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Mr Thomas James Biscomb

LLM in International Advocacy Candidate – Dispute Resolution - Universidad Carlos III de Madrid

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Jurisdiction Ratione Personae

I. Definition

1.

An investment dispute may only be brought to a tribunal that holds jurisdiction to decide on the relevant matter. The scope of jurisdiction of investment tribunals consists in mainly three dimensions: i) jurisdiction ratione personae; ii) jurisdiction ratione materiae; and iii) jurisdiction ratione temporis. Jurisdiction of the investment tribunal is thus evidenced only whenever all of these three dimensions are met.1

2.

As the investment protection regime is based “on the principle that its protections extend to investors who are nationals of a contracting state other than the host state in which the investment is made”,2 the nationality of a claimant will determine if it is entitled to benefit from the protection granted by the underlying Bilateral Investment Treaty (“BIT”). This, in turn, will determine the jurisdiction ratione personae of an investor-State arbitral tribunal.3

3.

In order to determine the ratione personae dimension of jurisdiction, BITs have introduced different definitions of investor, including different requirements to qualify as a national of a contracting party (see also Nationality of Investor). When looking at these requirements, it is clear that a basic distinction is made between natural and legal persons, showing in each case different requirements to meet the nationality requirement, and thus, the investor definition of the underlying BIT.4

4.

Similarly, State Enterprises acting in a commercial capacity abroad may bring claims against a given contracting party as private investors, if they are able to meet the investor definition placed in the underlying BIT.5

5.

If the criterion set out in the BIT is met, then the investor will be enabled to claim protection under the BIT. Therefore, whenever a claim is initiated by a certain claimant, a tribunal will analyse if said claimant is a national of one of the contracting parties in order to determine if said tribunal has jurisdiction ratione personae over the dispute.

6.

Additionally, investors bringing a claim against a certain State will also need to prove that the claim the investor is initiating is directly attributable to said State.6

II. Natural persons as investors

7.

The definition of nationality of natural personas is normally established by reference to the domestic law of the respective contracting States.7 Taking this into account, certain BITs have included a single definition of a national that applies for both parties,8 whereas other BITs include two different definitions applying to each of the contracting parties.9

8.

Making a reference to the domestic law of the respective contracting party in order to determine nationality is consistent with the concept of State sovereignty in deciding the criteria for identifying its nationals,10 and it is something that may also be seen when determining the nationality of legal persons.

9.

However, some other investment agreements have also included additional requirements in order to meet the nationality definition, such as a requirement of residence11 or domicile.12

10.

Issues related with dual nationality of natural persons13 or with their dominant and effective nationality14 may arise whenever determining if a natural person qualifies as a national of a certain contracting party and thus enjoys the protection granted by the underlying treaty.

III. Legal persons as investors

11.

The qualification of legal persons as investors may raise more complex issues than the ones presented for natural persons.15 On the first hand, BITs may define legal persons as investors in different ways. In this sense, certain discussions of the scope of these definitions have arisen in practice. 

12.

For instance, the term “economic entities” is used in certain BITs in order to define legal persons as investors,16 and although certain States have promoted a restrictive approach to this term by which State-owned entities or shell companies should be excluded,17 tribunals have consistently understood that the term is expressed in broad terms as it “does not distinguish on the basis of organizational type, business purpose, ownership, or control”.18 Therefore, where no restrictions have been included by the underlying BIT to the way legal person as investors are defined, tribunals have concluded that there is no basis to include restrictions were none appear to have been intended.19

13.

On the other hand with regard to nationality, corporations today hold various links to different States, and this has brought about difficulties in the determination of the nationality of a legal person.

14.

In order to solve such difficulties, BITs normally regulate the definition of nationality of legal persons by using at least one of these criterions: a) the notion of incorporation; b) the seat or siege social of the corporation; and c) by means of the test of control. Similarly, the definition of national of another contracting state in the ICSID Convention for juridical persons does not strictly define the term nationality,20 and thus tribunals have applied both the ICSID Convention and the underlying treaty in order to determine which approach to apply.21

15.

The criteria of incorporation, and seat of the corporation, have their connections with the Barcelona Traction22 decision of the International Court of Justice, where the ICJ espoused the place of incorporation and principal seat theories of corporate nationality, rejecting the possibility of performing a control test to determine nationality. 

A. Incorporation approach

16.

The incorporation approach is used in the vast majorities of BITs. It proposes that investors will meet the nationality definition if the legal person is incorporated or constituted under the laws of one of the contracting parties.

17.

