptual and Methodological Rigour  239 number of staff in that location, this alone does not suffice for its real seat to be located there. In cases involving shell corporations as claimants, it would be necessary to identify the shareholders of the claimant in order to locate the place where the shell entity’s effective management making the strategic business decisions is seated. If the management of the claimant rests with an individual direct or indirect shareholder, the claimant’s nationality should be that of its managing shareholder. If management rights are exercised by more than one person with different nationalities, the claimant could be considered to have multiple ­nationalities, taking into account the levels of influence exercised by each person. In such a case, unless one of the nationalities is that of the host state, the investor can benefit from the investment treaties covering one of its managing shareholders. If the majority shareholder is a corporate entity that itself is not a shell corporation, the place of the real seat of that corporate shareholder should determine the investor’s nationality. Unless the investor can prove otherwise, the real seat of the corporate shareholder would be considered the place of central administration of the shell company, as the corporate will of the shell company would be created at the real seat of the majority shareholder. If the immediate owner of the shell corporation’s shares is also a shell corporation, the same standard will apply to that entity until the shareholder/s with genuine business activities, or if all corporations in the chain are shell entities, then until the ­ultimate beneficiaries, are identified. The following paragraphs demonstrate how the nationality of the ­corporate investor would have been decided had the tribunals applied the real seat ­standard in a select group of arbitral awards representative of different investment structure and ownership scenarios. In Ata Construction v Jordan, the tribunal considered the claimant a national of Turkey based on the following information: The Claimant is a construction company constituted on 21 October 1983, under the laws of Turkey, …. ATA was founded by three other Turkish construction companies, Seri İnşaat or Seri Construction Ltd., Palet İnşaat or Palet Construction Ltd., and Enerji-Su İnşaat or Enerji-Su Construction Ltd., with experience as contractors in road, railroad, tunnel, industrial building, irrigation and dam projects.88

The information provided by the tribunal refers to the claimant’s place of incorporation and the nationality of its incorporators. The claimant was incorporated to carry out an investment in Jordan. Its main business activities were carried out in Jordan; however, there is no reference in the award as to whether its central management was located in Turkey. Since the company appears to carry out actual business activities, at least in Jordan, it would not be treated as a shell company. Under the real seat test, if the central management of the 88 ATA Construction, Industrial and Trading Company v The Hashemite Kingdom of Jordan (Award) (ICSID Case No ARB/08/2, 18 May 2010) para 2.

240  Evaluation of Responses to Nationality Shopping and the Way Forward claimant was located in Turkey, it would be considered a national of Turkey for purposes of ICSID’s jurisdiction. If it was located in Jordan, it would be considered a national of Jordan and it would be necessary to analyse the case under the second half of Article 25(2)(b) to assess whether it is under foreign control. In F-W Oil Interests v Trinidad and Tobago, the tribunal referred to the claimant as ‘a Delaware corporation, part of a group of companies established in the state of Texas.’89 The claimant was considered a national of the US. In cases like this, the company in question may have its place of incorporation for purposes of convenience (tax, lax corporate regulation, etc,) in jurisdictions like Delaware, but may have the seat of its central administration elsewhere, like Texas. Of course, when both are located in the same country, for purposes of ICSID jurisdiction, there are no complications. However, if the central administration and the place of incorporation are located in different countries, the place of central administration should be definitive for purposes of nationality. If a corporate investor is incorporated in Delaware, but its central administration is located in Canada, it should be considered a national of Canada, and not the US. Where there are no genuine business activities carried out by corporate ­entities within the upstream ownership chain of the investment, the nationality of the ultimate individual owner of the investment should be decisive of nationality. An example of this can be found in Perenco v Ecuador. The claimant was described as follows by the tribunal in that case: Perenco Ecuador Limited (‘Perenco’) is a company duly incorporated under the laws of the Commonwealth of the Bahamas. The Parties do not appear to contest that Perenco was the wholly-owned subsidiary of Perenco Gabon S.A., a company incorporated in the Bahamas, at the time Perenco commenced these proceedings before ICSID. In turn, 92.5% of the shares of Perenco Gabon S.A. were held by Perenco S.A., another company incorporated in the Bahamas. One-hundred percent of the shares of Perenco S.A. were held by another Bahamas registered company, Perenco International Limited, and 92.9% of the shares of Perenco International Limited were held by the estate of the late Hubert Perrodo, a French national.90

Applying the real seat standard, if any of the entities located in the Bahamas had actual business activities, rather than being mere shell investment vehicles, then the investor could be considered a national of the Bahamas so long as its central administration is located there. However, if they were all shell corporations without actual business activities, unless otherwise proven by the investor, the investor’s nationality should be determined by its ultimate owner’s nationality, the estate of 89 F-W Oil Interests, Inc. v The Republic of Trinidad and Tobago (Award) (ICSID Case No ARB/01/14 3 March 2006) para 5. 90 Perenco Ecuador Ltd. v The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Decision on Jurisdiction) (ICSID Arbitral Tribunal Case No ARB/08/6, 30 June 2011) para 3.

Way Forward: Restoring Conceptual and Methodological Rigour  241 the deceased French national. In this case, the tribunal considered the investor a French national based on the control exercised by French citizens over the Bahamas corporate vehicle that has initiated the claim, because the applicable investment treaty adopted ‘control’ as one of the ways to define its personal scope.91 In cases of companies belonging to large multinational groups, who frequently appear as claimants in IIA proceedings, the application of the real seat standard becomes more complex. For instance, in BIVAC BV v Paraguay, the claimant was a subsidiary of the Bureau Veritas Group. BIVAC BV was incorporated in the Netherlands, while the headquarters of the corporate group was in France, BIVAC S.A. It was the parent company that led the negotiations with the respondent for the deal; however, the investment contract was eventually signed between the Netherlands subsidiary and the respondent. The respondent objected to the jurisdiction of the tribunal ratione personae, arguing that the investment was French and not Dutch. The presence of BIVAC BV within the upstream ownership structure of the investment enabled the investor to claim Dutch nationality under the applicable investment treaty. An assessment of nationality by applying the real seat standard would require the tribunal to identify whether the central administration of BIVAC BV was located in the Netherlands as well. In complex corporate groups, there is likely to be different types of management, administration, or control exercised over the different strands and aspects of the business. For purposes of determining nationality under IIL, it is not always necessary for a tribunal to pin down the location of the ultimate authority that sets the general direction and policies of an entire multinational group. In other words, depending on the facts, it may or may not be necessary to search for the indirect shareholder ultimate parent company in order to identify the real seat of a corporate claimant. It is important for the practicality of applying the real seat standard to minimize the need to map the entire internal ownership and management structure of a large corporate group with multinational activities. Such an investigation would place extreme complexity over the analysis of nationality, as multinational groups often have complex92 and dynamic93 internal structures. This can become even 91 Perenco Ecuador Ltd. v The Republic of Ecuador (Decision on the Remaining Issues of ­Jurisdiction and on Liability) paras 509–530. 92 See JD Daniels, RA Pitts and MJ Tretter, ‘Strategy and Structure of U.S. Multinationals: An Exploratory Study’ (1984) 27(2) Academy of Management Journal 292, 293 (There is no single formula on internal organisation of MNEs. It has been suggested that internal organisation may differ based on the size, diversity of activities, geographical division of business and personnel deployment.); AK Sundaram and JS Black, ‘The Environment and Internal Organization of Multinational Enterprises’ (1992) 17(4) The Academy of Management Review 729, 742 (state that ‘it is quite possible that one subsidiary might be dependent upon the parent firm and be controlled through centralization, whereas another subsidiary within the same firm might be much more independent of the parent, or the parent firm might be quite dependent upon the subsidiary.’); F Ciabushi, H Dellestrand and U Holm, ‘The Role of Headquarters in the Contemporary MNC’(2012) 18 Journal of International Management 213–223. 93 P Muchlinski, Multinational Enterprises and the Law 2nd edn (Oxford, Oxford University Press, 2007) 56.

242  Evaluation of Responses to Nationality Shopping and the Way Forward more complex where a corporate claimant is a corporation created by multiple multinational groups,94 as it was in the case of AdT v Bolivia.95 A more practical approach would be a step-by-step analysis of the claimant’s management and administration, instead of starting by trying to capture the whole picture. The analysis would begin from the claimant or the host state entity carrying out the investment and, where necessary, move upwards layer by layer. It is crucial to move upwards from the claimant or the host state subsidiary in assessing the investor’s nationality, especially, if the claimant is a shell corporation. In the case of BIVAC, if the entity located in the Netherlands is not a shell corporation and has its offices and management and other staff located there, as well as a level of autonomy on the day-to-day management of its business,96 including its investment in Paraguay, this should satisfy the real seat test. This would be the case even if the parent company exercises certain influence regarding the general direction of the business. However, if the Dutch entity is a shell and carries out no business activity other than holding shares in other investments, it cannot satisfy the real seat test. In that case, tribunals should look beyond the shell corporation to locate the place of central administration of the claimant, which may be located at the parent company level or another company within the group. That location will constitute the place of central administration of the claimant, which will determine its nationality. It is common in large multinational corporate groups to diversify management by allocating the administration of business in different regions of the world to some of their subsidiaries.97 In this respect, it was observed that ‘different forms of multiple headquarters can co-exist within an MNC, such as corporate

94 UNCTAD Transnational Corporation Statistics, available at http://unctad.org/en/Pages/DIAE/ Transnational-Corporations-Statistics.aspx. 95 See ch 5 Section I (B). 96 S Ghoshal and N Nohria, ‘Internal Differentiation within Multinational Corporations’ (1989) 10 Strategic Management Journal 323, 323 (They divide the nature of headquarters-subsidiary relationship into three categories: ‘(1) centralization, the lack of subsidiary autonomy in d ­ ecision-making; (2) formalization, the use of systematic rules and procedures in decision making; and (3) normative integration, consensus and shared values as a basis for decision-making.’, the nature of the relationship between the claimant subsidiary and the headquarters will play a role in locating the central administration of the former.) 97 AK Sundaram and JS Black, ‘The Environment and Internal Organization of Multinational Enterprises, 742–743 (observe that ‘the greater the differences among various countries in which subsidiaries operate, the greater the likelihood that governmental, legal and cultural pressures will push respective subsidiaries in various and different directions. More important, it may become impossible for the parent firm to force all subsidiaries to implement centrally made decisions that run counter to pressures in the host country. Thus the power of the parent over its subsidiaries is moderated by sources of external authority.’ This leads to increased use of ‘socialisation’ as an organisational structure which involves dispersal of decision-making within a multinational group around common goals and values.) In fact, ‘more decentralized and less formalized ‘network forms’ of the MNC [has] emerged in response to increased dynamism and heterogeneity in MNC environments.’ See K Foss, NJ Foss and PC Nell, ‘MNC organizational form and subsidiary ­motivation problems: Controlling intervention hazards in the network MNC’ (2012) 18 Journal of ­International Management 247, 248.

