Valasek & Dumberry - Legal Standing of Shareholders and Holding Corporations in Investor-State Disputes

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ICSID REVIEW

Foreign

Investment Law

Journal

Volume 26, Number 1, Spring 2011International Centre for Settlement of Investment Disputes



34

Developments in the Legal Standing o Shareholders and Holding Corporations in

Investor-State Disputes

Martin J. Valasek *Patrick Dumberry **

INTRODUCTION

IN RECENT yEARS, THERE HAS BEEN a remarkable increase in thenumber o international arbitration cases involving disputes between oreigninvestors and States. B now, the statistics are becoming amiliar to practitionersin this area o law. During the last ve ears, an average o 40 new investmenttreat arbitration cases have been led each ear.1 There are currentl some390 known investor-State arbitration cases pending.2 These are dramatic gures

1 UNCTAD, Latest Developments in Investor-State Dispute Settlement , IIA Monitor no. 1, at 1 (2008).2 UNCTAD, Latest Developments in Investor-State Dispute Settlement , IIA Issues Note no. 1, at 2

(2011). There are undoubtedl a large number o other investor-State disputes currentl being settledb arbitration about which inormation is not publicl available. This is true or most cases where theUNCITRAL Arbitration Rules and other ad hoc arbitration rules appl. The UNCITRAL ArbitrationRules were adopted in 1976 b the United Nations Commission on International Trade Law (UNCITRAL)and the United Nations General Assembl. The UNCITRAL rules were updated in 2010. Unlike ICSID,UNCITRAL is not an arbitral institution.

* Martin J. Valasek, Partner, Norton Rose OR LLP, Montreal, Canada.** Patrick Dumberr, Ph.D., Assistant Proessor, Universit o Ottawa (Civil Law Section), Canada.

The authors wish to thank Mr. Nick Gallus and Mr. Jean-François Hébert (Trade Law Bureau, Departmento Foreign Aairs and International Trade, Canada) or their comments and suggestions on an earlier drato this paper.



LEGAL STANDING OF SHAREHOLDERS 35

considering that, in the rst 30 ears o the existence o ICSID, onl one to twocases were registered each ear.3

As a result o this trend, international investment law is evolving rapidl.4

One area o international investment law where signicant new developmentshave occurred concerns the legal standing o shareholders o corporationsinvesting abroad, and o corporations within a chain o an investment structure,to submit arbitration claims to international arbitral tribunals constitutedunder treaties or the protection and promotion o investments (“investmenttreaties”).

The dramatic evolution o the rights o shareholders at international law is clear when one considers the Barcelona Traction case decided in 1970 b the International Court o Justice (“ICJ” or “Court”). In that case, at issue

was whether the Belgian shareholders o Barcelona Traction, a corporationincorporated in Canada, could have Belgium espouse their claim against Spainor harm done to the corporation. The Court held that the nationalit o a corporation is determined b its place o incorporation and where it has itsregistered oce. Consequentl, Belgium could not espouse the claim b Belgianshareholders against Spain. On the rights o shareholders under customar international law, the Court stated that:

Notwithstanding the separate corporate personalit, a wrong done tothe compan requentl causes prejudice to its shareholders. But themere act that damage is sustained b both compan and shareholderdoes not impl that both are entitled to claim compensation. . . . Insuch cases, no doubt, the interests o the aggrieved are aected, but

3 ICSID Caseload – Statistics, Iss. 2011–1 (2011), http://icsid.worldbank.org.4 Numerous books on the subject o international investment law have been published in the last ew

ears alone. See, e.g., Jeswald W. Salacuse, The Law of Investment Treaties (Oxord 2010); Katia

Yannaca-Small, Arbitration under International Investment Agreements: A Guide to theKey Issues (Oxord 2010); Stephan W. Schill, International Investment Law and Comparative

Public Law (Oxord 2010); M. Sornarajah, The International Law on Foreign Investment (3rd ed., Cambridge 2010); Jan Paulsson et al., Guide to ICSID Arbitration (2nd ed., Kluwer 2010);Christina Binder et al. (eds.), International Investment Law for the 21st Century: Essays in

Honour of Christoph Schreuer (Oxord 2009); Andrew Newcombe & Luis Paradell, Law and

Practice of Investment Treaties: Standards of Treatment (Kluwer 2009); Catherine A Rogers &

Roger P. Alford (eds.), The Future of Investment Arbitration (Oxord 2009); Stephan W. Schill,

The Multilateralization of International Investment Law (Cambridge 2009); Zachary Douglas,

The International Law of Investment Claims (Cambridge 2009); Christoph Schreuer et al. (eds.),The ICSID Convention: A Commentary (2nd ed., Cambridge 2009); Rudolf Dolzer & Christoph

Schreuer, Principles of International Investment Law (Oxord 2008); Peter Muchlinski et al.

(eds.), The Oxford Handbook of International Investment Law (Oxord 2008); August Reinisch,

Standards of Investment Protection (Oxord 2008); Campbell McLachlan et al., International

Investment Arbitration: Substantive Principles (Oxord 2008).



36 ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL

not their rights. Thus whenever a shareholder’s interests are harmed b an act done to the compan, it is to the latter that he must look toinstitute appropriate action; or although two separate entities ma have

suered rom the same wrong, it is onl one entit whose rights havebeen inringed.5

The Court’s holding suggests that oreign shareholders are not entitled toan international protection independent rom that existing or a corporationaected b a wrongul act committed b a State.6 As explained b one writer,the ruling imposes “a nearl insurmountable barrier to oreign shareholdershoping to protect their investment based on general principles o international law .”7 The Court’s statement was made in the context o diplomatic protection,

not involving an investment protection treat.8 In act, the Court specicall explained that shareholders could have a remed at international law whenevera breach o an investment treat provision was involved.9 The opening let b Barcelona Traction was used b the ICJ twent ears later. Faced with a bilateral

5 Barcelona Traction, Light and Power Co., Ltd. (Belgium v. Spain), Judgment, 1970 ICJ Rep. 4, 35(Feb. 5) [“Barcelona Traction”].

6 The Court, however, recognised that there are some exceptions to that rule, or instance, when theshareholders’ rights are directl aected, id . at 36, and when the corporation has ceased to exist where it

was incorporated, id. at 40–41.7 Stephen A. Kubiatowski, The Case o Elettronica Sicula S.p.a.: Toward Greater Protection o

Shareholders’ Rights in Foreign Investments , 29 Columbia J. Transnat’l L. 226 (1991) (emphasis added).8 See Francisco O. Vicuña, The Protection o Shareholders under International Law: Making State

Responsibility More Accessible , in Maurizio Ragazzi (ed.), International Responsibility Today: Essays

in Memory of Oscar Schachter 165 (Brill 2005) (“[W]hatever the meaning the Barcelona Tractiondecision might have had was onl relevant in connection with diplomatic protection as the prevailing mechanism or international claims at the time.”). See id. at 163 (“[I]t was the absence o an suchinvestment protection treat between the parties that led the Court to decide the question under generalinternational law. Had a treat to this eect existed, probabl the conclusion would have been dierent. . . .”). Several ICSID tribunals have stated expressl that the ndings o the ICJ in the Barcelona Traction

case in the context o diplomatic protection are not applicable per se in the dierent context o investor-State disputes under an investment treat. See CMS Gas Transmission Co. v. Republic o Argentina , ICSIDCase No. ARB/01/8, Decision on Jurisdiction, paras. 43–44 (Jul 17, 2003), 42 I.L.M. 788 (2003)[“CMS Decision on Jurisdiction”] (this nding was approved b the ad hoc Committee in paragraph 69o its Annulment Decision o September 25, 2007); Suez, Sociedad General de Aguas de Barcelona S.A.,and InterAguas Servicios Integrales del Agua S.A. v. Argentina , ICSID Case No. ARB/03/17, Decision on

Jurisdiction, para. 50 (Ma 16, 2006); Siemens A.G. v. Argentine Republic , ICSID Case No. ARB/02/8,Decision on Jurisdiction, para. 141 (Aug. 3, 2004), 44 I.L.M. 138 (2005).

