Investors seek to set up their investment ownership and corporate structure in the most efficient manner in various regards, including available investment treaty protection, both substantive and procedural (structuring). Subsequently, the initial structure may have to be reorganized to optimize treaty protection (restructuring).1
II. General permissibility
While the structuring of investments to maximize treaty protection is generally accepted as lawful and consistent with the purposes of investment treaties,2 the permissibility and lawfulness of restructuring depends on the circumstances of the case, particularly the timing and the means of restructuring.
Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent's Objections to Jurisdiction, 21 October 2005, para. 330(d) (“it is not uncommon in practice, and — absent a particular limitation — not illegal to locate one’s operations in a jurisdiction perceived to provide a beneficial regulatory and legal environment in terms, for examples, of taxation or the substantive law of the jurisdiction, including the availability of a BIT.”); Hussein Nuaman Soufraki v. United Arab Emirates, ICSID Case No. ARB /02/7, Award, 7 July 2004, para. 83 (“The Tribunal recognizes that it is difficult for Mr. Soufraki, whose business interests span continents and who constantly travels the world, to reconstruct his actual residence during a twelve or thirteen-month period more than ten years earlier. It recognizes that Mr. Soufraki, had he been properly advised at the time, easily could have reacquired Italian nationality by a timely application. It further appreciates that, had Mr. Soufraki contracted with the United Arab Emirates through a corporate vehicle incorporated in Italy, rather than contracting in his personal capacity, no problem of jurisdiction would now arise. But the Tribunal can only take the facts as they are and as it has found them to be.”); HICEE B.V. v. Slovak Republic, UNCITRAL PCA Case No. 2009-2011, Partial Award, 23 May 2011, para. 103 (“HICEE’s investment in the Slovak health insurance market is a structured one. This is not unusual, nor is there anything in the least reprehensible about it; structured investments are commonplace. The purpose is to secure advantages from incorporation or operation in a particular jurisdiction”); Tidewater Inc., Tidewater Investment SRL, Tidewater Caribe, C.A., Twenty Grand Offshore, L.L.C., Point Marine, L.L.C., Twenty Grand Marine Service, L.L.C., Jackson Marine, L.L.C. and Zapata Gulf Marine Operators, L.L.C. v. The Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Jurisdiction, 8 February 2013, paras. 183-198 (“[I]t is a perfectly legitimate goal, and no abuse of an investment protection treaty regime, for an investor to seek to protect itself from the general risk of future disputes with a host state in this way. But the same is not the case in relation to preexisting disputes between the specific investor and the state.”); Bureau Veritas, Inspection, Valuation, Assessment and Control v. The Republic of Paraguay, ICSID Case No. ARB/07/9, Further Decision on Objections to Jurisdiction, 9 October 2012, para. 94 (“The fact that international groups of companies put in place different strategies and legal structures cannot of itself be considered to be inappropriate or even illegitimate, and cannot as such justify any suspicions of a hidden agenda as to a future litigation strategy, as alleged by Respondent”); Mera Investment Fund Limited v. Republic of Serbia, ICSID Case No. ARB/17/2, Decision on Jurisdiction, 30 November 2018, para. 153 (“In any event, even if, as the Respondent suggests, the Claimant's sole aim had been to seek investment protection, this would in the view of the Arbitral Tribunal still be irrelevant. To structure an investment with the aim to seek protection of a BIT is not per se in breach of the good faith expected of an investor. It is ‘not uncommon in practice, and - absent a particular limitation - not illegal to locate one's operations in a jurisdiction perceived to provide a beneficial regulatory and legal environment in terms, for examples [sic], of taxation or the substantive law of the jurisdiction, including the availability of a [bilateral investment treaty].”); Orascom TMT Investments S.à r.l. v. People's Democratic Republic of Algeria, ICSID Case No. ARB/12/35, Award, 31 May 2017, para. 542 (“It goes without saying that structuring an investment through several layers of corporate entities in different states is not illegitimate. Indeed, the structure may well pursue legitimate corporate, tax, or pre-dispute BIT nationality planning purposes. In the field of investment treaties, the existence of a vertical corporate chain and of treaty protection covering "indirect" investments implies that several entities in the chain may claim treaty protection, especially where a host state has entered into several investment treaties. In other words, several corporate entities in the chain may be in a position to bring an arbitration against the host state in relation to the same investment. This possibility, however, does not mean that the host state has accepted to be sued multiple times by various entities under the same control that are part of the vertical chain in relation to the same investment, the same measures and the same harm.”); (“The Tribunal considers that, in principle it is for the investor to decide how it wishes to structure its investment and what corporate organisation it wishes to adopt for the investment, including the manner in which resources, activities and control are allocated between different corporate vehicles. The corporate structure of the investment is indeed part of the investor's prerogatives and responsibility. Depending on the structure adopted, the corporate vehicle used for the investment which becomes party to the investment contract may rely on the resources of the group to which it belongs to secure the investment, including funding, technology or other contributions. Distinct corporate identities serve a legitimate function in the cross-border mobilisation of investment. As long as the contracting parties are not mislead about the corporate structure and no laws and regulations are violated, there should be no objection to the choice made by the investor in this respect.”); Schreuer, C., Nationality Planning, Contemporary Issues in International Arbitration and Mediation: The Fordham Papers (2012), A.W. Rovine (ed.), p. 17
Unless expressly provided otherwise, treaties do not apply retroactively.3 Consequently, restructurings aimed at benefitting from a later treaty will be permissible if the breach occurs after the treaty’s entry into force and the completion of restructuring4 or, in the case of a continuous breach that has started before the treaty’s entry into force and continues thereafter, after the dispute has crystallized5 and the restructuring has been completed.
Article 28 of the Vienna Convention on the Law of Treaties; Mondev International Ltd. v. United States of America, ICSID Case No. ARB (AF)/99/2, Award, 11 October 2002, para. 68 (“The basic principle is that a State can only be internationally responsible for breach of a treaty obligation if the obligation is in force for that State at the time of the alleged breach. The principle is stated both in the Vienna Convention on the Law of Treaties and in the ILC's Articles on State Responsibility, and has been repeatedly affirmed by international tribunals. There is nothing in NAFTA to the contrary. Indeed Note 39 to NAFTA confirms the position in providing that ‘this Chapter covers investments existing on the date of entry into force of this Agreement as well as investments made or acquired thereafter’. Thus, as the Feldman Tribunal held, conduct committed before 1 January 1994 cannot itself constitute a breach of NAFTA.”); Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007, paras. 253-255 (“The parties agree that the substantive protections set out in the BIT apply from 3 August 1996 onward, and that the BIT does not apply retrospectively to conduct which occurred and ended prior to 3 August 1996. It is Respondent's position that the Tribunal lacks jurisdiction ratione temporis over Claimant's BIT claims because all acts which caused Claimant's purported loss occurred prior to the BIT's entry into force. It is a well-known and accepted principle of international law that treaties do not have retroactive effect. This principle is set out in Article 28 of the Vienna Convention and in Article 13 of the ILC Articles on State Responsibility. The BIT between Greece and Georgia was signed on 9 November 1994 and entered into force on 3 August 1996. Article 12 of the BIT provides that the treaty applies to investments made prior to its entry into force.”); M.C.I. Power Group, L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007, paras. 61-66 (“The non-retroactivity of the BIT excludes its application to disputes arising prior to its entry into force. Any dispute arising prior to that date will not be capable of being submitted to the dispute resolution system established by the BIT. The silence of the text of the BIT with respect to its scope in relation to disputes prior to its entry into force does not alter the effects of the principle of the non-retroactivity of treaties.”), 96 (“The Tribunal observes that the existence of a breach of a norm of customary international law before a BIT enters into force does not give one a right to have recourse to the BIT’s arbitral Jurisdiction. A case in point is the Mondev v. United States of America case in which the tribunal pointed out the difference between a claim made under a Treaty and a diplomatic protection claim for conduct contrary to customary international law.”); OKO Pankki Oyj and others v. Republic of Estonia, ICSID Case No. ARB/04/6, Award, 19 November 2007, para. 193 (“In short, the Tribunal accepts the Respondent's general approach as regards the non-retroactive effect of the Estonia-Germany BIT. Under international law, the basic rule on the non-retroactivity of treaties is expressed in Article 28 of the 1969 Vienna Convention on the Law of Treaties. It provides: ‘Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of entry into force of the treaty with respect to that party.’ Similarly, Article 13 of the International Law Commission's Articles on State Responsibility provides: ‘An act of a State does not constitute a breach of an international obligation unless the State is bound by the obligation in question at the time it occurs.’ It follows that, pursuant to Article 28 of the Vienna Convention and subject to the existence of a continuing breach (as discussed below), the Estonia-Germany BIT does not bind the Respondent as regards that BIT's substantive obligations in relation to any relevant act which took place or any situation which ceased to exist before the date of this BIT's entry into force, namely 12 January 1997.”); Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de Electrecidad del Este, S.A. v. Dominican Republic, Award on Preliminary Objections to Jurisdiction,19 September 2008, paras. 85-86 (“A similar concept supporting this conclusion, rooted in the principle of intertemporal law, is well supported by the Island of Palmas award to the effect that a juridical fact must be appreciated in the light of the law contemporary with it and not the law in force at the time the dispute arises. So too, the Institut de Droit International concluded in respect of intertemporal law that ‘[u]nless otherwise indicated, the temporal sphere of application of any norm of public international law shall be determined in accordance with the general principle of law by which any fact, action or situation must be assessed in the light of the rules of law that are contemporaneous with it.”); ABCI Investments N.V. v. Republic of Tunisia, ICSID Case No. ARB/04/12, Decision on Jurisdiction, 18 February 2011, paras. 161-173 (“[…] Le Tribunal ne partage pas ce raisonnement. Tout d’abord, il n’est pas évident que le manque d’exclusions expresses des différends antérieurs à l’entrée en vigueur du traité de 1991 puisse s’interpréter comme indiqué par la Demanderesse. Le principe de l’effet non rétroactif des traités continue à être la règle qui prévaut, sauf indication expresse en sens contraire.”); Téchnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003, paras. 63-66 (“Clearly, the basic principle in international law is that unless there is a different interpretation of the treaty or unless otherwise established in its provisions, such provisions are not binding in connection with an act or event which took place or a situation that ceased to exist before the date of its entry into force. The burden of proving the existence of any exception to the principle of non-retroactive application established therein naturally lies with the party making the claim.”); ATA Construction, Industrial and Trading Company v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Award, 18 May 2010, paras. 98-99 (“As a preliminary matter, the Tribunal notes that a general principle of legality instructs interpreters to apply innovative legislation prospectively, unless the legislation clearly indicates that its creators intended to apply it retroactively and, even then, only if such application would not offend some fundamental and peremptory principle of justice. In the present circumstances, Article IX(1) of the BIT expressly makes the BIT retroactive with respect to ‘investments existing at the time of entry into force [...]’. The provision does not make the BIT retroactive with respect to disputes existing prior to the entry into force of the BIT. Under the plain meaning of Article IX(1), the Tribunal may only exercise jurisdiction ratione temporis over the Claimant's claims if it finds that the dispute arose after the entry into force of the Treaty on 23 January 2006.”); Ioan Micula, Viorel Micula and others v. Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility, 24 September 2008, paras. 154-157 (“[…] Both Parties concur that the BIT's substantive provisions apply only from the date of its entry into force and do not apply retroactively. This is a clear temporal rule embodied in Article 28 of the Vienna Convention on the Law of Treaties. The temporal application of the substantive provisions of the BIT is indeed different from the matter of jurisdiction ratione temporis. The Tribunal will examine alleged breaches of the BIT based on acts that preceded the entry into force of the BIT if (i) there is a violation of another rule different from the BIT, if and when applicable, or (ii) the violations are of continuing or composite character. Both these issues are properly considered at the merits phase.”); Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB704/13, Award, 6 November 2008, para.132 (“It is undisputed, and rightly so, that the legality of an act must be assessed in the light of the law applicable at the time of its performance.5 This rule of intertemporal law is well established in international judicial and arbitral practice.6 It is a consequence of the rule on non-retroactivity, which for treaties is codified in Article 28 of the Vienna Convention in the following terms : […]”); SGS Société Générale de Surveillance S.A. v. Republic of Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal to Objections on Jurisdiction, 29 January 2004, paras. 