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Mr Mateo Verdías Mezzera

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Dominant and Effective Nationality

I. Definition

1.

The investor-State dispute regime is “based on the principle that [investment] protections extend to investors who are nationals of a contracting State other than the host State in which the investment is made.1

2.

Consequently, the diversity of nationality between the parties is one of the pre-requisites an investment tribunal must verify in order to uphold jurisdiction over a claim. In order to assess such diversity, and after having established that the investor holds more than one nationality,2 tribunals may resort to the dominant and effective nationality test, which empowers them to analyze several factual elements to determine the genuine nationality of an individual.3 A broader application of this test has also been suggested in investor-State disputes, under certain circumstances, in the absence of dual nationals.4

3.

Nationality is a legal concept that reflects a formal relationship between individuals and States,5 to the extent that an individual can hold simultaneously more than one nationality. This happens because matters of citizenship are regulated exclusively by the municipal law of each State.6 (See further Nationality of Investor and Dual Nationality)

4.

However, when analyzed from an international law perspective, the concept of nationality of individuals has been narrowed as to depict the dominant nationality of an individual holding multiple citizenships. According to the International Court of Justice (“ICJ”) nationality is a “translation” into juridical terms of a strongly factual and “genuine” link between the individual and a State.7 (See further Genuine and Effective Link) Considering nationality to be incapable of division between two States,8 the ICJ resurged9 the test of dominant and effective nationality as the proper approach to determine the real nationality of claimants.10 Ultimately, this test serves to prevent nationals from bringing claims against their own home States in international forums.11

5.

In cases where the multiple nationalities of a claimant have a bearing on the tribunal’s jurisdiction to hear the case, and the relevant instrument of consent (i.e., the treaty, investment contract, and investment law) is silent or unclear on resolving the matter, decisions in the framework of diplomatic protection and recent investment arbitration jurisprudence call for the determination of the claimant’s “dominant and effective” nationality. 

6.

This test has had different treatments depending on the context of the dispute: diplomatic protection (section IV) and investment arbitration (section V).

II. Related notes

III. Development and codification of the concept

8.

The test of dominant and effective nationality was first applied in 1834 by the Privy Council of the United Kingdom in the Drummond’s Case.12 It was later also recognized by the ICJ in 1955 in the context of diplomatic protection, in the Nottebohm13 and the Mergé14 judgements.

9.

In 1930, this test was first codified in Article 5 of the Hague Convention on Conflicts of Nationality Laws, later in the 1961 Harvard Draft Convention on International Responsibility15 and later in 2006 in Article 7 of the ILC’s Draft Articles on Diplomatic Protection.

IV. Consolidation as a rule of customary international law

10.

For a rule of customary international law to emerge, two elements must convey:16 the rule must be regarded as an objective “general practice” of States,17 and must be subjectively “accepted as law” by States.18 In the context of diplomatic protection and in the framework of the Iran-US Claims Tribunal,19 it was widely accepted that the dominant and effective nationality rule met both pre-requisites.20 More recently, investment arbitration decisions once again have confirmed this test as a rule of customary international law.21

V. Diplomatic protection practice

11.

Within the context of diplomatic protection, two cases marked the application of this test as a general rule of customary international law: the Nottebohm Case,22 and the Mergé Case.23 In the former, the ICJ non-exhaustively identified and listed several factual elements that shaped the dominant and effective nationality of an individual, that were also used by the Iran-US Claims Tribunal:24

  • habitual residence of the individual concerned;
  • center of one’s interests;
  • family ties;
  • one’s participation in public life;
  • attachment shown by one for a given country and inculcated in one’s children.
12.

The relevant time-frame for the assessment of all these elements remains unsettled, for some tribunals called for the analysis of the “entire life of the claimant[s]” while others consider appropriate to assess only the period “well before [the] claim arose”.25 

VI. Investment arbitration practice

A. Under the ICSID Convention framework

12.

Within the ICSID Convention framework, Article 25(2)(a) excludes any claim from dual nationals who hold the nationality of the host State of the investment and thus, precludes the application of the dominant and effective nationality rule in such cases.26 However, this does not exclude its application to avoid absurd results. See further Dual Nationality.

