Secondly, the ICSID Convention1 and the majority of investment treaties recognize that the investor may incorporate an entity in the host State as a vehicle for its investment activity and, in fact, “it is by no means uncommon practice that foreign investors may be required” to do so.2 To address this possible local incorporation of the investor, many investment treaties follow a pattern whereby a "national" includes also legal persons constituted in the host State controlled, directly or indirectly, by nationals of the home State. See also Indirect ownership; Indirect claims.
Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent's Objections to Jurisdiction, 21 October 2005, para. 216; Raymond Charles Eyre and Montrose Developments (Private) Limited v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/16/25, Award, 5 March 2020, paras. 265-267.
The recent award in Tallinn v. Estonia addresses the meaning of control in international investment law, pointing out that “[t]he ICSID Convention does not specify the meaning of control” (“nor does the [applicable] BIT contain an autonomous definition of control”).3 Deriving from the will of the drafters of the ICSID Convention not to constrain the notion of “foreign control”, the Tribunal agrees that: “[C]ontrol is a flexible concept, which can only be determined case by case in the light of the particular facts.”4
United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia, ICSID Case No. ARB/14/24, Award, 21 June 2019, para. 366; Vacuum Salt Products Ltd. v. Republic of Ghana, ICSID Case No. ARB/92/1, Award, 16 February 1994, para. 43; Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5, Decision on Jurisdiction, 27 September 2001, para. 113; MAKAE Europe SARL v. Kingdom of Saudi Arabia, ICSID Case No. ARB/17/42, Award, 30 August 2021, para. 118.
The tribunal goes even further stating that:
“Attempting to circumscribe the meaning of control through the identification of essential factors, or bright-line rules, thus appears unnecessary, if not inappropriate. Doing so could prevent tribunals from fulfilling their duty to conduct a full factual and legal assessment of the case at hand and could unduly curtail the scope of their jurisdiction and thus deprive parties of the protections that the ICSID Convention and the relevant treaty intended would inure to their benefit.”5
With regards to the drafting history of Article 25, the tribunal in Aguas del Tunari v. Bolivia6 remarks that -recognizing the keyhole function played by this article- Aron Broches, chairman of the consultative meetings for the negotiation of the ICSID Convention (and General Counsel of the World Bank and subsequently ICSID’s first Secretary-General), writes that the attempt to provide an exacting definition of foreign control was "abandoned" and that instead it was decided that:
“[A]n attempt should be made […] to give the greatest possible latitude to the parties to decide under what circumstances a company could be treated as a ‘national of another Contracting State’.”7
The tribunal in Aucoven v. Venezuela seems to qualify said parties’ latitude stating that:
“[T]hey preferred giving the parties the greatest latitude to define these terms themselves, provided that the criteria agreed upon by the parties are reasonable and not totally inconsistent with the purposes of the Convention.”8
Furthermore, as Standard Chartered Bank v. Tanzania warns, it is crucial to remark that “the text of different investment treaties, as well as the language of other investor-State cases, sometimes press into service concepts distinct from the notion as relevant” to the applicable treaty in the case at hand.9 Indeed:
“Failure to note the variation can result in distorted analogies or inappropriate invocation of authority.”10
Bearing the aforementioned caveats in mind, the following sections show, just for illustrative purposes, how some tribunals, considering specific treaties and the particular facts, have approached several facets of a highly complex issue. Accordingly, this Note does not take a position on the proper way to approach or resolve any particular dispute, which will depend on the speciﬁc treaty at issue and the facts underlying the case.
