The nationality of an investment is a condition or a set of conditions in some international investment treaties (“IIT”) applied to the determination of the investment’s origin. In particular, such conditions may stipulate that the treaty applies to investments made “in the territory of” the host State (the territorial nexus requirement) or require that the funds used to make the investment originate from a particular source or jurisdiction (the origin of capital requirement).
The conditions stipulated in a particular treaty as applied to the nationality of an investment circumscribe the investment’s ability to qualify for treaty protection and implicate a tribunal’s jurisdiction ratione materiae. By contrast, the nationality of an investor determines whether the investor qualifies for treaty protection and implicates a tribunal’s jurisdiction ratione personae.1
The territorial nexus requirement may be incorporated in the IIT’s provisions defining “investment”,2 provisions dealing with available protections,3 or provisions concerning remedies.4 The origin of capital requirement is rarely explicitly mentioned in modern IITs5 or national investment legislation.6
Switzerland-Philippines BIT (1997), Art. II; Belgium-Luxembourg Economic Union Model BIT (2019), Art. 4.2; Germany-Ukraine BIT (1993), Art. 2, Art. 3, Art. 4; ICS Inspection and Control Services Limited (United Kingdom) v. Argentine Republic I, PCA Case No. 2010-9, Award on Jurisdiction, 10 February 2012, para. 305.
There are some historical examples of treaties and national investment legislations incorporating an “origin of capital” requirement. See, e.g.
ASEAN Agreement among the Government of Brunei Darussalam, the Republic of Indonesia, Malaysia, the Republic of the Philippines, the Republic of Singapore and the Kingdom of Thailand for the Promotion and Protection of Investments (1987), Art. II(1); 2009 version of the ASEAN Agreement; Indonesia’s Foreign Capital Investment Law (Act No.1/1967); Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Award, 20 November 1984, paras. 220-242.
Certain types of investments (e.g., in tangible property) demonstrate a more clear-cut territorial nexus with the host State. Others (e.g., in financial instruments and contractual rights) need not always be physically located in or involve a flow of capital into the host State. In the latter case, tribunals have had to determine whether the investment in question satisfies the territorial nexus condition.7 The answer depends on the type of investment at issue, the applicable IIT’s text and the tribunal’s interpretation of the purpose of investment protection.8 See further Territoriality of investment.
CSOB v. Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction, 24 May 1999, para. 76; SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004, para. 33; Abaclat and others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011, para. 341; Ambiente Ufficio S.p.A. v. Argentine Republic, ICSID Case No. ARB/08/9, Decision on Jurisdiction and Admissibility, 8 February 2013, para. 374.
Schreuer, C. et. al., The ICSID Convention: A Commentary, 2nd edn., 2009, paras 197-198.
Bayview Irrigation District and others v. United Mexican States, ICSID Case No. ARB(AF)/05/1, Final Award, 19 June 2007, paras. 103, 104; Cases Regarding the Border Closure due to BSE Concerns v. United States of America, Award on Jurisdiction, 28 January 2008, paras. 127, 233; Margaret C. Ryan, “Is there a “Nationality” of Investment? Origin of Funds and Territorial Link to the Host State”, in Y. Banifatemi (ed), Jurisdiction in Investment Treaty Arbitration, IAI Series on International Arbitration No.8 (2018), pp. 113; Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentine Republic, ICSID Case No. ARB/09/1, Dissenting Opinion of Kamal Hossain, 21 July 2017, para. 17; Ioan Micula and others v. Romania I, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility, 24 September 2008, para. 127; Franz Sedelmayer v. Russia, Arbitration Award, 7 July 1998, para. 391; Giovanni Alemanni and others v. Argentine Republic, ICSID Case No. ARB/07/8, Decision on Jurisdiction and Admissibility, 17 November 2014, para. 297.