Way Forward: Restoring Conceptual and Methodological Rigour  243 headquarters, divisional and business unit headquarters, functional headquarters and regional headquarters.’98 For instance, Asia and Pacific operations of a multinational group headquartered in Russia may be managed by a regional subsidiary located in Singapore99 rather than by the parent company. Consider a claim regarding the group’s business in Kuwait before an ICSID tribunal by the Singapore subsidiary, which holds the investment in Kuwait via a shell company incorporated in Hong Kong. The claimant invokes the Singapore-Kuwait BIT100 as the basis of consent, which refers disputes to ICSID arbitration in Article 9. If the claimant is not a national of Singapore within the meaning of the Convention, the BIT will not be construed as consent to ICSID. Kuwait challenges the Singaporean nationality of the claimant and argues that it is a national of Russia because its ultimate control is exercised by the Russian parent. Since Russia is not a Contracting State to the ICSID Convention, Kuwait requests the tribunal to deny jurisdiction. If the real seat standard is applied by the arbitral tribunal, the investor would be treated as a national of Singapore. The Hong Kong entity is a shell intermediary vehicle for the execution of the investment, but it does not actually perform any functions other than being a link between the activities in Kuwait and the Singaporean subsidiary. In such a case, the central management of the shell investment vehicle would be performed in Singapore, and not in Hong Kong. Unless it transpires that the Russian parent directly manages and administrates the activities of the Hong Kong entity thereby eliminating the Singapore subsidiary’s decision-making powers, the investor should be considered a national of Singapore and not of Russia. D. Nationality Determined with Reference to ‘Control’ Control has been adopted as a subsidiary standard in some investment treaties and in the ICSID Convention as a determinant of nationality or personal scope. When control is exercised by direct natural person shareholders, there is little

98 F Ciabushi, H Dellestrand and U Holm, ‘The Role of Headquarters in the Contemporary MNC’ 215; V Mahnke et al, ‘How do regional headquarters influence corporate decisions in networked MNCs?’ (2012) 18 Journal of International Management 293, 293 (state that ‘Typically, power and knowledge in the networked MNC are distributed across a set of semi-autonomous units with some of these units assuming more important roles than others.’) 99 F Ciabushi, H Dellestrand and U Holm, ‘The Role of Headquarters in the Contemporary MNC’ 215 (state that ‘one way of conceptualizing headquarters is to view it as an entity to which other units directly report. This encompasses the fact that the headquarters function may be conducted by intermediary units such as regional or divisional headquarters, which reflects the empirical reality of doing business in large corporations such as MNCs.’) 100 Agreement between the State of Kuwait and the Republic of Singapore for the Encouragement and Reciprocal Protection of Investments, signed 5 November 2009, entered into force 15 April 2013.

244  Evaluation of Responses to Nationality Shopping and the Way Forward complexity in identifying it.101 But the number of international investments that involve simple ownership structures are rare. The meaning of control under the ICSID Convention and under investment treaties has received different interpretations for investments with more complex corporate structures.102 The main division in arbitral awards has been on whether control should be actual or potential (or legal) for the purpose of determining the nationality of a corporate investor.103 To determine nationality by looking at the potential to control is simpler than identifying where actual control lies. But this formalistic approach to control raises the same problems raised by the formalistic incorporation standard: it makes it too easy for an investor to acquire whichever nationality that will give it the best possible legal protection. Any entity in the upstream ownership structure of the host state with sufficient shareholding may have the potential to control, even if they play no actual role in the management of the business. For states wishing to avoid the opportunistic use of their investment treaties, a more suitable approach is to expressly state that control shall be determined by identifying the ‘actual controllers’. The actual control approach would also be in keeping with the ordinary meaning of the term within the context of foreign investment protection.104 If an investment protection treaty wished ‘control’ to mean anything other than actual control, the parties could have used the terms ‘ownership’ or ‘shareholding’ rather than ‘control’. How then should actual control be determined? As emphasised earlier in this chapter, control within a corporate group can be exercised in different ways. In addition to the diverse patterns of control, there can also be diverse structures adopted and contractual arrangements made for specific investment projects. So, the method or methods adopted to determine control should have some flexibility to adapt in different circumstances. The approach proposed in this book is largely based on the real seat theory and it is applied below to different investment structures which commonly appear in investment disputes in the

101 Ie, in Compañiá del Desarrollo de Santa Elena, S.A. v The Republic of Costa Rica (Award) (ICSID Case No ARB/96/1, 17 February 2000), the claimant was a company incorporated in Costa Rica and the majority of its shareholders were US citizens. Costa Rica agreed that Santa Elena met the nationality requirement of the ICSID Convention by reason of its majority ownership by US citizens. It is not clear from the case whether the US citizens also exercised control over the host state entity. However, assuming that they have, this should be the approach followed by ICSID tribunals when direct individual shareholders of the host state entity hold the majority shareholding and exercise control. Similarly, in Liberian Eastern Timber Corporation (LETCO) v Republic of Liberia (Award) (ICSID Case No ARB/83/2, 31 March 1986) 26 I.L.M. 647 1987, the tribunal found that the claimant, an entity established in Liberia, was wholly owned and effectively controlled by French nationals. Effective control determination was made based on the fact that majority, if not all, of LETCO’s directors were French nationals at all times. The tribunal did not refer to whether the owners of LETCO were natural or legal persons; however, the language used by the tribunal indicates that they were natural persons. 102 See ch 5 Section I(B). 103 See ch 5 Section I(B). 104 As stipulated by Art 31 of the Vienna Convention on the Law of Treaties (VCLT) 1155 UNTS 331, 8 ILM 679 (1969).

Way Forward: Restoring Conceptual and Methodological Rigour  245 following sections. While applying this standard to the assessment of consent and personal jurisdiction, it is crucial for tribunals to follow an upstream direction in analysing the identity and nationality of the investor beginning with the host state entity.105 i.  Indirect Ownership by Natural Persons This scenario involves ultimate, indirect ownership by natural persons. ­Typically, corporations are ultimately owned by natural persons, unless they are owned by a state or non-profit organisation. In this scenario, the focus will be on instances that involve indirect ownership by individuals of shares in the host state entity. The well-known Tokios Tokeles case falls under this category. The case involved an entity established in Ukraine, Taki spravy, which was wholly owned by Tokios Tokeles. Tokios Tokeles was incorporated in Lithuania and was wholly owned by Ukrainian natural persons. Had the tribunal applied the real seat approach to assessing who controls the Ukrainian Taki spravy, it would have to determine whether Tokios Tokeles had its central administration located in Lithuania as there would be a rebuttable assumption that this is the place from where the control over the investment is exercised. The arbitral award is not clear whether Tokios Tokeles had its central administration in Lithuania, though we know that it was incorporated there. The respondent argued that the real seat of Tokios Tokeles was located in Ukraine, while the tribunal held that it was located in Lithuania but has not provided reasons for this finding. If the central administration of Tokios Tokeles was indeed located in Lithuania, Taki spravy would be considered a national of ­Lithuania, unless it could be proven that the real seat of Tokios Tokeles is not the place from which control of Taki spravy is exercised.106 However, if the central administration of Tokios Tokeles was located in Ukraine, as contended by the respondent, the investor should have been considered a national of Ukraine by virtue of place of real seat. Alternatively, if Tokios was a shell company and control over the investment was exercised by its Ukrainian shareholders, the investor should have been considered a national of the Ukraine. This is because a shell company, by its passive nature, cannot exercise ‘actual control’ over the investment. In SOABI v Senegal, SOABI was a company incorporated in Senegal to carry out the investment.107 All of its shares were owned by Flexa, a company incorporated in Panama with its head office in Geneva. Flexa, in turn, was controlled

105 See ch 6 Section I for the discussion on the direction of analysis. 106 Applying the second part of ICSID Convention’s Art 25(2)(b) which requires foreign control of the host state entity. 107 For a detailed discussion of this case see ch 5 Section I(B).

246  Evaluation of Responses to Nationality Shopping and the Way Forward by Belgian nationals. All three states could have a bearing on the assessment of the investor’s nationality under IIL: Panama as the place of incorporation; Switzerland as the place of real seat; and Belgium as the shareholders’ state of nationality. Pursuant to the real seat approach to control there would be a rebuttable assumption that control over SOABI is exercised by Flexa, which had its real seat in Switzerland. As such, the investor would be considered a national of Switzerland, unless it can be proven that the Belgian shareholders, and not Flexa exercise control over SOABI. ii.  State-Owned Enterprises as Investors States are increasingly becoming involved in international business as investors acting in a commercial capacity108 and this analysis would be incomplete without referring to state-owned enterprises.109 This scenario involves corporate claimants that are ultimately owned by states. In AGIP v Congo, the claimant was a company established under Italian law with headquarters in Rome.110 It was a state-owned enterprise at the time of the dispute. In order to carry out its investment in Congo’s oil sector, the claimant incorporated a local entity, AGIP (Brazzaville) S.A., in which it owned 90 per cent of the shares.111 Under the real seat approach, the investor would be considered a national of Italy as AGIP (Brazzaville) S.A. was owned and controlled by AGIP which had its real seat in Italy. The standard proposed here to determine control and nationality focuses primarily on the corporate entity, and not on its ultimate shareholders, unless the entire corporate structure is formed of shell investment vehicles. In a case like AGIP, it is not necessary to look beyond AGIP parent’s corporate personality to identify the nationality of its shareholders or the nature of their personality, so long as the corporation itself is not a shell corporation without genuine activities.112 In the unlikely scenario that AGIP’s headquarters were to be located 108 See KP Sauvant, LE Sachs, and WPF Schmit Jongbloed, Sovereign Investment: Concerns and Policy Reactions (Oxford, Oxford University Press, 2012); A van Aaken, ‘Blurring Boundaries between Sovereign Acts and Commercial Activities: A Functional View on Regulatory Immunity and Immunity from Execution’ University of St. Gallen Law School Law and Economics Research Paper Series Working Paper No 2013–17, March 2013, 3–6; LN Skovgaard Poulsen, ‘Investment treaties and the globalisation of state capitalism: opportunities and constraints for host states’ in R Echandi and P Sauvé (eds) Prospects in International Investment Law and Policy: World Trade Forum (Cambridge, Cambridge University Press, 2013) 73; United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2011: Non-Equity Modes of International Production and Development (Geneva, United Nations, 2011), 33. 109 State-owned enterprises refer to business enterprises which the state (central, regional or local) has ‘significant control, through full, majority, or significant minority ownership’; OECD, ­Guidelines on Corporate Governance of State-Owned Enterprises (OECD Publishing, 2005). 110 AGIP S.p.A. v People’s Republic of the Congo (Award) (ICSID Case No ARB/77/1) para 1. 111 AGIP S.p.A. v People’s Republic of the Congo para 16. 112 Similarly, in Telenor Mobile Communications A.S. v The Republic of Hungary (Award) (ICSID Case No ARB/04/15, 13 September 2006), (The claimant’s majority shareholding was held indirectly by the State of Norway.)

