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Dr Naghmeh Javadpour

Lawyer, International Arbitration & Mediation - Iran Central Bar Association

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Dual Nationality of Investor

I. Definition

1.

Dual nationality refers to simultaneous possession of two nationalities by the same individual investor (natural person) or foreign companies (juridical persons).1 The foreignness of the “investment” is determined by the “investor’s” “nationality” in order to be subject to investment protections.2 The investor’s nationality determines from which treaties it may benefit. The problem of dual nationality often arises and is usually settled through the application of traditional principles of international law. The principle of dominant or effective nationality is the determinative criterion of nationality in these cases.3 Some tribunals have however refused to apply this principle.4 

II. Operative procedural treaties

A. ICSID Convention

2.

The ICSID Convention expressly states that the dispute must be between the State and a foreign national so that an investor having the nationality of the State cannot bring a claim against it, even if the investor happens to have at the same time the nationality of another State.5

3.

Article 25(2)(a) on natural persons contains positive and negative requirements. Positive being that the investor must have the nationality of the other Contracting State at the relevant time. Negative meaning that the investor cannot have the nationality of the host State at the relevant time.6

4.

To this extent, tribunals have barred claims from dual nationals having the nationality of the host State.7 ICSID tribunals allow claims by investors holding the nationality of a signatory State on the condition that they do not hold the nationality of the host State against which the claim is being brought (Article 25(2)(a) of the ICSID Convention). The only exception permitted by the Centre concerns the situation in which, for the purpose of making its investment, a foreign investor was required to create a company under local law but that company is controlled by the foreign investor. In this case, Article 25(2)(b) of the ICSID Convention stipulates that the State may expressly agree to consider this local company as a foreign company.8 See further Nationality of investor, Relevant date and Control/Ownership.

B. UNCITRAL Rules

5.

The majority of other arbitration rules do not provide for such a prohibition which indicated in ICSID Rules. UNCITRAL Arbitration Rules does not regulate the issue of dual nationality. When the applicable rules are silent on the issue, tribunals have turned to the applicable international investment treaty. (See Sections III and IV).

III. Treaty practice

6.

Treaties may stipulate the determinative criterion in order to prevent further interpretations.9 Some BITs incorporate a similar rule as ICSID Convention Article 25(2)(a). For instance, the Canada-Venezuela BIT expressly excludes dual nationals from its realm of protection and stipulates that an investor cannot possess the citizenship of the host state of the investment. The question arises in case that an investment treaty is silent on the question of standing of dual nationals. In these cases, should dual nationals get protection as “investors” of both treaty parties, protection only as “investors” of the State of “effective” or “dominant” nationality, or no treaty protection at all?10

IV. Interpretation of investment treaties by tribunals in the silence of the applicable arbitration rules

7.

In Ballantine v. Dominican Republic the Tribunal used the test of “dominant and effective nationality” under the DR-CAFTA. In this case, the dispute revolved around the question of whether the Ballantines could demonstrate that their United States nationality was "dominant and effective." In a majority award, the Tribunal found that the Claimants’ dominant and effective nationality was that of the Host State (Dominican Republic) and that the Tribunal therefore lacked jurisdiction to hear the dispute under CAFTA-DR. The DR-CAFTA is one of the few treaties to allow claims by dual nationals against one of the countries of their nationality (the host country) if and only if the claimant’s “dominant and effective nationality” is that of the non-host country. Article 10.28 of the DR-CAFTA. It should be noted that the Tribunal in this case established that the CAFTA-DR did not “prescribe specifically the factors that may be considered to determine the dominance and effectiveness. (Para, 530). This appeared to be the first time that an international investment arbitral tribunal dealt with the “dominant and effective” test.11 

8.

In Serafin Garcia Armas and Garcia Gruber v. Venezuela, claims by dual nationals against Venezuela under investment treaties prompted various decisions. The arbitral tribunal upheld its jurisdiction over the claims,12 it was one of the first decisions dealing in detail with investment treaty claims by dual nationals against one of their States of nationality when the treaty is silent on the issue. On 25 April 2017, the Paris Court of Appeal annulled the decision in part, finding that the arbitral tribunal had wrongly upheld its jurisdiction and exceeded its mandate in concluding that the disputed assets were covered “investments” under the Treaty without giving due consideration to the nationality of the investors at the time when the investments were made.13 The Cour de Cassation subsequently reversed that decision, finding that in partially setting aside the decision the Court of Appeal failed to draw the consequences of its findings, and remanded the case to the Paris Court of Appeal.14 Meanwhile, the arbitration continued in parallel, and in April 2019 the arbitral tribunal rendered its final award in favor of the Claimants, finding that Venezuela had breached the Treaty.15 On 3 June 2020, the International Chamber of the Paris Court of Appeal annulled the Serafín García Armas jurisdiction decision in full.16

9.

In Manuel Garcia Armas and others v. Bolivarian Republic of Venezuela, a UNCITRAL tribunal decided it did not have jurisdiction to hear claims against Venezuela under the Spain-Venezuela bilateral investment treaty.17

V. Distinction and relevance with other related concepts 

10.

Dual nationality should not be confused with “Treaty Shopping” or “Corporate Re-structuring” which mostly associated with legal persons which are foreign-incorporated, but majority-controlled by natural or legal persons of host State nationality. Treaty Shopping is the strategic change of nationality or the strategic invocation of another nationality with the aim of accessing another investment treaty for purposes of investment arbitration. Practice of Treaty Shopping is analyzed under the customary international law and international investment law. Arbitral tribunals have dealt with the value judgment at the core of the distinction between objectionable and unobjectionable Treaty Shopping.18 Essentially, as long as a country has one (broadly worded) IIA and the investor’s actions were not in bad faith, an investor from any country could potentially benefit from that IIA by structuring its investment into the country concerned through an entity established in the other contracting party.19

11.

Treaty shopping involves the enterprise locating an affiliate in a jurisdiction that has signed an investment protection treaty with the host country, allowing various affiliates and/or the parent in a group enterprise to benefit from treaty protection even though they possess the nationality of a State that has no such agreement with the host. In addition Treaty shopping can be practiced by claimants possessing the nationality of the host country itself by way of the incorporation of a “shell company” in a country that has an investment protection agreement with the host country.20 

12.

Complexity in MENs’ corporate structures (and their ownership, control and other complex arrangements) rise to blur in identifying nationality of investors.

13.

A different case of dual nationality is presented when one of two States of a dual national claims against a third State and the latter pleads that the other nationality is the effective or dominant nationality. A substantial jurisprudence supports the principle of the inopposibility of the nationality of a third State in an international claim.21

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