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M. Ahmed Bakry

Juge - Département de l'arbitrage et des litiges internationaux du Ministère de la Justice d'Egypte

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Nationality of Investor

I. Definition

A. Nationality under international law

1.

Nationality of natural persons (also known as physical persons) is determined pursuant to the law of the State whose nationality that person has acquired.1 In order to provide the nexus for that individual by another State to seek redress through diplomatic protection under international law, a State may not afford diplomatic protection for one of its nationals against a State whose nationality such person also possesses/holds.2

2.

According to the International Court of Justice (ICJ), “nationality is a legal bond having as its basis a social fact of attachment, a genuine connection of existence, interests and sentiments, together with the existence of reciprocal rights and duties”.3

3.

Nationality of juridical persons (also known as legal persons or corporations) is primarily determined according to the State whose laws the corporation was incorporated. However, when a juridical person is controlled by nationals of another State or States without any substantial business activities in the State of incorporation, the seat of management and financial control determine nationality.4

B. Nationality under investment law

4.

International law leaves it to States to set the rules regulating nationality.5

5.

The nationality of an investor is the principal requirement for the choice of a treaty, and the most frequently used criteria to identify qualifying investors. It should not be confused with the European citizenship.6 In BITs, investors are those (natural and juridical) persons who are protected and able to bring claims against the host State. Thus, the issue is determined according to the respective treaty.

6.

The investment treaty regime can be characterized as a remarkable departure from the traditional mechanisms provided under international law, which essentially depended on diplomatic protection.7 Accordingly, BITs may be considered lex specialis constituting an autonomous regime.8

II. Related Wiki Notes

7.

This Note will focus on the definition of nationality with an overview on related issues (Dual nationality, Genuine and effective link, Dominant and effective nationality). Other Notes may be relevant:

III. Treaty practice

8.

In relation to natural persons, investment treaties regularly provide provisions defining a qualified investor, varying between roughly restrictive9 to expansively10 drafted provisions. Some States expressly incorporate the doctrine of dominant and effective nationality in determining the standing of dual nationals in the scope of application.11

9.

For juridical persons, the practice of defining a national of a Contracting State varies between a low12 and high threshold.13 Investment treaty practice suggests no particular consideration with utilizing foreign holding companies to shield the ultimate controlling interests of the investors to bring claims against the host State, who might be nationals of the host State. 

IV. The difficulties of unifying the requirements of a qualifying investor

10.

When the nationality of an investor becomes a question of jurisdiction, the problem is not merely related to identifying an investor’s exclusive nationality, but involves questions of treaty interpretation in light of nationality laws14 (notably article 25 of the ICSID Convention for ICSID cases15) and is limited to both the principles developed within the framework of international law regarding the right to hold diverse nationalities16 and the power vested in the tribunal to examine such nationality.17

11.

Practitioners should keep in mind that the intricacy of determining the nationality of investors arises from the reality of a globalized economy. Most international business individuals hold two or more nationalities. Meanwhile, most international investments are structured through complex networks of companies and shareholdings incorporated in different jurisdictions,18 and controlled by nationals of several countries. Thus, an investor may alternate nationality depending on the respective treaty and selected forum. (See further Treaty Shopping and Structuring and restructuring of Investment)

V. Burden of proof

12.

The burden of proving the nationality of the investor lies on the claimant and will be shifted to the respondent if it objects it. (For case law, see further Burden of Proof)

13.

There is a presumption that the nationality is conferred by the State in accordance with international law. The threshold to prove otherwise is high.19

VI. Determining the investor's nationality

A. Nationality under the ICSID convention

14.

The ICSID Convention does not provide any legal definition or test of nationality for national or juridical persons, leaving these questions to be determined by applying the law of the respective contracting State, and parties’ intentions in the BIT, within the limits of international law.20 

15.

Tribunals consider that the test is objective, and nationality should be examined irrespective of parties’ arguments and even if it contradicts the national authorities’ consideration, especially in cases of fraud.21 (See further Jurisdiction Ratione Personae, Section IV and Competence-Competence) However, the final outcome on the nationality will not have an erga omnes effect and won’t be binding towards national authorities.22

16.

In order for a tribunal to have jurisdiction “ratione personae at ICSID, two levels of nationality requirements should be cumulatively satisfied:23 firstly, establishing the requirements for jurisdiction under Article 25(2) of the ICSID Convention, and secondly the investor condition under the relevant investment treaty.24 (See Double-barreled Test) Some arbitrators consider that according to this principle, tribunals should not refer to domestic law on nationality.25

B. Nationality in non-ICSID

17.

Arbitral tribunals rely on the applicable investment treaty in order to define the nationality of the investor. Depending on the tribunal’s interpretation, the nationality will be defined either by reference to national law,26 or only international law.27

VII. Methodologies of arbitral tribunals in determining the nationality of investors

A. Dual nationals

See further Dual Nationality.

1. Under the ICSID convention

18.

According to Article 25(2)(a) of the ICSID Convention, dual nationals are excluded from invoking the protection under the Convention against the host State of which they are also a national,28 unless the nationality of the host State appears to be artificial.29 (See further Genuine and Effective Link) This issue may arise as some States allow their citizens to hold dual nationalities (such as Belgium and Morocco).30

19.

Accordingly, respondent States invoke Article 25(2)(a) in order to prove that the investor holds their own nationality31 or does not hold the nationality of the contracting State.32

20.

Moreover, by virtue of this rule, the investors having lost one of their nationalities by acquiring another nationality, after having consented to arbitration, might be deprived from the benefit of investment treaties entered into by the State of which they are not national anymore.33 The investor could also renounce its nationality, but this renunciation should not be presumed.34

2. Under non-ICSID

21.