Way Forward: Restoring Conceptual and Methodological Rigour  247 in France rather than Italy it would have been considered a national of France, even though it was ultimately owned by the Italian state. iii. Investments Involving Multiple Layers of Corporate Ownership This scenario involves investments having complex upstream structures consisting of several layers of corporate ownership and at least one of the companies within the structure has actual business activities. This is most commonly observed in investments by large MNEs or cases involving joint venture companies as investors. Determining the nationality of investors with intricate corporate structures is unlikely to be straightforward. The genuine link principle should guide the analysis and the real seat standard can be applied flexibly in different contexts. The following paragraphs demonstrate how the real seat standard would be applied to examples from arbitral jurisprudence involving multi-layers of corporate ownership. A good example involving a multi-layered joint venture investment is the structure found in the Biwater Gauff v Tanzania decision. Here the claimant was incorporated and had its principal place of business in England.113 It carried out its business in the host state through locally established entities. Eighty per cent of Biwater Gauff shares were held by Biwater International, a company incorporated in England, and the remaining 20 per cent shares were held by HP Gauff Ingenieure GmbH and Co. KG-JBG, described by the tribunal as a German corporation. The two shareholders incorporated Biwater Gauff in England for purposes of their investment in Tanzania.114 Biwater Gauff then incorporated two entities115 in Tanzania to carry out the investment. In this scenario, if Biwater Gauff had its central administration in England besides its place of incorporation, it could be considered a national of the UK and there would arise a presumption that it controls the host state companies established in Tanzania as the owner of the two entities. If it was a shell corporation, the tribunal would need to go beyond the shell entity to identify the entity or person exercising actual control over the investments in Tanzania. B ­ iwater Gauff’s 80 per cent shareholder Biwater International could be exercising ­managerial or administrative functions in the place of the claimant. In that case, the place of Biwater International’s real seat would define the nationality of the investor. If Biwater International’s real seat is located in the UK,116 it should be considered a national of the UK, and as a result, the Biwater Gauff should be considered a national of the UK under IIL. The result might be different, if it is

113 Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania (Award), (ICSID Case No ARB/05/22, 24 July 2008) para 1. 114 Ibid, para 4. 115 Super Doll Trailer Manufacture Co. (T) Limited and City Water Services Limited. 116 According to the information on Biwater Group’s website, Biwater International is based in Surrey, UK.

248  Evaluation of Responses to Nationality Shopping and the Way Forward proven that control over the investment is exercised, eg via contractual arrangements, by the German partner owning 20 per cent of Biwater Gauff. Another useful example involving a large conglomerate with substantive business activities in several countries is the investor in the Aucoven v ­Venezuela decision. In this case, the claimant was incorporated and had its registered office in Venezuela.117 The claimant was founded by ICA, a Mexican engineering and construction firm, which held 99 per cent of the claimant’s shares.118 The tribunal described ICA as the head of a Mexican conglomerate of over 140 companies119 and its shares were traded on the New York Stock Exchange and the Bolsa Mexicana de Valores.120 The claimant’s ownership structure was amended over the course of the project as a result of a restructuring of operations in the conglomerate.121 Seventy-five per cent of the claimant’s shares were transferred to Icatech, a company part of the same conglomerate and ­incorporated in the US. The rest of the shares remained in ICA’s ownership.122 The question arises as to which entity exercises control over the claimant. Is it Icatech which owns majority of the shares in Aucoven or is it ICA which holds minority shareholding, as well as majority indirect shareholding via Icatech? In a case such as this, it is important to acknowledge that ownership and control do not necessarily overlap. As long as Icatech is not a shell company, there is an assumption that Icatech, as the majority immediate shareholder, controls the claimant. This could be proven otherwise, if extracontractual or contractual arrangements show that ICA exercises control over Aucoven and not Icatech. If not, then it would be necessary to determine where Icatech’s real seat is located to identify the investor’s nationality. In investments that are carried out via host state entities by foreign investors, it is very likely that the day-to-day management of the business will be conducted by the host state entity’s own management. However, control of that entity within the meaning of IIL will be exercised by those who have direct or indirect ownership rights and who make the decision to invest and/or exercise decisive influence over fundamental decisions relating to the investment. In some cases, percentages of shareholding may not alone be indicative of control at all. This was the case in Aguas del Tunari (‘AdT’) v Bolivia. This case involved an international joint venture by a group of multinational and local Bolivian entities. AdT was a local entity incorporated in Bolivia to carry out the investment.123 The claimant invoked the investment treaty between Bolivia and the Netherlands as the basis of consent to ICSID’s jurisdiction.124 The ­claimant’s

117 Aucoven

v Venezuela para 1. paras 8–9. para 10. 120 Ibid, para 11. 121 Ibid, para 17. 122 Ibid, para 27. 123 AdT v Bolivia para 53. 124 Ibid, para 76. 118 Ibid, 119 Ibid,

Way Forward: Restoring Conceptual and Methodological Rigour  249 ownership structure at the time the dispute was brought before ICSID was as follows: • 20 per cent of the shares in AdT were divided between four Bolivian companies; • 25 per cent of the shares were owned by Riverstar International, S.A. of Uruguay which was in turn 100 per cent owned by Abengoa of Spain; • 55 per cent of the shares were owned by International Water S.a.r.l. (‘IW S.a.r.l.’) of Luxembourg. IW S.a.r.l. was owned wholly by International Water (Tunari) B.V. (‘IWT B.V.’) of the Netherlands, which was owned wholly by International Water H ­ oldings B.V. (‘IWH B.V.’) of the Netherlands. The latter was owned 50 per cent by Baywater Holdings B.V. of the Netherlands, which in turn was owned wholly by Bechtel Holdings, Inc., and 50 per cent by Edison S.p.A, a company headquartered in Italy. The claimant claimed to be a national of the Netherlands. In this kind of ownership structure, there may be more than one entity with the potential to exercise control over the investment. For instance, if we look at the immediate shareholders the combined shareholding of the four Bolivian companies and Riverstar International equals 45 per cent, which is a significant power in a joint venture company such as AdT that could indicate power to control. However, for purposes of ICSID’s jurisdiction, it is more convenient to assume that the shareholder which holds the majority shareholding singlehandedly has the power to control, unless arrangements made among shareholders on voting and types of shares allocate control differently. If IW S.a.r.l. was a company incorporated in Luxembourg with its central administration also located in Luxembourg, the assumption would be that the host state entity was controlled by this entity. On the other hand, if IW S.a.r.l. is a shell company, then it could not have been exercising actual control. In that case, the analysis would move one layer up in the corporate structure and the same test would be applied to IW S.a.r.l’s shareholder IWT B.V. If IWT B.V. is also a shell company, then the tribunal should move a layer up to IWH B.V. If all of these entities were shell corporations, then a complication emerges, as the IWH B.V. itself does not have a majority shareholder, but two shareholders with equal shareholding. There is no indication in the decision as to any other arrangements that endow either party with power to control neither IWH B.V. nor AdT. Both Edison S.p.A. and Bechtel Holdings, Inc. indirectly hold a 22.5 per cent share in AdT via IWH B.V., which does not give either the majority shareholding interest to exercise control over the investment on that basis. Based on ownership interests, Riverstar International is the entity that held the majority shareholding in AdT with 25 per cent. If holding a 25 per cent interest in AdT enabled Riverstar to exercise control and Riverstar’s central administration was located in Uruguay besides its place of incorporation, AdT would be considered a national of Uruguay. If this is not the case, and its central administration

250  Evaluation of Responses to Nationality Shopping and the Way Forward is located elsewhere, the place of the central administration should determine its nationality. Finally, if Riverstar International is a shell corporation, the nationality of its owner Abengoa of Spain should determine AdT’s nationality. Alternatively, the contractual arrangements between the joint venture partners may reveal how and by which entities control is exercised over AdT. If control is exercised jointly by several partners, the investor may be considered to have dual or multiple nationalities. The key to this analysis is to identify the entity within the upstream ownership structure of the host state entity which exercises actual control and then identify where that controlling entity’s real seat is located. This analysis will use several rebuttable presumptions. Actual control is presumably held by a direct or indirect majority shareholder which has genuine business activities that is not a shell corporation. This can be rebutted by showing that there are contractual and extracontractual arrangements and indicators at the upstream structure that allocate the exercise of actual control differently. Once the locus of actual control identified, the tribunal will identify the real seat of the controlling entity or the entities concerned. This will lead the tribunal to a conclusion on the nationality of the investor, whether single or dual nationality. IV. CONCLUSION

In this concluding chapter, I first discussed the effectiveness of the abuse of rights doctrine and denial of benefits clauses as legal tools for drawing boundaries to the personal scope of investment protection treaties. While both of these tools can have a role to play in curbing opportunistic uses of corporate form by investors to acquire investment treaty benefits, the analysis has shown that they have had limited success in achieving that goal. The abuse of rights doctrine, by its very nature, is an extraordinary means of stripping a right holder from its rights and has been approached with extreme caution by arbitral tribunals. Understandably, it there is a very high threshold for treating investor behaviour abusive. It can only be effective in cases where investor conduct is reprehensible. But most cases of treaty or nationality shopping fall outside that limited range. Denial of benefits clauses hold promise, but arbitral jurisprudence on their application is incoherent. Uncertainties remain as to when, how, and with what effect states can invoke these clauses. Some states are moving towards more prescriptive DoB clauses in their investment treaties. This may overcome many of the uncertainties arising from the arbitral interpretation of DoB clauses. A DoB clause can be used together with the incorporation or the real seat standard in investment treaties. In the latter case, the DoB clause would allow a host state to deny benefits to investors who have their real seat in the home state but are controlled by nationals of the host state or by nationals of a third state with which the host state does not maintain normal diplomatic relations.

Conclusion  251 An alternative and complementary approach discussed here is a move away from the incorporation test to define corporate nationality. Despite its tempting simplicity, the incorporation test does not always provide the substantial link sought for connecting a company to a state with the bond of nationality. The simplicity of company registration process, particularly in offshore or corporation friendly jurisdictions, allows opportunistic nationality shopping to be condoned, because the law does not prohibit this behaviour. Adopting the real seat standard to define the nationality of corporate investors under IIL, does not render it illegal to use shell vehicles or other investment structures. Neither does it strip such vehicles from their corporate personality.125 It merely disregards that entity for purposes of assessing an investor’s nationality under IIL. Investors can still, within legal boundaries, make use of such shell corporations, but they cannot use such corporate vehicles to invoke IIL protections. The real seat standard is not without its own challenges. The location of a corporate investor’s real seat may not be easily identifiable, particularly when the investor has a complex upstream ownership structure. It will require a close analysis of the legal and factual arrangements between the different entities involved in the investment structure. But such complex entities are difficult to untangle, no matter which standard is applied. Insisting on the incorporation standard to simplify matters and expand the coverage of IIL protection to unintended beneficiaries undermines the reciprocity of IIL instruments and damages the legitimacy of the system. The real seat standard provides a strong and stable factual link to a state as the basis of nationality without unduly compromising the principles of corporate personality. States wishing to draw clear limits to the personal scope of their investment treaties and preserving the reciprocity of the IIL regime can most effectively do this: (1) by adopting the real seat standard in their investment treaties and stipulating in sufficient detail how the real seat is to be determined and (2) by including DoB clauses which are sufficiently detailed in terms of the procedure for their invocation and in terms of the substantive requirements for denying benefits.