Indeed, in Aguas del Tunari v. Bolivia the tribunal, by majority, illustrates the difference between control and ownership as follows: “[T]he phrase "controlled directly or indirectly" means that one entity may be said to control another entity (either directly, that is without an intermediary entity, or indirectly) if that entity possesses the legal capacity to control the other entity. Subject to evidence of particular restrictions on the exercise of voting rights, such legal capacity is to be ascertained with reference to the percentage of shares held. In the case of a minority shareholder, the legal capacity to control an entity may exist by reason of the percentage of shares held, legal rights conveyed in instruments or agreements such as the articles of incorporation or shareholders’ agreements, or a combination of these.”11 Other tribunals subsequently confirmed the distinction between control and ownership of shares, while establishing that a 100% ownership creates a presumption of control.12
B-Mex, LLC Deana Anthone, Neil Ayervais, Douglas Black and others v. United Mexican States, ICSID Case No. ARB(AF)/16/3, Partial Award, 19 July 2019, paras. 214-215; Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador (II), ICSID Case No. ARB/06/11, Decision on Annulment of the Award, 02 November 2015, para. 104; Mobil Cerro Negro Holding, Ltd., Mobil Cerro Negro, Ltd., Mobil Corporation and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, para. 160; Vento Motorcycles, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/17/3, Award, 6 July 2020, paras. 221-224; Jorge Luis Blanco, Joshua Dean Nelson and Tele Fácil México, S.A. de C.V. v. United Mexican States, ICSID Case No. UNCT/17/1, Final Award, 5 June 2020, paras. 198, 202.
The dissenting Declaration in Aguas del Tunari v. Bolivia notes on the difference between those concepts that “commentary on the drafting of the ICSID convention makes it clear that share ownership at a level greater than 50% might not be controlling”.13 Other tribunals have considered that there was no “formula” to establish control.14 The dissenting Declaration also remarks that tribunal awards have established that an investor with minority share ownership can control a company, thereby providing counterexamples to the assertion that majority share ownership and majority voting rights are sufficient to establish control. Even in the case of 100% ownership, tribunals have examined “effective control”.15 And it concludes that “[m]ajority shareholding and majority voting rights do not per se constitute control.”16
United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia, ICSID Case No. ARB/14/24, Award, 21 June 2019, para. 369; Vacuum Salt Products Ltd. v. Republic of Ghana, ICSID Case No. ARB/92/1, Award, 16 February 1994, para. 43; PACC Offshore Services Holdings Ltd v. United Mexican States, ICSID Case No. UNCT/18/5, Award, 11 January 2022, para. 138.
Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent's Objections to Jurisdiction, 21 October 2005, Declaration of Jose Luis Alberro-Semerena, para. 39; Liberian Eastern Timber Corporation v. Republic of Liberia, ICSID Case No. ARB/83/2, Award, 31 March 1986, para. 16.5.
In the Aguas del Tunari Decision, the majority argues that, because “the negotiators of the […] BIT likely possessed a sophisticated knowledge of business and law[, f]or such persons, the ordinary meaning of a word […] also includes the legal meanings given to such words”.17 Black’s Law Dictionary18 provides legal definition for “control” and legal definitions of “controlled”, and the Aguas del Tunari v. Bolivia Decision claimed that the latter “refer solely to the power to control and not its actual exercise.”19 It observed that: “there is no indication from any of the dictionaries consulted that 'control' necessarily entails a degree of active exercise of powers or direction. If the parties had intended this result, a better choice of word for the BIT would have been 'managed' rather than 'controlled'."20
Black’s Law Dictionary, Thomson West, 8th ed., 2004, p. 353.
See also AIG v. Kazakhstan, ICSID Case No. ARB/01/6, Award, 07 October 2003.
Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent's Objections to Jurisdiction, 21 October 2005, para. 232; AIG Capital Partners, Inc. and CJSC Tema Real Estate Company v. Republic of Kazakhstan, ICSID Case No. ARB/01/6, Award, 07 October 2003, para. 9.4.8.
See also Levy and Gremcitel v. Peru, ICSID Case No. ARB/11/17, Award, 09 January 2015 and Mobil and others v. Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010.
Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent's Objections to Jurisdiction, 21 October 2005, para. 234; Renée Rose Levy and Gremcitel S.A. v. Republic of Peru, ICSID Case No. ARB/11/17, Award, 09 January 2015, para. 171; Mobil Cerro Negro Holding, Ltd., Mobil Cerro Negro, Ltd., Mobil Corporation and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, para. 160.