9Barcelona Traction, supra note 5, at 47 (“[I]n the present state o the law, the protection o shareholdersrequires that recourse be had to treat stipulations or special agreements directl concluded between theprivate investor and the State in which the investment is placed. States ever more requentl provide orsuch protection, in both bilateral and multilateral relations, either b means o special instruments or

within the ramework o wider economic arrangements. Indeed, whether in the orm o multilateral orbilateral treaties between States, or in that o agreements between States and companies, there has since theSecond World War been considerable development in the protection o oreign investments.”).




treat between the United States and Ital (the 1948 Treat o Friendship,Commerce and Navigation) providing or protection o investments, theChamber o the Court recognised the right o the United States to submit a

claim on behal o U.S. shareholders against Ital, the State o incorporation o the corporation involved.10

As a result o the tremendous developments o the last decade concerning investment treaties, the conclusion that “shareholders are powerless underinternational law, having no eective remed or their injuries”11 is no longervalid. Toda, the legal protection or shareholders o corporations investing abroadis oered through the existence o a growing number o bilateral investmenttreaties (“BITs”)12 and multilateral investment treaties, such as NAFTA.13 Protection is also oten ound in contracts entered into directl between oreign

investors and States (or State-owned entities) or in the legislation o the hostState o the investment. O particular importance in these instruments is theabilit o oreign investors to resolve investment disputes b bringing claimsdirectly against the States in which the invest.14

The ocus o this paper is to sstematicall analze the legal standing o shareholders beore arbitral tribunals under modern investment treaties.15 We will examine the legal standing o dierent categories o shareholders, including

10 Elettronica Sicula S.p.A. (ELSI) (United States v. Italy), Judgment, 1989 ICJ Rep. 15 (Jul 20).The evolution o the Court on the issue is examined in Vaughan Lowe, Shareholders’ Rights to Control and Manage: rom Barcelona Traction to ELSI , in Nisuke Ando et al. (eds.), I Liber amicorum Judge

Shigeru Oda 269 (2002); Brigitte Stern, La protection diplomatique des investissements internationaux:de Barcelona Traction à Elettronica Sicula ou les glissements progressis de l’analyse , 117 J. droit int’l 897

(1990).11 P.G. Lutz, Diplomatic Protection o Corporations and Shareholders – Capacity o Government to

Espouse Claims o Shareholders o a Foreign Corporation, 1 Cal. W. Int. L.J. 148 (1970).12 According to UNCTAD, Recent Developments in International Investment Agreements (2008 – June

2009), IIA Monitor no. 3 (2009), there were 2,676 treaties at the end o 2008.13 North American Free Trade Agreement (NAFTA), Can.–Mex.–U.S. (Dec. 17, 1992) (entered into

orce Jan. 1, 1994), 32 I.L.M. 605 (1993). Other important multilateral investment treaties include, inter alia , the Energ Charter Treat (entered into orce Apr. 16, 1998), 34 I.L.M. 373 (1995) and the Colonia Protocol on Promotion and Protection o Investments Coming rom Non-MERCOSAUR State Parties,MERCOSAUR/CMC Dec. No. 11/94 (Jan. 17, 1994) (in the context o the Ascuncion Treat creating Mercosur).

14 Under these treaties, generall, an investor must opt between international arbitration and othervenues under so-called “ork-in-the-road” provisions.

15 In this paper, the term “shareholder” is used in its general meaning. It includes both phsicalpersons as well as legal persons (i.e. corporations or partnerships) who own shares or otherwise participatein another corporation. We do not intend specicall to discuss so-called “portolio investment,” whichincludes shares traded on stock markets. This issue is discussed in M. Sornarajah, The International

Law on Foreign Investment 227–28 (2nd ed., Cambridge 2004). The other related issue o bondholders will also not be examined. See Peter Grin & Ania Farren, How ICSID Can Protect Sovereign Bondholders , 24(9) Int’l Fin. L. Rev. 21–24 (2005); Michael Waibel, Opening Pandora’s Box: Sovereign Bonds inInternational Arbitration, 101 Am. J. Int’l L. 711 (2007).




“minorit” and “indirect” shareholders, as well as the controversial issue o thestanding o intermediate corporations (also generall known as “holding,” “shell”or “mailbox” corporations) through which international investments are oten

conducted. One particularl controversial issue to be addressed in this article isthe distinction between cases o illegitimate and legitimate “treat shopping.”Finall, we will examine some o the concerns that capital-importing States haveraised as a result o these developments, including the issue o remoteness o claims b minorit and indirect shareholders.

I. THE BASIC ELEMENTS OF JURISDICTION UNDER THE ICSID CONVENTION

In order ull to understand these new developments, the basic elements o the ICSID Convention16 in relation to jurisdiction must be brief set out. TheICSID Convention’s primar aim is the promotion o economic developmentand the acilitation o private international investments through the creation o an impartial and reliable sstem or the settlement o disputes between oreigninvestors and States. While the ICSID Convention does not contain substantiverules or the protection o investments, it has nevertheless made an importantcontribution b establishing a procedure or the settlement o investor-State

disputes.There are three basic requirements or submitting a claim to an arbitraltribunal under Article 25 o the ICSID Convention: (1) the parties must haveconsented to ICSID arbitration in writing; (2) the dispute must be “legal”and “aris[e] directl” out o an “investment”; and (3) the parties must be a “Contracting State” and a “national o another Contracting State.”

ICSID arbitration, like all international arbitration, is ounded on theprinciple o consent. In the case o ICSID, what is required is the consent o the parties (the investor and the host State o the investment), evidenced in

writing, to have their dispute settled by an arbitral tribunal established underthe ICSID Convention. The simple act that the host State o the investmenthas ratifed the Convention does not, in and o itsel, constitute the host State’sconsent to the Centre’s jurisdiction over a dispute. A more specifc type o

16 Convention on the Settlement o Investment Disputes between States and Nationals o OtherStates (Mar. 18, 1965) (entered into orce Oct. 14, 1966), 575 U.N.T.S. 160; 4 I.L.M. 532 (1965)[“ICSID Convention”]. Since its adoption, the Convention has been signed and ratied b 147 States (10other States have onl signed the Convention, but not ratied it). In 1978, the ICSID Additional Facilit Rules entered into orce. The Additional Facilit Rules are designed primaril to oer methods or thesettlement o investment disputes where the host State or the State o the investor’s nationalit, but notboth, is a part to the ICSID Convention. These Rules can also appl in certain other circumstances wherethe jurisdictional requirements o the ICSID Convention are not satised.




consent is required. Such consent may be ound either in (i) a direct agreementbetween the investor and the host State,17 (ii) a provision o the domesticlegislation o the host State or (iii) a provision o an investment treaty. In

the case o domestic legislation and treaties, typically, the consent o the hostState is oered unilaterally and generally to any investor that can meet therequirements o the law or the treaty.18 An investor must also “accept” the oero arbitration.19

In addition, in order or an arbitral tribunal established under the ICSIDConvention to have ratione materiae jurisdiction over a dispute, it must be a “legal dispute arising directl out o an investment” made in the host Stateb a oreign investor. The term “investment” is not dened in the ICSIDConvention. Over the ears, ICSID tribunals have developed a set o conjunctive

criteria to determine whether an investment was made within the meaning o the Convention.20 It is let to the parties to dene in a BIT (or in the applicablelegislation or in a contract in which the parties have consented to arbitration)the kind o investments in relation to which disputes ma be submitted toICSID arbitration, provided that the denition o investment is consistent withthe ICSID Convention.

