The Nationality of Corporate Investors under International Investment Law

Anil Yilmaz Vastardis

• Publisher: Hart Publishing
• Year: 2020
• ISBN:
  9781509933617
• Edition: 1
• Topic: Law
• Subtopic: Arbitration, Negotiation & Mediation in Law
• Index: Law

This monograph offers a detailed and distinctive analysis of corporate nationality under international investment law, covering the ICSID Convention and the investment treaty framework. It takes the reader back to the basics, threading through the concepts of jurisdiction, nationality, and corporate personality to give a clear context to the discussion of corporate nationality under international investment law, at a time when international investment is dominated by multinational business enterprises operating in a globalised economy. The book examines different understandings of corporate personality and nationality under a selection of jurisdictions and public international law. It also offers an in-depth analysis of approaches found in ICSID arbitral awards and in investment treaty practice, distilling the problematic areas and discussing the impacts of the areas of concern. It evaluates the techniques developed to address problems and puts forward suggestions for effective and balanced solutions to the questions of corporate nationality and personal scope of investment protection.

Part I

Fundamental Elements of Corporate Nationality in IIL: Conditions of Access to Protection, Nationality and Corporate Personality

1

Access to International Investment Protection: ICSID, Investment Treaties and Institutional Arbitration Rules

‘Nationality’ of an investor is one of the key determinants for access to the procedural and substantive protections offered to foreign investors under international investment law (IIL). The uncertainty over the international and domestic legal standards applicable to the determination of corporate nationality has given rise to frequent disagreements between the disputing parties and inconsistent arbitral decisions at jurisdictional and admissibility phases.¹ The link or links adopted by states or arbitral tribunals for deciding corporate investors’ nationality can limit or expand the number of investors having access to IIL protections in significant proportions. Determining corporate nationality by reference to more tenuous links, such as place of incorporation, can artificially expand the number of beneficiary corporate investors covered by IIL protections, while the use of stronger links, such as shareholding or control, can have a limiting effect on the number of beneficiaries.

In a foreign investment dispute where nationality of the investor is contested, the host state party to the dispute will typically argue in favour of taking a restrictive approach while the investor will argue in favour of an expansive approach. Investors or tribunals that adopt an expansive approach often justify this, inter alia, with references to the aims of the relevant investment treaty to facilitate and increase foreign investment into the host state.² From that perspective, since the ultimate goal of the treaty is to increase flows of investment into the host state, it should be of no importance for the protection of the corporate investor that it has tenuous links with its alleged home state. Host states or tribunals that adopt a restrictive approach usually justify this approach on the grounds of reciprocity.³ From their perspective, the personal scope requirements of IIL instruments have a particularly important function in defining and preserving the boundaries of reciprocity of IIL protection, since benefits of an investment treaty are reserved for investors of the treaty partner.⁴ Nationality requirements also have an important function in defining and preserving the jurisdictional limits of arbitral tribunals constituted under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).⁵

The aim of this chapter is to set the scene for the discussion of corporate nationality as a determinant of personal scope of protection under IIL in the following parts of this book. It will introduce the reader to the rules governing access to the procedural and substantive IIL protections. It is within this framework of ‘access to IIL protection’ that ‘nationality’ of a corporation becomes a matter of contestation. The chapter outlines the key principles governing the questions of access to procedural and substantive protections under IIL. This covers both the rules on the jurisdiction of investment arbitration tribunals and the conditions for access to investment treaty protections. The aim of the chapter is to demonstrate the linkages between ‘nationality’ as the limit of personal scope of protection and other access requirements such as consent, material scope of protection and temporal scope of protection. It demonstrates that the increasing use of investment treaties as sources of consent to ICSID arbitration and the categorisation of direct and indirect shareholding as an ‘investment’ in its own right have transformed the concept of ‘nationality’ as it applies to corporate investors.

The chapter begins by situating international investment arbitration as a unique enforcement mechanism with generous access provisions and a strong compliance framework offered to foreign investors to enforce substantive IIL standards vis-à-vis host states. This is followed by an overview of the key jurisdictional requirements for access to the dispute settlement mechanism established by the ICSID Convention in its Article 25. These include consent to arbitrate, and a legal dispute between a national of another Contracting State and the host Contracting State arising out of the former’s investment in the latter’s territory. Although the requirements in Article 25 are objective and cannot be waived or amended by the parties, the text of the article was formulated in broad terms leaving a wide margin of discretion to the parties and arbitral tribunals to interpret these terms. These broadly formulated requirements have been unpacked in arbitral jurisprudence, investment treaty texts, academic texts, and in investment contracts. As I begin to demonstrate in this chapter, amid the broad formulation of ICSID’s jurisdictional requirements, the meaning of ‘nationality’ for corporate investors is entwined with how ‘consent’ and ‘investment’ are defined.