For instance, the incorporation approach has been adopted by the United Kingdom in their model BIT,23 and it is therefore the approach used in the majority of the UK BITs.24 Similarly, the Ukraine – Lithuania BIT defines a Lithuanian investor as “any entity established in the territory of the Republic of Lithuania in conformity with its laws and regulations,” setting a low threshold in order to meet the nationality requirement.25

18.

In certain BITs, the incorporation approach is placed in the definition of the word “enterprise” and is also extended to a “branch” of the enterprise. This is the case in the Uruguay-Canada BIT.26 Additionally, other BITs set a higher threshold by requiring both the incorporation approach, and the siege social approach (discussed later in this Note). 

19.

However, if there is no other element included besides the incorporation requirement, “where no such additional requirements have been stipulated, tribunals27 generally conduct a review limited to determining whether the legal entity satisfied the formal definition of investor under the treaty and refuse to incorporate additional requirements that the treaty drafters did not include.”28

20.

In that sense, the Tribunal in the Tokios Tokelés v. Ukraine case analysed the nationality of the claimant which was incorporated under the law of one contracting state but controlled by nationals of the host State. The majority of the tribunal29 understood that the claimant was entitled to bring a claim against Ukraine as it was incorporated in Lithuania – even though it was controlled and 99% owned by Ukraine nationals – as the BIT did not include any additional requirements in order to qualify as an investor. The same approach was used in the Ukraine-Lithuania BIT, and similar decisions of tribunals have followed the same argument.30

21.

This formalistic and low threshold has been supported by certain scholars who argue that “the natural consequence of the formalistic language of most treaties is that adopting a particular corporate structure for the purpose of attracting the protection of an investment treaty is wholly legitimate31 (see also Nationality Planning).

22.

On the other hand, the President of the Tribunal in the Tokios Tokelés v. Ukraine case issued a dissenting opinion, in which it stated that the analysis should be done by establishing if the relevant tribunal has jurisdiction first under the ICSID Convention and latterly under the relevant BIT. Under said analysis, the dissenting opinion stated that the origin of the capital is relevant, and even decisive, in order to ascertaining the international character of an investment.32 

B. Seat or siege social approach

23.

In certain BITs, the nationality definition requires that, in order to qualify as an investor, the legal person should have its “siege social” (head office) and/or effective management in the territory of one of the contracting parties.

24.

For example, the Germany – China BIT defines “company” by including, with respect of Germany, “any juridical person as well as any commercial any commercial or other company or association with or without legal personality having its seat in the territory of the Federal Republic of Germany (…).”33 Other treaties, such as the Cambodia – Turkey BIT, require that the legal person carries out “substantial business activities in the territory of that Contracting Party”34 or “real economic activities.”35

25.

Certain BITs also include a “Denial of Benefits” clause, by which the given BIT intends to allow a Contracting Party to deny the benefits of the BIT to an investor of the other Contracting Party if the enterprise of that Contracting Party has no substantial business activities in the territory of the Party under whose law it is constituted or organized.

26.

The tribunal in the Alps Finance v. Slovak Republic case defined the corporate seat as the “effective center of administration” and thus understood that it was required to show evidence of certain elements, such as the place where the company board of director regularly meets; the place where the company has a considerable amount of employees; the company’s address and physical location, among others.36

27.

Similarly, the Tribunal in the CEAC v. Montenegro37 case declined jurisdiction as CEAC did not prove that the office building was accessible to the public nor that the company’s records were kept in such address, even though CEAC had provided a certificate of registered office issued by the Cypriot authorities. 

28.

In cases where the siege social approach is accompanied by the incorporation approach, certain tribunals38 have understood that the term siege social should have a substantive meaning, requiring additional evidence other than a purely formal matter of the address of a registered office, such as some sort of actual or genuine corporate activity. 

C. Control approach

29.

Under investment arbitration, “it has become more and more pertinent to look at the aspect of the control of a corporation when one wants to determine its nationality”.39 However, as discussed above when addressing the Tokios Tokelés v. Ukraine case, the control approach has been more frequently used when analysing the incorporation approach and if there are any additional requirements to meet in order to consider a claimant as an investor (see also “Ownership”).

30.

Nevertheless, certain BITs also include this approach to justify coverage of an investor under the underlying BIT.40 In this sense, the control approach is commonly used as an additional requirement, combined with either the incorporation or control approach. For instance, the Switzerland - Iran BIT includes a control test in certain circumstances of the majority ownership or majority voting rights in a company.41

31.

Whenever determining which percentage is necessary to establish the control requirement – and only if the underlying BIT is silent on this regard – tribunals have followed different approaches. In the Thunderbird v. Mexico case, the Tribunal understood that the claimant exercised de facto control over certain companies in which it had less than 40% of the shares, and that was enough to satisfy the control requirement in the NAFTA Treaty.42 On the other hand, the Tribunal in the Aguas del Tunari v. Bolivia understood that the control requirement was accomplished if the claimant had a legal control over the investor.43

32.