17 In the case o a direct agreement (a contract), the consent is mutual rom the start and is usuall targeted to a specic investment.

18 A BIT tpicall contains an arbitration clause whereb each State consents (in advance) to ICSIDarbitration or claims that are submitted b nationals o the other State part to the treat and that satis the requirements o the treat. The consent to arbitration is oered b the host State to all oreign investorso the other part to the treat investing in the host State.

19 B starting ICSID proceedings, the investor accepts the host State’s oer and is deemed to haveconsented to ICSID arbitration.

20 These criteria are: a nancial contribution; a “certain duration o perormance o the contract;” a “participation in the risks o the transaction;” and a contribution to the host State’s economic development.See Salini Costrutorri S.p.A. and Italstrade S.p.A. v. Morocco, ICSID Case No. ARB/00/4, Decision on

Jurisdiction, para. 52 (Jul 23, 2001); Fedax NV v. Republic o Venezuela , ICSID Case No. ARB/96/3,Decision on Objections to Jurisdiction, para. 43 (Jul 11, 1997). But see M.C.I. Power Group L.C. and

New Turbine, Inc. v. Ecuador , ICSID Case No. ARB/03/6, Award, para. 165 (Jul 31, 2007) (stating thatthese criteria “must be considered as mere examples and not necessaril as elements that are required orits existence”); Biwater Gau (Tanzania) Ltd. v. United Republic o Tanzania , ICSID Case No. ARB/05/22,

Award, paras. 310–18 (Jul 24, 2008). The Tribunal in Phoenix Action, Ltd. v. Czech Republic , ICSID CaseNo. ARB/06/5, Award, para. 114 (Apr. 15, 2009) [“Phoenix Action Award”], added two other criteria:the assets must be invested in accordance with the laws o the host State and the assets must be investedbona fde . In LESI, S.p.A. and Astaldi, S.p.A. v. People’s Democratic Republic o Algeria , ICSID Case No.

ARB/05/3, Decision on Jurisdiction, para. 72 (Jul 12, 2006) the Tribunal decided that the contributiono the investment to the economic development o the host State was not a condition or the qualicationo investment. However, the ad hoc Committee in Patrick Mitchell v. Democratic Republic o the Congo,ICSID Case No. ARB/99/7, Annulment Decision, para. 33 (Nov. 1, 2006), considered this criterion to beessential. This issue has been the subject o much controvers latel. See, e.g., Malaysian Historical Salvors SDN BHD v. Malaysia , ICSID Case No. ARB/05/10, Decision on Jurisdiction, paras. 130–31 (Ma 17,2007) and and Annulment Decision (Apr. 16, 2009); Saba Fakes v. Turkey , ICSID Case No. ARB/07/20,

Award (Jul 14, 2010); Malicorp Ltd. v. Egypt , ICSID Case No. ARB/08/18, Award (Feb. 7, 2011).




Finall, two requirements concerning nationalit must be ullled. First, thehost State must be a contracting part to the Convention at the time the requestor arbitration is led b the investor. Second, the investor submitting a claim

must be a “national o another Contracting State” to the Convention, both onthe date when the parties consent to submit the dispute to arbitration and onthe date when the request or arbitration is registered b the ICSID Secretar-General.21 The determination o the proper “nationalit” o a corporation is a controversial area which will be examined below.

II. THE LEGAL STANDING OF DIFFERENT CATEGORIES OFSHAREHOLDERS AND INTERMEDIATE CORPORATIONS

As mentioned above, the question o the legal standing o shareholders inarbitration disputes is one area where arbitral tribunals have been particularl dnamic. It is also an area which has increasingl received the attention o scholars.22 In a tpical investment scenario, an investor, the so-called “parent”compan (or instance, a corporation or a partnership), makes an investmentin a oreign countr through another company , its subsidiar. In man countries,oreign investments are in act required to be channeled through locally incorporated companies. A good example is a consortium composed o oreign

companies that invests in a countr through a local corporation created or thatpurpose. In this case, the local corporation is incorporated in the State wherethe investment is made. Under this rather straightorward scenario, two distinctissues relating to the legal standing o corporations arise:

21This investor must, however, not have the nationalit o the host State against which it is submitting a claim. The onl exception is or oreign-controlled corporations. ICSID Convention, art. 25(2)(b). This

special case is discussed below.22 See, e.g., Stanimir A. Alexandrov, The Baby Boom o Treaty-Based Arbitrations and the Jurisdiction o

ICSID Tribunals: Shareholders as Investors and Jurisdiction Ratione Temporis, 4(1) L. & Prac. Int’l Courts

& Tribs. 19 (2005); Peter J. Turner, Treaties as Agreements to Arbitrate, Issues o Scope: Parties, Ownershipand Control , in Albert Jan van den Berg (ed.), 13 ICCA Congress 444 (Kluwer 2007); Francisco O.Vicuña, supra note 8, at 161–70; Ian A. Laird, A Community o Destiny – The Barcelona Traction Case and the Development o Shareholder Rights to Bring Investment Claims , in Todd Weiler (ed.), International

Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and

Customary International Law 77 (Cameron Ma 2005); E.C. Schlemmer, Bilateral Investment Treaties,Protection o Shareholders, and ICSID: CMS Gas Transmission Company v. the Republic o Argentina , 28 S.

Afr. Y.b. Int’l L. 292 (2003); Christoph Schreuer, Shareholder Protection in International Investment Law ,in Pierre-Marie Dupuy et al. (ed.), Common Values in International Law: Essays in Honour of

Christian Tomuschat 601 (Engel 2006) [“Schreuer, Shareholder Protection”]; R. Doak Bishop, Multiple Claimants in Investment Arbitration: Shareholders and Other Stakeholders , in Multiple Party Actions in

International Arbitration 239 (PCA ed., Oxord UP 2009).




1. Can the locally incorporated corporation bring a claim against the hostState?

2. Can the oreign parent corporation bring a claim against the host State

or damages sustained b the locall incorporated corporation?

Under the classic scenario just described, the locall incorporated corporationis ull owned b the “parent” corporation.

It is not unusual, however, or locall incorporated corporations to becontrolled not b a single corporation, but b several oreign companies. In thiscase, a oreign corporation ma hold the majorit o the shares o the locall incorporated corporation, while another (or several others) will be a “minorit”(non-controlling) shareholder. In these circumstances, two other questions

arise:

3. Does a oreign corporation have standing to bring a claim against thehost State in the event that it is a majority shareholder o the locall incorporated corporation?

