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Continuous Nationality Rule

I. Definition

1.

The Continuous Nationality Rule that played a major role in the case of Loewen v. United States1 is a traditional rule of diplomatic protection concerning the nationality of claims.2 The Continuous Nationality Rule says that the State seeking to protect a person must show proper interest in such protection and that the claim must have been continuously owned by a person of the same nationality from the date of the injury to the date of judgment or award.3

2.

Further, Article 25(2) of the ICSID Convention reads:

      "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.”

3.

According to Article 25(2)(a) the only requirements for the investor’s nationality relate to the date of consent to arbitration and to the date the claim is registered by ICSID pursuant to Article 28(3) or Article 36(3) of the ICSID Convention.4 Yet, there is no evidence that the ICSID Convention requires the investor to continuously hold its nationality between these two dates. 

II. Continuous nationality and investment protection treaties

4.

The international community has concluded manifold international treaties, such as the ICSID Convention, Chapter 9 of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Part III of the Energy Charter Treaty, and thousands of Bilateral Investment Treaties.

5.

Prima facie there is no place for the traditional Continuous Nationality Rule in investment treaty arbitration. The State is not a claimant and it cannot be assumed that injury was done to the State, since it is recognised that the investor has its own rights that he can claim without the State’s assistance.5

6.

However, it cannot be stated that the investor’s nationality is completely irrelevant to the investor’s claim. Problems related to the duration of nationality may arise out of mergers of claims, assignment, inheritance or cessation at any moment of the investor-State dispute. Some BITs contain clauses that allow corporations that have been incorporated in the host State or persons on their behalf to bring investor-State claims.6

7.

The question is therefore whether an investor’s nationality must remain unchanged from the date of the request for arbitration until the date of the award. In more general terms, the duration of the nationality describes the period in which a natural person or a legal person are nationals of a certain State. Considering the BITs, the nationality requirement has to be read alongside the definition of investor (jurisdiction ratione personae) which is a central requirement under every BIT. That said, the question of duration may be divided into two sub questions:

  • How long shall a person be a national or maintain his/her nationality before being considered a national under the BIT?
  • For how long does the person need to maintain his/her nationality once the request for arbitration has been filed?

III. Explicit requirements in BITs and national laws

8.

It is worth mentioning that the first distinction must be drawn between natural and legal persons since international investment law treats them differently. While the former are subject to the laws on nationality of each and every State, the nationality of the latter will be determined by the municipal company laws. This differentiation might have an impact on the assumptions concerning the “Continuous Nationality.”

A. Natural persons

9.

The Wiki note’s author’s analysis of BITs shows that there is no explicit requirement for a certain duration or continuity of nationality. Hence, the nationality will highly depend on the municipal laws.

B. Judicial persons

10.

In contrast, the nationality of a legal person is much lesser subject to the determination under municipal laws (lex societatis). Municipal laws and public international law recognise the concepts of incorporation and effective seat (aka siège réel or Sitztheorie). Therefore, even though States might provide for national regulations and are generally free in determining the nationality of a corporation within the State according to their personal criteria, they are more restricted as principles of public international law equally apply.7

IV. Implicit requirements

11.

Yet, there might be implicit requirements concerning the duration or continuity of nationality arising out of domestic law or public international law.

A. Municipal law

12.

In principle, States have a free choice for the criteria that will determine the nationality under a BIT and are not bound by their national legislation. Usually, States do not introduce any of such criteria and the nationality will implicitly be defined by the municipal law of each state. Such municipal laws may vary and provide for very different requirements. In particular, two arbitral awards demonstrate that even though BITs are governed by public international law, the latter will refer back to municipal law in order to determine nationality.

13.

One of the prominent awards concerning the nationality of the claimant was rendered by the Arbitral Tribunal in Champion Trading v Egypt. In the said case five claimants submitted an ICSID claim against the Arab Republic of Egypt. Two of the claimants were U.S. companies - Champion Trading Company and Ameritrade – while the three other claimants were U.S. citizens, who were born in the United States. The parents of these claimants were both U.S. citizens.8 However, the father of the claimants was Egyptian citizen as well. Relying on Egyptian law, the Arbitral Tribunal held that the sons of Egyptian nationals obtain the nationality of their father. Remarkably, this rule of the Egyptian law shall be applicable for several generations and is neither bound to where the children are born nor where their domicile is.9 The three children, being sons of an Egyptian national, were therefore considered to be Egyptian nationals.10

14.