In relation to investments in financial instruments, tribunals have adopted a broad interpretation of the territorial nexus requirement, eliminating the need for an actual transfer of investment funds into the host State’s territory; they have considered the requirement satisfied as long as the funds ultimately benefit the host State, for example, by creating value or aiding in financing its economy.9 Some learned arbitrators have expressed a different position.10
Fedax N.V v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction, 11 July 1997, para. 41; Abaclat & others. v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011, paras. 358, 374; Ambiente Ufficio S.p.A. v. Argentine Republic, ICSID Case No. ARB/08/9, Decision on Jurisdiction and Admissibility, 8 February 2013, paras. 499-501, 504; Deutsche Bank AG v. Sri Lanka, ICSID Case No. ARB/09/2, Award, 31 October 2012, paras. 291-292; Ryan, M.C., Is there a “Nationality” of Investment? Origin of Funds and Territorial Link to the Host State, in Banifatemi, Y. (ed.), Jurisdiction in Investment Treaty Arbitration, IAI Series on International Arbitration No.8, 2018, pp. 116 ff; British Caribbean Bank Ltd. v. Government of Belize, PCA Case No. 2010-18/BCB-BZ, Award, 19 December 2014, paras. 206-207; Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award, 22 September 2014, paras. 261-262.
Abaclat & others. v. Argentine Republic, ICSID Case No. ARB/07/5, Dissenting Opinion of Prof. Georges Abi-Saab, 28 October 2011, paras. 57-58; Ambiente Ufficio S.p.A. v. Argentine Republic, ICSID Case No. ARB/08/9, Dissenting Opinion of Santiago Torres Bernárdez, 8 February 2013, paras. 300-301; Deutsche Bank AG v. Sri Lanka, ICSID Case No. ARB/09/2, Dissenting Opinion of Makhdoom Ali Khan, 23 October 2012, para. 17.
Initially, tribunals examining investments in contract rights differed from tribunals assessing financial instruments, holding that investments made outside the territory of the host State, however beneficial, would not satisfy the territorial nexus requirement.11 Subsequent cases have diverged, holding that the location of the beneficial activity matters for ascertaining the existence of territorial nexus, not the flow of funds.12
Inmaris Perestroika Sailing Maritime Services GmbH and others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, 8 March 2010, paras 122-125; Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, 8 November 2010, para. 279; SGS Société Générale de Surveillance S.A. v. Republic of Paraguay, ICSID Case No. ARB/07/29, Decision on Jurisdiction, 12 February 2010, para. 114.
The issue of the origin of capital has arisen due to host States objecting to the tribunals’ jurisdiction ratione materiae or ratione personae on grounds that
The travaux préparatoires reveal that the authors of the ICSID Convention considered the proposal to incorporate an “origin of capital” requirement in the Convention but abandoned it.17 With rare exceptions,18 tribunals have largely confirmed that neither the ICSID Convention,19 nor the ECT contain an origin of capital requirement.20
Furthermore, tribunals interpreting BITs have held that the language of the BIT is decisive.21 Thus, absent an express origin of funds stipulation in a BIT, investments made using capital sourced in the host State22 or funds that are not the investor’s own capital,23 are also protected under the applicable BIT.
Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36, Award, 4 May 2017, para. 193; Caratube International Oil Company LLP. v. Republic of Kazakhstan, ICSID Case No. ARB/08/12, Award, 5 June 2012, para 355, fn. 25; Saipem S.p.A. v. People's Republic of Bangladesh, ICSID Case No. ARB/05/7, Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007, paras. 103, 106; CME Czech Republic B.V. v. Czech Republic, UNCITRAL, Partial Award, 13 September 2001, para. 418; CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Dissenting opinion, 13 September 2001, para. 25; Yaung Chi Oo Trading PTE Ltd. v. Government of the Union of Myanmar, ASEAN I.D. Case No. ARB/01/1, Award, 31 March 2003, para. 45; ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, paras. 360-361; Sistem Mühendislik Inşaat Sanayi ve Ticaret A.Ş. v. Kyrgyz Republic, ICSID Case No. ARB(AF)/06/1, Award, 9 September 2009, para. 35.
ICW Europe Investments Limited v. Government of the Czech Republic, PCA Case No. 2014-22, Award, 15 May 2019, paras 210-211; Bernard von Pezold & Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, para. 243; Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, paras 81-82; Saipem S.p.A. v. People's Republic of Bangladesh, ICSID Case No. ARB/05/7, Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007, paras. 106; Yukos Capital SARL v. The Russian Federation, PCA Case No. 2013-31, Interim Award on Jurisdiction, 18 January 2017, para. 457.