4. Does a oreign corporation have standing in the event that it is a minority shareholder o the locall incorporated corporation?

Another slightly more complicated, but common, investment scenariois the ollowing. A oreign investor (the “parent” corporation) does not make its investment in the host State directly with the locally incorporatedcorporation, but instead indirectly through another “intermediate” corporation(or, sometimes, through several such corporations). These intermediatecorporations are oten special-purpose “holding” or “shell” corporations. They may have the same nationality as that o the parent corporation or that o thelocally incorporated corporation. Intermediate corporations will sometimes beincorporated in another jurisdiction to beneft rom a tax treaty with the host

State or or other reasons. Two legal issues urther arise rom this particularscenario:

5. Does a oreign corporation have standing to bring a claim against thehost State in the event that it holds its interest in the locall incorporatedcorporation indirectl through an intermediate corporation? (And doesit matter what the nationalit o that intermediate corporation is?)

6. Can this intermediate corporation bring its own claim or damagessustained b the locall incorporated corporation? (And does it matterthat the ultimate parent corporation has a dierent nationalit thanthat o the intermediate corporation?)




In the ollowing sections, we will examine the possibilit o submitting arbitration claims b (A) locall incorporated companies, (B) parent corporations,(C) majorit shareholders, (D) minorit shareholders, (E) indirect shareholders,

and (F) intermediate (“shell”) corporations.

A. Claims by Locally Incorporated Corporations

In general, a locall incorporated corporation does not have standing to lea claim against the host State under the ICSID Convention or the oreigninvestment that has been made through that entit. The logic behind the ruleis that, as a matter o principle, a legal dispute between a local corporation andthe host State should be settled beore the local courts o that countr. In such

circumstances, the locall incorporated corporation is not considered to be a “oreign” investor.

An exception to that principle, however, is set out in Article 25(2)(b) o the ICSID Convention. Where the element o oreign control is present, a locall incorporated corporation that possesses the host State’s nationalit ma nevertheless be deemed to be a national o another Contracting State and beallowed to submit a claim under the Convention. This standing is possibleprovided that two conditions are ullled:

1. There must be an agreement with the host State that refects itsundertaking to treat a locall incorporated corporation that is oreign-controlled as a national o the State whose national controls thecorporation. Such agreement between the parties is usuall ound in a BIT or in a contract entered into directl between the oreign investorand the host State;23 and

2. The locall incorporated corporation must be eectivel controlled b nationals o another Contracting State. In other words, the objective

element o “oreign control” must be present.24

These issues were recentl discussed in TSA Spectrum de Argentina SAv. Argentina .25 TSA Spectrum de Argentina SA (“TSA”), an Argentinean

23 See Aguas del Tunari S.A. v. Republic o Bolivia , ICSID Case No. ARB/02/3, Decision onRespondent’s Objections to Jurisdiction (Oct. 21, 2005), 20 ICSID Rev.—FILJ 450 (2005) [“ Aguas del Tunari Decision on Jurisdiction”].

24 See Autopista Concesionada de Venezuela, C.A. v. Boliviarian Republic o Venezuela , ICSID Case No. ARB/00/5, Decision on Jurisdiction (Sept. 27, 2001), 16 ICSID Rev .—FILJ 469 (2001).

25 TSA Spectrum de Argentina SA v. Argentina , ICSID Case No ARB/05/5, Award (Dec. 19, 2008)[“TSA Award”].




corporation, commenced arbitration proceedings against Argentina under theNetherlands–Argentina BIT. TSA argued that it was a “oreign” investor becauseit was owned b a Dutch rm (TSI Spectrum International NV, or “TSI”) and

that the BIT constituted an agreement to consider it as a Dutch corporation.26

The Tribunal considered that Article 25(2)(b) o the ICSID Convention“denes the ambit o ICSID’s jurisdiction,” “which cannot be extendedor derogated rom even b agreement o the Parties.”27 For the majorit o the Tribunal, the “existence and materialit o this oreign control have tobe objectivel proven” to establish jurisdiction.28 The Tribunal decided thatit should pierce the veil o the corporate entit to determine whether it wasgenuinel oreign controlled. For the Tribunal,

the reasons or piercing o the corporate veil up to the real source o control is a ortiori more compelling under the second clause o Article25(2)(b) when ultimate control is alleged to be in the hands o nationalso the host State, whose ormal nationalit is also that o the Claimantcorporation.29

The majorit o the Tribunal thereore looked beond the Dutch owner o the Argentine corporation TSA (i.e. TSI) and determined that an Argentine

national was TSI’s ultimate owner. The Tribunal thereore concluded that itlacked jurisdiction over the case under the Convention because o the absenceo genuine oreign control.

Whether a wholly owned local subsidiary can submit its own ICSID claimagainst the host State thereore depends on the particular circumstances o thecase. It is precisely because a locally incorporated corporation will sometimes beprecluded rom submitting its own claim to an arbitral tribunal that it is importantto examine the legal standing o “parent” corporations (and shareholders).

B. Claims by Parent Corporations

The right o parent corporations to submit claims or damages sustained by their wholly-owned subsidiaries incorporated in the host State o the investmentis well recognised by arbitral tribunals. One classic illustration is the case o Amco

26 The BIT provides protection not onl or Dutch corporations incorporated in that countr, butalso or an corporation incorporated in an other countr provided that it is “controlled directl orindirectl” b Dutch nationals (and has business activities in that countr).

27 TSA Award, supra note 25, para. 134.28 Id. para. 147.29 Id. para. 153.




v. Indonesia where the oreign parent corporation, Amco Asia Corporation (a U.S.corporation), carried out its investment in Indonesia through a locally incorporatedsubsidiary (P.T. Amco). In that case, the arbitral Tribunal held that both the parent

corporation and the locally incorporated corporation could le claims under theapplicable contract (which contained an ICSID arbitration clause):

Now, the goal o the arbitration clause was to protect the investor. How couldsuch protection be ensured, i Amco Asia [the parent U.S. corporation]

would be reused the benet o the clause? Moreover, the Tribunal didnd that PT Amco [the corporation incorporated in Indonesia] had thisbenet, because o the oreign control under which it is placed: wouldit not be ully illogical to grant this protection to the controlled entity,

but not to the controlling one? No doubt Amco Asia has understood theclause in this way. But Indonesia could not reasonably have understood itotherwise, nor reasonably have imagined that the clause would not grantprotection to the investor himsel, that is to say to Amco Asia. 30

The right o parent corporations to submit claims or damages sustained b their wholl owned subsidiaries incorporated in the host State o the investmentis also expressl recognised in NAFTA. While NAFTA Article 1116 permits an

“investor o a Part” to bring a claim on its own behal or loss or damage arising out o the breach o a NAFTA investment obligation b “another Part,” NAFTA Article 1117 extends a NAFTA tribunal’s jurisdiction over claims brought b an “investor o a Part” on behal o an “enterprise o another Part that is a juridical person that the investor owns or controls directl or indirectl” or lossor damage arising rom the breach o a NAFTA investment obligation b “theother Part.” For example, in the NAFTA case UPS v. Canada , the Tribunalallowed United Parcel Service, the U.S. parent compan, to bring claims againstCanada on behal o its wholl owned Canadian subsidiar, UPS Canada. The

Tribunal held: “UPS is the sole owner o UPS Canada. As such, it is entitled tole a claim or its losses, including losses incurred b UPS Canada. . . . Whetherthe damage is directl to UPS or directl to UPS Canada and onl indirectl toUPS is irrelevant to our jurisdiction. . . .”31

30 Amco Asia Corp. and others v. Indonesia , ICSID Case No. ARB/81/1, Decision on Jurisdiction,para. 24 (Sept. 25, 1983), 1 ICSID Rep. 389 (1993), 23 I.L.M. 351 (1984).

