Having its roots in the public international law field of “diplomatic protection”,1 yet not forming part of customary international law,2 the doctrine of “genuine and effective link” pertains to a test of genuine connection and closeness between a legal or natural person and its home State, in order for such person to be able to invoke the nationality of that State.
In investment treaty law, the “genuine and effective link” doctrine has not been directly discussed in the context of jurisdiction ratione materiae, but it can conceivably be linked to the issue of ownership and control in International Investment Agreements (“IIAs”), and may be relevant in determining whether there exists a required link between an investment and an investor.
II. Permutations of the "genuine and effective" link doctrine in other issues
A. Jurisdiction ratione personae
In international investment law, direct reference to this doctrine has only been made in the context of jurisdiction ratione personae, with respondent States objecting to purported investors invoking the nationality of a State with which they have no actual connection.3 Investment tribunals have so far unanimously rejected such contentions.4
Ioan Micula, Viorel Micula and others v. Romania (I), ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility, 24 September 2008, paras. 98-106; Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, Decision on Jurisdiction, 30 April 2010, paras. 129-135; Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Interim Decision on Preliminary Jurisdictional Issues, 6 December 2000, paras. 36-37; Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007, paras. 200-201; Champion Trading Company and Ameritrade International, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB/02/9, Decision on Jurisdiction, 21 October 2003, paras. 59-60; Eudoro Armando Olguín v. Republic of Paraguay, ICSID Case No. ARB/98/5, Award, 26 July 2001, para. 61; Víctor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Award, 8 May 2008, para. 241; Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, paras. 75-76.
B. Law of the sea
In the context of the United Nations Convention on the Law of the Sea (“UNCLOS”), a variation of this doctrine is used to establish the nationality of ships, in that “[t]here must exist a genuine link between the State and the ship”.5
III. Genuine and effective link between investment and investor
To qualify as a “protected investment”, a putative investment must be linked to a qualifying investor, namely, an investor that satisfies the ratione personae jurisdictional requirements of a particular IIA.6 In other words, an investment must be genuinely and effectively linked to an investor, and, by extension, to that investor’s home State.
IV. Treaty practice
Certain IIAs contain specific wording to that effect, by defining “investments” as those that are “owned or controlled, directly or indirectly” by a qualifying investor.7 Only a few of those clarify the meaning of ownership or control.8 The majority of older IIAs are silent on the type of link required.9
Agreement between the United States of America, the United Mexican States, and Canada, adopted on 30 November 2018, Article 14.1; Agreement between Japan and Mongolia for an Economic Partnership, adopted on 10 February 2015, entered into force on 7 June 2016, Article 1.2(k); Canada - Benin BIT, Art. 1.
V. Indirect investment
While, in principle, investments can be structured through several corporate layers of subsidiaries and other affiliates (“indirect investment”), for the purposes of establishing a genuine and effective link between the investment and the investor, ownership or control must be established in each layer.10 Investment claims with only a “remote connection to the affected company” must be cut off in the sense that they do not comport with the host State’s consent to arbitration.11
Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004, para. 137; Mason Capital L.P. and Mason Management LLC v. Republic of Korea, PCA Case No. 2018-55, Decision on Respondent's Preliminary Objections, 22 December 2019, paras. 201–203; Theodoros Adamakopoulos, Ilektra Adamantidou, Vasileios Adamopoulos and others v. Republic of Cyprus, ICSID Case No. ARB/15/49, Decision on Jurisdiction, 7 February 2020, para. 288; Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction, 14 January 2004, para. 56; CEMEX Caracas Investments B.V. and CEMEX Caracas II Investments B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/08/15, Decision on Jurisdiction, 30 December 2010, paras. 156–158; Mohammad Ammar Al-Bahloul v. The Republic of Tajikistan, SCC Case No. 064/2008, Partial Award on Jurisdiction and Liability, 2 September 2009, para. 142.
VI. Portfolio investment
With seemingly only two exceptions12 — and save for contrary treaty language13 — investment tribunals generally consider that holding shares in a company without holding a stake for management purposes (“portfolio investment”) is a legitimate “investment” activity;14 and, by extension, that it constitutes a “genuine and effective link” between an investment and an investor.
Investment Cooperation and Facilitation Agreement Between the Federative Republic of Brazil and the Republic of Malawi, adopted on 25 June 2015, Article 2(1); Cooperation and Facilitation Investment Agreement between the Federative Republic of Brazil and the Co-Operative Republic of Guyana, adopted on 13 December 2018, Article 3 (1.3); Cooperation and Facilitation Investment Agreement between the Federative Republic of Brazil and the United Arab Emirates, adopted on 15 March 2019, Article 3 (1.3).
Baumgartner, J., Treaty Shopping in International Investment Law, 2016, Chapters 4 and 5.
Reed, L., Scanlon, Z. and Atanasova, D., Protected Investment, in Fabri, H.R. (ed.), Max Planck Encyclopedia of International Procedural Law, 2018.