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Ms Anastasia Medvedskaya

International Associate - Ivanyan & Partners

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The Doctrine of Veil Piercing in Investment Law

I. Definition


The piercing or lifting of the corporate veil refers to a legal decision by a competent forum to disregard the limited liability of a corporation, treating its rights or duties as rights or duties of its shareholders.1 This concept is derived from common law2 and is evoked in cases where corporate personality is used as “a cloak for fraud or improper conduct”.3

II. Investment arbitration


In investment treaty arbitration, this doctrine helps to identify the true party in interest beyond its corporate structure. It is commonly applied where the investor seeks to gain access to a tribunal’s jurisdiction in bad faith or by using improper and fraudulent conduct.4 The threshold for applying this theory is very high, and tribunals have shown reluctance to declining jurisdiction based on veil piercing alone. Other closely connected notions include the nationality of the corporate investor, abuse of process and bad faith in investment treaty arbitration.

III. Veil piercing in public international law


According to the Barcelona Traction case, the place of incorporation determines the nationality of the legal entity regardless of the nationality of its shareholders.5 The dispute in this ICJ case arose out of Spanish governmental policy, which brought about the bankruptcy of the Canadian-registered Barcelona Traction company. Belgium espoused this claim, based on the Belgian nationality of Barcelona Traction’s shareholders. Spain objected to the Court’s jurisdiction on the basis that Belgium lacked standing under international law as the company was registered in Canada. The Court found that only the country of the place of incorporation could espouse a company’s claims under international law.6 Yet, the Court acknowledged that the company’s corporate veil may be lifted in exceptional circumstances, following the example of national law: “to prevent 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.”7

IV. Application of the doctrine of veil piercing by investment treaty tribunals

A. Formalistic approach to corporate nationality and rejection of the doctrine of veil piercing


In the Tokios Tokéles case, a claim was brought under the Ukraine-Lithuania BIT where 99% of the company’s shares were held by Ukrainian nationals. Respondent relied on the Barcelona Traction case, arguing that the nationality of the shareholders should be acknowledged as the true origin of the claim, in application of the veil piercing doctrine.8 By a majority, the tribunal determined that fraud or abuse of the corporate form would trigger the application of the controlling nationality test, concluding that Claimant had made no abuse in restructuring its company.9 Professor Prosper Weil, the president of the tribunal disagreed with the majority’s jurisdictional assessment (as it would depart from the object and purpose of the ICSID Convention) and resigned from the tribunal after the jurisdictional award was rendered.10


The tribunal in the Saluka v. Czech Republic case acknowledged the possibility of using an equitable remedy of piercing the corporate veil in cases “where corporate structures had been utilised to perpetrate fraud or other malfeasance” but found no application of this doctrine in the case at hand.11 


In Gambrinus v. Venezuela, Respondent alleged that the tribunal should pierce investor’s corporate veil as it had structured its investment abusively i.e. that the corporate vehicle is empty, with no real connection to Barbados and is “an opportunistic shield to gain access to ICSID jurisdiction.12 The tribunal recalled that veil piercing may apply only in exceptional circumstances, and rejected the application.13 It then analysed the issue of bona fide investment in the section on jurisdiction ratione materiae, finding that the transfer of shares for the acquisition of the investment was made in breach of the agreed essential condition in the Share Purchase Agreement.14 On this ground, the tribunal declined its jurisdiction.

B. A high burden of proof in case of fraudulent undertakings


In the Libananco case, the claim was brought by a Cypriot company against the Republic of Turkey, based on the alleged expropriation of the electricity companies ÇEAŞ and Kepez (ultimately belonging to the Uzan family). The Respondent raised the jurisdictional objection inter alia alleging that the investor “is the alter ego of various Turkish nationals”.15 The tribunal declined jurisdiction on different grounds, as it found that the Claimant did not discharge its burden of proof as to the lawfulness of the acquisition of the investment.16


In the KT Asia case, Kazakhstan argued that the Claimant indulged in abusive treaty shopping. The investor has allegedly created a Dutch company at a nominal price in view to secure treaty jurisdiction over a dispute which the investor [a Kazakh national] specifically foresaw.17 The tribunal acknowledged the possibility of piercing the corporate veil to prevent the misuse of the privileges of legal personality “assuming (…) it would require a showing of abuse of the corporate form.” The elements of abuse were not proven in this case.18

C. Application of the doctrine of veil piercing in relation to Article 25.2(b) second limb of the ICSID Convention


Article 25(2)(b) second limb of the ICSID Convention19 allows for investments incorporated in the territory of the host state to be treated as foreign nationals provided that those investments have foreign control. Under this provision, the Convention is concerned with the foreign control of the investment rather than its foreign ownership.


The notion of foreign control has been considered to an “objective outer limit” to the jurisdiction of the Center that “cannot be replaced by agreement”.20 A corollary of this is that tribunals are invited to look beyond the corporate structure to identify the real foreign party in interest, embedding veil piercing into the Convention.


In the TSA v. Argentina case, the issue of “foreign control” was raised in connection with the question of the foreign nationality of the investor. Respondent objected to the jurisdiction of the tribunal under the ICSID Convention on the basis that the investment was ultimately owned by an Argentinian national. While on the face of it TSA was owned by the Dutch company TSI, the latter was controlled by an Argentinian national, who held the majority of TSI’s shares. The tribunal decided to pierce the corporate veil and found that TSA could not be considered a Dutch national, because it was ultimately controlled by a national of the host State.21


Dobson, J. M., Lifting the Veil in Four Countries: The Law of Argentina, England, France and the United States, The International and Comparative Law Quarterly, 1986.

Schlemmer, E., Chapter 2: Investment, Investor, Nationality, and Shareholders, in Muchlinski, P., Ortino, F. and Schreuer, C. (eds.), The Oxford Handbook of International Investment Law, Oxford University Press, 2008.

Thorn, R. and Doucleff, J., Disregarding the Corporate Veil and Denial of Benefits Clauses: Testing Treaty Language and the Concept of “Investor", in Waibel, M., Kaushal, A., Chung, K. H. and Balchin, C. (eds.), The Backlash Against Investment Arbitration, Kluwer, 2010.

Badia, A., Chapter 5: Piercing the Veil of Investors in Nationality Claims in Piercing the Veil of State Enterprises in International Arbitration, International Arbitration Law Library, Vol. 29, Kluwer Law International, 2014.

Sipiorski, E., Chapter 3: Good Faith and Treaty Shopping: Timing, Piercing the Corporate Veil, and Issues of Nationality in Good Faith in International Investment Arbitration, Oxford International Arbitration Series, 2019.

Rubins, N., Kinsella, S. and Papanastasiou, T.N., International Investment, Political Risk and Dispute Resolution, 2nd ed., 2020.

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