31 Utd. Parcel Serv. o America (UPS) v. Canada , NAFTA (UNCITRAL), Award on the Merits, para.35 (May 24, 2007). UPS’s NAFTA claims on behal o UPS Canada were brought under Article 1116, not Article 1117, which led to an objection rom Canada. The Tribunal denied Canada’s objection, holding that where the subsidiary (i.e. the “enterprise”) is wholly owned by the parent, the distinction betweenclaiming under Article 1116 or Article 1117 “is an almost entirely ormal one.” Id. See also Pope & Talbot,Inc. v. Canada , NAFTA (UNCITRAL), Award in Respect o Damages, paras. 74–80 (May 31, 2002)




C. Claims by Majority Shareholders

Modern BITs tpicall contain a broad denition o the term “investment”

that includes shares or other orms o participation in corporations within itsscope. In such cases, tribunals have had no dicult accepting that participationb a corporation in a locall incorporated corporation is an investment and isprotected under the treat. For instance, the arbitral Tribunal in the ICSID caseo Goetz v. Burundi recognised the right o a oreign national who owns sharesin a locall incorporated corporation to submit its own claim under the ICSIDConvention.32

Another illustration o this recognition is the case o Gas Natural v. Argentina.33 In 1992, Gas Natural SDG S.A. (“Gas Natural”), a Spanish

corporation, took part in a tender organised b the Argentine governmentas part o the privatization o its gas sector. Gas Natural participated in a consortium that purchased 70% o the shares o Gas Natural BAN, S.A., an Argentine corporation, and ormed another Argentine corporation, InvergasS.A. The Spanish corporation was thereore a majorit shareholder in theinvestment vehicle (an Argentine corporation). Gas Natural led an arbitrationclaim under the Spain–Argentina BIT.34 Argentina objected to the jurisdictiono the Tribunal based, inter alia , on the ground that the Claimant could not

quali as an investor under the BIT since it was merel a shareholder o the Argentine corporation that had suered damage.In its Decision, the Tribunal ound that the Claimant came within the

denition o an investor under the BIT. In support o its Decision, the Tribunalmade the ollowing observation about the modern mode o oreign investmentand the legal standing o corporations under BITs:

[T]he standard mode o oreign direct investment, ollowed in thepresent case and in the vast majorit o transnational transers o private

capital, is that a corporation is established pursuant to the laws o the

(arriving at a similar conclusion in relation to the distinction between claims under Articles 1116 and 1117,and ultimately holding that a parent company can bring a claim on behal o its wholly-owned subsidiary).

32 Antoine Goetz and others v. Republic o Burundi , ICSID Case No. ARB/95/3, Award, para. 89(Feb. 10, 1999). Other cases include: American Mg.& Trading, Inc. v. Democratic Republic o the Congo, ICSID Case No. ARB/93/1, Award (Feb. 21, 1997), 36 I.L.M. 1531 (1997), 5 ICSID Rep. 11 (2002);

Alex Genin, Eastern Credit Ltd., Inc. and A.S. Baltoil v. The Republic o Estonia , Award (June 25, 2001), 6ICSID Rep. 241 (2004); CME Czech Republic B.V. (The Netherlands) v. The Czech Republic , Partial Award(Sept. 13, 2001) [“CME Award”].

33 Gas Natural SDG S.A. v. Argentina, ICSID Case No. ARB/03/10, Decision on Jurisdiction (June17, 2005) [“Gas Natural Decision on Jurisdiction”]. The case is discussed in Schlemmer, supra note 22.

34 It alleged that measures taken b Argentina pursuant to the emergenc law during the economicand nancial crisis o 1999–2001 breached several aspects o the BIT.




host countr and the shares o that corporation are purchased b theoreign investor, or alternativel, that the shares o an existing corporationestablished pursuant to the laws o the host countr are acquired b

the oreign investor. The scheme o both the ICSID Convention andthe bilateral investment treaties is that in this circumstance, the oreigninvestor acquires rights under the Convention and Treat, including inparticular the standing to initiate international arbitration.35

Following a review o decisions o other ICSID tribunals, the Tribunalconcluded:

[T]he assertion that a claimant under a Bilateral Investment Treat

lacked standing because it was onl an indirect investor in the enterprisethat had a contract with or a ranchise rom the state part to the BIT,has been made numerous times, never, so ar as the Tribunal has beenmade aware, with success.36

The Tribunal thereore decided that it had jurisdiction over the dispute.37

It is also recognised in ICSID decisions that the right o a majorit shareholderto bring a claim is independent o that o the locall incorporated corporation. A

good illustration is the case o Suez v. Argentina.38

The French corporation Suez(then known as Lonnaise des Eaux) and the Spanish corporation, AGBAR,39 had joined together with three Argentine companies40 to orm a consortium tobid or the concession to operate water distribution and waste water sstems inthe Argentine Province o Santa Fe. The consortium was awarded the concessionand it ormed another Argentine corporation (Aguas Provinciales de Santa Fe S.A. or “APSF”) to hold and operate the concession. The investment wasaected b the Argentine nancial crisis. At the time the request or arbitration was led, the French and Spanish corporations were majorit shareholders in

the Argentine corporation, APSF.41

35 Gas Natural Decision on Jurisdiction, supra note 33, para. 34.36 Id. para. 50.37 As o Ma 2011, the case was still pending (pursuant to the parties’ agreement, the proceedings

have been suspended).38 Suez, Sociedad General de Aguas de Barcelona S.A., and InterAguas Servicios Integrales del Agua S.A.

v. Argentina , ICSID Case No. ARB/03/17, Decision on Jurisdiction (Ma 16, 2006) [“Suez Decision on Jurisdiction”].

39 Sociedad General de Aguas de Barcelona S.A.40 Banco de Galicia Buenos Aires S.A., Sociedad Comercial del Plata S.A., and Meller S.A.41 Suez was holding 51.69% o APSF’s shares and AGBAR was holding 10.89%. Another Spanish

corporation (InterAguas Servicios Integrales del Agua S.A.) was holding 14.92% o APSF’s shares.