125 See ch 3 Section II(B). See for a contrary view Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain (Decision on Jurisdiction) (ICSID Case No ARB/13/30, 6 June 2016) para 145 (The term ‘shell company’ is often used as a short-hand reference to a commercial entity that has little or no activity apart from owning or controlling directly or indirectly assets. Unless there is a reason under the relevant municipal law or investment treaty to conclude otherwise, there is no basis under international law to accord such a commercial entity any less entitlement to the protections afforded under an investment treaty than any other commercial entity.)

Conclusion

I

n this book, I explored the complex relationship between two legal fictions, ‘nationality’ and ‘corporation’. These concepts and their interaction play a crucial role in defining the coverage of investment treaty protections and the magnitude of the impacts of the foreign investment protection regime on policy space of governments, fundamental rights and interests of host communities and investors. The first set of questions at the essence of this research concern policy issues. The discussion in the book begins by looking at the reasons in favour and against adopting an expansive approach to personal coverage of IIL instruments. It is undisputable that with the proliferation of investment treaties adopting tenuous links to define personal coverage, nationality shopping for international protection has now become a mainstream tactic for domestic and foreign investors. But as discussed in various sections of this book, it is not only the treaty texts that promote a lax understanding of corporate nationality. IIA tribunals have dominantly adopted expansive interpretations of corporate nationality, often referring to the ordinary meaning of the treaty texts and the purpose of IIL instruments to increase investment, and thus stretched the coverage of protection to any corporation who is able to establish a tenuous link to a relevant home state. The policy justifications for an expansion of IIL protections to a wider group of investors via nationality shopping rest on the benefits of increased levels of investment to the economy, development and the governance of host states. In the current form and operation of IIL and IIA, the evidence is inconclusive on whether these legal tools have delivered on their policy objectives, even after operating in full force for the last two decades.1 Even if one could accept that an expansive approach could be justified for the greater good, in light of IIL’s unfulfilled promises, it is difficult to sustain the promotion of opportunistic uses of the corporate form to achieve wider coverage. Policy reasons against an expansionist approach to corporate nationality are that such an approach undermines the reciprocity of protection and the substantive bargain promised in treaties. This not only contributes to the current legitimacy crisis of IIL, but it also undermines current and future reform efforts aiming to remediate the legitimacy problems. This last point is the most urgent one that policymakers and arbitrators should consider seriously. If states

1 Here, I am referring to the post-2000 period, which is when IIL and IIA have been most actively used by investors.

Conclusion  253 wish to ensure that the bargain struck in their newly signed or reformed treaties ­containing a revised set of standards, taking on board key public policy issues, are not subverted by investors via nationality shopping for the protection of an older generation treaty, they need to firm up the personal coverage standards for all their treaties. For IIA tribunals, if they are determined to enhance the normative and sociological legitimacy of their decisions on personal coverage, they need to move away from unjustified patterns of interpretation in favour of their jurisdiction founded on tenuous links. Tribunals should carry out a more rigorous analysis of corporate nationality and denial of benefits of clauses that upholds the preferential bargain made by the states. The second set of questions delve into the technical aspects of the personal coverage. Within the current architecture of international law and IIL, nationality plays a fundamental role in allocating rights and responsibilities among the relevant actors. But given that corporations are fictional persons, I ask whether nationality is an appropriate legal bond for connecting a corporation to a state for purposes of IIL. Answering this in the affirmative, I then ask, if nationality is an appropriate legal bond, then what is and should be the standard for determining the nationality of a corporate investor under IIL? The answers to these questions are built on three pillars foundational to the discussion. We first need to place the question of corporate nationality within the context of access to IIL protections. This is a relatively narrow enquiry, but it is within these boundaries that I explore the two overarching questions. Placing the discussion within the context of access allows the discussion to be linked to the policy considerations identified in the introduction. The access analysis supports the argument that it is not fit for purpose for IIL instruments or IIA decisions to to link corporations to states based on tenuous connections. The second foundational pillar for the discussion is the legal concept of nationality. From the nationality analysis in Chapter 2, the key principle informing the discussion of corporate nationality under IIL is the principle of genuine link. Despite its exceptions, this principle is central to the bond of nationality and IIL texts and IIA tribunals should be adopting it as a guiding principle for corporate nationality. Here, I also establish that nationality, established on a genuine link, is an appropriate legal bond for corporations for purposes of IIL. Anchoring entities that form a part of a transnational enterprise to a legal system based on sufficiently strong links allows for a more certain and robust allocation of rights and duties among states, corporations, and societies which are the ultimate beneficiaries or victims of corporate activity. The third foundational pillar is a solid understanding of corporate personhood and governance. The unique features of corporate personhood and governance bring an additional layer of complexity for international courts and tribunals when ascertaining the nationality of a corporation, particularly in a trans-national setting. For a rigorous analysis of corporate nationality, it might be necessary to deconstruct the parts of a corporate group and identify

254  Conclusion the nature of the claimants’ or other relevant entities’ operations. This would allow tribunals to identify whether an entity has genuine links to its place of incorporation or not. An analysis of the IIL texts and arbitral jurisprudence informed by the standards on access, nationality and corporations reveals that the reliance on artificially constructed nationalities as the basis of accessing IIL protections are resulting partially from investment treaty texts, but more importantly from arbitral interpretations of these texts. It is possible to detect a generally expansionist approach from awards, even when such a reading cannot be justified by the applicable legal text. The decisions are largely outcome-led where tribunals are only consistent in finding satisfactory nationality, but the paths they have taken to reach that outcome are largely inconsistent. The methodological and interpretative flaws identified from the case law appear to be intentional choices to sustain the expansionist approach but this comes at the expense of the trust in the investment treaty regime. The key lesson from the discussions in this book is that any attempts by states to reform the standards on personal coverage of IIL instruments should: (1) introduce DoB clauses and substantial links to ­determine corporate nationality, and (2) more importantly, these clauses must contain sufficiently detailed terms on the meaning and operation of these standards to leave tribunals the least amount of interpretative discretion as possible.

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NEWS ARTICLES AND BLOGS BusinessWire ‘Millicom International Cellular: Millicom and the Republic of Senegal Jointly Terminate All Legal Proceedings’ Stockholm, 12 October 2012. E Whitsitt, TCW Group settles with the Dominican Republic Investment Treaty News 14 February 2010. J Ford and G Plimmer, ‘UK utility investors prepare to fight with nationalisation in prospect’ Financial Times, 3 December 2019 London. N Thomas ‘National Grid and SSE shift some UK operations into offshore groups’ Financial Times 24 November 2019 London. G Ünüvar and A Küçüksu, ‘From Protection to Governance of Foreign Investment: Vulnerability Theory as a Paradigm Shift in International Investment Law’ 27 December 2019 EJIL:Talk.

266

Index A A11Y v Czech Republic  199 abuse of rights doctrine admissibility objection  197–199 generally  16, 17, 168, 174, 219, 250 good faith requirement  197, 221–222 jurisdictional objection  197–199 limitations  19, 222–223, 250 nationality shopping  19, 191–199, 219, 220, 221–223, 233, 235, 250 parallel claims  210, 212, 219 personal scope of protection and  222, 250 reasonably foreseeable disputes  193, 194–195, 222, 223 restructuring, timing and purpose  196–197, 198, 221 temporal scope of treaty  191–195 threshold for application  222, 250 treaty shopping  19, 191–195, 219, 220, 250 access requirements to IIL consent  6, 12, 25–26, 31, 41–43 expansive approach  4–12, 25–26 generally  6–7, 17, 25–29, 44, 46–49 ICSID Convention see access to ICSID arbitration investment  6, 31, 32, 39, 44 investor  200–202 nationality  6, 12, 17, 25–26, 31–32, 39, 44, 50, 56, 200–202 non-ICSID arbitration  15, 27, 43–46, 49 purpose of regime  126 restrictive approach  25–26 access to ICSID arbitration Additional Facility Rules  44 Article 25 requirements  26, 31, 33–43, 127–165 consent to arbitration see consent to ICSID arbitration dispute arising directly from investment  30, 33, 39–43, 44, 45 dispute not meeting jurisdictional requirements  44 generally  17, 26, 30–43, 49 home state adherence to Convention  33 host state adherence to Convention  33

IIL requirements see access requirements to IIL investment, requirement for  6, 31, 32, 39 investment without locally incorporated entity  130–140 nationality  15, 17, 31–32, 33, 39, 44, 49, 56, 134, 200–201 nationality of controller  42, 93, 127–128, 140–165, 166, 233 actual seat connecting factor, as  236 admissibility of claim nationality and  25, 29 admissibility objection jurisdictional objection distinguished  197–199 AdT v Bolivia  156, 159–161, 242, 248–250 AES Summit v Hungary  149, 162 agency relationship  90–91 AGIP v Congo  246–247 aircraft chartered  75 closed skies regime  75–76 corporate owned  75 dual or multiple nationality prohibited  74 flag state  74–75, 76, 80 genuine link to state  75–76, 80 nationality  13, 50, 51–52, 69–70, 74–76, 80 ownership  74–75 registration  74–75, 76, 80 Alps Finance v Slovak Republic  171, 173 Amco v Indonesia  142, 152–153, 163 Amerasinghe, CF  145, 164 AMTO v Ukraine  228, 229 arbitration see international investment arbitration Argentina claims against after 2001 financial crisis  186–187 Argentina-Netherlands BIT  46 Ascom v Kazakhstan  226 ASEAN Comprehensive Investment Agreement  171, 224 ASEAN Investment Protection Agreement  171–172