Additionally, it has also been disputed as to how many layers of ownership should be explored in order to determine control. In the Amco v. Indonesia case, the Tribunal understood that looking at the “second, and possibly third, fourth or xth degree” was not in “accord with the Convention.”44 On the other hand, in the Soabi v. Senegal case, the Tribunal held that ultimate control was sufficient to establish the Tribunal’s jurisdiction.45 Such decisions may show that investment arbitration tribunals will look through holding companies to determine control, but not look through companies which are actually pursuing activities in the jurisdiction in which they are incorporated.46 

IV. The attribution of claims to States

33.

The dimension of jurisdiction ratione personae of a given tribunal does not only extend into analysing if the investor qualifies as an investor under the relevant BIT. In order for a tribunal to determine if it has jurisdiction ratione personae over the dispute, it will have to also determine if the relevant State was indeed a party to the underlying investment relationship with the investor. Tribunals have analysed this matter by seeking to determine if the dispute may be attributed to the relevant State.47

34.

Attribution may be defined as “the operation or process aimed at identifying and circumscribing the conduct of individuals which is properly to be treated as constituting that of the State”.48 In other words, Attribution allows to determine the extent, if any, of a given State’s involvement in investment relations49 (see also Attribution).

35.

As stated by the Tribunal in the case Gustav F.H Hamester v. Ghana, “[a]s States are juridical persons, the question necessarily arises whether acts committed by natural persons or separate entities, which are allegedly in violation of international law, are attributable to the State”.50 To determine if an act may be attributed to a given State, tribunals have often understood that the issue of attribution is to be determined by international law and guided by the Articles on State Responsibility (hereinafter, the “ILC Articles”).51

36.

Under Article 4 of the ILC Articles, “the conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central government or of a territorial unit of the State”.52 Additionally, Article 5 of the ILC Articles state that certain acts of persons or entities exercising elements of governmental authority can also be attributed to the State, provided that the person or entity is acting in the capacity of exercising governmental authority, given by the law of that certain State.53

37.

As such, tribunals have identified that the following acts may be attributed to a given State:

  1. all acts of State organs;
  2. acts of public or private entities or persons exercising governmental authority, if executed in the exercise of such authority; and
  3. acts of public or private entities or persons done on the instructions of, or under the direction or control of that State.54
38.

Under this analysis, tribunals have often analysed if the claimant’s claim relates to acts which a State committed in the exercise of powers that only the State can exercise.55 For example, in Khan Resources Inc., Khan Resources B.V. and CAUC Holding Company Ltd. v. Government of Mongolia and Monatom Co., Ltd the tribunal in found that the acts related to the claim could be attributed to the State of Mongolia as the acts were “obligations shat only a sovereign state could fulfil.”56 In order to determine if certain obligations are obligations that only the sovereign State could fulfil, the tribunal in the said case understood that it was necessary to analyse the law of Mongolia.57

39.

On the other hand, tribunals have also understood that claims against sub-State entities or constituent parts of a State party to an investment agreement are only exceptionally permissible.58 For example, this possibility is provided for in the ICSID Convention, as Article 25 allows claims against “constituent subdivisions or agencies of a Contracting State” under the condition that such entities are “designated to the Centre by that State.”59 However, tribunals have declined jurisdiction against sub-State entities or constituent if said possibility is not provided within the underlying BIT.60

Bibliography

Waibel, M., Investment Arbitration: Jurisdiction and Admissibility, University of Cambridge Faculty of Law, 2014.

McLachlan, C., Shore, L. and Weiniger, M., Nationality, in International Investment Arbitration: Substantive Principles, 2nd ed., 2017.

Blackaby, N., Partasides, C., Redfern, A. and Hunter, M., Arbitration under Investment Treaties, in Redfern and Hunter on International Arbitration, 6th ed., 2015.

Yannaca-Small, K., Who is Entitled to Claim?: The Definition of Nationality in Investment Arbitration, in Arbitration Under International Investment Agreements: A Guide to the Key Issues, 2nd ed., 2010.

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

Wisner, R. and Gallus, N., Nationality Requirements in Investor-State Arbitration, The Journal of World Investment and Trade, 2004, pp. 927-946

Kovács, C., Attribution in International Investment Law, International Arbitration Law Library, Vol. 45, Kluwer Law International, 2018.

Olleson, S., Attribution in Investment Treaty Arbitration, ICSID Review, Vol. 31, Issue 2, Oxford University Press, 2016.

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