Argentina argued that the Claimants, as mere shareholders o APSF, did nothave standing to bring claims or alleged injur to that corporation. Argentina’sargument was summarised as ollows b the Tribunal:

In support o this position, the Respondent, drawing analogies to domesticcorporation law, argues that any injury to the shareholders is derivative o the alleged injury to the company in which they hold shares, as opposed toa direct injury to the shareholders themselves. The alleged injury is doneto the corporation, not to the shareholders whose shares, because o analleged wrongul action done to the corporation, may have diminished invalue. Thus, the shareholders have no right to bring an action on groundsthat they have sustained a direct injury by virtue o the alleged wrongul

actions o the Respondent. The right to bring an action or any allegedinjury lies with the corporation itsel, not its shareholders.42

The Tribunal rst determined that the Claimants’ shares in APSF qualiedas an “investment” under both the France–Argentina BIT and Spain–Argentina BIT and that the Claimants thereore had standing to bring their claims.Furthermore, the Tribunal held that APSF’s withdrawal o its own claim didnot prejudice the abilit o the oreign shareholders o APSF to bring their own

independent claims or damages under international law:

The Tribunal believes that the discontinuance o these proceedings withrespect to APSF does not aect the rights o the Shareholder Claimantsto bring a claim in ICSID arbitration under the two BITs in question.The Claimant Shareholders would have had a right to bring such claimsindependentl without the participation o APSF in rst instance.43


D. Claims by Minority Shareholders

ICSID decisions show that there is no material distinction between majorit and minorit shareholders or jurisdictional purposes. Accordingl, a shareholderhaving a minorit participation in a locall incorporated corporation can submit

42 Suez Decision on Jurisdiction, supra note 38, para. 46.43 Id. para. 51.44 The Tribunal issued a Decision on Liabilit on Jul 30, 2010, nding that Argentina had denied

the Claimants’ investments air and equitable treatment under the BIT. The Tribunal postponed itsdecision on damages. As o Ma 2011, the case was still pending.




a claim beore an ICSID arbitral tribunal.45 We will brief examine three suchcases.

In the case o Lanco v. Argentina , a U.S. corporation, Lanco International,

Inc., had a minorit participation o 18.3% in a consortium which had beengranted a concession to operate port acilities in Argentina.46 The investorclaimed that Argentina had damaged its investment b giving more avourabletreatment to a competitor. The Tribunal held that an investor was not requiredto have control over the corporation or to control a majorit o its shares or itsinvestment to be protected b the applicable BIT:

[A]s regards shareholder equit, the Argentina-U.S. Treat sas nothing indicating that the investor in the capital stock has to have control over

the administration o the compan, or a majorit share; thus the actthat Lanco holds an equit share o 18.3% in the capital stock o theGrantee allows one to conclude that it is an investor in the meaning o Article I o the Argentina-U.S. Treat.47


In CMS v. Argentina ,49 CMS Gas Transmission Co. (“CMS”), a U.S.corporation, held 29.42% o the shares in the corporation Transportadora de Gas

del Norte (“TGN”), an Argentine gas transportation corporation which had beenprivatized.50 Argentina argued that as a shareholder in a local corporation, CMS was not entitled under the ICSID Convention and the Argentina–U.S. BIT tobring a claim independently rom the local Argentine corporation. Argentina alsoargued that it could not submit a claim since it was only a minority shareholderin that corporation. The Tribunal rejected these arguments based on its analysiso State practice in the context o other international claims mechanisms:

45 The possibilit o claims b minorit shareholders was rst implicitl recognised in the 1990case o Asian Agric. Products Ltd. v. Sri Lanka , ICSID Case No. ARB/87/3, Award (June 27, 1990). Inthat case, the Hong-Kong-based compan AAPL was a minorit shareholder (48%) in Serendib, a SriLankan compan, whose propert had been destroed b Sri Lankan securit orces. The status o AAPL’sshareholding as an investment was never challenged b the Respondent.

46 Lanco Int’l, Inc. v. Argentina , ICSID Case No. ARB/97/6, Decision on Jurisdiction, para. 10 (Dec.8, 1998), 5 ICSID Rep. 367 (2002).

47 Id. para. 10.48 The proceedings were subsequentl discontinued at the request o the Claimant.49 CMS Decision on Jurisdiction, supra note 8.50 CMS submitted a claim on the basis o the U.S.–Argentina BIT alleging that a number o measures

taken b Argentina as a result o the economic and nancial crisis had an adverse impact on its investmentin TGN and constituted violations o the BIT.




Besides accepting the protection o shareholders and other orms o participation in corporations and partnerships, the concept o limiting itto majority or controlling participations has given way to a lower threshold

in this respect. Minority and non-controlling participations have thus beenincluded in the protection granted or have been admitted to claim in theirown right. Contemporary practice relating to lump-sum agreements, thedecisions o the Iran-United States Tribunal and the rules and decisions o the United Nations Compensation Commission, among other examples,evidence increasing fexibility in the handling o international claims.51

More specically on the status o minority shareholders, the Tribunal concludedthat it “nds no bar in current international law to the concept o allowing claims

by shareholders independently rom those o the corporation concerned, noteven i those shareholders are minority or non-controlling shareholders.”52 TheTribunal came to the same conclusion having examined the ICSID Convention.53 The Tribunal thereore held that it had jurisdiction over the dispute.54

Other tribunals have also conrmed both the admissibilit o claims b minorit shareholders55 and that this right to claim compensation is independent rom that o the local subsidiar directl aected b the actions o the host

51 CMS Decision on Jurisdiction, supra note 8, para. 47 (ootnotes omitted).52 Id. para. 48.53 Id. para. 56 (“There is no bar to the exercise o jurisdiction in light o the 1965 Convention and

its interpretation as refected in its drating histor, the opinion o distinguished legal writers and the jurisprudence o ICSID tribunals.”).

54 In a nal Award o Ma 12, 2005, 44 I.L.M. 1205 (2005), the Tribunal held that Argentina hadbreached the BIT and ordered Argentina to pa compensation in the amount o US$ 133.2 million.

Argentina submitted a request or the annulment o the Award. The ad hoc Committee rendered its Annulment Decision on September 25, 2007. The Committee onl annulled the portion o the Tribunal’s Award concerning the “umbrella clause.” The ad hoc Committee specicall approved the reasoning o theTribunal on the standing o minorit shareholders to submit claims under the BIT:

The Committee observes in particular that, as regard shareholder equity, the BIT containsnothing which indicates that the investor in capital stock has to have a majority o thestock or control over the administration o the company. Investments made by minority shareholders are covered by the actual language o the denition, as also recognised by ICSIDarbitral tribunals in comparable cases. One must add that whether the locally incorporatedcompany may itsel claim or the violation o its rights under contracts, licenses or otherinstruments, in particular under Article 25(2)(b) o the ICSID Convention, does not aectthe right o action o oreign shareholders under the BIT in order to protect their owninterests in a qualiying investment, as recognised again in many ICSID awards.

CMS Annulment Decision, paras. 73–74.55For instance, the arbitral Tribunal in the case o Enron Creditors Recovery Corp. (ormerly Enron Corp.)

and Ponderosa Assets, L.P . v. Argentine Republic , ICSID Case No. ARB/01/3, Decision on Jurisdiction,para. 49 (Jan. 14, 2004) [“Enron Decision on Jurisdiction”] (which is discussed below) stated that “claimsmade b investors that are not in the majorit or in control o the aected corporation when claiming orviolations o their rights under . . . [the U.S.–Argentine BIT] are admissible.”




State.56 One recent example is the NAFTA case o Gami Investments, Inc. v. Mexico.57 In this case, GAMI, a U.S. compan, had a 14.18% interest in GAM,a Mexican corporation, and brought a claim against Mexico under NAFTA.