268  Index Ata Construction v Jordan  239–240 Aucoven v Venezuela  146–148, 152–153, 162–163, 208, 235–236, 248 Australia denial of benefits clauses  224 Aven v Costa Rica  67–68 B Banro American v DRC  153–154, 209 Barbados-Venezuela BIT  195 Barcelona Traction  112–117, 120–121, 124, 138–139, 187, 234 Baumgartner, J  7, 222 Belgium real seat theory  97n beneficial owner corporate nationality  77 nationality  119 bilateral investment treaty (BIT) see investment protection treaty BIVAC v Paraguay  136–137, 208, 241–242 Biwater Gauff v Tanzania  41–42, 247–248 Bolivia-Netherlands BIT  159–161 Bonnitcha, J et al  3 Brabandere, E De  197, 198, 223 Broches, Aron  21, 31, 200 C Canada CETA  11–12, 170 denial of benefits clauses  224 Model Treaty  170–171 Canada-Venezuela BIT  168, 188 Canadian Pension Plan Investment Board  11–12 Chicago Convention on International Civil Aviation  74, 75, 80 Clark v Uebersee Finanz-Korporation A.G. 123 CME v Czech Republic  212 company law contractual approach  85–86 socio-legal approach  85–86 competition law piercing the corporate veil  88 connecting factor generally  25, 179, 231–233, 254 genuine link see genuine link requirement ICSID Convention, generally  17, 20 investment treaties  17, 19, 47–48, 179 nationality  4, 13, 17, 18–19, 51, 52, 53, 77–80, 82, 179, 180, 199–204, 253

place of incorporation see incorporation place of substantive business activity  232 principal office  236 real seat see real seat standard separate personality principle  93, 232 siège social  138, 232, 236–237 tenuous  4, 8, 15–16, 25, 252, 253 consent to arbitration generally  43–46, 49, 148, 179, 197 consent to ICSID arbitration access requirement, as  26, 30, 31, 33–39, 41–43, 197 arbitration without privity  36–37 contractual  33 corporate nationality and  26, 185 form of consent  33–34 host state’s consent  33–34 ICSID clause in treaty  34, 35–36, 126 investment treaty as source  12, 16, 18, 26, 34–39, 43, 44, 126, 148, 163–164, 181–186 investor’s consent  33–34 lack of, jurisdictional challenges based on  37 legislation of host state, through  33–34 nationality and consent  26, 148, 181–186 scope of treaty and  37–38 standing offer model  36–37, 38–39 time for  33 unilateral  30 control actual control/controller  153–155, 162, 232–233, 244, 245, 249, 250 AdT v Bolivia  156, 159–161, 248–250 AES Summit v Hungary  149, 162 Amco v Indonesia  152–153, 163 arbitral jurisprudence  233 Aucoven v Venezuela  146–148, 152–153, 162–163, 248 Banro American v DRC  153–154 centre of management and control  165, 238–243 controlling entity  131, 162–164, 188 corporate investor with multiple nationalities  131 denial of benefits clause and  223–224, 227 determination, generally  243–250 financial, place of  120–121 foreign  42, 127–130, 140–165 foreign, agreement to  145–146, 164–165, 185–186 group companies  147–148, 244

Index  269 host state entity, of  140–165 ICSID arbitral decisions  131–161, 233 ICSID control test  42, 93, 127–128, 140–165, 166, 233 ICSID Convention, generally  243–244 immediate shareholders and  152–153 incorporation, place of  162 indicators of  144–161 indirect  148, 150–151, 186 indirect ownership  148, 150, 186, 245–246, 248–249 intermediary subsidiaries  173 investment, of  189–190 investment treaties, generally  43, 47, 93, 244 joint venture companies  247 legal  244 LETCO v Liberia  149, 162 management rights  144, 150, 162 Millicom v Senegal  150–151, 164 Mobil v Venezuela  156–158 multiple layers of corporate ownership  247–250 National Gas v Egypt  148 nationality of controller  42, 43, 47, 77, 79, 93, 120, 122, 123–124, 127, 131, 140–165, 167–168, 232–233, 243–250 nationality determined by  243–250 nationality of investor  151–161, 232–233 origin of funds  144, 150, 220 personal scope of protection and  243–244 piercing corporate veil  139, 145, 153–155, 157 place of  25, 97–101, 120–121, 127–128, 131, 140–165, 172–173, 188, 232–233, 243–250 potential  244 pro-jurisdiction approach  145, 155–161 Railroad Development v Guatemala  149 real seat theory  20–21, 238–250 separate personality principle  232–233 shareholding rights  42–43, 47, 82, 118–119, 139, 142–161, 244, 248–249 shell corporations  238–243, 244, 245 site of  144–145 SOABI v Senegal  153, 154–155, 245–246 state-owned enterprise as investor  246–247 Tanzania Electric Supply Co. Ltd. v IPTL  146 Tokios Tokeles v Ukraine  245 treaty control clause  145–146

upstream ownership  144–145, 151–161, 244 voting rights  144, 147, 150 convenience corporation of  152, 168–169 flag of  71–74 nationality of  15–16, 53, 67, 71–72, 94 corporate investor see investor; nationality of investor corporate nationality see also nationality of investor access requirement IIL protection  6, 12, 25–26, 31–32, 39, 44, 50, 56, 200–202 acquisition  109, 111 admissibility of claim and  25, 29, 222 Amco v Indonesia  142, 152–153, 163 arbitral jurisprudence  4–12, 13, 15–17, 220, 252–253, 254 Barcelona Traction  112–117, 120–121, 124, 138–139, 234 beneficial owner, nationality  77, 119 BIVAC v Paraguay  136–137, 241–242 centre of main interests  99–100 Clark v Uebersee Finanz-Korporation A.G.  123 close connection  131 connecting factors see connecting factor consent and  26, 148, 181–186 contested  25 controlling entity  131, 162–164, 188 convenience, nationality of  15–16, 53, 67, 71–72, 94 Daimler  122 determination, generally  1–5, 14–16, 25–26, 82, 83, 84, 85–86, 89, 93, 94–95, 96–101, 109–124 Diallo  117–118 diplomatic protection and  14, 78, 109–121, 124, 207 distinguishing features of corporations  13–14, 82–106 domestic law  76–79 domicile  77, 97 dual or multiple nationality  80, 131, 233–234 effective  131 ELSI  115–116 employment relations and  94 EnCana v Ecuador  143 expansive approach  4–12, 13, 25–26

270  Index foreign investor with no locally incorporated entity  130–140 French law  77–78, 97, 123–124 generally  43, 47, 50, 51, 69–70, 76–80, 253–254 genuine link see genuine link requirement global businesses  79–80, 203 group companies  133, 253–254 ICSID Convention  15–18, 42, 77, 79, 125, 126–165, 174, 179, 181–186, 200, 221, 231 importance  109 insolvency and  94, 99–100 international arbitration  15–18, 78–79, 81, 125–126, 180, 252 international investment law  8, 12, 25, 26, 51–52, 78, 79, 125–126, 185–186, 253–254 international law  76–81, 109–124 investment and  26 legal personality and  13–14, 82–88, 92–94, 112–115, 124, 232, 253–254 legitimacy  5–6 lex societatis  14, 77–78, 82–83, 86, 94–101, 113 loss  109 manufactured  1–4 meaning of nationality  76, 181–186 multinational enterprises  103–104, 124, 131, 253–254 multiple arbitration claims see parallel claims nationality of controller see control nationality of investor  128–129, 133, 165–174 nationality of shareholders  43, 47, 84, 89, 119, 123–124, 130–140, 142–143 nationality shopping see nationality shopping non-ICSID arbitration  15, 27, 43–46, 165–174, 221 operative  131 origin of funds  220 permissive legal framework  217–219 personal scope of protection  4–7, 12, 179–180, 181–190, 197–198, 220, 238–243 piercing the corporate veil  3–4, 89, 93, 112–113, 114–115, 119, 123, 138–139, 184, 220 place of business  77, 79, 82, 122–123, 165 place of control see control

place of financial control  120–121 place of incorporation see incorporation place of management  79, 97–101, 114, 120–121, 142, 165, 169, 171–172 place of registration  95–96, 97, 99 place of shareholding  25, 79, 82 place of substantive business activity  232 public procurement and  78 real connection  114, 120 real economic activities  132, 171 real seat theory see real seat standard restrictive approach  25–26 restructuring to claim  1–3, 6, 11–12, 125–126, 196–197, 198, 221 services, rules of origin  78 shell corporations see shell corporation state financing, eligibility for  78 stock exchange listing as evidence of  132–133 substantial business activity  47, 165, 167, 169–170, 224, 227–230 substantial link  118–119 taxation and  94 theory of incorporation see incorporation treaty linking investor to state  165–174, 201–204 treaty shopping, generally  6–7, 125–126, 220 UK-registered companies  95–96 corporate ownership see ownership corporate veil, piercing abusive practice, where  90, 93–94 agency exception  90–91 competition law  88 consequences  89–90 controller, identifying  139, 145, 153–155, 157 corporate nationality, to determine  3–4, 89, 93, 112–113, 114–115, 119, 123, 138–139, 184, 220 creation of false appearances doctrine  90 Disclosure Rules  92 domestic law  89–94 Dutch law  91, 92 English law  90–91 façade corporations  90 French law  90, 91 German law  90, 91 grounds for  86n, 88–89 international investment arbitration  89 international investment law  89, 93–94 investor nationality, to disclose  89, 220

Index  271 limited liability doctrine, disregarding  88, 89, 90–92 listed companies  92 nationality of investor, determination  93, 184 negligence, on grounds of  91–92 parent company, tortious liability  88–89, 91–92 piercing, generally  4, 86, 88–94 puppet corporations  90 separate legal personality, disregarding  88, 90, 92–94 sham corporations  90 shareholder identification  88, 89, 90, 92–94 shell corporations  90, 238 US law  90 corporation agent of shareholders, acting as  90–91 capacity  82 contractual approach to company law  85–86 convenience, of  152, 168–169 cross-border activity  76–77, 101–104 demise  82–83 differential treatment in IIA  19 directors’ liability  89, 90, 91 distinguishing features  13–14, 82–106 establishment  82 façade  90 incorporation see incorporation legal fiction, as  13, 82, 83–94, 252, 253 legal personality  13, 82, 83, 84, 85–88, 92–94, 112–113, 114–115 letterbox see letterbox corporation lex societatis  77–78, 82–83, 86, 94–101, 113 limited liability see limited liability principle listed companies  92 managers  82 multinational see multinational enterprise nationality see corporate nationality nationality shopping see nationality shopping origin and purpose  84, 85–86 parent company, tortious liability  88–89, 91–92 party autonomy principle  95–96 perpetual existence  13, 82, 83, 84, 87 place of business  77, 79, 82, 122–123, 165 place of control see control place of incorporation see incorporation

place of management see management place of registration  95–96, 97, 99 pseudo-foreign  96 restructuring, timing and purpose  125–126, 196–197, 198, 221 risk allocation  87–88 sham  90 shareholders see shareholder shares of other corporations held by  13, 82, 83, 84, 103 shell see shell corporation socio-legal approach to company law  85–86 transferable shares  83, 84, 85 UK-registered  95–96 veil see corporate veil, piercing Cyprus-Serbia BIT  173 Czech Model BIT  47, 48 D Daimler  122–123 denial of benefits clause AMTO v Ukraine  228, 229 arbitral jurisprudence  10, 20, 224, 225, 227–230, 250 Ascom v Kazakhstan  226 control of corporate claimant  223–224, 227 generally  19–20, 21, 127, 168, 171, 174, 219, 220, 221, 251, 254 genuine link requirement  29, 192, 207, 230 good faith requirement and  170 Guaracachi v Bolivia  229 Khan Resources v Mongolia  225–226 Masdar v Spain  228, 229, 230 nationality shopping  10, 19–20, 219, 220, 221, 223–230, 250 non-ICSID arbitration  174 ownership of claimant  223–224 Pac Rim v Cayman  229 personal scope of protection and  250 place of incorporation standard and  250 Plama v Bulgaria  225–226, 230 procedure for invoking  224–227 purpose  223–224, 227 real seat standard and  250 substantial business activity  224, 227–230 substantive rights  224 treaty shopping  19–20, 170, 250 Denmark shell companies  96 depoliticisation of investment disputes  207

