International Investment Law 2

Investor, Investment, Investment Contracts

Investor• The natural or juridical person• That makes the investment• Only investments are protected by BITs and

ICSID

• The investor is foreign, if he has the nationality of a foreign state– And therefor is protected by PIL in general– Protected by a BIT or another agreement, if he has

the nationality of another state party• Substantive rights and jurisdiction

Strict regulation. Why?

• The jurisdiction according to a BIT or to ICSID is strictly and restrictively regulated in treaty law.

• Why ?• Consequence: careful choice of incorporation

or seat.

Art. 25 ICSID - 1• Article 25(1) The jurisdiction of the Centre shall extend to any legal disputearising directly out of an investment, between a Contracting State (orany constituent subdivision or agency of a Contracting State designatedto the Centre by that State) and a national of another Contracting State,which the parties to the dispute consent in writing to submit to theCentre.When the parties have given their consent, no party may withdrawits consent unilaterally.

(2) “National of another Contracting State“ means:(a) any natural person who had the nationality of a ContractingState other than the State party to the dispute on thedate on which the parties consented to submit such disputeto conciliation or arbitration as well as on the date onwhich the request was registered pursuant to paragraph (3)of Article 28 or paragraph (3) of Article 36, but does notinclude any person who on either date also had the nationalityof the Contracting State party to the dispute; and

Art. 25 ICSID - 2(b) any juridical person which had the nationality of a ContractingState other than the State party to the dispute onthe date on which the parties consented to submit such disputeto conciliation or arbitration and any juridical personwhich had the nationality of the Contracting State party tothe dispute on that date and which, because of foreign control,the parties have agreed should be treated as a nationalof another Contracting State for the purposes of this Convention.

(3)Consent by a constituent subdivision or agency of a ContractingState shall require the approval of that State unless that State notifiesthe Centre that no such approval is required.

(4) Any Contracting State may, at the time of ratification, acceptanceor approval of this Convention or at any time thereafter, notify theCentre of the class or classes of disputes which it would or would notconsider submitting to the jurisdiction of the Centre. The Secretary-General shall forthwith transmit such notification to all ContractingStates. Such notification shall not constitute the consent required byparagraph (1).

Nationality of the natural Investor• According primarily to the rules of the

purported home state– No genuine link required (like in diplomatic

protection, see the Nottebohm case of the ICJ)– Permanent residence also is not decisive– To be confirmed by the tribunal

• Double nationality? Art. 25(2)(a) ICSID– Excludes jurisdiction if one is the nationality of

the host state

Nationality of the legal investor• Legal personality necessary• Corporations must be incorporated– Nationality: social seat or incorporation• As a rule not the control theory (no „piercing of the

veil“), if there are no special rules in the Agreement– Possibility of control suffices

• Also: economically substantial bond to the host state– Not only formal, not necessarily large– Also to be invoked for a „denial of benefits“ if

provided for by the treaty• Any combination of these factors may be agreed upon

• If the investor is merely a „shell company“? Still sufficient

Nationality of local companies

• Art. 25 (2) (b) ICSID• Companies incorporated in the host state,

but controlled by foreigners (e.g. a required local incorporation)– The control has to be ascertained by the tribunal

• Consent in the contract or offer of consent in the treaty

Shareholders as investors• Another possibility to bring a claim although the

company has local nationality or the nationality of a third state, if the shareholders have the required nationality

• General PIL: see the Barcelona Traction Case• Treaty situation:– Shareholding or other participation in a corporation is

considered itself an investment• Even minority shareholders• If not partially excluded by the treaty

• Scope of protection– Not only the shares, but also the assets of the

corporation• Possible conflicts of parallel procedures (e.g. different

groups of shareholders)

Definition of Investment

Prof. Dr. Werner Meng - Europa Institut - Saarland University 10

• Investment is long-term – direct or indirect - placement of capital into assets– Classical formula: „property, rights, interests“

• Direct investment– Long-term placement (in a foreign country) to purchase real

estates and companies including their affiliates or agencies in order to gain a “decisive”, i.e. permanent and immediate influence on the management of these companies. Additionally: regular income and assumption of a risk

• Indirect investment = portfolio investments– Purchase of instruments in foreign countries solely to gain

profitable returns (with higher or lower risks), without aiming at having immediate influence on the issuing company

– E.g. purchase of shares• Foreign direct investment (active or passive)• Domestic investment

Investment• Term not defined in Art. 25 ICSID– Either by reference to economic teachings (asset

oriented)– Or by reference to the extensive treaty practice (now

prevailing)• Treaty practice– The will of the parties is decisive– Extensive definition (e.g. BIT Argentina-US)– Rights conferred by law and rights conferred by contract– „in accordance with the host state‘s law“ refers to the

lawfulness of the investment, not ist definition– No minimum duration required in ICSID– Not: single transactions (trade in goods)

Investment criteria• Fedax v. Venezuela (1995)– Substantial commitment, certain duration,

assumption of risk, significance for the host state‘s development, regularity of profit

• Salini v. Morocco (2001)– Omits the regularity of profits– Later tribunals adhering to the Salini criteria

omitted the significance for the development (e.g. Fakes v. Turkey 2010)

• Biwater Gauff v. Tanzania (2008)– The will of the parties is decisive

Prof. Dr. Werner Meng - Europa Institut - Saarland University 13

• Authorization (or limitation) of cross-border capital transactions– Import of capital– Export of capital– Investment authorization

• But decisive is, that the investor has foreign nationality– Problem if the investment is required „in the territory of

the host state“

• In the EU, 3.3 trillion € were invested in foreign countries, compared to 2.4 trillion € coming from foreign countries in 2008

Foreign Investment

• The contracts are concluded for the particular investment by the investor and the host state– Based on the investment treaty btw home and host state

• Often contain rules about– Applicable national law (PCIJ: Serbian Loans)– Stabilization clause

• Either for the whole national legal order• Or for the concrete contract (intangibility clause)

– Comprehenively or e.g. for tax law alone– Restrains the sovereignty of the host state

– Renegotiation clause• In good faith in order to reach a rebalancing of the contract• Relatively unclear

Investment Contracts

Prof. Dr. Werner Meng - Europa Institut - Saarland University 14