165-166 (“Finally, as noted above, the Respondent argued that the BIT did not apply retrospectively to claims which arose prior to its entry into force on 23 April 1999. According to Article II of the BIT, it applies to investments ‘made whether prior to or after the entry into force of the Agreement’. Article II does not, however, give the substantive provisions of the BIT any retrospective effect. The normal principle stated in Article 28 of the Vienna Convention on the Law of Treaties applies: the provisions of the BIT ‘do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty’. The application of this principle to BIT claims was explored in some detail by a NAFTA Tribunal in Mondev International Ltd. v. United States of America. As the Tribunal said (discussing the substantive standards under Chapter 11 of NAFTA): ‘events or conduct prior to the entry into force of an obligation for the respondent State may be relevant in determining whether the State has subsequently committed a breach of the obligation. But it must still be possible to point to conduct of the State after that date which is itself a breach.’”); Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003, paras. 11.2-11.3 (“A separate issue arises, however, relating to the jurisdiction of the Tribunal over investment disputes that came into existence before the BIT came into force. The Claimant's causes of action appear to invoke the prohibition against expropriation in Article III of the BIT. Thus the disputes underlying these-causes of action fall within the third category (c) ‘investment disputes’ under Article VI(1): ‘an alleged breach of any right conferred or created by this BIT with respect to an investment.’ The obligations assumed by the two state parties to the BIT relating to the minimum standards of investment protection (including the prohibition against expropriation) did not become binding, and hence legally enforceable, until the BIT entered into force on 16 November 1996. It follows that a cause of action based on one of the BIT standards of protection must have arisen after 16 November 1996. Support for this conclusion may be found in Tradex Hellas S.A. v. Republic of Albania, a case cited by the Claimant, where the Tribunal recognised that it could only have jurisdiction over causes of actions arising after the relevant bilateral investment treaty entered into force, notwithstanding that the treaty applied expressly to investments made before the treaty entered into force.”); Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005, paras. 299-311 (“[…] However, in the Tribunal's view, care must be taken to distinguish between (1) the jurisdiction ratione temporis of an ICSID tribunal and (2) the applicability ratione temporis of the substantive obligations contained in a BIT. In this respect, it is to be noted that Article 1(1) of the BIT does not give the substantive provisions of the Treaty any retrospective effect. Thus, the normal principle stated in Article 28 of the Vienna Convention on the Law of Treaties applies, and the provisions of the BIT: ‘... do not bind the Party in relation to any act of facts which took place or any situation which ceased to exist before the date of entry into force of the Treaty.’”); Salini Costruttori S.p.A. and Italstrade S.p.A. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/02/13, Decision on Jurisdiction, 29 November 2004, paras. 175-177 (“However, the Tribunal observes that one must distinguish carefully between jurisdiction ratione temporis of an ICSID Tribunal and applicability ratione temporis of the substantive obligations contained in a BIT. In this respect, the Tribunal notes that Article 1(1) of the BIT does not give the substantive provisions of the Treaty any retrospective effect. Thus, the normal principle stated in Article 28 of the Vienna Convention of Treaties applies and the provisions of the BIT ‘do not bind the Party in relation to any act or facts which took place or any situation which ceased to exist before the date of entry into force of the Treaty’ (see SGS v. Republic of the Philippines, ICSID Case No. ARB/02/6, decision of the Tribunal on objections to jurisdiction, paras. 165 and 166; see also Mondev International ltd. v. United States of America (2002)-6, ICSID Reports 192, p. 208-9 (paras. 68-70).”); Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, paras. 428-471 (“[…] No reasonable reading of that Article could lead to the conclusion that the substantive law provisions of the Treaty would apply to alleged breaches which would have occurred since January 1, 1949. What it says is simply that the benefits of the Treaty would not be limited to investments made after the entry into force of the Treaty on February 26, 2006, but that investments made since 1949, even though there was no applicable BIT at the time the investments were made, could call upon the provisions of the Treaty from the time of its coming into effect, even if no additional investments had been made after that date. In no case, however, does this mean that investors could claim damages retrospectively on the basis of breaches that would have arisen prior to that date, unless some other provisions of the Treaty would indicate that this was the clear intention of the Contracting Parties. The Tribunal fails to find any such indication in the Treaty.”); Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I), PCA Case No. 2007-02/AA277, Interim Award, 1 December 2008, para. 282 (“The Tribunal accepts that, according to Article 13 of the ILC Draft Articles, acts or facts prior to the entry into force of the BIT cannot on their own constitute breaches of the BIT, given that the norms of conduct prescribed by the BIT were not in effect prior to its date of entry into force. Moreover, the Tribunal agrees with the decision in the Mondev case that ‘[t]he mere fact that earlier conduct has gone unremedied or unredressed when a treaty enters into force’ does not justify a tribunal applying the treaty retrospectively to that conduct. That rule is also embodied in Article 14(1) of the ILC Draft Articles: The breach of an international obligation by an act of a State not having a continuing character occurs at the moment when the act is performed, even if its effects continue.”); Articles 13 and 14 of the International Law Commission’s Draft Articles on Responsibility of States for Internationally Wrongful Acts (Yearbook of the International Law Commission, 2001, vol. II, Part Two).
Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, paras. 92 (“In other words, according to ICSID case law, a corporation cannot modify the structure of its investment for the sole purpose of gaining access to ICSID jurisdiction, after damages have occurred. To change the structure of a company complaining of measures adopted by a State for the sole purpose of acquiring an ICSID claim that did not exist before such change cannot give birth to a protected investment.”), 95 (“But on the other side, an international investor cannot modify downstream the protection granted to its investment by the host State, once the acts which the investor considers are causing damages to its investment have already been committed.”); Mobil Corporation and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, paras. 202–205 “With respect to pre-existing disputes, the situation is different and the Tribunal considers that to restructure investments only in order to gain jurisdiction under a BIT for such disputes would constitute, to take the words of the Phoenix Tribunal, ‘an abusive manipulation of the system of international investment protection under the ICSID Convention and the BITs. The Claimants seem indeed to be conscious of this, when they state that they ‘invoke ICSID jurisdiction on the basis of the consent expressed in the Treaty only for disputes arising under the Treaty for action that the Respondent took or continued to take after the restructuring was completed’”); Lao Holdings N.V. v. Lao People’s Democratic Republic, ICSID Case No. ARB(AF)/12/6, Decision on Jurisdiction, 21 February 2014, paras. 114–118 (“The general principle of non-retroactivity is expressed in Article 28 of the Vienna Convention on the Law of Treaties as follows: ‘Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect to that party.’”); ST-AD GmbH v. Republic of Bulgaria, UNCITRAL, PCA Case No. 2011-2106, Award on Jurisdiction, 18 July 2013, paras. 412–414 (“When a tribunal is faced with a change of nationality - here, the change of nationality of the shareholders of the Claimant - it must always scrutinise the reasons and surrounding circumstances for such change. As stated by the tribunal in Mobil v. Venezuela ("Mobil"): Such restructuring could be "legitimate corporate planning" as contended by the Claimants or an "abuse of right" as submitted by the Respondents. It depends upon the circumstances in which it happened. […]”); Société Générale In respect of DR Energy Holdings Limited and Empresa Distribuidora de Electrecidad del Este, S.A. v. Dominican Republic, UNCITRAL, Award on Preliminary Objections to Jurisdiction, 19 September 2008, paras. 104–11 (“As with the retroactive application of the Treaty, if the intention had been to allow for claims relating to any investment, independently of whether the claimant is eligible as a national of the other Contracting Party, one would have expected a clear and unequivocal expression of intention to that effect, which is not the case. Moreover, a close reading of Article 1 shows that the reference to assets invested before or after the entry into force of the Treaty cannot be taken in isolation. Such reference is in fact immediately followed by the specific definitions on nationality contained in the Treaty, thus making evident that the investment will be that of those qualifying under the requirements of nationality.”); Vito G. Gallo v. Government of Canada, PCA Case No. 55798, Award (Redacted), 15 September 15 2011, para. 326 (“As the Tribunal in Phoenix declared, it does not need extended explanation to assert that a tribunal has no jurisdiction ratione temporis to consider claims arising prior to the date of the alleged investment, because the treaty cannot be applied to acts committed by a State before the claimant invested in the host country199. In the present case, the Claimant must have owned or controlled the Enterprise at the time when the AMLA was enacted. And since the Tribunal has already found that the Claimant has failed to marshal the evidence necessary to prove such ownership and control at the relevant time, the necessary consequence is that his claim must fail for lack of jurisdiction ratione temporis.”); Pac Rim Cayman LLC. v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections, 1 June 2012, para. 3.34 (“In the Tribunal's opinion, for the purpose of this Ratione Temporis issue, what CAFTA requires is not that the investor should bear the nationality of one of the Parties before its investment was made, but that such nationality should exist prior to the alleged breach of CAFTA by the other Party. Therefore, as regards this issue in the present case, the Tribunal is required to determine when the Parties’ dispute arose in order to establish if the Claimant’s required nationality under CAFTA nationality was present at the relevant time.”); Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, paras. 67–68 (“A further jurisdictional matter can be easily disposed of. Although it is not entirely clear whether or not the Claimant still asserts some claims arising before its purchase of its participation in the Czech companies, the Tribunal cannot assert any jurisdiction over such claims. It does not need extended explanation to assert that the Tribunal has no jurisdiction ratione temporis to consider Phoenix's claims arising prior to December 26, 2002, the date of Phoenix's alleged investment, because the BIT did not become applicable to Phoenix for acts committed by the Czech Republic until Phoenix "invested" in the Czech Republic. The Tribunal is limited ratione temporis to judging only those acts and omissions occurring after the date of the investor's purported investment. The proposition that bilateral investment treaty claims cannot be based on acts and omissions occurring prior to the claimant's investment results from the nature of the host State's obligations under a bilateral investment treaty. All such obligations relate to the host State's conduct regarding the investments of nationals of the other contracting party. Therefore, such obligations cannot be breached by the host State until there is such an investment of a national of the other State. As a result, the Tribunal lacks jurisdiction for acts or omissions that occurred before December 26, 2002.”);
Emilio Agustin Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction, 25 January 2000, paras. 96-97 (“The Tribunal notes in this respect that there tends to be a natural sequence of events that leads to a dispute. It begins with the expression of a disagreement and the statement of a difference of views. In time these events acquire a precise legal meaning through the formulation of legal claims, their discussion and eventual rejection or lack of response by the other party. The conflict of legal views and interests will only be present in the latter stage, even though the underlying facts predate them. It has also been rightly commented that the existence of the dispute presupposes a minimum of communications between the parties, one party taking up the matter with the other, with the latter opposing the Claimant's position directly or indirectly.70 This sequence of events has to be taken into account in establishing the critical date for determining when under the BIT a dispute qualifies as one covered by the consent necessary to establish ICSID's jurisdiction. It should also be noted that the Kingdom of Spain has correctly argued that there is a difference between a dispute and a claim in terms of Article II(2) of the Argentine-Spain BIT. While a dispute may have emerged, it does not necessarily have to coincide with the presentation of a formal claim. The critical date will in fact separate, not the dispute from the claim, but the dispute from prior events that do not entail a conflict of legal views and interests. It follows that if the dispute arises after the critical date it will qualify for its transformation into a claim, while if the dispute has arisen before such date it will be excluded by the terms of the BIT.”).
