In our previous blog, we discussed in which circumstances a foreign investor can sue a foreign state, if the latter expropriates the investor’s investment. Before you can consider whether you are going to use this weapon, it is necessary to explore if you qualify as a foreign investor under the treaty, and similarly, if your investment is recognised as a protected foreign investment under the treaty. We will briefly discuss these two questions in turn.
We shall start by exploring the definition of the applicable investment treaty, which is usually understood as the bilateral investment treaty (BIT) or multinational treaty, such as the Energy Charter Treaty (ECT), rectified both by the country where you come from and the country of your investment.
Take UK-Russia BIT (1989) as an example, for the purpose of this treaty, Article 1 (a) says,
(a)the term “investment” means every kind of asset and in particular, though not exclusively, includes:
(i) movable and immovable property and any other related property rights such as mortgages;
(ii) shares in, and stock, bonds and debentures of, and any other form of participation in, a company or business enterprise;
(iii) claims to money, and claims to performance under contract having a financial value; .
(iv) intellectual property rights, technical processes, know-how and any other benefit or advantage attached to a business;
(v) rights, conferred by law or under contract, to undertake any commercial activity, including the search for, or the cultivation, extraction or exploitation of natural resources.
This is a comprehensive list which includes all normal forms of investment, such as property, shares, bonds, IP rights, exploitation licenses, and so on. However, in some circumstances, international arbitral tribunals may also employ other criteria on top of the plain text of the BIT to define what is “investment”. The most famous test is the Salini test established by the tribunal in Salini Costruttori S.p.A. and Italstrade S.p.A. v Morocco, which lists four criteria to be considered as an “investment”:
- contributions in assets or money,
- a certain duration of performance of the contract,
- an element of risk, and
- a contribution to the economic development of the host state.
Although this test is originally used to define the term “investment” under Article 25(1) of the ICSID Convention, which is an international treaty that provides for conciliation and arbitration of investment treaty disputes, it has also been ratified by 158 Contracting States (including the US, UK, China and Ukraine, but not Russia or India). In addition, some non-IDSID arbitral tribunals have applied the Salini test in whole or with modifications.
If you believe your investment in the foreign country is a qualified investment under the treaties, the next step is to determine if you are a competent investor under the applicable treaty. Still using the UK-Russia BIT (1989) as an example, Article 1 (d) says:
(d)the term “investor” shall comprise with regard to either Contracting Party:
(i) natural persons having the citizenship or nationality of that Contracting Party in accordance with its laws;
(ii) any corporations, companies, firms, enterprises, organisations and associations incorporated or constituted under the law in force in the territory of that Contracting Party;
provided that that natural person, corporation, company, firm, enterprise, organisation or association is competent, in accordance with the laws of that Contracting Party, to make Investments in the territory of the other Contracting Party;
In plain language, if you are a UK national or citizen with full competency, or your company is lawfully incorporated and competent in the UK, then you or your company are probably regarded as UK investors under the treaty. Again, in practice, the determination of nationality of investors is far more complicated than the simple text of the treaties. For example, in cases where an individual person holds dual nationality of both states that are party to the BIT, a tribunal may apply international customary law using the rule of dominant and effective nationality to determine whether the investor maintains a stronger connection with its home state than that of the host state where the investment flows to (for example, see Serafín García Armas and Karina García Gruber v Venezuela).
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The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson LLP accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson LLP. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson LLP.