The Tribunal held that “the act that GAMI is onl a minorit shareholder doesnot aect its right to seek the international arbitral remed.”58

In act, decisions o several ICSID tribunals also show that minorit andmajorit shareholders can each submit their own distinct claims in connection with the same events. This last point is illustrated b the cases o Sempra v. Argentina 59 and Camuzzi v. Argentina.60 The two disputes arose rom the sameset o events: an investment made in the 1990s b two oreign investors, Camuzzi(rom Luxemburg) and Sempra (a U.S. corporation), in two Argentine naturalgas distribution corporations.61 The majorit shareholder (Camuzzi) and the

minorit shareholder (Sempra) each led a separate request or arbitration atabout the same time. The two investors agreed with Argentina that a singletribunal would hear both claims. In both cases, the Tribunal concluded thatminorit shareholders could submit their own claims under the respective BITs.62

56 This is clearl stated b the Enron Tribunal: “[T]here is nothing contrar to international law orthe ICSID Convention in upholding the concept that shareholders ma claim independentl rom thecorporation concerned, even i those shareholders are not in the majorit or in control o the compan.”Id. para. 39. The Tribunal added: “Whether the locall incorporated compan ma urther claim or theviolation o its rights under contracts, licences or other instruments, does not aect the direct right o action o oreign shareholders under the [BIT] or protecting their interests in the qualiing investment.”Id. para. 49.

57 GAMI Investments, Inc. v. Mexico, NAFTA (UNCITRAL), Award (Nov. 15, 2004).58 Id. para. 37.59 Sempra Energy Int’l v. Argentina , ICSID Case No. ARB/02/16, Decision on Jurisdiction (Ma 11,

2005) [“Sempra Decision on Jurisdiction”].60 Camuzzi Int’l S.A. v. Argentina , ICSID Case No. ARB/03/2, Decision on Jurisdiction (Ma 11,

2005) [“Camuzzi Decision on Jurisdiction”].61 Camuzzi owned 56.91% o the shares o the two Argentine corporations (Sodigas Sur S.A. and

Sodigas Pampeana S.A.) while Sempra owned the remaining 43.09%. In turn, these two Argentine

corporations held large stakes in two other Argentine corporations (Camuzzi Gas del Sur S.A. andCamuzzi Gas Pampeana S.A.) which were granted licenses b Argentina to suppl and distribute naturalgas in several Argentine provinces.

62 In the context o the claim submitted b the minority shareholder corporation, the Sempra Tribunalheld:

There is no question that . . . [the term “investment” in the U.S.–Argentina BIT has]a broad denition, as its intent is to extend comprehensive protection to investors.Quite a ew arbitration tribunals, acting under both the ICSID and the UNCITRALRules, have recognised this import in the context o the same treat and haveconcluded that, in the light o the ver terms o the provision, it encompasses notonl the majorit shareholders but also the minorit ones, whether the control thecompan or not. . . . This Tribunal has no reason not to concur with that conclusion,even though some o the elements o act in each dispute ma dier in some respects.

Sempra Decision on Jurisdiction, supra note 59, para. 93. The Camuzzi Tribunal also held that the“comprehensive protection to investors” under the Belgo-Luxembourg-Argentina BIT “not onl includes




In both cases, the Tribunal held that it had jurisdiction over the disputes.63

E. Claims by Indirect Shareholders

One common method o investment is or a oreign investor to have aninterest in a locall incorporated corporation indirectly through its participationin another corporation (an intermediate corporation), which, in turn, has aninterest in this local corporation. Arbitral tribunals have recognised the right o a oreign investor to submit a claim or damages suered b a local corporationin the host State even i its interest in such corporation is held indirectl.64 Theintermediate corporation ma have the nationalit o the claimant investor, thehost State, or even a third State. Each o these scenarios o indirect investment

will now be examined.The rst situation is well illustrated b the case o Siemens v. Argentina .65

The compan Siemens A.G. (“Siemens”), a German corporation, owned 100%o the shares o Siemens Nixdor Inormationsssteme A.G. (“SNI”), anotherGerman corporation. SNI created and controlled Siemens IT Services S.A.(“SITS”), a corporation incorporated in Argentina or the purpose o carring out the investment. Following the commencement o ICSID arbitration b Siemens, Argentina objected to the Tribunal’s jurisdiction on the ground that

the shares in SITS were not held b Siemens but b SNI. Argentina arguedthat there was no direct relationship between Siemens and the investment. TheTribunal ound that the express language o the Argentina–German BIT didnot exclude claims b indirect investors:

The plain meaning o this provision is that shares held b a Germanshareholder are protected under the Treat. The Treat does not requirethat there be no interposed companies between the investment andthe ultimate owner o the compan. Thereore, a literal reading o the

majorit shareholders, but also minorit or indirect shareholders, whether or not the latter control thecompan.” Camuzzi Decision on Jurisdiction, supra note 60, para. 60.

63 In Ma 2011, the Camuzzi case was still pending (the proceedings were suspended pursuant to theparties’ agreement). The Sempra Tribunal rendered a nal Award on September 28, 2007 in avour o theClaimant in the amount o more than US$ 128 million. In 2008, Argentina commenced an annulmentproceeding against the Award. The Award was annulled b the ad hoc Committee on June 29, 2010. OnNovember 12, 2010, the ICSID Secretar-General registered a request or resubmission o the dispute toa new Tribunal, which was constituted on April 21, 2011.

64 See Markus Perkams, Piercing the Corporate Veil in International Investment Agreements: The Issue o Indirect Shareholder Claims Reloaded , in August Reinisch & Christina Knahr (eds.), International

Investment Law in Context 93 (Eleven Int’l 2008).65 Siemens A.G. v. Argentine Republic , ICSID Case No. ARB/02/8, Decision on Jurisdiction (Aug. 3,

2004), 44 I.L.M. 138 (2005).




Treat does not support the allegation that the denition o investmentexcludes indirect investments.66


The second situation is where the intermediate corporation has thenationalit o the host State o the investment.68 One illustration is the caseo Enron v. Argentina. It deals with the claim o a U.S. corporation, Enron,concerning its participation in an Argentine corporation, Transportadora deGas del Sur (“TGS”), involved in the transportation and distribution o gasproduced in Argentina.69 Enron’s stake in TGS involved a number o otherlocal corporations and several laers o ownership.70 Enron was an indirectminorit shareholder (owning indirectl some 35% o the shares) o the locall

incorporated Argentine corporation, TGS. The Tribunal analzed the denitiono “investment” set out in the U.S.–Argentina BIT and concluded that it was“apparent that [it] does not exclude claims b minorit and non-controlling shareholders.”71 The Tribunal decided that it had jurisdiction over the dispute.72

66 Id. para. 137.67 The Tribunal rendered its nal Award on Februar 6, 2007 in avour o the Claimant in the

amount o close to US$ 220 million. The same ear, Argentina commenced an annulment proceeding against the Award. In 2008, Argentina led a request or revision o the Award (the parties agreed tosuspend the annulment proceeding). The parties agreed in August 2009 to discontinue both annulmentand revision proceedings.

68 These distinctions are discussed in Schreuer, Shareholder Protection, supra note 22.69 Enron Decision on Jurisdiction, supra note 55. Another example is the case o LG &E v. Argentina ,

ICSID Case No. ARB/02/1, Decision on Jurisdiction, para. 63 (Apr. 30, 2004).70 The complex structure o the ownership was described as ollows b the Tribunal:

The Claimants own 50% o the shares o CIESA, an Argentine incorporated compan that controls TGS b owning 55.30% o its shares; the Claimants’ participation inCIESA is held b two wholl-owned companies, EPCA and EACH. The Claimants,through EPCA, EACH and ECIL, another corporation controlled b the Claimants,also own 75.93% o EDIDESCA, another Argentine corporation that owns 10% o

the shares o TGS; and the also have acquired an additional 0.02% o TGS throughEPCA. The investment as a whole, it is explained, amounts to 35.263% o TGS.