The nationality of the investor is the primary criterion for the choice of a treaty. Treaty definitions of investor based on a pure incorporation test, found in most investment treaties, are preferred to more rigid options, cumulating incorporation with real business activity, corporate seat or other tests determining the centre of the investor’s economic activity. The structure of the investor will determine the choice of the treaty, as different entities in the various layers of the corporate structure may be designated as the protected (in)direct investor.6
Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004, para. 137 (“The Tribunal has conducted a detailed analysis of the references in the Treaty to ‘investment’ and ‘investor’. The Tribunal observes that there is no explicit reference to direct or indirect investment as such in the Treaty. The definition of ‘investment’ is very broad. An investment is any kind of asset considered to be such under the law of the Contracting Party where the investment has been made. The specific categories of investment included in the definition are included as examples rather than with the purpose of excluding those not listed. The drafters were careful to use the words ‘not exclusively’ before listing the categories of ‘particularly’ included investments. One of the categories consists of ‘shares, rights of participation in companies and other types of participation in companies’. The plain meaning of this provision is that shares held by a German shareholder are protected under the Treaty. The Treaty does not require that there be no interposed companies between the investment and the ultimate owner of the company. Therefore, a literal reading of the Treaty does not support the allegation that the definition of investment excludes indirect investments.”); Mobil Corporation and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, para. 165 (“The Tribunal notes that there is no explicit reference to direct or indirect investments in the BIT. The definition of investment given in Article 1 is very broad. It includes "every kind of assets" and enumerates specific categories of investments as examples. One of those categories consists of "shares, bonds or other kinds of interests in companies and joint ventures". The plain meaning of this provision is that shares or other kind of interests held by Dutch shareholders in a company or in a joint venture having made investment on Venezuelan territory are protected under Article 1. The BIT does not require that there be no interposed companies between the ultimate owner of the company or of the joint venture and the investment. Therefore, a literal reading of the BIT does not support the allegation that the definition of investment excludes indirect investments. Investments as defined in Article 1 could be direct or indirect as recognized in similar cases by ICSID Tribunals.”); ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on Jurisdiction and Merits, 3 September 2013, paras. 282–286 (“The Respondent contends that because two of the Dutch companies — CPH and CGP — have only indirect investments held through subsidiaries, their claims under the Treaty must be dismissed. The Respondent points out that several bilateral investment treaties concluded by both Venezuela and the Netherlands expressly cover both direct and indirect investments, language not used in the Netherlands-Venezuelan BIT. To read the present non-express BIT wording as covering indirect investments would make that careful elaboration unnecessary and ignore the limit arising from the ordinary meaning of the words of the Treaty, taken in light of its object and purpose. […]”); Ioannis Kardassopoulos v. The Republic of Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007, paras. 123–124 (“The BIT is silent on whether the investor is required to directly own shares in a company investing in Georgia in order to qualify as an "investment" under the treaty. The tribunal in the ICSID case of Siemens A.G. v. Argentina was faced with a similar situation. That tribunal reasoned as follows: ‘The Tribunal has conducted a detailed analysis of the references in the Treaty to 'investment’ and 'investor’. The Tribunal observes that there is no explicit reference to direct or indirect investment as such in the Treaty. The definition of 'investment’ is very broad. An investment is any kind of asset considered to be such under the law of the Contracting Party where the investment has been made. The specific categories of investment included in the definition are included as examples rather than with the purpose of excluding those not listed. The drafters were careful to use the words 'not exclusively’ before listing the categories of 'particularly’ included investments. One of the categories consists of 'shares, rights of participation in companies and other types of participation in companies’. The plain meaning of this provision is that shares held by a German shareholder are protected under the Treaty. The Treaty does not require that there be no interposed companies between the investment and the ultimate owner of the company. Therefore, a literal reading of the Treaty does not support the allegation that the definition of investment excludes indirect investments.’ (emphasis added). The Tribunal agrees. The Tribunal is of the view that, in the present case, the indirect ownership of shares by Claimant constitutes an ‘investment’ under the BIT and the ECT.”); Señor Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Jurisdiction and Competence, 19 June 2009, paras. 105–111 (“De lo anterior, el Tribunal interpreta, que las Partes Contratantes en su intención de promover y proteger las inversiones, optaron por definirlas a través de una formulación amplia que por regla general amparara todo tipo de inversiones. Adicionalmente, a consideración del Tribunal no se ha presentado prueba que las inversiones indirectas no estén ‘de conformidad con las leyes y reglamentos’ de la República del Perú. Por lo tanto, el Tribunal no encuentra indicaciones en el APPRI que lo lleven por principio a excluir del ámbito de aplicación del Tratado las inversiones indirectas de nacionales chinos en territorio Peruano particularmente cuando se prueba que ejercen la propiedad y en control sobre las mismas.”); Guaracachi America, Inc. and Rurelec plc v. The Plurinational State of Bolivia, UNCITRAL PCA Case No. 2011–2017, Award, 31 January 2014, paras. 352–360 (“As regards the Respondent's argument that indirect investments are not protected under the UK-Bolivia BIT, the Tribunal notes that Article 1 contains—as the majority of BITs do—a very broad definition of "investment". Article 1 defines ‘investment’ as ‘every kind of asset which is capable of producing returns,’ which would naturally include ‘indirect investments’ through the acquisition of shares in a company. In addition, the non-exhaustive list of protected investments described in the BIT explicitly includes the example of ‘shares in and stock and debentures of a company and any other form of participation in a company’. Finally, in its broadest example, Article 1(a)(iii) of the BIT provides that any " claims to money or to any performance under contract having a financial value’ are considered to be protected investments under the BIT . In the Tribunal's opinion, all of the above mentioned examples contribute to the conclusion that indirect investments were intended to be protected by the UK-Bolivia BIT. Moreover, given that the purpose of the BIT is to promote and protect foreign investment, the Tribunal considers that the BIT would require clear language in order to exclude coverage of indirect investments—language that the BIT does not contain.”); (“[…]The Tribunal considers that, as acknowledged by the Respondent, investments as defined in Article 1 of the BIT could be direct or indirect. By definition, an indirect investment is an investment made by an indirect investor. As the BIT covers indirect investments, it necessarily entitles indirect investors to assert claims for alleged violations of the Treaty concerning the investments that they indirectly own. The Tribunal further notes that, when the BIT mentions investments ‘of’ nationals of the other Contracting Party, it means that those investments must belong to such nationals in order to be covered by the Treaty. But this does not imply that they must be ‘directly’ owned by those nationals. Similarly, when the BIT mentions investments made ‘in’ the territory of a Contracting Party, all it requires is that the investment itself be situated in that territory. It does not imply that those investments must be ‘directly’ made in such territory. Thus, as recognized by several arbitral tribunals in comparable cases, the Claimants have jus standi in the present case. The Respondent's objection to the Tribunal jurisdiction under the BIT cannot be upheld.”); Enron Creditors Recovery Corp. and Ponderosa Assets, L.P. v. The Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction, 14 January 2004, para. 52 (“The Tribunal notes that while investors can claim in their own right under the provisions of the treaty, there is indeed a need to establish a cut-off point beyond which claims would not be permissible as they would have only a remote connection to the affected company. As this is in essence a question of admissibility of claims, the answer lies in establishing the extent of the consent to arbitration of the host State. If consent has been given in respect of an investor and an investment, it can be reasonably concluded that the claims brought by such investor are admissible under the treaty. If the consent cannot be considered as extending to another investor or investment, these other claims should then be considered inadmissible as being only remotely connected with the affected company and the scope of the legal system protecting that investment.”); Noble Energy, Inc. and Machalapower Cia. Ltda. v. The Republic of Ecuador and Consejo Nacional de Electricidad, ICSID Case No. ARB/05/12, Decision on Jurisdiction, 5 March 2008, paras. 81–82 (“The Enron tribunal stated that there should be a cut-off point in the string of companies to be taken into account. Given the facts at stake, the Tribunal in that case found, however, that the cut-off point was not reached, because Argentina had specially invited the shareholders to make the investment and the investors had decision-making power in the management of the local company. This Tribunal does not disagree with the statement made by the Enron tribunal. There may well be a cut-off point somewhere, and future tribunals may be called upon to define it. In the present case, the need for such a definition does not arise. Indeed, the cut-off point, whatever it may be, is not reached with two intermediate layers. The relationship between the investment and the direct shareholder, on the one hand, and the indirect shareholder, on the other, is not too remote. That relationship was recognized in the Investment Agreement whose purpose is set out in Clause ‘Third’, which says that ‘Investor... shall enjoy all the guarantees set forth in... (the ‘Law’), as well as in all international treaties executed by the State regarding investment promotion and guarantees and international double taxation.’ The Tribunal notes that at all relevant times, Noble Energy has been the ultimate parent of all of the subsidiary companies involved in the arbitration and that these subsidiaries were wholly owned either directly or indirectly by Noble Energy.”); Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Decision on Objections to Jurisdiction, 11 May 2005, para. 77 (“The argument made by the Argentine Republic and which is also reflected in Methanex, to the effect that if the right of shareholders to claim when only their interests are affected is recognized it could lead to an unlimited chain of claims, is theoretically correct. However, in practice any claim for derivative damages will be limited by the arbitration clause. As noted in connection with this argument by the tribunal in Enron: ‘...the answer lies in establishing the extent of the consent to arbitration of the host State. If consent has been given in respect of an investor and an investment, it can be reasonably concluded that the claims brought by such investor are admissible under the treaty. If the consent cannot be considered as extending to another investor or investment, these other claims should then be considered inadmissible as being only remotely connected with the affected company and the scope of the legal system protecting that investment.’”); Camuzzi International S.A. v. Argentine Republic, ICSID Case No. ARB/03/2, Decision on Objections to Jurisdiction, 11 May 2005, para. 65 (“The argument made by the Argentine Republic and which is also reflected in Methanex, to the effect that if the right of shareholders to claim when only their interests are affected is recognized it could lead to an unlimited chain of claims, is theoretically correct. However, in practice any claim for derivative damages will be limited by the arbitration clause. As noted in connection with this argument by the tribunal in Enron : ‘...the answer lies in establishing the extent of the consent to arbitration of the host State. If consent has been given in respect of an investor and an investment, it can be reasonably concluded that the claims brought by such investor are admissible under the treaty. If the consent cannot be considered as extending to another investor or investment, these other claims should then be considered inadmissible as being only remotely connected with the affected company and the scope of the legal system protecting that investment.’”); African Holding Company of America, Inc. and Société Africaine de Construction au Congo S.A.R.L. v. Democratic Republic of the Congo, ICSID Case No. ARB/05/21, Sentence sur les déclinatoires de compétence et la recevabilité, 29 July 2008, para. 100 (« La question de savoir jusqu'où le contrôle indirect peut aller a été examinée dans certaines de ces affaires. Comme le tribunal l'a fait remarquer dans l'affaire Enron c. Argentine, il y a lieu d'établir une limite à ce processus, car il risquerait d'aller tellement loin que même des investisseurs éloignés pourraient devenir des demandeurs protégés. Dans cette instance, la limite a été fixée par le fait de savoir si le propriétaire et contrôleur indirects pouvaient être considérés comme couverts par le consentement que l'État avait donné à l'arbitrage, et il a été estimé que cela était effectivement le cas. Dans l'affaire Banro, la compétence n'a pas été admise précisément parce que le consentement donné par l'État ne pouvait pas avoir envisagé un demandeur d'une nationalité différente. ») ; Anglo American PLC v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/14/1, Award, 18 January 2019, paras. 212-213(“In the present case if it is accepted that indirect shareholding falls within the "other form of participation" category provided for under the definition of investment in Article 1(a) of the Treaty then it must be understood that Anglo American owns the shares and therefore can claim for the assets of the company whose shares it owns as provided for in Article 5(2) of the Treaty, not only in the case of expropriation but more generally, when those assets are affected by a breach of the State's obligations under the Treaty. Based on the foregoing, the Tribunal considers that both Anglo American's indirect shareholding in MLDN and its indirect participation in the assets of MDLN are investments protected by the Treaty. Therefore, the first objection to the jurisdiction of the Tribunal raised by the Respondent is dismissed.”).
