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Ms Ankita Godbole

Associate - Lévy Kaufmann-Kohler

Nationality of Investment

I. Definition


The nationality of an investment is a condition or a set of conditions in some international investment treaties (“IIT”) applied to the determination of the investment’s origin. In particular, such conditions may stipulate that the treaty applies to investments made “in the territory of” the host State (the territorial nexus requirement) or require that the funds used to make the investment originate from a particular source or jurisdiction (the origin of capital requirement).

II. Nationality of Investment v. Nationality of Investor


The conditions stipulated in a particular treaty as applied to the nationality of an investment circumscribe the investment’s ability to qualify for treaty protection and implicate a tribunal’s jurisdiction ratione materiae. By contrast, the nationality of an investor determines whether the investor qualifies for treaty protection and implicates a tribunal’s jurisdiction ratione personae.1

III. Treaty practice


The territorial nexus requirement may be incorporated in the IIT’s provisions defining “investment”,2 provisions dealing with available protections,3 or provisions concerning remedies.4 The origin of capital requirement is rarely explicitly mentioned in modern IITs.5

IV. Territorial nexus


Certain types of investments (e.g., in tangible property) demonstrate a more clear-cut territorial nexus with the host State. Others (e.g., in financial instruments and contractual rights) need not always be physically located in or involve a flow of capital into the host State. In the latter case, tribunals have had to determine whether the investment in question satisfies the territorial nexus condition.6 The answer depends on the type of investment at issue, the applicable IIT’s text and the tribunal’s interpretation of the purpose of investment protection.7 8

1) Investments in financial instruments


In relation to investments in financial instruments, tribunals have adopted a broad interpretation of the territorial nexus requirement, eliminating the need for an actual transfer of investment funds into the host State’s territory; they have considered the requirement satisfied as long as the funds ultimately benefit the host State, for example, by creating value or aiding in financing its economy.9 10 Some learned arbitrators have expressed a different position.11

2) Investments in contractual right


Initially, tribunals examining investments in contract rights differed from tribunals assessing financial instruments, holding that investments made outside the territory of the host State, however beneficial, would not satisfy the territorial nexus requirement.12 Subsequent cases have diverged, holding that the location of the beneficial activity matters for ascertaining the existence of territorial nexus, not the flow of funds.13

V. Origin of capital


The issue of the origin of capital has arisen due to host States objecting to the tribunals’ jurisdiction on grounds that (i) the funds used to make the investment are not the investor’s own funds;14 and/or (ii) the funds are “domestic” because they originate within the host State.15 However, arbitral tribunals, by and large, have found the origin of capital requirement to be immaterial for determining jurisdiction,16 with certain exceptions.17


The travaux préparatoires reveal that the authors of the ICSID Convention considered the proposal to incorporate an “origin of capital” requirement in the Convention but abandoned it.18 With rare exceptions,19 tribunals have largely confirmed that neither the ICSID Convention, nor the ECT contain an origin of capital requirement.20 Furthermore, tribunals interpreting BITs have held that the language of the BIT is decisive. Thus, absent an express origin of funds stipulation in a BIT, investments made using capital sourced in the host State21 or funds that are not the investor’s own capital,22 are also protected under the applicable IIT.


Christoph Schreuer et. al., The ICSID Convention: A Commentary (2nd edn., 2009), pp. 136-140.

Margaret C. Ryan, “Is there a “Nationality” of Investment? Origin of Funds and Territorial Link to the Host State”, in Y. Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration, IAI Series on International Arbitration No.8 (2018), pp. 97-126.

Crina Baltag, The Energy Charter Treaty: The Notion of Investor, International Arbitration Law Library, Vol. 25 (Kluwer  2012), pp. 165, 199-202. 

R. Castro de Figueiredo, “ICSID and Non-Foreign Investment Disputes”, (2007) 5 TDM.

Cyrus Benson, Penny Madden and Ceyda Knoebel, “Covered Investment”, in B. Legum (ed), The Investment Treaty Arbtiration Review (Law Business Research), pp. 11-14.

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