272  Index Diallo  117–118 diplomatic protection, international law Aucoven v Venezuela  208 Banro American v DRC  209 Barcelona Traction  112–115, 120–121, 124 BIVAC v Paraguay  208 corporate nationality  14, 78, 109–121, 124, 207 Diallo  117–118 dual or multiple nationals  58, 60–61, 69 effectiveness of nationality  58–62 ELSI  115–116 enforcement of nationality  57–62 exhaustion of local remedies  110 existence of nationality  57–58 ICSID Convention  207–209 ILC Draft Articles  14, 60, 61, 67–68, 109, 111–112, 120–121, 234 international investment law compared  27–28, 56 meaning of diplomatic protection  110 nationality, generally  14, 50, 51, 56, 110–111, 120–121, 200–201 parallel claims  19, 207–209 post-conflict settlement agreements  109, 119 preconditions for protection  110 recognition of nationality  57–62 shareholders  112–115 ships  70 director liability  89, 90, 91 nationality  119, 147 shareholder as formal or de facto  91 domicile corporate nationality  77, 97 domicile of origin  97 real domicile doctrine  97–101 Dominican Republic-Central America-United States FTA  67–68 double-hatting IIA system and  213 Dutch gateway (Dutch sandwich) treaty shopping  191 E effective seat connecting factor  236–237 ELSI  115–116 employment relations corporate nationality and  94 EnCana v Ecuador  143

Energy Charter Treaty (ECT)  1, 205, 224, 225–226, 228 European Union CETA  11–12, 170 EU-Singapore Investment Agreement  171 F F-W Oil Interests v Trinidad and Tobago  240 façade corporation  90 Fedax N.V. v Venezuela  236 F.G. (Films) Ltd  92–93 Flegenheimer  57–58 France corporate nationality  77–78, 97, 123–124 fictitious corporations  90 investment treaties  224n liability of directors  91 real seat theory  97, 98–99, 100, 123–124 France-Dominican Republic BIT  210–211 France-Ecuador BIT  134–135 France-Paraguay BIT  137 G Gaillard, E  211–212 genuine link requirement aircraft  75–76, 80 denial of benefits clause  29, 192, 207, 230 nationality  3, 4, 13, 52–55, 59–61, 66, 69, 70–72, 75, 80–81, 118–119, 184, 203–204, 209, 212, 219–220, 231, 234, 253–254 nationality shopping  3, 13, 52, 184, 219, 230, 234 real seat standard  20 ships  71–72, 80 UNCLOS standard  70, 80 use of term  81 Germany creation of false appearances doctrine  90 investment treaties  224n liability of directors  91 real seat theory  97n, 98, 100 Germany-Bulgaria BIT  167, 169 globalisation multinational enterprises  101–104 regulatory havens  101, 104–106, 124, 203 shell corporations  101, 104–105, 203 Gold Reserve v Venezuela  168 good faith requirement abuse of rights doctrine  221–222 acquisition of investment or investor status  197, 221–222

Index  273 nationality shopping  221–222 treaty shopping  170, 221–222 good governance thesis  5 Grand Prince  71 Greece real seat theory  97n group company control  147–148, 244 corporate nationality  133, 253–254 equity-based  104 intermediary subsidiaries  173 multinational  103–106 parent company, tortious liability  88–89, 91–92 real seat theory  99–100, 233–234 Guaracachi v Bolivia  188, 198, 229 H Hong Kong-Australia BIT  194 Hong Kong-United Kingdom BIT  1, 11 I ICSID Convention see also international investment arbitration access to arbitration by see access to ICSID arbitration Additional Facility Rules  44, 166, 181 annulment of rulings  31 appeals denied  201 applicable law to substance of dispute  31–32 arbitration under, generally  26, 28, 201 Article 25  26, 30, 31–32, 33–43, 93, 181, 197, 200, 201 Article 25(2)(b)  127–165, 185, 231, 236, 240 Article 27  207 Article 36  31 Article 41  31 Article 42  31 Article 48(3)  128 Article 52  31 Article 52(1)  130 consent to arbitration by see consent to ICSID arbitration control, generally  131–161, 233, 243–244 control test  127–128, 140, 143, 166, 233 corporate nationality  15–18, 42, 77, 79, 125, 126–165, 174, 179, 200, 221 counter-claims  37 damages, calculation  201

depoliticisation of investment disputes  207 diplomatic intervention  207–209 dispute directly arising from investment  30, 33, 39–43, 44, 45 dual or multiple nationals  62, 63–64, 66–67, 205 enforcement of IIA awards  28 foreign control see control foreign investor with no locally incorporated entity  130–140 generally  6 home state adherence to  33 host state adherence to  33 IIA mechanism established by  30–33 initiation of claim by state  37 interpretation  31–32, 44 investment, meaning  39–43 investment without locally incorporated entity  130–140 jurisdiction, generally  15–17, 30–32, 200–201 jurisdiction excludes other dispute settlement methods  201 jurisdictional limits of arbitration  26, 32 jurisdictional requirements  18, 26, 30–32, 33–43, 44–46, 181–183, 197, 200–201, 219 multilateral uptake  8n national of another contracting state  30, 127–128, 130–140 nationality, meaning  126–129, 131–140, 181–186 nationality and consent  148 nationality of parties  15–16, 29, 31–32, 33, 39, 42, 44, 46, 50, 56, 62, 66–67, 126–167, 179, 200–204, 219, 221, 231 non-ICSID states  44 non-ICSID procedures compared  44–46 number of claims under  37 real seat standard  231 reciprocity principle see reciprocity principle Rules of Procedure for Arbitration Proceedings  30–31 scope of protection under  46, 179–180, 181–190, 198, 200, 201, 243–244 treaty amendments  216 treaty shopping  192 upstream ownership  16–17, 144–145, 151–161

274  Index incorporation personal scope and  20, 184 personal scope clause  220 place of  20, 25, 47, 77, 79, 82, 86, 95–96, 95n, 113–114, 120, 122, 130, 138, 142, 162, 165, 167–168, 171–173, 179, 183, 202–203, 206–207, 232–237, 250–251 real seat theory and  171, 202–203, 232, 235–243 shell corporations  236–237 theory of  50, 95–96, 113–114, 130–134, 172–173 Indian Model Treaty  170, 224n insolvency centre of main interests  99–100 corporate nationality and  94, 99 insurance overseas investments  78 International Chamber of Commerce (ICC) arbitral rules  44 international investment arbitration (IIA) abuse of rights doctrine see abuse of right doctrine access to see access requirements to IIL; access to ICSID arbitration admissibility of claim  25, 29, 37, 222 alleged lack of consent  37 annulment of ruling under  31 applicable law to substance of dispute  31–32 authority, source of  215–219 competence to rule  31 compliance framework  26 conflicts of interest  213 consent to, generally  37, 43–46, 49, 148, 179, 197 corporate nationality  3–13, 15–18, 78–79, 81, 125–126, 180, 220, 252–253, 254 cost of proceedings  212–213 counter-claims  37 denial of benefits clause  10, 20, 224, 225, 227–230, 250 differential treatment of corporations and individuals  19 double-hatting  213 enforcement via national courts  28 ICSID Convention see consent to ICSID arbitration; ICSID Convention ICSID and non-ICSID arbitration compared  44–46 implications for local communities  5

interpretation by  9–10, 15–17, 125 jurisdiction  3–4, 15–17, 28 jurisdictional objection to claim  29, 37 lack of consent, challenges based on  37 lack of investment, challenges based on  37 lack of oversight  216–217 legitimacy crisis  3, 5–6, 212–219, 252–253 manufactured corporate nationality  1–4 multiple arbitration claims  207–219 nationality, questions of  32, 252–253 nationality shopping see nationality shopping New York Convention  28 non-ICSID cases  17, 27, 43–46, 126, 165–174 parallel claims  19, 207–219 personal jurisdiction  42 piercing the corporate veil  3–4, 89 political tool, as  213–214 protection afforded by  27–29 public law implications of IIA awards  29 reflective loss claims  143 shareholders, claims by  42–43, 142–143 state initiation  37 transparency  213 treaty interpretation  15–17, 216–217 treaty shopping see treaty shopping unlimited beneficiaries  217 without privity  36–37 international investment law (IIL) abuse of rights doctrine see abuse of rights doctrine access requirements see access requirements to IIL; access to ICSID arbitration aim  3, 6, 28 authority, source of  215–219 case against extension  3–12 connecting factors see connecting factor consent and bargain  7, 10–12 contractual approach  86 control see control corporate investors, generally  9 corporate nationality see corporate nationality determination of corporate nationality  4–5 diplomatic protection compared  27–28, 56 enforcement mechanism  9–10, 27–28 good governance thesis  5 human rights treaties compared  8–9, 27–28 intended beneficiaries  28–29

Index  275 investor protection, generally  4–12, 27–29 lack of central authority  216–217, 222 legitimacy  3, 5–6, 212–219, 252–253 lex specialis  110 material jurisdiction  41, 42–43, 186–190 multilateralisation  3 nationality see corporate nationality; nationality; nationality of investor nationality shopping see nationality shopping personal jurisdiction  32, 42–43 piercing the corporate veil  3–4, 89, 93–94 political tool, as  213–214 positive impact of extension  3 preferential nature of IIL protections  7–10 procedure under  27–28 purpose of regime  126 real seat standard  238–243 reciprocity principle see reciprocity principle scope of access to  4–7, 25–26, 28–29 socio-legal approach  86 state concessions  29 state as master of its treaties  184, 185, 216, 217, 223 treaty shopping see treaty shopping trust and  5 international investment protection treaty see investment protection treaty investment acquisition  199 classification as  39–43, 45, 186–187 control  189–190 corporate shares  84 cross-border, generally  101–104 cross-border, IIL protection  126 dispute directly arising from  30, 33, 39–43, 44–45 dispute not arising from  44–45 good faith requirement  197, 221–222 jurisdictional requirement for  31, 32, 39, 44 lack of, jurisdictional challenges based on  37 made in host state  198–199 majority shareholders  190 management control over  188–189 meaning  8, 26, 39–43, 45, 46–47, 186–190, 200–202 minority shareholders  186–187, 190 must fall within scope of treaty  37

objective characteristics under ICSID Convention  40–41 shareholding as  26, 42–43, 47, 180, 188–190 stocks  189 transfer  199 investment protection treaty access conditions, generally  46–49; see also access requirements to IIL; access to ICSID arbitration amendment  216 beneficiaries  9–10, 11 bilateral, generally  7 connecting factors  19, 47–48, 179 consent and bargain  7, 10–12 consent through  12, 26, 34–39, 43, 44, 126, 148, 163–164, 181–186 consent to ICSID arbitration  26, 34–39, 43, 126, 163–164, 181–186 contracting states  9–11 control clause  145–146 corporate investors generally  9–10 corporate nationality  8, 17, 165–174, 201–204 denial of benefits clause see denial of benefits clause dispute settlement provision  48 enforcement  9–10 ICSID clause  34, 35–36, 126, 146 IIA arbitration  15–18, 125, 254 interpretation  9–10, 18, 216–217 investment, definition  42, 46–47, 186–190, 201–202 investor, treaty definitions  18 investor must fall within scope of  37 lex societatis  47, 83 linking corporate investor to state  17, 165–174, 201–204 material scope  18, 26, 180, 186–190, 197 most favoured nation clause  8 multilateralisation  8 nationality of controller  43, 47, 93 nationality of investor  62, 165–174, 181–186, 201–202, 231 nationality shopping see nationality shopping non-retroactivity  48 number of treaties  27 personal scope  5–7, 18, 48, 56, 166–174, 179–190, 197–198, 200, 214–222, 250 personal scope clause  220