The restructuring may raise the question of the existence of a protected investment.7 Although under most treaty definitions, investment covers any kind of asset, more stringent requirements have been included in certain treaties8 and developed in arbitral practice, subjecting the existence of a protected investment to a test determining the investor’s real economic activity and contribution, beyond mere formal ownership of shares.9
1984 US Model BIT, Article I(b); 1994 US Model BIT, Article I(d); (““Investment” means every kind of investment in the territory of one Party owned or controlled, directly or indirectly by nationals or companies of the other Party, such as equity, debt, and service and investment contracts; and includes: […]”); Caratube International Oil Company llp v. The Republic of Kazakhstan, ICSID Case No. ARB/08/12, Award, 5 June 2012, paras. 339–361 (“Article VI(8) provides that: ‘For purposes of an arbitration held under paragraph 3 of this Article, any company legally constituted under the applicable laws and regulations of a Party or a political subdivision thereof but that, immediately before the occurrence of the event or events giving rise to the dispute, was an investment of nationals or companies of the other Party, shall be treated as a national or company of such other Party in accordance with Article 25(2)(b) of the ICSID Convention.’ This provision contains the BIT parties' agreed conditions of application of Article 25(2)(b). The Tribunal thus needs to determine whether Article VI(8) contradicts the ICSID Convention and, if it does not, apply the test to the circumstances of the present case.”), 421–457 (“[…] Claimant insisted throughout the proceedings that it presented all necessary evidence to prove that the Tribunal has jurisdiction. The Tribunal disagrees. Claimant failed to discharge its burden of proof with regard to the fact that CIOC was an investment of U.S. national (Devincci Hourani) as required by Article VI(8) of the BIT. At the least, the Tribunal is not satisfied that Claimant has established the fact of that investment.”).
Standard Chartered Bank v. The United Republic of Tanzania, ICSID Case No. ARB/10/12, Award, 2 November 2012, para. 230 (“Having considered the ordinary meaning of the BIT’s provision for ICSID arbitration when a dispute arises between a Contracting State to the BIT and a national of the other Contracting State concerning an investment ‘of’ the latter set out in Article 8(1) of the UK-Tanzania BIT, the context of that provision and the object and purpose of the BIT, the Tribunal interprets the BIT to require an active relationship between the investor and the investment. To benefit from Article 8(1)’s arbitration provision, a claimant must demonstrate that the investment was made at the claimant’s direction, that the claimant funded the investment or that the claimant controlled the investment in an active and direct manner. Passive ownership of shares in a company not controlled by the claimant where that company in turn owns the investment is not sufficient.”), 257–266 (“As discussed above, the Tribunal has concluded that protection of the UK-Tanzania BIT requires an investment made by, not simply held by, an investor. To be considered to have made an investment, SCB must have contributed actively to the investment.”); Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction, 27 September 2012, paras. 232–237 (“By contrast, there is no evidence that Allan Fosk made a contribution of money or assets. As the Claimants have readily conceded, Allan Fosk did not pay for his one share but rather ‘received’ it ‘in order to comply with the minimum three shareholders requirement under Bolivian corporate law.’ There is thus no evidence of an original contribution. Nor is there evidence that he personally made a subsequent contribution to exploit the mining concessions. In short, it is not established that Mr. Fosk made any contribution whatsoever. While on one occasion Mr. Fosk received dividends for his one share, this only demonstrates that he benefited from the investment, not that he made a contribution. According to Bolivia, a distinction should be made between the objects of an investment, ‘such as shares or concessions [...] and the action of investing.’ The Tribunal agrees. While shares or other securities or title may be the legal materialization of an investment, mere ownership of a share is, in and of itself, insufficient to prove a contribution of money or assets. In the present case, the record shows that Mr. Fosk received a share to comply with a formality under Bolivian corporate law, and that at no point did he make a personal contribution to the investment. In the circumstances, the Tribunal finds that Mr. Fosk does not hold an investment under Article 25(1). […] For these reasons, the Tribunal finds that Quiborax and NMM made an investment in the objective sense developed under Article 25(1) of the ICSID Convention. The same is not true of Allan Fosk. Accordingly, the Tribunal does not have ratione materiae jurisdiction over Allan Fosk's claim. Hence, the ‘Claimants’ shall henceforth refer only to Quiborax and NMM, to the exclusion of Mr. Fosk. On the other hand, in order for the Tribunal to conclusively ascertain whether or not it has ratione materiae jurisdiction over Quiborax and NMM, it must examine Bolivia's next objection.”); Romak S.A. v. The Republic of Uzbekistan, PCA Case No. AA280, Award, 26 November 2009, para. 221 (“The Arbitral Tribunal finds that Romak made no contribution in furtherance of the Protocol of Intention, which - as its title suggests - seems never to have evolved from the status of a mere statement of aspiration, and was never acted upon by the Parties.”); Joy Mining Machinery Limited v. The Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction, 6 July 2004, para. 56 (“The terms of the Contract are entirely normal commercial terms, including those governing the bank guarantees. No reference to investment is anywhere made and no steps were taken to qualify it as an investment under the Egyptian mechanisms for the authorization of foreign investments nor were any steps taken to take advantage of any of the many incentives offered by that country to foreign investors. Moreover, the Tribunal notes that the production and supply of the kind of equipment involved in this case is a normal activity of the Company, not having required a particular development of production that could be assimilated to an investment on behalf of IMC's demands.”); Global Trading Resource Corp. and Globex International, Inc. v. Ukraine, ICSID Case No. ARB/09/11, Award, 1 December 2010, para. 56 (“In the present instance, the Tribunal considers that the purchase and sale contracts entered into by the Claimants were pure commercial transactions and therefore cannot qualify as an investment for the purposes of Article 25 of the Convention. When the circumstances of the present case are examined and weighed, it can readily be seen that the money laid out by the Claimants towards the performance of these contracts was no more than is typical of the trading supplier under a standard CIF contract. The fact that the trade in these particular goods was seen to further the policy priorities of the purchasing State does not bring about a qualitative change in the economic benefit that all legitimate trade brings in its train. Nor can an undertaking by officials of the State to honour the contractual commitments to be concluded transform a sale and purchase agreement into an investment. In the present case, having viewed the contracts concluded by Global and by Globex with Man-Trade as nominee for the Ukrainian State Reserve, and having heard the parties’ answers to the questions raised by it during the oral hearing, the Tribunal is compelled to the conclusion that these are each individual contracts, of limited duration, for the purchase and sale of goods,36 on a commercial basis and under normal CIF trading terms, and which provide for delivery, the transfer of title, and final payment, before the goods are cleared for import into the recipient territory; and that neither contracts of that kind, nor the moneys expended by the supplier in financing its part in their performance, can by any reasonable process of interpretation be construed to be ‘investments’ for the purposes of the ICSID Convention.”); Alps Finance and Trade ag v. The Slovak Republic, Award, 5 March 2011, para. 245 (“The constant jurisprudential trend has led the most prominent doctrine to exclude in categorical terms that a mere one-off sale transaction might qualify as an investment. The Tribunal cannot ignore the general consensus formed around the above doctrine.”); Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 23 July 2001, paras. 52–57 (“The Tribunal notes that there have been almost no cases where the notion of investment within the meaning of Article 25 of the Convention was raised. However, it would be inaccurate to consider that the requirement that a dispute be "in direct relation to an investment" is diluted by the consent of the Contracting Parties. To the contrary, ICSID case law and legal authors agree that the investment requirement must be respected as an objective condition of the jurisdiction of the Centre (cf. in particular, the commentary by E. Gaillard, in JDI 1999, p. 278 et seq., who cites the award rendered in 1975 in the Alcoa Minerals vs. Jamaica case as well as several other authors). The criteria to be used for the definition of an investment pursuant to the Convention would be easier to define if there were awards denying the Centre's jurisdiction on the basis of the transaction giving rise to the dispute. With the exception of a decision of the Secretary General of ICSID refusing to register a request for arbitration dealing with a dispute arising out of a simple sale (I.F.I. Shihata and A.R. Parra, The Experience of the International Centre for Settlement of Investment Disputes: ICSID Review, Foreign Investment Law Journal, vol. 14, n° 2, 1999, p. 308.), the awards at hand only very rarely turned on the notion of investment. Notably, the first decision only came in 1997 (Fedax case, cited above). The criteria for characterization are, therefore, derived from cases in which the transaction giving rise to the dispute was considered to be an investment without there ever being a real discussion of the issue in almost all the cases. The doctrine generally considers that investment infers: contributions, a certain duration of performance of the contract and a participation in the risks of the transaction (cf. commentary by E. Gaillard, cited above, p. 292). In reading the Convention's preamble, one may add the contribution to the economic development of the host State of the investment as an additional condition. In reality, these various elements may be interdependent. Thus, the risks of the transaction may depend on the contributions and the duration of performance of the contract. As a result, these various criteria should be assessed globally even if, for the sake of reasoning, the Tribunal considers them individually here.”); Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision on Objections to Jurisdiction, 11 July1997, para. 43 (“The status of the promissory notes under the Law of Public Credit is also important as evidence that the type of investment involved is not merely a short-term, occasional financial arrangement, such as could happen with investments that come in for quick gains and leave immediately thereafter—i.e. ‘volatile capital.’ The basic features of an investment have been described as involving a certain duration, a certain regularity of profit and return, assumption of risk, a substantial commitment and a significance for the host State’s development. The duration of the investment in this case meets the requirement of the Law as to contracts needing to extend beyond the fiscal year in which they are made. The regularity of profit and return is also met by the scheduling of interest payments through a period of several years. The amount of capital committed is also relatively substantial. Risk is also involved as has been explained. And most importantly, there is clearly a significant relationship between the transaction and the development of the host State, as specifically required under the Law for issuing the pertinent financial instrument It follows that, given the particular facts of the case, the transaction meets the basic features of an investment.”); Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2005, paras. 