B. In the absence of express provision in the applicable rules

14.

In non-ICSID arbitrations or in ICSID claims where the dual nationality does not involve that of the host State, the applicability of the effective and dominant nationality test to investment arbitration disputes has been challenged by investors.27 States, on the other hand, often do refer to the application of the dominant and effective test to determine nationality for Claimants that have more than one nationality.28 

15.

Moreover, in some cases, the investor itself called for the application of this principle.29

16.

When faced with normative conflicts, tribunals can apply different techniques to determine the applicable norm, one of which is the lex specialis principle. This maxim provides that “if a particular matter is being regulated by a general norm and a more specific one, the special norm shall prevail over the general standard.30 In light of the lex specialis principle of interpretation,31 many tribunals have for several years been reluctant to apply the dominant and effective nationality rule of customary international law when the relevant instrument of consent was silent or unclear in the matter of claims by dual-nationals32 and some others considered it irrelevant to the specific case.33

17.

While investors often argue that when the relevant instrument of consent (i.e., the treaty, investment contract, and investment law) does not expressly preclude claims from dual-nationals, no further test must be satisfied, respondent States generally contest that silence of the relevant instrument does not per se create a consent to such claims and hence, tribunals must resort to the principles of customary international law.

18.

Recently, some tribunals have confirmed the application of this customary international law rule in the context of investment treaty arbitration even when the relevant instrument of consent is silent or not clear enough on the issue.34

C. Factors taken into account by tribunals

19.

Investment tribunals took into consideration many factors already used under the diplomatic protection before the ICJ (see above Section IV).35 They have even listed additional factual criterion, such as: 

  1. the conduct of the host State’s authorities towards the dual national,36
  2. how the dual nationals staged themselves in their personal and business dealings towards the host State’s authorities, (i.e. investment related connections)37 and
  3. dual nationals’ particular positioning when establishing and registering their investment.38
20.

Some factors, such as the place of birth39 and the act of naturalization,40 have been considered as irrelevant to determine the dominant and genuine nationality of the investor.

21.

Questions on the date of the examination of the dominant and effective nationality arose. Tribunals have considered that those factors should be assessed at the time the investment was made or when the breach was committed, making the facts intertwined with the merits of the case,41 amid the submission of the claim to arbitration42 or throughout the investor’s lifetime.43 (See further Relevant Date)

Bibliography

Amerasinghe, C.F., Diplomatic Protection, Oxford University Press, Oxford, 2008.

Banaszewska, D.M., Lex Specialis, Max Planck Encyclopedia of Public International Law [MPEPIL], 2015.

Bederman, D., International Law Frameworks, 3rd ed., 2010.

II Knapp, Privy Council I, at “The English Report”, Vol. 12, 1901.

International Law Commission, 1952 Yearbook, Vol. II

Kannof, A., Dueling Nationalities: Dual Citizenship, Dominant and Effective Nationality, and the Case of Anwar al-Aulaqi, Emory International Law Review, Vol. 35, Issue 3.

McLachlan, C., Shore, L. and Weiniger, M., International Investment Arbitration: Substantive Principles, Part II: Ambit of Protection, 5 Nationality, 2nd ed., Oxford Scholarly Authorities on International Law, 2017.

Michigan Law Review, Claims of Dual Nationals in the Modern Era: The Iran-United States Claims Tribunal, Mich. L. Rev., Vol. 83, 597, 1984.

Sasson, M., Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between International Law and Municipal Law, Kluwer Law International, 2010.

Spiro, P., Multiple Nationality, Max Planck Encyclopedia of Public International Law [MPEPIL], 2008.

Trevisanut, S., Nationality Cases before International Courts and Tribunals, Max Planck Encyclopedia of Public International Law [MPEPIL], May 2011.

The Research Centre for International Law, Iran-United States Claims Tribunal Report, Vol. 5, University of Cambridge, Cambridge Grotius Publications Limited, 1985.

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