276  Index place of incorporation  47, 165, 232–233 place of substantial business activity  47, 165, 167, 169–170, 224, 227–230, 232 predictability as goal  225 preferential nature of protections  7–10 proliferation of treaties  16, 33, 164, 185, 207, 252 protected investors  47 purpose  25, 201, 223, 234 real seat theory  47, 165, 172–173, 221 reciprocity principle see reciprocity principle scope  4–12, 37–38, 166 standing offer to arbitrate  36–37, 38–39 state as master of its treaties  184, 185, 216, 217, 223 survival clause  49 temporal requirements  37 temporal scope  18, 26, 48–49, 179, 180, 191–193, 197 termination clause  49 transparency as goal  225 treaty shopping see treaty shopping investor see also shareholder consent to arbitration  43–46, 49, 148, 179, 197; see also consent to ICSID arbitration control see control definitions  8, 181, 200–202, 219 Disclosure Rules  92 foreign, with no locally incorporated entity  130–140 good faith requirement  197, 221–222 ICSID Convention, personal scope of protection under  46, 179–180, 181–190, 198, 200 international investment law protection  1–2, 9 investment treaty definitions  18 joint venture company as  247 material scope of identity  220, 231 multinational enterprises see multinational enterprise must fall within scope of treaty  37 nationality see corporate nationality; nationality of investor nationality shopping see nationality shopping non-ICSID arbitration, personal scope of protection under  46, 179–180, 181–190, 197–198, 220–221

personal scope of identity  231 protected  47 residence  47 separate personality principle  93, 232 shareholder as  26, 42–43, 82, 87, 130–140 shell companies  104–105, 203 state-owned enterprise as  246–247 temporal scope of identity  220, 231 treaty shopping see treaty shopping Ioan Micula et al v Romania  64 Italy real seat theory  97n, 98 Italy-Egypt BIT  63–64 Italy-United Arab Emirates BIT  64–65, 204 J Japan denial of benefits clauses  224 Japan-Colombia BIT  144 joint venture  104, 247 jurisdictional objection admissibility objection distinguished  197–199 jus sanguinis acquisition of nationality  54, 57 jus soli acquisition of nationality  54, 57 K Khan Resources v Mongolia  225–226 L Lao Holdings v Laos  166 Lauder v Czech Republic  212 legal fiction, corporation as disregarding  88–89, 90, 92–94 generally  13, 82, 83–94, 252, 253 legal fiction, nationality as  252 legal personality see separate legal personality principle LETCO v Liberia  141–142, 149, 162 letterbox corporation corporate nationality  93, 100 insolvency  100 lex societatis  96, 100 real seat theory  100, 171 substantial business activity  228–229 lex societatis corporate nationality and  14, 77–78, 82–83, 86, 94–101, 113 determination  94–95 disregarding  92–93

Index  277 investment treaties  47, 83 letterbox corporations  96, 100 party autonomy principle  95–96 pseudo-foreign corporations  96 real seat theory  95, 96, 97–101 shell corporations  96 theory of incorporation  95–96 UK-real seated companies  96 UK-registered companies  95–96 lex specialis international investment law  110 Lim, CL et al  29 limited liability principle abuse of legal personality  90 agency relationships  90–91 contracting out from  88 corporate nationality  113 corporate veil  88, 89, 90–92 corporations, generally  13, 82, 83–84, 85, 86–88, 90–92, 113 directors  89, 90 French law  90 parent companies  88–89, 91–92 shareholders  82, 83–84, 85, 86–88, 89, 90–94 London Court of International Arbitration (LCIA) arbitral rules  44 Luxemburg real seat theory  97n M M/V Saiga  71 Magna Carta  102 mailbox corporation see letterbox corporation management control or centre of  165, 238–243 management rights as indicator of control  144, 150, 162 managing shareholder  239 multinational  239, 242–243 place of  79, 97–101, 114, 120–121, 142, 165, 169, 171–172 place of effective  236 real seat theory  238–243 shell corporations  238–239 Masdar v Spain  228, 229, 230 Mera Investment v Serbia  173 Mergé  60–61 Millicom v Senegal  150–151, 164 Mobil v Venezuela  156–158

most favoured nation (MFN) clause  8, 9 Muchlinski, P  99, 104, 202–203 multilateral treaty generally  7–8 multinational enterprise (MNE) centre of main interests  99–100 contractual arrangement, created through  104 control  247–250 corporate nationality  103–104, 124, 131, 253–254 equity-based groups  104 features of  103–104 global economy, generally  101–106 joint ventures  104 OECD Guidelines  106 ownership  104 parent company  103 real seat theory  20–21, 99–100, 233–234, 241–243 shell companies see shell corporation N National Gas v Egypt  148 nationalisation restructuring to protect against  1–2 nationality abuse of rights doctrine  59 access to ICSID arbitration  31–32, 33, 39, 44, 49, 50, 200 access to IIL protection  6, 12, 25, 26, 31–32, 39, 44, 50, 56, 200–202 acquisition  51, 53, 54–56, 62, 63–66 aircraft  13, 50, 51–52, 69–70, 74–76, 80 artificially constructed  179 connecting factor, as see connecting factor consent and  26, 148, 181–186 controller see control convenience, of  15–16, 53, 67, 71–72, 94 corporate see corporate nationality determination, generally  13, 14–15, 109, 111, 120 diplomatic protection and see diplomatic protection, international law on directors  119, 147 domestic laws  50–51, 52, 54 dominant  58, 61 dual or multiple  58, 60–61, 66–68, 70, 80, 205, 233–234 effective  53, 58–62, 64, 66–68

278  Index enforcement under international law on diplomatic protection  57–62 erosion of concept under IIL  18–19, 180, 199–207 evidence of  53, 57–58, 62–66, 71 genuine link see genuine link requirement host state entity  140–144 human rights protection  53 ICSID Convention  181–186, 200–201, 231 international investment law  21, 51–52, 56, 68–69, 253 international investment treaties  56, 68–69, 181–186, 201–202 international law  50–81, 109, 253 investment, meaning  186–190, 201–202 investor see nationality of investor involuntarily acquired  67 jus sanguinis  54, 57 jus soli 54, 57 legal bond, as  4, 13, 14, 50–81, 109–124, 253 legal consequences  54–56 legal fiction, as  252 loss  51, 53, 63, 64–66 meaning  50–51 nationality shopping see nationality shopping natural persons  47, 50, 52–69, 78, 80–81, 109 naturalisation  54, 57–58, 64 non-recognition, effect  66 objects, of  13, 51–52, 69–80, 109 real seat theory see real seat standard recognition under international law on diplomatic protection  57–62 refusal to recognise or enforce  57–62 right of state to protect its nationals abroad  56 rights and duties dependent on  54, 55–56, 253 rights holder, identification  203–204 Roman law  53 shareholders  43, 47, 84, 89, 98, 113, 114, 117–118, 121, 142–161 shell see shell corporation ships  13, 50, 51–52, 69–74, 80 treaty shopping see treaty shopping nationality of controller see control nationality of investor access to IIL protection  25, 26 acquisition  62, 63–66 challenging  63

connecting factor, as see connecting factor control or centre of management  165 convenience, nationality of  15–16, 53, 67, 71–72, 94 corporate see corporate nationality corporate shareholdings  43, 47, 84 determination, generally  4, 25, 62–63, 93 dual or multiple  47, 62, 63–64, 66–68, 70, 80, 205, 233–234 effective  62, 64, 66–68 evidence of  62–66 foreign, with no locally incorporated entity  130–140 genuine link see genuine link requirement Gold Reserve v Venezuela  168 ICSID Additional Facility Rules  44 ICSID Convention  29, 31–32, 33, 39, 42, 44, 46, 50, 56, 62, 66–67, 126–167, 179, 231 international investment law  62–68 investment treaties  62, 179, 231 involuntarily acquired  67 jurisdiction, and  29, 31–32 Lao Holdings v Laos  166 legal persons  47 loss  63, 64–66 nationality of host state entity  141–143 nationality shopping see nationality shopping natural persons  47, 50, 52–68 non-ICSID arbitration  27, 46, 165–174 non-ICSID states  44 non-recognition, effect  66 ownership and  165 personal scope of protection under IIL  18–19 piercing the corporate veil  3–4, 89 place of incorporation see incorporation place of substantive business activity  47, 165, 167, 169–170, 224, 227–230, 232 real seat theory see real seat standard separate personality principle  93, 232, 253–254 ST-AD v Bulgaria  169 survival clause  49 treaty linking investor to state  165–174, 201–204 upstream ownership determining  151–161, 212

Index  279 nationality shopping abuse of rights doctrine  19, 191–197, 219, 220, 221–223, 233, 235, 250 arbitral jurisprudence  3, 10, 13, 15–17, 217–219, 252–253 arguments against  3–4 connecting factors see connecting factor consent and bargain undermined by  11 corporate investors  94, 204–207, 217–219 corporations  52, 74, 125–126 denial of benefits clause  10, 19–20, 219, 220, 221, 223–230, 250 dual nationality in home and host states  205 generally  1–3, 13, 52, 252 genuine link see genuine link requirement good faith requirement  221–222 host state nationals  204–205 ICSID jurisdiction  183–184 individual investors  204–207 international treaties  10–11, 15–16 investment made in host state  198–199 justifications for allowing  3, 73, 252 legitimacy  217–219, 223, 252–253 mitigation  3–4, 19–20, 94, 219, 220–230 negative impact  74, 252–253 offshore entities  251 parallel claims  19 personal scope clause  220 personal scope of treaty  4–7, 220–221, 222 purpose and timing of restructuring  191–197, 198, 221 reasonably foreseeable disputes  193, 194–195, 222, 223 reciprocity principle undermined by  252 registration process  251 shell corporations  204–205, 233 ships  74 Soufraki v UAE  204 substantial business activity  224, 227–230 toleration  3, 13, 73, 223, 252 treaty shopping distinguished  2n Uzan v Turkey  205 Yukos v Russia  205–206 natural person indirect ownership by  245–246 nationality  47, 50, 52–69, 78, 80–81, 109 naturalisation nationality acquired by  54, 57–58, 64 negligence shareholder liability  91–92