Tradex Hellas S.A. v. Republic of Albania, ICSID Case No. ARB/94/2, Award, 29 April 1999, para. 111; Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013, para. 383; Mera Investment Fund Limited v. Republic of Serbia, ICSID Case No. ARB/17/2, Decision on Jurisdiction, 30 November 2018, para. 127; Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award, 8 December 2000, para. 126; Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Annulment Proceeding, 5 February 2002, para. 54; Société Civile Immobilière de Gaëta v. Republic of Guinea, ICSID Case No. ARB/12/36, Award, 21 December 2015, paras. 220-221, 231; Flughafen Zürich A.G. and Gestión e Ingenería IDC S.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/19, Award, 18 November 2014, paras. 250-254; RENERGY S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/14/18, Award, 6 May 2022, para. 581.
Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Award, 20 November 1984, para. 222; Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Dissenting Opinion of Prosper Weil, 29 April 2004, paras. 14, 20; Capital Financial Holdings Luxembourg S.A. v. Republic of Cameroon, ICSID Case No. ARB/15/18, Award and Dissenting Opinion of Alexis Mourre, 22 June 2017, para. 45.
Baltag, C., The Energy Charter Treaty: The Notion of Investor, International Arbitration Law Library, Vol. 25, Kluwer 2012, pp. 165, 199-202.
Hulley Enterprises Limited (Cyprus) v. Russia, PCA Case No. 2005-03/AA226, Interim Award on Jurisdiction and Admissibility, 30 November 2009, para. 431; Yukos Universal Limited (Isle of Man) v. Russia, PCA Case No. 2005-04/AA227, Interim Award on Jurisdiction and Admissibility, 30 November 2009, para. 432; Veteran Petroleum Limited (Cyprus) v. Russia, PCA Case No. 2005-05/AA228, Interim Award on Jurisdiction and Admissibility, 30 November 2009, para. 488; I.C.W. Europe Investments Limited v. The Czech Republic, PCA Case No. 2014-22, Award, 15 May 2019, para. 207; WA Investments-Europa Nova Limited v. The Czech Republic, PCA Case No. 2014-19, Award, 15 May 2019, para. 264.
Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36, Award, 4 May 2017, para. 193; Caratube International Oil Company LLP. v. Republic of Kazakhstan, ICSID Case No. ARB/08/12, Award, 5 June 2012, para 355, fn. 25; Saipem S.p.A. v. People's Republic of Bangladesh, ICSID Case No. ARB/05/7, Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007, paras. 103, 106; Venezuela Holdings B.V. and others (formerly Mobil Corporation and others) v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, para. 198; Seo Jin Hae v. Republic of Korea, HKIAC Case No. HKIAC/18117, Award, 27 September 2019, para. 102; Yukos Capital SARL v. The Russian Federation, PCA Case No. 2013-31, Interim Award on Jurisdiction, 18 January 2017, para. 461, 464-465.
ICW Europe Investments Limited v. Government of the Czech Republic, PCA Case No. 2014-22, Award, 15 May 2019, paras 210-211; Bernard von Pezold & Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, para. 243; Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, paras 81-82; Waguih Elie George Siag & Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007, para. 210; The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Decision on Respondent's Preliminary Objections on Jurisdiction and Admissibility, 18 April 2008, paras. 75, 82; HICEE B.V. v. Slovak Republic, PCA Case No. 2009-11, Dissenting Opinion of Judge Charles Brower, 23 May 2011, para. 19; Vladislav Kim and others v. Republic of Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, 8 March 2017, para. 335; Georg Gavrilovic and Gavrilovic d.o.o. v. Republic of Croatia, ICSID Case No. ARB/12/39, Award, 26 July 2018, para. 209; B3 Croatian Courier Coöperatief U.A. v. Republic of Croatia, ICSID Case No. ARB/15/5, Award (Excerpts), 5 April 2019, para. 600; 1. Juvel Ltd. 2. Bithell Holdings Ltd. v. The Republic of Poland, ICC Case No. 19459/MHM, Partial Final Award, 26 February 2019, para. 426.
Schreuer, C. et. al., The ICSID Convention: A Commentary, 2nd ed., 2009, pp. 136-140.
Joseph Charles Lemire v. Ukraine II, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010, para. 56; Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015, para. 288; Mera Investment Fund Limited v. Republic of Serbia, ICSID Case No. ARB/17/2, Decision on Jurisdiction, 30 November 2018, para. 170; Capital Financial Holdings Luxembourg S.A. v. Republic of Cameroon, ICSID Case No. ARB/15/18, Decision on Annulment, 25 October 2019, para. 220.
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