Spentech v UAE: Embassy Works Not Protected Under Investment Treaty

No qualified investment made as the embassy is not a territory of the sending State, says investor-State tribunal

Can works carried out in a State’s embassy abroad qualify as an investment made “in the territory” of that State under a bilateral investment treaty?

In Spentech Engineering Limited v United Arab Emirates (ICSID Case No. ARB/24/16), a tribunal answered that question with a resounding “no”. In a decision rendered on 28 July 2025, the tribunal held that infrastructure works performed at the UAE Embassy in Mogadishu did not satisfy the territorial requirement under the Kenya-UAE BIT because an embassy remains part of the territory of the receiving State, not the sending State.

The award is noteworthy because it provides one of the clearest discussions to date of territorial nexus in investment treaty arbitration and rejects several innovative arguments seeking to establish jurisdiction despite the investment being physically located outside the host State.

Background

The claimant, Spentech Engineering Limited – a Kenyan company, entered into a contract with UAE undertaking to carry out infrastructure works at the UAE’s embassy in Mogadishu, Somalia. Relations between the parties subsequently deteriorated. According to the claimant, the UAE detained its CEO within the embassy compound for four months before terminating the contract.

The claimant filed an investor-State claim against the UAE seeking damages. In its Request for Arbitration, the claimant alleged that the Respondent breached several protections accorded by the UAE to Kenyan investors under the Kenya-UAE 2014 BIT. Such protections being the standards of fair and equitable treatment and full protection and security, the guarantee of free transfer of funds and the guarantee against illegal expropriation.

Rather than addressing the merits, the UAE applied under Article 41(5) of the ICSID Convention for summary dismissal of the claim as “manifestly without legal merit”. The application focused primarily on jurisdiction, arguing that no qualifying investment had been made in the territory of the UAE.

The claimant’s position evolved significantly after the Article 41 Application was filed. Whereas the Request for Arbitration characterised the investment principally as the construction project carried out at the embassy, the subsequent Response emphasised intangible contractual rights, intellectual property rights and other rights allegedly located in the UAE through governing law and jurisdiction clauses.

The tribunal accepted the UAE’s submission that this amounted to a material reformulation of the claimant’s case. It therefore analysed the case as pleaded in the Request for Arbitration, whilst nevertheless exercising its discretion to consider the claimant’s revised arguments.

Which case to consider – one in the Request for Arbitration or Response?

From the outset, the tribunal (Malintoppi, Greenwood, Ojo) needed to decide which case to consider – the one put in the Request for Arbitration or the one in the Response. The tribunal adopted the middle course. It sided with the respondent that the claimant impermissibly changed its case after the respondent filed its Article 41 Application and decided to assess the claimant’s case as pleaded in the Request for Arbitration. However, the Tribunal agreed to consider the case pleaded in Response as well, as a matter of discretion.

The tribunal then considered the standard of Article 41 review, and whether the word “manifest” warranted the heightened level of scrutiny (as the claimant alleged) or, rather, whether it denoted the obviousness of the argument (as advanced by the respondent). The tribunal sided with the respondent, citing at para 58 the award in AHG Industry GmbH & Co. KG v Republic of Iraq (ICSID Case No. ARB/20/21, Award on the Respondent’s Application under ICSID Rule 41(5), 30 September 2022) to the extent that “the elaborate or intricate nature of the Parties’ arguments is no reason, as such, to dismiss the Application out of hand. The Respondent will prevail if it appears that the Claimant has no tenable arguable case and that the absence of legal merit in each of the Claimant’s claims to jurisdiction is clear and obvious”.

The embassy is not part of the territory of the sending State

On the merits of the Article 41 Application, the tribunal disagreed with the claimant that the“territoriality requirement in international investment treaties usually refer [sic] to the host state’s territorial prescriptive and enforcement jurisdiction and not its geographic territory” (para 225). The Tribunal held that the plain and ordinary meaning of the terms of the BIT referred to geographic areas: the territory of the UAE as covering the land territory, territorial sea and continental shelf of the UAE over which, under international law, the UAE has sovereignty, and the areas where the UAE exercises sovereign rights, including the Exclusive Economic Zone and the mainland and islands under its jurisdiction.

The question before the tribunal, therefore, was whether the claimant had made its investment in the territory of the UAE, on any of the grounds asserted by the claimant. The tribunal concluded that it had not.