By contrast, the dissenting Declaration in Aguas del Tunari v. Bolivia, as to the interpretation given to the phrase "controlled directly or indirectly", states that “while both the ordinary meaning and the legal definition of control encompass the actual exercise of control as well as the right to control, the passive participial adjective [“controlled”] requires the effects of an action.”23 It continues arguing that “the general principle of interpretation whereby a text ought to be interpreted in the manner that gives it effect […]. To substitute "controlled" with the term "control" is to go against the text’s clear and explicit terms.”24 Moreover, the dissenting Declaration reasons that “the object and purpose of the BIT is to stimulate the flow of capital and technology”,25 and “the access mechanism to the privileges […] should be an actual event, an action (controlled) and not a possibility.”26
Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent's Objections to Jurisdiction, 21 October 2005, Declaration of Jose Luis Alberro-Semerena, para. 31; International Thunderbird Gaming Corporation v. The United Mexican States, Arbitral Award, 26 January 2006, para. 106; Perenco Ecuador Limited v. Republic of Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Decision on Remaining Issues of Jurisdiction and on Liability, 12 September 2014, paras. 524-527; B-Mex, LLC Deana Anthone, Neil Ayervais, Douglas Black and others v. United Mexican States, ICSID Case No. ARB(AF)/16/3, Partial Award, 19 July 2019, paras. 205, 212-213, 216-217; Guardian Fiduciary Trust, Ltd, f/k/a Capital Conservator Savings & Loan, Ltd v. Macedonia, former Yugoslav Republic of, ICSID Case No. ARB/12/31 , Award, 22 September 2015, paras. 136, 139.
Another relevant case is Standard Chartered Bank v. Tanzania, where a UK Claimant, by virtue of its equity ownership of a Hong Kong entity, sought the benefits of protection as an investor pursuant to the UK-Tanzania BIT. In that case, “the BIT nowhere uses the verb “own” or “hold” in connection with an investment by or of an investor”27 -note that the verb “owned” does come into play in Article 8(2) of that BIT for purposes of 25(2)(b) of the ICSID Convention-. The Tribunal concluded that active contribution to the investment was a requirement for that BIT:
“[P]rotection of the UK-Tanzania BIT requires an investment made by, not simply held by, an investor. To be considered to have made an investment, [Claimant] must have contributed actively to the investment.”28
Standard Chartered Bank v. United Republic of Tanzania, ICSID Case No. ARB/10/12, Award, 02 November 2012, para. 257; Voltaic Network GmbH v. Czech Republic, PCA Case No. 2014-20, Award, 15 May 2019, para. 201; South American Silver Limited v. Plurinational State of Bolivia, PCA Case No. 2013-15, Award, 30 August 2018, para. 331; Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ARB(AF)/09/1, Judgment of the English High Court of Justice on Enforcement, 2 February 2016, para. 37; A.M.F. Aircraftleasing Meier & Fischer GmbH & Co. KG v. Czech Republic, PCA Case No. 2017-15, Final Award, 11 May 2020, paras. 456-458.
That tribunal decided that “an indirect chain of ownership linking a British company to debt by a Tanzanian creditor does not in itself confer the status of investor under the UK-Tanzania BIT”,29 and that “[p]assive ownership of shares in a company not controlled by the claimant where that company in turn owns the investment is not sufficient.”30
The Standard Chartered Bank v. Tanzania tribunal continues:
“[F]or an investment to be “of” an investor in the present context, some activity of investing is needed, which implicates the claimant’s control over the investment or an action of transferring something of value (money, know-how, contacts, or expertise) from one treaty-country to the other.”31
To test its conclusion, the tribunal referred to the reciprocal nature of the treaty and observed that:
“In the absence of text in the BIT expressing a contrary intent and on a record indicating no involvement or control of the UK national over the investment, it would be unreasonable to read the BIT to permit a UK national with subsidiaries all around the world to claim entitlement to the UK-Tanzania BIT protection for each and every one of the investments around the world held by these daughter or granddaughter entities. The BIT preamble says “reciprocal protection” and “reciprocal” must have some meaning.”32
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