Netherlands double-taxation treaties  105 identification (Vereenzelviging) principle  92 investment treaties  105, 166, 224n liability of directors  91 Model Investment Agreement  169–170 shell companies  96 Netherlands-Kenya BIT  35 Netherlands-Laos BIT  166 Netherlands-Montenegro BIT  48, 167–168 Netherlands-Paraguay BIT  136–137 Netherlands-Romania BIT  38 Netherlands-Senegal BIT  150–151 Netherlands-Turkey BIT  66–67 Netherlands-Yugoslav BIT  47n New York Convention enforcement of IIA awards  28 Nottebohm  55, 58–60, 61, 66, 67, 68 O offshore entity nationality shopping  251 registration  251 Orascom v Algeria  236–237 Orrego Vicuña, Francisco  64 Ortino, F  217 overseas investment funding corporate nationality and  124 ownership beneficial  77, 119 control see control denial of benefits clause and  223–224 indirect  118, 148, 150, 186, 187–189, 245–246, 248–249 management control over investment  188–189 multinational enterprises  104 multiple claims for same loss see parallel claims multiple layers  247–250 nationality of investor  165 natural persons, by  245–246 state-owned enterprise as investor  246–247 treaty shopping see treaty shopping upstream see upstream ownership P Pac Rim v Cayman  229 parallel claims abuse of process doctrine  210, 212 Aucoven v Venezuela  208

280  Index Banro American v DRC  209 BIVAC v Paraguay  208 CME v Czech Republic  212 diplomatic interventions  19, 207–209 IIA legitimacy damaged by  212–219 Lauder v Czech Republic  212 multiple arbitration claims  19, 180, 209–212 nationality shopping  19 real seat theory  21, 234 Société Générale v Dominican Republic  210–211 solution to problem of  212 TCW v Dominican Republic  210–211 Parker LJ  122 party autonomy principle theory of incorporation  95–96 Paulsson, Jan  36–37 Perenco v Ecuador  134–135, 240–241 Permanent Court of Arbitration  44 Philip Morris v Australia  19, 193, 194, 195, 196 Phoenix Action v Czech Republic  40–41, 44–45 Plama v Bulgaria  225–226, 230 Portugal real seat theory  97n pseudo-foreign corporation lex societatis  96 puppet corporation US law  90 R real seat standard actual seat  236 AdT v Bolivia  248–250 advantage of using  20–21, 231–235, 251–252 application in IIL  238–243 Aucoven v Venezuela  235–236, 248 Biwater Gauff v Tanzania  247–248 centre of administration  20, 97–101, 232, 233, 237, 238–243 change of real seat  233 connecting factor, as  20–21, 179, 221, 230–231 corporate nationality  20, 47, 77–79, 114, 119, 120–121, 123–124, 127–128, 130–134, 142, 165, 167, 169, 172–173, 202–203, 221, 236–243, 251 denial of benefits and  250 disadvantage of using  99, 251

effective seat  236–237 group companies  99–100, 233–234 ICSID Convention and  231 letterbox companies  100, 171 lex societatis  95, 96, 97–101 locating real seat  98, 251 meaning of real seat  20, 233 multinational enterprises  20–21, 99–100, 233–234, 241–243 multinational management  239, 242–243 multiple layers of ownership  247–250 parallel claims  21, 234 personal scope of protection, determination  238–243 place of incorporation  171, 202–203, 232, 235–243 place of management and control  20–21, 238–250 registered address distinguished  235–238 shell corporations  237–239, 251 statutory seat distinguished  235–238 Tokios Tokeles v Ukraine  237, 245 upstream ownership  251 reciprocity principle ICSID Convention  7–8, 126, 202, 234 international treaties  3, 7–10, 25–26, 28–29, 48, 126, 202, 234, 252 nationality shopping undermining  252 real seat standard  21 reflective loss claim  143 registered address real seat distinguished  235–238 registration process aircraft  74–75, 76, 80 nationality shopping  251 offshore entities  251 place of registration  95–96, 97, 99 ships  71–74, 80 regulatory haven generally  15, 101, 104–106, 203 shell corporations  15, 104–106, 124, 203 special purpose vehicles  203 repatriation of profits treaty shopping  191 residence of investor  47 Romak v Uzbekistan  45 Rosinvest v Russia  195 round-tripping treaty shopping  191, 205 Rusoro v Venezuela  188

Index  281 S Saba Fakes v Republic of Turkey  66–67, 68 St John, T  184 Santa Elena v Costa Rica  142 Schill, SW  201, 202 Schreuer, CH  145, 164 seat see real seat standard separate legal personality principle abuse of doctrine  90 corporate nationality  13–14, 82–88, 92–94, 112–115, 124, 232, 253–254 corporations, generally  13–14, 82, 83–94, 112–115, 124 disregarding legal personality  88–89, 90, 92–94 listed companies  92 piercing corporate veil  88, 90, 92–94 rejection of control standard  232–233 shell corporations  238 ships  71–72 services, international trade regime rules of origin  78 sham corporation English law  90 US law  90 shareholder see also investor agency, corporation acting as  90–91 Barcelona Traction  112–117, 138–139, 187 changes of  84, 87 claim by  42–43, 142–143 competition law  88 corporation as  13, 82, 83, 84, 103 diplomatic protection  112–115 Disclosure Rules  92 entitlements  87 fiduciary duty to  1 formal or de facto director, as  91 identification  88, 89, 90, 92–94 liability  83–84, 86, 87–88, 89, 90–94 majority shareholders  190, 239, 248 managing  239 minority shareholders  186–187, 190, 248 nationality  43, 47, 84, 89, 98, 112–118, 119, 121, 123–124, 142–161, 187 negligence  91–92 treaty protection  186–190 voting rights  144, 147, 150 shareholding control of entity and  42–43, 47, 82, 118–119, 139, 142–161, 243–244 foreign corporate investors  130–140

indirect  199 investment, categorisation as  26, 42–43, 47, 180, 188–190 place of  25, 79, 82 shell companies  105 upstream ownership  144, 151–161, 180, 189–190, 244 shares transferable  83, 84, 85 shell corporation Denmark  96 global economy, generally  101, 104–105, 203 host state nationals  204–205 lex societatis  96 management and control  238–239, 244, 245 multinational enterprises  15, 104–105, 238 nationality  236–238 nationality shopping  204–205, 233 Netherlands  96, 105 piercing the corporate veil  90, 238 place of incorporation  236–238 real seat  237–239, 251 registered address  236–237 regulatory havens see regulatory haven separate personality principle  238 shares in other entities  105 statutory seat  236–237 Switzerland  96 tax or regulatory havens  15, 104–106, 124 treaty shopping  203 United States  90 ship dual or multiple nationality prohibited  70 flags of convenience  71–74 genuine link to state  71–72, 80 ITLOS dispute settlements  71–72 nationality  13, 50, 51–52, 69–74, 80 nationality shopping  74 registration  71–74, 80 separate legal personality  71–72 Siag and Vecchi v Egypt  63–64 siège social  138, 232, 236–237 see also real seat standard Singapore-Kuwait BIT  243 Slovak-Swiss BIT  171 SOABI v Senegal  142, 153, 154–155, 245–246 Société Générale v Dominican Republic  188–189, 210–211 Soufraki v The United Arab Emirates  64–65 Soufraki v UAE  204

282  Index Spain real seat theory  97n special purpose vehicle economic globalisation and  203 ST-AD v Bulgaria  169, 193 state-owned enterprise as investor  246–247 statutory seat real seat distinguished  235–238 Stockholm Chamber of Commerce (SCC) Arbitration Rules  44, 45 strategic re-structuring generally  1–2 substantial business activity denial of benefits clause  224, 227–230 generally  47, 165, 167, 169–170, 224, 227–230 survival clause  49 Switzerland bilateral investment treaties  171 shell companies  96 T Talbot, LE  89 Tams, C and Tzanakopoulos, A  114, 234 Tanzania Electric Supply Co. Ltd. v IPTL  146 tax haven shell corporations  15, 104–106, 124, 203 special purpose vehicles  203 taxation corporate nationality and  94 treaty shopping  191 TCW v Dominican Republic  210–211 termination clause  49 Tidewater v Venezuela  195 Tokios Tokeles v Ukraine  137–140, 144, 237, 245 treaty see also investment protection treaty non-retroactivity  48 treaty shopping abuse of rights doctrine  19, 191–197, 219, 220, 221, 250 after alleged breach  192 arbitral jurisprudence  3, 15–17, 191–192, 194, 195, 252–253 artificially constructed nationalities  179 connecting factors see connecting factor corporate investors  9–10 corporate nationality, generally  6–7, 15–16, 125–126, 220 denial of benefits where  19–20, 170, 250

dual nationality in home and host states  205 Dutch gateway (Dutch sandwich)  191 generally  1–3, 6–7, 9–10, 179–180 genuine link see genuine link requirement ICSID convention  192 international investment law  2, 9–10 interpretation, proposed changes  7 investors, generally  9–10 justifications for allowing  3, 252 legitimacy  9–10, 191–193, 223, 252–253 meaning  191 mitigation  19–20, 219, 220–230 nationality shopping distinguished  2n objections to  191 personal scope clause  220 personal scope of treaty  4–7, 179–180, 192, 220–221, 222 Philip Morris v Australia  193, 194, 195, 196 purpose and timing of restructuring  191, 196–197, 198, 221 reasonably foreseeable disputes  193, 194–195, 222, 223 repatriation of profits  191 Rosinvest v Russia  195 round-tripping  191, 205 shell corporations  203 ST-AD v Bulgaria  193 temporal scope of treaty  180, 191–193 Tidewater v Venezuela  195 timing  191–195 Vincent Ryan v Poland  196–197 Turkey-South Africa BIT  44 U UK-Hong Kong BIT  11–12 Ukraine-Lithuania BIT  137–140 UNCITRAL Arbitration Rules generally  6, 27, 43, 44, 45, 214 legal relationship between parties  45 United Kingdom investment treaties  224n Model BIT  167 United Kingdom-Bolivia BIT  188 United Nations Convention on the Law of the Sea nationality of ships  70, 80 United States denial of benefits clauses  224 Model Treaty  170, 171 puppet corporations  90

Index  283 sham corporations  90 shell corporation  90 United States-Italy FCN Treaty  115–116 United States-Poland BIT  196–197 upstream ownership control and  144–145, 151–161, 244 ICSID arbitral decisions  16–17, 144–145, 151–161 investor identification  212 investor nationality  151–161, 212 multiple arbitration claims for same loss  180, 209–211 multiple layers of  247–250 real seat standard  251 scope of protection  189–190 Uzan v Turkey  205

Venezuela-Netherlands BIT  156–158 Vienna Convention on Consular Relations right of state to protect its nationals abroad  56 Vienna Convention on the Law of Treaties ICSID Convention  44, 138, 139 Vincent Ryan v Poland  196–197 voting rights as indicator of control  144, 147, 150

V Vagts, DF  103 Van Harten, G  5

Y Yaung Chi Oo v Myanmar  171–172 Yukos v Russia  205–206

W war time sanctions determination of corporate nationality  14, 110, 121–123

284