130–138 (“Both parties relied upon previous decisions by ICSID Tribunals to define the notion of investment under Article 25 of the ICSID Convention and in particular upon the decision in Salini v. Morocco. The Tribunal in Salini held that the notion of investment presupposes the following elements: (a) a contribution, (b) a certain duration over which the project is implemented, (c) sharing of the operational risks, and (d) a contribution to the host State's development, being understood that these elements may be closely interrelated, should be examined in their totality,48 and will normally depend on the circumstances of each case. In the following paragraphs the Tribunal will examine these conditions in turn. […]”); Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction, 16 June 2006, paras. 90–96 (“The ICSID Convention contains no definition of the term ‘investment’. The Tribunal concurs with ICSID precedents which, subject to minor variations, have relied on the so-called ‘Salini test’. Such test identifies the following elements as indicative of an ‘investment’ for purposes of the ICSID Convention: (i) a contribution, (ii) a certain duration over which the project is implemented, (iii) a sharing of operational risks, and (iv) a contribution to the host State's development, being understood that these elements may be closely interrelated, should be examined in their totality and will normally depend on the circumstances of each case. […]”); Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007, paras. 98–100 (“[…] To determine whether Saipem has made an investment within the meaning of Article 25 of the ICSID Convention, the Tribunal will apply the well-known criteria developed by ICSID tribunals in similar cases, which are known as the ‘Salini test’. According to such test, the notion of investment implies the presence of the following elements: (a) a contribution of money or other assets of economic value, (b) a certain duration, (c) an element of risk, and (d) a contribution to the host State’s development.”); Ioannis Kardassopoulos v. The Republic of Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007, para. 116 (“The ICSID Convention does not define the term ‘investment’. ICSID tribunals have, however, developed a set of conjunctive criteria to determine whether an investment was made within the meaning of the Convention. There must be: (i) a contribution, (ii) a ‘certain duration of performance of the contract’, (iii) a ‘participation in the risks of the transaction’, and (iv) a contribution to the host State's economic development.”); Noble Energy, Inc. and Machalapower Cia. Ltda. v. The Republic of Ecuador and Consejo Nacional de Electricidad, ICSID Case No. ARB/05/12, Decision on Jurisdiction, 5 March 2008, para. 128 (“It is common ground that the ICSID Convention contains no definition of the term ‘investment’. The Tribunal concurs with earlier ICSID decisions which, subject to minor variations, have relied on the so-called ‘Salini test’. Such test identifies the following elements as indicative of an ‘investment’ for purposes of the ICSID Convention: (i) a contribution, (ii) a certain duration over which the project is implemented, (iii) a sharing of operational risks, and (iv) a contribution to the host State's development, being understood that these elements may be closely interrelated, should be examined in their totality and will normally depend on the circumstances of each case.”); Mr. Patrick Mitchell v. Democratic Republic of the Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006, paras 27–30 (“There are four characteristics of investment identified by ICSID case law and commented on by legal doctrine, but in reality they are interdependent and are consequently examined comprehensively. The first characteristic of investment is the commitment of the investor, which may be financial or through work; indeed, in several ICSID cases the investor's commitment mainly consisted in its know-how. Other characteristics of investment are the duration of the project and the economic risk entailed, in the sense of an uncertainty regarding its successful outcome. The fourth characteristic of investment is the contribution to the economic development of the host country, a matter which the ad hoc Committee will review at some length in that it is a key point of the debates in the Annulment Proceedings. Indeed, while the Respondent regards the contribution to economic development as an ‘essential element’ of investment which, if found wanting, must prompt the Arbitral Tribunal to declare that it lacks jurisdiction, the Claimant Mr. Patrick Mitchell regards this contribution to economic development - which he does not contest constitutes one of the criteria for the existence of an investment - as a supplementary condition used heretofore in order to justify the broadening of the concept of investment and as somewhat duplicating with the investor's commitment. […]”). Ulysseas, Inc. v. The Republic of Ecuador, Final Award, 12 June 2012, para. 251 (“The Tribunal shares Respondent’s view. As held by many ICSID tribunals, the ordinary conception of an investment includes several basic characteristics, essentially: (a) it must consist of a contribution having an economic value; (b) it must be made for a certain duration; (c) there must be the expectation of a return on the investment, subject to an element of risk; (d) it should contribute to the development of the economy of the host State. While the last condition has been criticised, the others have been generally accepted by other tribunals and commentators in the field of investment treaty arbitration. Regardless of the definition of an ‘investment’ under Article 1(1)(a) of the BIT, these factors inform the determination of the moment when Claimant ‘invested’ in Ecuador in the ordinary sense and began relying on any legitimate expectations that it may have formed.”); Koch Minerals Sàrl and Koch Nitrogen International Sàrl v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/11/19, Award, 30 October 2017, para. 6.67 (“In brief, the Tribunal concludes that KOMSA’s entire transaction, with its related equity contribution and offtake rights and obligations, were part of a single integrated investment within the meaning of Article 25(1) of the ICSID Convention. Apart from the Offtake Agreement (if a separate transaction which the Tribunal has here rejected), the Respondent does not contend otherwise. As regards this single transaction (including the Offtake Agreement), the Tribunal decides that it meets all the indicia of an investment as to contribution, risk, duration and economic development under the Salini test, howsoever applied.”); Joseph Houben v. Republic of Burundi, ICSID Case No. ARB/13/7, Award, 12 January 2016, para. 112 (“La jurisprudence a cependant développé un ensemble de critères permettant de définir un « investissement » au sens de la Convention de Washington. Selon cette définition, qui a été consacrée dans la décision Salini c. Maroc et reprise par un grand nombre de décisions ultérieures, un investissement implique la présence des éléments suivants : (i) une contribution en argent ou d'autres actifs de valeur économique, (ii) une certaine durée pendant laquelle le projet est mis en œuvre, (iii) un élément de risque, et (iv) une contribution au développement de l'État d'accueil, étant entendu que ces éléments peuvent être étroitement liés et doivent être examinées dans leur totalité.”).
VI. Denial of benefits
A denial of benefits clause allows the host State to exclude investors owned or controlled by non-protected investors from treaty protection. As such clauses are not necessarily10 deemed only prospective,11 they must be taken into account in the (re)structuring.
Pac Rim Cayman LLC. v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections, 1 June 2012, para. 4.90 (“As regards ICSID Article 25(1), the Tribunal accepts the Respondent’s submission to the effect that the Respondent’s consent to ICSID Arbitration in CAFTA Article 10.16.3(a) is necessarily qualified from the outset by CAFTA Article 10.12.2. It is not possible for the Tribunal to arrive at any different interpretation without distorting the meaning of Article 10.12.2, contrary to the applicable rules for treaty interpretation under international law. Accordingly, a CAFTA Party’s denial of benefits invoked after the commencement of an ICSID arbitration cannot be treated as the unilateral withdrawal of that Party’s consent to ICSID arbitration under ICSID Article 25(1).”); Guaracachi America Incorporated and Rurelec Plc v. The Plurinational State of Bolivia, Award, 31 January 2014, para. 382 (“The Tribunal therefore considers that the objection to jurisdiction was made in good time, taking into account Article 23(2) of the UNCITRAL Rules. The Tribunal agrees with the decision of the Ulysseas Inc. v. Ecuador when it states that ‘[a] ccording to the UNCITRAL rules, a jurisdictional objection must be raised not later than the statement of defence (Article 21(3) [equivalent to Article 23(2) of the UNCITRAL Rules 2010] ). By exercising the right to deny Claimant the BIT's advantages in the Answer, Respondent has complied with the time limit prescribed by the UNCITRAL Rules. Nothing in Article I(2) of the BIT excludes that the right to deny the BIT's advantages be exercised by the State at the time when such advantages are sought by the investor through a request for arbitration.’”); Empresa Electrica del Ecuador, Inc. v. Ecuador, ICSID Case No. ARB/05/9, Award, 2 June 2009, para. 71 (“The Claimant invokes additional grounds on which to found ICSID’s jurisdiction. It claims that the Respondent recognized ICSID jurisdiction because, at the first session of the Tribunal held on June 5, 2006, Ecuador invoked a reservation under the Treaty contained in Article I (2) of the BIT, which would deny the benefits of arbitration to EMELEC and by invoking said reservation, the Claimant argues, the Respondent has recognized ICSID jurisdiction. The Claimant also argues that jurisdiction exists by the very fact that, since 1925, the Claimant has always been treated as a United States company. The Tribunal considers these jurisdictional arguments inadmissible because they have no legal substance. It is inaccurate to say that Ecuador introduced a reservation to the terms of the Treaty in the sense of the Vienna Convention on the Law of Treaties and in accordance with the legal term ‘reservation,’ as defined therein. This is an argument erroneously put forward by EMELEC. What Ecuador did was to invoke a clause in the Treaty, by which both the United States and Ecuador reserved ‘the right to deny to any company the advantages’ of the Treaty ‘if nationals of any third country control such company and, in the case of a company of the other Party, that company has no substantial business activities in the territory of the other Party or is controlled by nationals of a third country with which the denying Party does not maintain normal economic relations’ (Art. I (2) of the BIT). Since EMELEC is a ‘company of the other Party,’ Ecuador has the power to deny it the advantages of the BIT if the company has no substantial business activities in the United States. The Tribunal considers that Ecuador announced the denial of benefits to EMELEC at the proper stage of the proceedings, i.e. upon raising its objections on jurisdiction. If the Tribunal should agree to hear the merits of the present case, only then would it be appropriate to examine the substantive requirements for the denial of benefits, i.e. the determination of whether EMELEC has substantial business activities in the territory of the United States.”); Ulysseas, Inc. v. The Republic of Ecuador, PCA Case No. 2009-19, Interim Award, 28 September 2010, para. 172-173 (“A further question is whether the denial of advantages should apply only prospectively, as argued by Claimant, or may also have retrospective effects, as contended by Respondent. The Tribunal sees no valid reasons to exclude retrospective effects. In reply to Claimant's argument that this would cause uncertainties as to the legal relations under the BIT, it may be noted that since the possibility for the host State to exercise the right in question is known to the investor from the time when it made its the investment, it may be concluded that the protection afforded by the BIT is subject during the life of the investment to the possibility of a denial of the BIT's advantages by the host State.”).