Non-ICSID fora were primarily designed for commercial arbitration claims. Unlike ICSID, they are silent on the standing of dual nationals. This issue is limited to ensuring that investment treaty requirements are satisfied.

22.

To this extent, tribunals have interpreted the investment agreement to accept claims from dual nationals35 or refuse them based on the fact that ICSID arbitration was among the fora listed in the dispute settlement clause.36

B. Domestic laws v. dominant and effective nationality

23.

Investors and respondent States frequently (and interchangeably) attempt to substitute or supplement the nationality test in a BIT with rules of diplomatic protection for jurisdictional standing "ratione personae". Competitively, claimants rely on the dominant and effective nationality to either prove that they have no ties with another State, or that they are not dual nationals.37

24.

Arbitral tribunals usually consider that BITs do not pertain to diplomatic protection, nor do they reflect the rules of general international law in matters of investment protection,38 unless the treaty refers to the application of dominant and effective nationality.39 Alternatively, where a treaty is silent in determining the nationality, this may lead to the application of the principle of dominant and effective nationality.40 In determining whether the investor has acquired the nationality of the host State, tribunals usually rely on domestic laws instead of customary international law,41 even when determining qualified investors as opposed to permanent residents.42

C. Juridical persons

1. General criteria

25.

There are different nationality requirements for natural persons vis-a-vis juridical persons.43 The nationality of juridical persons is based primarily on one or more of the following criteria: the place of incorporation, where the real business activities are established or the corporate seat,44 together with where the management and authority is centered, and control theory via determination of the nationality of whoever controls the corporation. The incorporation or seat test are the most commonly used when determining the nationality of juridical persons.45

26.

The complexity of determining the nationality of juridical persons arises from the unavailability of a definition of foreign control in the second clause of Article 25(2)(b) of the ICSID Convention, which does not specify the nature, direct, indirect, ultimate or the effectiveness of foreign control. See further Jurisdiction Ratione Personae, Section VI.

27.

Absent a particular limitation in the BITs, arbitral tribunals interpret BITs expansively in light of Article 25(2)(b) ICSID Convention in allowing a juridical person incorporated in the host State to be regarded as a national of another contracting State.46 Likewise, BITs have been recognized to permit shareholders in local companies to be qualified investors.47 (See further Direct Claims, Indirect Claims, Minority Shareholders and Control/Ownership)

28.

Tribunals have two separate views in locating control; one view focuses on the first layer of control,48 while the other view searches for the true and immediate controllers, directly49 or indirectly.50 (See further Control/Ownership)

2. General issues

29.

Arbitral tribunals recognize the entitlement of an investor to establish a new entity in a more favorable jurisdiction in having the benefits of a specific regulatory environment or the protection of an investment treaty,51 even according to a shareholder's agreement52 or a joint venture agreement.53 See further Treaty Shopping, Structuring and Restructuring and Nationality Planning. Arbitral tribunals have even gone further by considering disqualified investors as nationals of the host State to have a standing as qualifying shareholders,54 or that disqualified natural persons should have been recognized if they brought the claims through a corporate vehicle to avoid jurisdictional problems.55

30.

However, other tribunals have considered that a dual national cannot invoke one of their two nationalities to establish jurisdiction under the second clause of Article 25(2)(b) ICSID Convention by circumventing the bar in Article 25(2)(a) ICSID Convention when establishing a company and asserting foreign control by virtue of their second nationality.56

31.

Notwithstanding the above points, there are limitations in cases of assigning claims by an entity that has no standing to another contracting State in order to attract jurisdiction,57 with the timing being crucial in such assignments.58 In light of this, a flexible approach is adopted regarding the relevant date as the tribunal refuses to limit its interpretation to formalistic contentions.59 See further Corporate veil piercing, Relevant date and Structuring and Restructuring of Investments, Section VII.

VIII. Treaty shopping, nationality planning and mailbox companies

32.

In response to the spread of treaty shopping, nationality planning and mailbox companies, treaty provisions have been gradually designed and clarified to exclude, eliminate and prohibit the abusive use of investment treaties by preventing claims by investors who engage in such practices in the host State. An additional way to carve out such practices is through denial of benefits.47

Bibliography

Feldman, M., Setting Limits on Corporate Nationality Planning in Investment Treaty Arbitration, ICSID Review – Foreign Investment Law Journal, Vol. 27, Issue 2, Fall 2012.

Schokkaert, J., & Heckscher, Y., Protected Investors Nationality, The Journal of World Investment & Trade, Vol. 10, 2009.

Wisner, R., & Gallus, N., Nationality Requirements in Investor-State Arbitration, The Journal of World Investment & Trade, Vol. 5, 2004.

Burgstaller, M., Nationality of Corporate Investors and International Claims Against the Investor’s Own State, The Journal of World Investment & Trade, Vol. 7, 2006.

Sinclair, A. C., ICSID’s Nationality Requirements, ICSID Review – Foreign Investment Law Journal, Vol. 23, Issue 1, Spring 2008.

Haeri, H., Walker, D., “And you are…?” – Dual Nationals in Investment Treaty Arbitration, in Nassib Ziade (ed), BCDR International Arbitration Review, Kluwer Law International, Vol. 3, Issue 2, 2016.

Lee, C., Resolving Nationality Planning Issue Through the Application of the Doctrine of Piercing the Corporate Veil in International Investment Arbitration, Contemporary Asia Arbitration Journal, Vol. 9, No. 1, 2016.

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