Another case concerning the determination of the claimant’s nationality that is worth highlighting is Soufraki v. United Arab Emirates.11 In casu, the claimant was Mr Soufraki, a Canadian national. However, claimant also alleged to hold the Italian citizenship. In his capacity as a [which] national he signed an agreement with the United Arab Emirates for the development, management and operation of the Port of Al Hamriya.12 Upon the failure of the contractual relationship, Mr Soufraki filed an investment claim alleging breaches of the Italy–United Arab Emirates BIT. His claim, however, proved to be unsuccessful as the Arbitral Tribunal rejected jurisdiction. The Arbitral Tribunal, relying on Italian law, held that at the time Mr Soufraki submitted his claim he did not hold the Italian citizenship.13 Even though Mr Soufraki put five certificates of citizenship and a declaration of the Italian Foreign Affairs Minister that he was an Italian citizen, which confirmed his capacity to file a claim under the Italy–United Arab Emirates BIT, on the record,14 the Arbitral Tribunal was not convinced by this evidence. In the Arbitral Tribunal’s opinion the authors of the certificates and declaration were not aware of Mr Soufraki’s circumstances, in particular that when leaving Italy for Canada in 1991 Mr Soufraki had abandoned his Italian citizenship under Italian law. The Arbitral Tribunal was equally unconvinced by Mr Soufraki’s evidence that he allegedly regained that citizenship by subsequently living in Italy.15 It therefore held that Mr Soufraki did not meet the necessary burden of proof that he indeed was an Italian national.16

B. Public international law

15.

In general, there are no provisions in public international law that provide for criteria to determine the nationality of a natural person. This is also echoed in Article 1 of the 1930 Hague Convention on Certain Questions Relating to the Conflict of Nationality Laws. Yet, certain rules of public international law may or may not apply or affect the concept of nationality in BITs. This could also influence the requirement of nationality and the duration or continuity thereof.

1. Natural persons

16.

For natural persons, the Nottebohm case of the ICJ requiring a “bond”17 is likely to become decisive. It can be assumed that this bond with the State contains an element of continuity as it sets forth the substantive requirements for the transfer of a certain nationality. Therefore, arbitral tribunals may use this as a departing point for their analysis of a continuous nationality. 

2. Judicial persons

17.

With regard to the nationality of legal persons the Loewen v. United States might be considered as the cornerstone for any considerations. The Loewen tribunal stated that “in international law parlance, there must be continuous national identity from the date of the events giving rise to the claims, […], through the date of the resolution of the claim, […].”18 This approach the has been highly criticized.19

V. Certain problems

A. Dual-nationality

18.

Frequently, Arbitral Tribunals have to deal with claims by dual nationals, that have alongside a third-country nationality the nationality of the respondent State. The ICSID Convention excludes claims of dual nationals.20 However, ad hoc arbitrations under the UNCITRAL Rules often rely on the principle of dominant and effective nationality. This principle allows the Arbitral Tribunal the determination of a claimant’s real and tangible connection to a certain State. Once the connection has been established, the claimant’s claim under international law against another State can either proceed or will be dismissed on the jurisdictional level.21

B. Corporate structuring

19.

The case can be even more complicated if the question at hand does concern the nationality of an individual, but a corporation. In many cases, a corporation will be both “established under the laws of one particular country” and have its place of business and operations in the same.22 However, there can be different variations, where the corporation might be established under the laws of State A, have its main seat in State B and conduct business in State C. Another problem may arise when a corporation that operates in State C is locally incorporated, but wholly owned by a subsidiary of the corporation in State B, which in turn is wholly owned by the mother company in State A. In such cases a situation of piercing the corporate veil may arise.

C. Shareholder claims

20.

A related issue is whether shareholders of an expropriated company itself or its national State can bring claims on their own behalf. Even though early ICJ case law in Barcelona Traction23 suggests that there can be no piercing of the corporate veil recent case law suggests otherwise. Relying on Barcelona Traction, the arbitral tribunals in ADC v Hungary,24 Rumeli v Kazakhstan,25 and Tokios Tokeles v Ukraine26 have indeed acknowledged the possibility of piercing the corporate veil to “prevent the misuse of the privileges of legal personality27 or where the “real beneficiary of the business misused corporate formalities in order to disguise its true identity and to avoid liability28.29

VI. Conclusion

21.

Against this background, it can be stated that there is neither an explicit requirement in the wording of most BITs as to the question of how long a natural person is required to have maintained its nationality before being considered as a national under a BIT, nor is there such a requirement for how long the nationality needs to be maintained once a request for arbitration has been filed.

22.

Equally it can be stated that both, national and public international law do not provide any clear rules on how to determine the duration of nationality. As it has been outlined in the note, international arbitration tribunals tend to apply formalistic approaches in cases where the question of nationality arises.

Bibliography

Dumberry, P., Obsolete and Unjust: The Rule of Continuous Nationality in the Context of State Succession, Nordic Journal of International Law,  2007, pp. 153-183.

Juratowitch, B., The Relationship between Diplomatic Protection and Investment Treaties, ICSID Review – Foreign Investment Law Journal, 2008, pp. 10-35.

Mendelson, M., Runaway Train: The Continuous Nationality Rule from the Panevezys-Saldutiskis Railway Case to Loewen, in Weiler, T. (ed.), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law, 2005, pp. 97-149.

Paulsson, J., Continuous Nationality in Loewen, Arbitration International, 2004, pp. 213-216.

Rubins, N., Loewen v United States: The Burial of an Investor-State Arbitration Claim, Arbitration International, 2005, pp. 1-34.

UNCTAD, Dispute Settlement, International Centre for Settlement of Investment Disputes, 2.4 Requirements Ratione Personae, 2003.

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