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, paras. 161–162 (“The covered investor enjoys the advantages of Part III unless the host state exercises its right under Article 17(1) ECT; and a putative covered investor has legitimate expectations of such advantages until that right's exercise. A putative investor therefore requires reasonable notice before making any investment in the host state whether or not that host state has exercised its right under Article 17(1) ECT. At that stage, the putative investor can so plan its business affairs to come within or without the criteria there specified, as it chooses. It can also plan not to make any investment at all or to make it elsewhere. After an investment is made in the host state, the ‘hostage factor’ is introduced; the covered investor's choices are accordingly more limited; and the investor is correspondingly more vulnerable to the host state's exercise of its right under Article 17(1) ECT. At this time, therefore, the covered investor needs at least the same protection as it enjoyed as a putative investor able to plan its investment. The ECT's express "-‘purpose’ under Article 2 ECT is the establishment of ‘... a legal framework in order to promote long-term co-operation in the energy field... in accordance with the objectives and principles of the Charter’ (emphasis supplied). It is not easy to see how any retrospective effect is consistent with this ‘long-term’ purpose. In the Tribunal's view, therefore, the object and purpose of the ECT suggest that the right's exercise should not have retrospective effect. A putative investor, properly informed and advised of the potential effect of Article 17(1), could adjust its plans accordingly prior to making its investment. If, however, the right's exercise had retrospective effect, the consequences for the investor would be serious. The investor could not plan in the ‘long term’ for such an effect (if at all); and indeed such an unexercised right could lure putative investors with legitimate expectations only to have those expectations made retrospectively false at a much later date. Moreover, in the present case, the Respondent asserts a retrospective effect from a very late date, even after the Claimant's Request for Arbitration and the accrual of the Claimant's causes of action under Part III ECT.”); Liman Caspian Oil BV and NCL Dutch Investment BV v. Kazakhstan, ICSID Case No ARB/07/14, Award, 22 June 2010, paras. 224–225 (“Taking into account the above contentions of the Parties, the Tribunal notes that there is no disagreement between the Parties on the point that Article 17 contains a notification requirement to the effect that a state must expressly invoke Article 17(1) of the ECT to rely on the rights under that provision. The Tribunal agrees that this is the only interpretation that can be drawn from the wording that the host state ‘reserves the right to deny the advantages of this Part’. To reserve a right, it has to be exercised in an explicit way. With regard to the question of whether the right under Article 17(1) of the ECT can only be exercised prospectively, the Tribunal considers that the above mentioned notification requirement - on which the Parties agree - can only lead to the conclusion that the notification has prospective but no retroactive effect. Accepting the option of a retroactive notification would not be compatible with the object and purpose of the ECT, which the Tribunal has to take into account according to Article 31(1) of the VCLT, and which the ECT, in its Article 2, expressly identifies as ‘to promote long-term co-operation in the energy field’. Such long-term co-operation requires, and it also follows from the principle of legal certainty, that an investor must be able to rely on the advantages under the ECT, as long as the host state has not explicitly invoked the right to deny such advantages. Therefore, the Tribunal finds that Article 17(1) of the ECT does not have retroactive effect.”); Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final Award, 26 March 2008, para. 61 (“Article 17 enables a State party to deny the Part III treaty rights to certain classes of investors. Article 17(1) excludes Investors that are legal entities rather than natural persons, where the legal entity has no real connection with its nominal nationality. Article 17(2) excludes protection for Investments of Investors from countries with which the State does not maintain normal diplomatic or economic relationships. Article 17 can be read together with the definition of 'Investor' in Article 1(7) as establishing two classes of Investors of a Contracting Party for the purposes of the ECT. The first class comprises Investors with an indefeasible right to investment protection under the ECT. This class includes nationals of another Contracting Party -whether natural persons or juridical entities- except for those nationals falling within the second class. The second class comprises Investors that have a defeasible right to investment protection under the ECT, because the host State of the investment has the power to divest the Investor of this right. In this second class are legal entities that satisfy the nationality requirement by reason of incorporation but are owned or controlled by nationals of a third state in a manner potentially unacceptable to the host State. Such foreign ownership or control is potentially unacceptable where it involves a State with which the Host State does not maintain normal diplomatic or economic relationships, or where it is not accompanied by substantial business activity in the state of incorporation. As the purpose of the ECT is to establish a legal framework ‘in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits...’ then the potential exclusion of foreign owned entities from ECT investment protection under Article 17 is readily comprehensible. ‘Long term economic cooperation', ‘complementarities’ or ‘mutual benefits’ are unlikely to materialise for the host State with a State that serves as a nationality of convenience devoid of economic substance for an investment vehicle, or a State with which it does not enjoy normal diplomatic or economic relations.”); Alps Finance and Trade AG v. The Slovak Republic, , Award, 5 March 2011, para. 226 (“Now, the good faith ordinary meaning of the word ‘real’ cannot but be ‘actual’, or ‘effective’, or ‘genuine’, or ‘verifiable’, or ‘visible’, or ‘tangible’, or ‘objective’. The BIT preamble underlines that the purpose pursued by the two Contracting States was intensifying the economic cooperation to the mutual benefit of both States and fostering their economic prosperity. It is illogic to assume that the above goals could be achieved by giving treaty protection or by attracting into the host country ‘shell’ companies which are unable to establish the kind and level of activities that they conduct in their own State. No State is anxious to promise special guarantees, privileges and protections to investors which bring no benefit to its economy.”); Ampal-American Israel Corp., EGI-Fund (08-10) Investors LLC, EGI-Series Investments LLC, BSS-EMG Investors LLC and David Fischer v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction, 1 February 2016, paras. 165-167 (“On the other hand, the central argument of the Claimants is that the jurisdiction of the Centre is to be assessed at the time that jurisdiction is invoked, to wit when the Request for Arbitration is registered and that, as clearly set out in Article 25(1) of the ICSID Convention, "no Party may withdraw its consent unilaterally." In short, say the Claimants, a denial of benefits such as the present one cannot have retroactive effect. It can only be effective prospectively. The Claimants’ interpretation, says the Respondent, would give no "effet utile" to the denial of benefits provision in the Protocol. The Tribunal agrees with the Claimants that the jurisdiction of the Centre must be determined at the time that the Request for Arbitration is registered.”).
To the extent restructuring of an investment includes assignment of a claim, such assignment is not generally permissible between a non-protected and a protected investor (nemo potiorem potest transferre quam ipse habet).12 In order to preserve standing to bring or to continue a claim, the assignment should take place between protected investors defined as such under the same treaty.13 Restructuring through a transfer of the investment will also entail an assignment of claims,14 including if the investors are protected under different treaties.15
Mihaly International Corporation v. Sri Lanka, ICSID Case No. ARB/00/2, Award, 15 March 2002, para. 24 (“It follows that as neither Canada nor Mihaly (Canada) could bring any claim under the ICSID Convention, whatever rights Mihaly (Canada) had or did not have against Sri Lanka could not have been improved by the process of assignment with or without, and especially without, the express consent of Sri Lanka, on the ground that nemo dat quod non habet or nemo potiorem potest transfere quam ipse habet. That is, no one could transfer a better title than what he really has. Thus, if Mihaly (Canada) had a claim which was procedurally defective against Sri Lanka before ICSID because of Mihaly (Canada)'s inability to invoke the ICSID Convention, Canada not being a Party thereto, this defect could not be perfected vis-à-vis ICSID by its assignment to Mihaly (USA). To allow such an assignment to operate in favour of Mihaly (Canada) would defeat the object and purpose of the ICSID Convention and the sanctity of the privity of international agreements not intended to create rights and obligations for non-Parties. Accordingly, a Canadian claim which was not recoverable, nor compensable or indeed capable of being invoked before ICSID could not have been admissible or able to be entertained under the guise of its assignment to the US Claimant. A claim under the ICSID Convention with its carefully structured system is not a readily assignable chose in action as shares in the stock-exchange market or other types of negotiable instruments, such as promissory notes or letters of credit. The rights of shareholders or entitlements of negotiable instruments holders are given different types of protection which are not an issue in this case before the Tribunal. This finding is without prejudice to the right of Mihaly (Canada) to pursue its claims, if any, before another otherwise competent forum.”); Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v. Democratic Republic of the Congo, ICSID Case No. ARB/98/7, Award, 1 September 2000, paras. 5–6 (“Even if we admit –that which, as we have demonstrated, has not been established by the case file– that Banro American was an original shareholder of SAKIMA S.A.R.L. and that the transfer of…shares of SAKIMA made for its benefit…by Banro Resource was valid, Banro American could not nonetheless avail itself, on a derived basis, of the consent to ICSID arbitration provided by Banro Resource under Article 35. In order to consider the right of access to ICSID arbitration, available under Article 35, as ‘extended' or ‘transferred' to Banro American by applying other provisions of the Mining Convention, it would still be necessary that such right existed first for the benefit of the entity Banro Resource. Such is not the case, given that Banro Resource, a Canadian company, never had, at any time, jus standi before ICSID. Having never existed for the benefit of Banro Resource, the right of access to ICSID cannot be viewed as having been ‘extended' or ‘transferred' to its affiliate, Banro American. The Tribunal is certainly aware of the general principle of interpretation whereby a text ought to be interpreted in the manner that gives it effect - ut magis valeat quam pereat. However, this principle of interpretation should not lead to confer, a posteriori, to a provision deprived of its object and purpose a result that goes against its clear and explicit terms. Due to its Canadian nationality, Banro Resource did not have -and does not have- access to ICSID arbitration: the clause under Article 35 is, and has always been, without effect in its regard. Given that it is inapplicable vis-à-vis the beneficiary that it expressly mentions -Banro Resource-, this clause cannot take effect and apply vis-à-vis another entity -Banro American- to which it would have been ‘extended' or ‘transferred.'”); African Holding Company of America, Inc. and Société Africaine de Construction au Congo S.A.R.L. v. Democratic Republic of the Congo, ICSID Case No. ARB/05/21, Sentence sur les déclinatoires de compétence et la recevabilité, 29 July 2008, para. 61 («Les deux parties conviennent également que le cédant ne peut pas céder plus de droits qu'il n'en a. Les limites de la cession étaient devenues manifestes dans l'affaire Mihaly c. Sri Lanka et ont aussi été examinées par les parties à la présente affaire dans le contexte de l'affaire Banro c. Congo, qui porte également sur une réclamation contre la RDC devant le CIRDI. Dans cette affaire, un investisseur canadien avait cédé à une filiale américaine les actions qu'il détenait dans une société locale dont les avoirs avaient été saisis, et cette cession était intervenue après la saisie. Dans cette affaire, le tribunal s'était déclaré incompétent du fait que la RDC n'avait accepté l'arbitrage qu'avec la société canadienne et sa filiale locale, et non pas avec une filiale américaine. Étant donné que le Canada n'est pas partie à la Convention du CIRDI, la société canadienne n'avait pas le droit d'engager cette procédure d'arbitrage et ne pouvait donc pas céder à la filiale américaine des droits qu'elle n'avait pas. La Défenderesse a affirmé à juste titre à l'audition que le tribunal dans l'affaire Banro a rejeté la cession d'actions comme étant un « montage juridique. ») ; Société Générale v. Dominican Republic, LCIA Case No. UN 7927, Award on Preliminary Objections to Jurisdiction, 19 September 2008, para. 111 (“Another limit that has implications in this matter is the consent of the Respondent to the extension of the arbitration clause or agreement to a different beneficiary. While in this case apparently no arbitration clause under a treaty benefited AES, and thus, none could be transferred to the Claimant, there is a question about the consent to the transaction and related information available to the Respondent. Just as the Respondent cannot ignore that the Claimant became a protected investor following its purchase of the assets from AES, it cannot be held to have accepted that such protected investor could become entitled to claim for acts and events that took place before it actually became eligible under the Treaty. The principle upheld in Mihaly to the effect that no one can transfer a better title than he actually has without the consent of the host State is equally applicable here to a situation in which no one can claim without such consent a retroactive application of treaty rights to acts that occurred before the Claimant became an investor under the Treaty.”.