This chapter then moves to outline the standards on access to investment arbitration procedures under arbitral rules outside of the ICSID framework, such as the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules. Despite the popularity of ICSID arbitration, a sizeable portion of arbitrations take place under other arbitral frameworks. Unfortunately, it is not possible to know how many, as not all non-ICSID cases are publicly known. The most crucial aspect of non-ICSID arbitrations for the purposes of this book is that, unlike the ICSID Convention, these do not require the investor to possess a particular ‘nationality’ as a condition of jurisdiction. In such arbitrations, nationality may only be of relevance as a matter of consent to arbitration, where the dispute concerns an investment treaty claim and the applicable treaty adopts nationality as a personal access requirement. The final part of this chapter covers the access requirements found in investment treaties. As there are several thousand treaties on investment protection, the chapter will not be able to provide a full picture, but it will focus on the most commonly used standards. The aim of this section is to provide an overview of investment treaty access requirements which have a bearing on the analysis of corporate nationality under IIL.

I.ACCESS TO INTERNATIONAL INVESTMENT ARBITRATION

The procedural aspect of the IIL framework is a crucial and distinguishing feature of the protection afforded to investors under this regime. Investors having direct standing vis-à-vis host states to enforce substantive IIL standards via international arbitration has been cited among the main reasons for rapid expansion and success of this area of law.⁶ The use of international arbitration in settling investment disputes is at least as crucial for investor protection as the substantive aspects of the protection regime. Direct international recourse empowers investors to rigorously enforce substantive IIL standards largely without interventions by domestic judiciaries. Having a strong and effective enforcement mechanism greatly enhances the practical benefits of the substantive investor rights guaranteed under international law.⁷

Compared to the other areas of international law extending direct or indirect substantive rights to private parties, such as under international or regional human rights frameworks, or under the principles of diplomatic protection, IIL’s strong enforcement mechanism enables investors to receive more effective legal protection.⁸ International investment arbitration (IIA) provides protected investors more favourable terms of access to dispute settlement and a stronger legal framework of compliance compared to the other areas of international law providing international recourse to a court or a tribunal to enforce private parties’ rights or interests. First, unlike IHRL mechanisms or diplomatic protection, access to IIA is not typically conditioned to the exhaustion of local remedies.⁹ Second, IIA awards benefit from two widely adopted international treaties dealing with enforcement of arbitral awards via national courts, the New York Convention¹⁰ and the ICSID Convention. The enforcement features of IIA distinguish it from other international dispute settlement mechanisms which rely heavily on political will and pressure.¹¹ These features make IIA a uniquely effective dispute settlement mechanism for its beneficiaries unparalleled by any other system of international dispute settlement protecting private parties from state violations.

In this section, I will provide an overview of the requirements for access to this unique international dispute settlement framework, focusing on both arbitration under the ICSID Convention and under a selection of non-ICSID institutional rules. This will include a discussion of how each jurisdictional requirement has received differing interpretations from arbitral tribunals and how the jurisdictional rules interact with the investment treaty standards on personal and material scope. I will highlight the extent to which the various interpretations of jurisdictional standards impact accessibility of IIA, bearing in mind the overarching considerations of reciprocity of protection and the goal of investment promotion. In this chapter and in the later chapters of this book, I will navigate through the questions of (1) to what extent should investment arbitration be viewed as a recourse available to only its intended beneficiaries interpreted in the strict sense?; and (2) to what extent it should be viewed as a recourse intended to benefit as many investors as possible so long as they can be brought within the coverage of an applicable treaty based on a generously expansive interpretation of the access requirements? As I navigate between these two questions in this book, my arguments fall within the first approach. I argue that a strict approach to determining the personal scope of IIL protections is a necessity for maintaining reciprocity of IIL protections, particularly owing to the extent of concessions given by states in signing up to investment arbitration compared to the concessions given in any other area of international...