First, the tribunal confirmed at para 227 that “it is a well-established principle of international law that the premises of a diplomatic mission, such as an embassy, are not part of the territory of the sending State, but constitute territory of the receiving State”. Therefore, the tribunal concluded, the embassy of the UAE in Mogadishu is part of the territory of Somalia, not the UAE.

Limited privileges and entitlements do not equate to territorial sovereignty

Second, the tribunal dismissed the claimant’s second line of attack argument that the term ‘territory’ in the BIT encompassed “areas over which [the UAE] exercise limited privileges and entitlements by international law and its laws” (para 228). That, on the claimant’s case, allegedly provided a necessary territorial nexus to the movable assets located within the embassy and, as such, met the territoriality requirements of the BIT. In this vein, the Tribunal referred to the Vienna Convention on Diplomatic Relations and the declaration of Judge Gaja in the ICJ Judgment in the case Immunities and Criminal Proceedings (Equatorial Guinea v France), 2020, para 8: “[T]he conception that these premises are “extraterritorial” has long been abandoned and has not been endorsed by the Convention. The premises of the mission are inviolable, but they do not impinge on the territorial sovereignty of the receiving State”. The Tribunal also noted that the text of the BIT did not deviate from this principle.

Further, at para 232, the tribunal observed with reference to the case Abaclat and others (formerly Giovanna A. Beccara and others) v Argentine Republic (ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011, para 374) that “even though UAE law applied to the Claimant’s rights under the relevant contracts and UAE courts had jurisdiction under those contracts, this does not change the fact that the very purpose of these contracts was the construction of various buildings in Somalia, not the UAE, and this was the investment on which the Claimant relies. Choice of law and forum selection clauses have nothing to do with the territory where an investment is located; they may apply to dispute resolution processes or to a party’s performance under a contract but cannot be used to determine, or a fortiori to displace, the place where an investment is situated”.

Moveable assets in the embassy and intangible rights in the UAE – untenable contradiction

As to the claimant’s pleaded case of the intangible contractual rights allegedly attracting the territorial jurisdiction, the tribunal found this unpersuasive as well. On the one hand, the claimant argued that the principle of unity of investment did not apply to these intangible contractual rights because they are separate and not connected to the movable assets within the precinct of the embassy in Mogadishu, hence they attracted the territorial jurisdiction of the UAE proper. On the other hand, however, and based on the same principle of unity of investment, it asserted a close connection between the moveable (in the embassy) and intangible (in the UAE proper) assets to give weight to its investment.

The tribunal considered these submissions to be internally inconsistent. The claimant sought to separate the contractual rights from the embassy works when arguing territorial nexus, yet relied on the unity of the investment when arguing that those rights should be assessed together with the physical works. The tribunal rejected this reasoning.

The ‘benefits theory’ not applicable on the facts of the case

The tribunal also rejected the claimant’s argument based on the alleged “benefits” of investment for the host State. The tribunal distinguished this case from the cases of Abaclat, Ambiente Ufficio v Argentina (ICSID Case No. ARB/08/9 Decision on Jurisdiction, 8 February 2013), Giovanni Alemanni and others v Argentine Republic (ICSID Case No. ARB/07/8, Decision on Jurisdiction, 17 November 2014) and FEDAX N.V. v Republic of Venezuela (ICSID Case No. ARB/96/3, Decision on Objections to Jurisdiction, 11 July 1997), which were arbitrations which concerned financing (via bonds and promissory notes) directly provided to the host State for use in its economy or funds that contributed to the host State’s economic development, and could thus be easily distinguished from this case.

The decision confirms that the “benefits” analysis developed in sovereign debt cases cannot readily be extended to ordinary construction contracts performed outside the host State.

As a result, the tribunal found that the claimant’s claims lacked “manifest legal merit” and dismissed them.

Comment

The award is a significant addition to the limited jurisprudence on the territorial nexus requirement in investment treaty arbitration. Its principal contribution lies in reaffirming a basic principle of international law – that diplomatic premises remain part of the territory of the receiving State – and applying this principle rigorously to investment treaty jurisdiction.

The decision is also noteworthy procedurally – it demonstrates that Article 41(5) can be an effective mechanism for disposing of jurisdictionally defective claims at an early stage, even where the claimant advances sophisticated legal arguments. Complexity of argument is not the same as legal merit.

Finally, the award illustrates the limits of attempts to relocate an investment through contractual drafting. Governing law clauses, jurisdiction clauses and the existence of contractual rights cannot alter the physical location of an investment where territorial nexus is an express jurisdictional requirement under the applicable BIT.

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