African Holding Company of America, Inc. and Société Africaine de Construction au Congo S.A.R.L. v. La République démocratique du Congo, ICSID Case No. ARB/05/21, Sentence sur les déclinatoires de compétence et la recevabilité, 29 July 2008, paras. 62–63 (« Les parties Demanderesses ont cependant établi de manière convaincante une distinction entre cette affaire et la présente instance, dans laquelle African Holding « ne cherche pas à affirmer un droit que SAFRICAS n'avait pas » et dans laquelle la cession de créance se jouait entre une société qui avait la nationalité d'un État contractant (SAFRICAS) et une autre société qui avait également la nationalité du même État contractant (African Holding), cet État contractant étant les États-Unis. Alors que la situation d'avant 2000 était différente, en ce sens que SAFRICAS appartenait à des investisseurs belges, au moment de la cession de créance l'unique nationalité pertinente était celle des États-Unis. Le Tribunal reviendra plus loin sur le différend entre les parties concernant la nationalité de SAFRICAS et son contrôle par des citoyens américains. Le Tribunal conclut de ce fait sur ce point que tous les droits que détenait SAFRICAS ont été cédés à African Holding, en ce compris les créances et le consentement à l'arbitrage étant donné que l'État dont les ressortissants bénéficient du consentement exprimé sous le traité bilatéral d'investissement n'a pas changé. La situation, dans le cas d'espèce, est clairement différente de celle des affaires Mihaly et Banro, dans lesquelles une société canadienne tentait de céder des droits qu'elle n'avait pas. »), 75 (« Le problème est cependant plus complexe que cela. Dans la mesure où SAFRICAS avait des droits en vertu des contrats, et le Tribunal a estimé ci-dessus qu'elle en avait, ceci ne peut être considéré que comme un investissement protégé par le Traité bilatéral d'investissement, qui définit l'investissement au sens large comme comprenant « des fonds propres, une dette, et des contrats de service et d'investissement. » Étant donné que ces mêmes droits ont été transférés au cessionnaire, celui-ci est également un investisseur protégé en application du Traité. Les parties demanderesses rappellent à juste titre que la situation a été expressément envisagée dans le Traité lorsqu'il a été prévu qu' « une modification de la forme sous laquelle des avoirs sont investis ou réinvestis n'affectera pas leur nature en tant qu'investissement32. » Cet article tel que mentionné donne une définition large de l'investissement, incluant plus particulièrement « la dette » dans cette définition, tout comme elle comprend la « créance monétaire ou un droit à exécution ayant une valeur économique, et associée à un investissement. »), 78 (« Cela ne signifie cependant pas, dans le cas d'espèce, que la créance n'est plus due ou que les transactions afférentes à ladite créance ne contribuent pas du tout au développement économique de la RDC. Dans la mesure où, aux termes des contrats, la RDC doit de l'argent à un investisseur et que le droit à cette prestation est cédé, l'argent est toujours dû, mais uniquement à un bénéficiaire différent. En fait, la cession de la créance n'est pas un simple transfert de dette. Elle est aussi la cession de la valeur économique du travail effectué et non payé. Si ledit paiement était dû à SAFRICAS en tant qu'investisseur il reste toujours dû au cessionnaire et partant, le montant de cette valeur économique liée à un investissement n'est toujours pas réglé. Dans cette mesure, le cessionnaire a exactement le même intérêt que l'investisseur initial et le cédant est, de ce fait, lui-même, un investisseur. »), 84 (« Le Tribunal doit conclure sur cet autre point que la cession effectuée entre les deux entreprises a créé un continuum concernant les droits et les obligations en application des contrats et de l'investissement, en particulier dans la mesure où leur nature et leur caractère sont maintenus inchangés. En fait, la nature juridique de ces droits et obligations, notamment le droit à une réclamation et la clause d'arbitrage, n'ont pas changé compte tenu des faits de la présente instance, sous réserve de la question de nationalité et de contrôle qui sera examinée plus loin. En outre, la dette est toujours la même dette et elle est toujours due par la RDC au bénéficiaire. »); Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002, para. 50 (“In common with other BITs, Article 1 clearly distinguishes between foreign shareholders in local companies and those companies themselves. While the foreign shareholding is by definition an "investment" and its holder an "investor," the local company only falls within the scope of Article 1 if it is "effectively controlled, directly or indirectly, by nationals of one Contracting Party" or by corporations established under its laws. In accordance with these provisions, which determine the scope of operation of the BIT, issues might well arise where there has been a transfer of control of a local company from a shareholder of one nationality to a shareholder of another. For example, if Dycasa had a Spanish treaty claim prior to March 1996, questions might arise as to how that claim could be later transferred to a French company, or as to how CGE could have acquired a French treaty claim in respect of conduct concerning an investment which it did not hold at the time the conduct occurred and which at that time did not have French nationality. At least, such questions might affect the quantum of recovery, but they might have further and even more basic legal consequences. But while it is arguable that the Tribunal failed to state any reasons for its finding that "CAA should be considered a French investor from the effective date of the Concession Contract," that finding played no part in the subsequent reasoning of the Tribunal, or in its dismissal of the claim. Moreover it cannot be argued that CGE did not have an "investment" in CAA from the date of the conclusion of the Concession Contract, or that it was not an "investor" in respect of its own shareholding, whether or not it had overall control of CAA. Whatever the extent of its investment may have been, it was entitled to invoke the BIT in respect of conduct alleged to constitute a breach of Articles 3 or 5. It is also clear that CGE controlled CAA at the time the proceedings were commenced, so that there was no question that the Tribunal lacked jurisdiction over CAA as one of Claimants in the arbitration. In the circumstances, and for the purposes of the present proceedings, the Committee does not need to reach any conclusion on the precise extent of CAA’s and CGE’s treaty rights at different times.”).
Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No. ARB/10/17, Award, 26 February 2014, para. 145 (“The Respondent also affirmed that the Claimant received her indirect interest too late, that is, five years after BNM had been intervened (paragraph 118(a) above). The Tribunal considers that shares may be assigned at any time with no effect on the rights of the assignee. The transmission of legal rights and endorsement of the shares could occur without affecting protection of the investment under the APPRI, provided that the other requirements of that treaty were met.”).
CME Czech Republic B.V. v. Czech Republic, Partial Award, 13 September 13 2001, paras. 390–424 (“In respect to jurisdiction, it is clear that CEDC's investment in CNTS could be assigned to CME Media Enterprises B.V. without requesting prior approval from the Council. On the contrary, it is clear that CEDC's investment in CNTS included the right to freely transfer this investment to an affiliated company. The assignment by CEDC of its shares in CNTS to CME Media Enterprises B.V. was made with express reference to the MOA. It is therefore clear that CME Media Enterprises B.V. (as a permitted successor under the MOA, which was approved by the Council), when acquiring CEDC's investment in the Czech Republic, acquired full protection for this investment under the laws of the Czech Republic which include the bilateral investment treaties the Czech Republic had entered into, including the Treaty. […]”).
VIII. Abuse of process
The lawfulness of a structuring or restructuring is often assessed from the good faith / abuse of process angle, taking into account the timing and the means of (re)structuring.16 In essence, tribunals seek to determine whether the (re)structuring is done for legitimate economic or business purposes or is solely aimed at taking advantage of the benefits under a treaty.17 In practice, the outcome of such determination is highly dependent on the facts of the case.18 For example, the timing of a restructuring may also be considered abusive, to the extent that it is performed in order to take advantage of an existing or prospective treaty after the dispute has arisen.
Phoenix Action Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, para. 77 (“Also, international agreements like the ICSID Convention and the BIT have to be analyzed with due regard to the requirements of the general principles of law, such as the principle of non-retroactivity or the principle of good faith, also referred to by the Vienna Convention. This has been stated for the WTO law stemming from the Marrakech Agreements of 1994: ‘States in their treaty relations, can contract out of one, more or in theory, all rules of general international law (other than those of jus cogens), but they cannot contract out of the system of international law. As soon as States contract with one another, they do so automatically and necessarily within the system of international law.’ This has been stated also with force by the Appellate Body of the WTO Dispute Settlement Mechanism in its first rendered decision, where it stated: ‘The General Agreement is not to be read in clinical isolation from public international law.’”), (“The purpose of the international mechanism of protection of investment through ICSID arbitration cannot be to protect investments made in violation of the laws of the host State68 or investments not made in good faith, obtained for example through misrepresentations, concealments or corruption, or amounting to an abuse of the international ICSID arbitration system. In other words, the purpose of international protection is to protect legal and bona fide investments. […]”), 136–140 (“The timing of the investment is a first factor to be taken into account to establish whether or not the Claimant's engaged in an abusive attempt to get access to ICSID. Phoenix bought an "investment" that was already burdened with the civil litigation as well as the problems with the tax and customs authorities. The civil litigation was ongoing since fourteen months, the criminal investigation was ongoing since twenty months, and the bank accounts had been frozen for eighteen months. The Claimant was therefore well aware of the situation of the two Czech companies in which it decided to ‘invest’. In other words, all the damages claimed by Phoenix had already occurred and were inflicted on the two Czech companies, when the alleged investment was made. […]”), 142–144 (“The evidence indeed shows that the Claimant made an ‘investment’ not for the purpose of engaging in economic activity, but for the sole purpose of bringing international litigation against the Czech Republic. This alleged investment was not made in order to engage in national economic activity, it was made solely for the purpose of getting involved with international legal activity. The unique goal of the "investment" was to transform a pre-existing domestic dispute into an international dispute subject to ICSID arbitration under a bilateral investment treaty. This kind of transaction is not a bona fide transaction and cannot be a protected investment under the ICSID system.”); Cementownia “Nowa Huta” S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009, paras. 117 (“The Claimant was frank about the reasoning underlying its claim. According to Mr. Uzan, he transferred the shares because he feared that ‘the government would unilaterally take at least the transmission rights of the companies’ and he ‘wanted to protect our interests.’ (Kemal Uzan witness statement, para. 32). The way in which he claimed to have protected his interests was to transfer his shares to a foreign company that his family's company, the Rumeli Group, in turn controlled. This, if true, is unabashedly treaty shopping. As other tribunals have found, treaty shopping per se is not in principle to be disapproved of, but in some instances it has been found to be a mere artifice employed to manufacture an international dispute out of a purely domestic dispute. Given the dispute's history and the temporal aspects of the case (a mere twelve days elapsed between the claimed acquisition of shares in companies already on notice of potential termination of the concessions and the actual termination measures themselves), had the Tribunal found that the share transfers actually did occur on May 30, 2003, it would have held that this case fell within the category of an artifice. Even if they did occur, the share transfers would not have been bona fide transactions, but rather attempts (in the face of government measures dating back some years about to culminate in the concessions' termination) to fabricate international jurisdiction where none should exist.”), 154–157 (“[…] Here the Claimant’s conduct is not even close to proper conduct. Had Cementownia actually proven that on May 30, 2003 it legally acquired the shares of CEAS and Kepez, there would still be the question of whether this was treaty shopping of the wrong kind, in the words of Phoenix Action, ‘a transfer of the national economic interests to a foreign company in an attempt to seek protections under a BIT.’ The problem for the Claimant is that the evidence shows that it did not even interpose itself between Mr. Kemal Uzan and the Republic of Turkey. The transaction that would pose the issue of whether the corporate veil should be pierced was fabricated. The Claimant’s conduct in bringing the instant claim fails to meet the requisite standard of good faith conduct. The claim is manifestly ill-founded.”); Mobil Cerro Negro Holding, Ltd., Mobil Cerro Negro, Ltd., Mobil Corporation and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, para. 169 (“The Tribunal first observes that in all systems of law, whether domestic or international, there are concepts framed in order to avoid misuse of the law. Reference may be made in this respect to "good faith" ("bonne foi"), "détournement de pouvoir" (misuse of power) or "abus de droit" (abuse of right).”).
Pac Rim Cayman LLC. v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections, 1 June 2012, para. 2.99 (“The Tribunal accepts the force of the Respondent’s submission; and it therefore rejects this third suggested answer. As far as the two other suggested answers are concerned, the Tribunal considers that they can be examined together for the purpose of this case. In the Tribunal’s view, the dividing-line occurs when the relevant party can see an actual dispute or can foresee a specific future dispute as a very high probability and not merely as a possible controversy. In the Tribunal’s view, before that dividing-line is reached, there will be ordinarily no abuse of process; but after that dividing-line is passed, there ordinarily will be. The answer in each case will, however, depend upon its particular facts and circumstances, as in this case. As already indicated above, the Tribunal is here more concerned with substance than semantics; and it recognises that, as a matter of practical reality, this dividing-line will rarely be a thin red line, but will include a significant grey area.”), .111, 3.32–3.38.; Lao Holdings N.V. v. Lao People’s Democratic Republic, ICSID Case No. ARB(AF)/12/6, Decision on Jurisdiction, 21 February 2014, para. 76 (“The Tribunal in Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12, explained clearly that the time frame corresponding to a finding of abuse of process is not the same as the time frame corresponding to an objection ratione temporis. More precisely, if a company changes its nationality in order to gain ICSID jurisdiction at a moment when things have started to deteriorate so that a dispute is highly probable, it can be considered an abuse of process, but for an objection based on ratione temporis to be upheld, the dispute has to have actually arisen before the critical date to conform to the general principle of nonretroactivity in the interpretation and application of international treaties.”); Mobil Corporation and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, paras. 200–205 (“[…]As recalled above, the restructuring of Mobil’s investments through the Dutch entity occurred from October 2005 to November 2006. At that time, there were already pending disputes relating to royalties and income tax. However, nationalisation measures were taken by the Venezuelan authorities only from January 2007 on. Thus, the dispute over such nationalisation measures can only be deemed to have arisen after the measures were taken. As stated by the Claimants, the aim of the restructuring of their investments in Venezuela through a Dutch holding was to protect those investments against breaches of their rights by the Venezuelan authorities by gaining access to ICSID arbitration through the BIT. The Tribunal considers that this was a perfectly legitimate goal as far as it concerned future disputes.”); ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on Jurisdiction and Merits, 3 September 2013, paras. 268–281 (“[…]It is the case, to turn to a second matter, that the only business purpose of the restructuring, as acknowledged by the Claimants’ principal witness on this matter, was to be able to have access to ICSID proceedings. But as against that, as already noted, no claim had been made at the time of the restructuring and, subject to the qualification made in respect of the claims by CPH about the two measures taken in 2006, none was in prospect at the times of the restructurings. […]”); Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No. ARB/10/17, Award, 26 February 2014, paras. 153–154 (“Regarding Peru’s fourth argument—that there is abuse of process (paragraph 123 above) and that the assignment to the Claimant of the shares in Holding XXI does not constitute a good-faith investment (paragraph 124 above)—the Tribunal fully agrees with the Respondent about the importance of good faith in international law and specifically in investment arbitration issues. However, it considers that the Respondent did not succeed in proving the alleged bad faith of the Claimant and it is a well-known and accepted fact that bad faith cannot be presumed. Therefore, the Tribunal will also reject this argument on jurisdiction advanced by Peru.”); Alapli Elektrik B.V. v. Republic of Turkey, ICSID Case No. ARB/08/13, Decision on Annulment, 10 July 2014, paras. 25 (“The two lines of reasoning mentioned at paragraph 313 of the Award are contained in paragraphs 337-389 (Arbitrator Park’s reasoning) and 390-417 (Arbitrator Stern’s reasoning). In essence, Arbitrator Park found that the ‘Claimant never made a contribution to the Alapli Project sufficient to create for itself the status of an investor under either the ECT or the Netherlands-Turkey BIT’ (para. 337 of the Award). Arbitrator Stern, on the other hand, found that there was no ‘bona fide investment,’ as ‘it is clear that Claimant, as a Dutch company, acquired its investment for the sole purpose of manufacturing international jurisdiction, at a time when the project was already in great difficulty and the facts that are at the root of the dispute with Turkey were already known to the Sponsors of the Project’ (paras. 416 and 417 of the Award). These lines of reasoning are further described below in the context of the Parties’ arguments.”), 47 (“According to the Applicant, Arbitrator Stern also disregarded the relevant provisions of the BIT and the ECT and neglected, or at the least manifestly misinterpreted, the facts and evidence that were presented to the Tribunal. Finding that the facts were similar to those in Mobil v. Venezuela, Arbitrator Stern proceeded to examine whether the relevant corporate restructuring was made in good faith. She found that the introduction of the Applicant in the investment chain was made to access international arbitration at a time when the ‘facts at the root of the dispute presented to the Tribunal were already known.’ In her opinion, this constituted an abuse of the system of international investment protection under the ICSID/BIT/ECT mechanism and the investment could therefore not be protected under the provisions of these treaties.”), 224–229 (“Arbitrator Stern found that the Claimant had abused the investment treaty system by restructuring its investment at a time when there were important disagreements with the Turkish authorities, the very same disagreements that were at the heart of the dispute before the Tribunal. As a result, she found that there was no jurisdiction to hear the case. […]”), 252–255 (“Arbitrator Stern interpreted the notions of a protected ‘investment’ and of ‘investor’ under the ICSID Convention, the BIT and the ECT in light of the international law principle of good faith. By referring to previous investor-State awards that shed light on the distinction between good faith and bad faith corporate restructurings (Phoenix Action v. Czech Republic, Mobil v. Venezuela), she found that the applicable investment treaties could only confer legal protection upon investments that had been made in good faith. She stated that: ‘It is indeed an abuse for an investor to manipulate the nationality of a shell subsidiary to gain jurisdiction under an international treaty at a time when the investor is aware that events have occurred that negatively affect its investment and may lead to arbitration. Before that dividing-line is reached, there will be ordinarily no abuse of process; but after that dividing-line is passed, there ordinarily will be.’”); Philip Morris Asia Limited v. The Commonwealth of Australia, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility, 17 December 2015, para. 587 (“The Tribunal's conclusion is reinforced by a review of the evidence regarding the Claimant's professed alternative reasons for the restructuring. The record indeed shows that the principal, if not sole, purpose of the restructuring was to gain protection under the Treaty in respect of the very measures that form the subject matter of the present arbitration. For the Tribunal, the adoption of the Plain Packaging Measures was not only foreseeable but actually foreseen by the Claimant when it chose to change its corporate structure.”).
African Holding Company of America, Inc. and Société Africaine de Construction au Congo S.A.R.L. v. La République démocratique du Congo, ICSID Case No. ARB/05/21, Sentence sur les déclinatoires de compétence et la recevabilité, 29 July 2008, para. 116 (“La date des événements constitue donc l'élément déterminant sur lequel ce Tribunal doit se prononcer. Si les événements sont survenus avant 2000 le Tribunal n'a pas compétence. S'ils se sont produits après cette date, il a compétence. Ou bien, comme il a été décidé dans les affaires Electricity Company, Helnan, Maffezini, Lucchetti et Jan de Nul, même si les événements ont eu lieu avant une date et se sont poursuivis ou étaient exprimés de manière différente après cette date, la décision à prendre est celle de savoir s'il y a un continuum entre les deux événements ou ensembles d'événements ou si la nature de l'un et de l'autre est différente et traduit une modification de ces faits ou de son fondement juridique. S'il n'y a qu'une simple continuation, il faudra décliner la compétence. Si les événements sont différents, la compétence est maintenue.”); Lao Holdings N.V. v. Lao People’s Democratic Republic, ICSID Case No. ARB(AF)/12/6, Decision on Jurisdiction, 21 February 2014, paras. 122–157 (“The Parties agree that the test for determining the critical date is objective and that the relevant question is not whether the Lao Government subjectively believed the legal dispute to have arisen, or whether the Claimant subjectively believed it had not, the question is whether the facts, objectively analysed, establish the existence of a dispute and if so at what time did it arise, and was it resolved (as the Lao Government argues) before the Treaty came into force as between the Lao Government and the Claimant? […]”); Pac Rim Cayman LLC. v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections, 1 June 2012, paras. 2.83–2.96 (“[…] The Tribunal first considers the point in time when a change of nationality can become an abuse of process. Several different answers were suggested by the Parties as the crucial dividing-line: (i) where facts at the root of a later dispute have already taken place and that future dispute is foreseen or reasonably foreseeable; (ii) where facts have taken place giving rise to an actual dispute; and (iii) where facts have taken place giving rise to an actual dispute referable under the parties’ relevant arbitration agreement.”); Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The Government of Mongolia, Award on Jurisdiction and Liability, 28 April 2011, para. 498 (“In the present case, the Tribunal is of the view that the Negotiations cannot be seen as a continuing act. Those Negotiations were a discrete event in the course of the relations between GEM and Respondent which lasted for a few months during 2001. There is no evidence that GEM raised the issue again at any time between 2001 and 2006, although there was nothing preventing it from doing so and in spite of the fact that one of Claimants' subsidiary (Vostokneftegaz) did conclude a stability agreement with Respondent one year later, in 2002. In fact, GEM later opted for a different strategy in its attempts to avoid having to pay the WPT: the Safe Custody/Sale and Purchase of Precious Metal Agreement with MongolBank.”);ST-AD GmbH v. Republic of Bulgaria, PCA Case No. 2011-2106, Award on Jurisdiction, 18 July 2013, paras. 316–317 (“What happened next is that the owner of some shares of LIDI-R, now a German investor, tried to have, for the second time, Decision 1153 set aside (the first request for leave having been made when Mr. Balev owned all of the shares of LIDI-R). In fact, that is the only possible relevant event that happened after the critical date of May 25, 2006, when the Claimant became a protected investor under the BIT, i.e., the second set aside application and its rejection by the Supreme Cassation Court (Decision 1515). At the Hearing on Jurisdiction, counsel for the Respondent explained what he considered to be the rationale behind this second attempt to set aside the final and unappealable Decision 1153. He expressed his view as follows: We submit to you that the only reason for the second attempt is to be able to show that there was a court decision denying a review of 1153 after the time there was a German investment in Bulgaria. The Tribunal considers that a tactic based on the resubmission of an application that has been denied before a claimant becomes an investor after it has acquired such status is unacceptable. It creates an illusion of an event that happened when a protected investor was on the scene. But like all illusions, it is a misleading illusion.”), 421–423 (“In the Tribunal’s view, the timeline of the different events described above tends to indicate that the Claimant sought to manufacture jurisdiction by introducing a German investor in LIDI-R once all of its domestic legal options had failed. Indeed, the above-mentioned coincidences strongly support the Tribunal’s understanding of the events, according to which the essential purpose of the Claimant’s investment was for it to gain access to international jurisdiction to which the initial investor was not entitled.”); Mera Investment Fund Limited v. Republic of Serbia, ICSID Case No. ARB/17/2, Decision on Jurisdiction, 30 November 2018, para. 110 (“The Arbitral Tribunal considers that the continuity of entities is even more prevalent in the current case where the Claimant remained the same entity that made the investment but with a later change in domicile. Where changes in corporate structure should not alter the rights in an investment, so should it also be the case where there is no successor in law and business, but in fact the same entity involved. Cypriot law allows the transfer of a company seat from abroad to Cyprus without the need to liquidate the former company and transfer their assets and liability to a newly incorporated Cyprus company. Thus, factually-speaking the ownership of the investment never changed. The Claimant, although having moved from the Netherlands Antilles to Cyprus, remained the same legal entity that made the investment in Mera Invest. Thus, the Arbitral Tribunal concludes that the third condition of Article 1(3)(b) of the BIT is satisfied in the present case.”); Alapli Elektrik B.V. v. Republic of Turkey, ICSID Case No. ARB/08/13, Award, 16 July 2012, para. 393 (“In order to determine whether or not there was an abuse in the present case, all circumstances have to be analysed. This analysis will show first, that, at the time it was performed, the introduction of the Dutch company had as its main purpose the access to international arbitration which did not exist for the Turkish nationals and the Turkish company before such introduction and second that such operation was precisely performed at a moment when the facts at the root of the dispute presented to the Tribunal were already known.”).