Enron Decision on Jurisdiction, supra note 55, para. 21.71 Id. para. 44. The Tribunal added:

This Tribunal must accordingly conclude that under the provisions o the BilateralInvestment Treaty, broad as they are, claims made by investors that are not in themajority or in the control o the aected corporation when claiming or violations o their rights under such treaty are admissible. Whether the locally incorporated company may urther claim or the violation o its rights under contracts, licences or otherinstruments, does not aect the direct right o action o oreign shareholders under theBilateral Investment Treaty or protecting their interests in the qualiying investment.

Id. para. 49.72 The Tribunal rendered its nal Award on Ma 22, 2007 in avour o the Claimant in the amount

o US$ 106.2 million. The Tribunal rendered its Decision on Claimants’ Request or Rectication and/orSupplementar Decision on October 25, 2007. In 2008, Argentina commenced an annulment proceeding




On the question o Enron’s indirect investment in TGS, the Tribunal ultimatel decided that it had jurisdiction over the dispute, but nevertheless expressedsome concern about the consequences o allowing indirect shareholders to

submit claims (a point examined below in the concluding section).Third, the right o a oreign investor to submit a claim or damages sueredb a local corporation has also been recognised in cases where the intermediatecorporation had neither the nationalit o the investor nor that o the hostState, but the nationalit o a third State . This situation was considered in theNAFTA Chapter 11 case o Waste Management, Inc. v. Mexico, which involveda concession agreement entered into between the cit o Acapulco (Mexico)and a Mexican corporation, Acaverde.73 The Claimant, Waste ManagementInc., a U.S. corporation, owned the locall incorporated corporation

(Acaverde) through a holding corporation (AcaVerde Holdings Ltd.) andanother corporation (Sun Investment Co.), both incorporated in the CamanIslands (United Kingdom).74 The Tribunal indicated that while Article 1113 o NAFTA 75 addresses the situation where the substantial control or ownership o a U.S. corporation would be in a non-NAFTA countr and where such U.S.corporation would have no substantial business activities in the U.S., the Treat does not expressl address the dierent situation where a U.S. corporationinvests in a NAFTA countr through an intermediate corporation located in a

non-NAFTA country .76

The Tribunal urther explained that:

against the Award and it was annulled on Jul 30, 2010. However, the ad hoc Committee upheld thereasoning o the Tribunal on claims b indirect shareholders. The dispute was registered or resubmissionon October 18, 2010.

73 Waste Management Inc. v. United Mexican States , ICSID Case No. ARB(AF)/00/3, Award (Apr. 30,2004), 43 I.L.M. 967 (2004) [“Waste Management II Award”].

74 In act, prior to the signing o the concession agreement, the ultimate owner o Acaverde wasanother U.S. compan, Sanill Inc. Subsequentl, Sanill merged with USA Waste Services Inc. and themerged compan adopted the name Waste Management Inc.

75 NAFTA, supra note 13, art. 1113 states:

1. A Party may deny the benets o this Chapter to an investor o another Party that is anenterprise o such Party and to investments o such investor i investors o a non-Party own or control the enterprise and the denying Party: (a) does not maintain diplomaticrelations with the non-Party; or (b) adopts or maintains measures with respect to thenon-Party that prohibit transactions with the enterprise or that would be violated orcircumvented i the benets o this Chapter were accorded to the enterprise or toits investments. 2. Subject to prior notication and consultation in accordance with Articles 1803 (Notication and Provision o Inormation) and 2006 (Consultations),a Party may deny the benets o this Chapter to an investor o another Party that is anenterprise o such Party and to investments o such investors i investors o a non-Party own or control the enterprise and the enterprise has no substantial business activities inthe territory o the Party under whose law it is constituted or organized.

76 Waste Management II Award, supra note 73, para. 80 (“There is no hint o an concern thatinvestments are held through companies or enterprises o non-NAFTA States, i the benecial ownershipat relevant times is with a NAFTA investor.”).




I the NAFTA Parties had wished to limit their obligations o conductto enterprises or investments having the nationalit o one o the otherParties the could have done so. Similarl the could have restricted

claims o loss or damage b reerence to the nationalit o the corporation which itsel suered direct injur. No such restrictions appear in thetext. It is not disputed that the time the actions said to amount toa breach o NAFTA occurred, Acaverde was an enterprise owned orcontrolled indirectl b the Claimant, an investor o the United States.The nationalit o an intermediate holding companies is irrelevant tothe present claim.77

The Tribunal thereore rejected the objection raised b Mexico that Waste

Management could not be considered an “investor” under NAFTA Chapter 11because it invested through corporations incorporated in a third State.

Another similar example is the case o Azurix Corp. v. Argentina , wherethe investment was made through several intermediate corporations, somehaving the nationalit o a third State.78 The complex ownership structureo the investment can be summarized as ollows: Azurix, a U.S. corporation,invested in three Argentine corporations (AAS, OBA and ABA) through severalintermediate corporations incorporated in the U.S. and the Caman Islands

(United Kingdom). Ultimatel, Azurix indirectl owned 90% o the shares o ABA.79 Based on the “wide meaning o investment in the denition” in theU.S.–Argentina BIT, the Tribunal held that it had jurisdiction over the disputesince Azurix was the “investor that made the investment through indirectl

77 Id. para. 85.78 Azurix Corp. v. Argentina , ICSID Case No ARB/01/12, Decision on Jurisdiction (Dec. 8, 2003),

43 I.L.M. 262 (2004).79 Id. para. 65. The Tribunal described the ownership structure as ollows:

The bid oer was made b two companies o the Azurix group o companiesestablished or this specic purpose, Azurix AGOSBA S.R.L. (hereinater “AAS”) andOperadora de Buenos Aires S.R.L. (hereinater “OBA”). AAS and OBA are indirectsubsidiar companies o Azurix [a corporation incorporated in the State o Delaware,U.S.]. AAS is registered in Argentina and is 0.1% owned b Azurix and 99.9%owned b Azurix Argentina Holdings Inc. (a compan incorporated in Delaware),

which in turn is 100% owned b Azurix. OBA, also registered in Argentina, is 100%owned b Azurix Agosba Limited which is registered in the Caman Islands, and

which is in turn 100% owned b Azurix Agosba Holdings Limited, also registeredin the Caman Islands. Azurix owns 100% o the shares in Azurix Agosba HoldingsLimited. Having successull won their bid, AAS and OBA incorporated ABA in

Argentina to act as concessionaire.Id. paras. 21–22.




owned and controlled subsidiaries.”80 Other tribunals have also reached similarconclusions in the context o intermediate corporations having the nationalit o a third State.81

This case law suggests that in the absence o an explicit exclusion in aninvestment treat, tribunals will generall consider “indirect” investments to bea protected orm o investment.82 This conclusion applies notwithstanding theactual nationalit o the intermediate corporation.

F. Claims by Intermediate (“Holding”) Corporations

Until now, we have been examining investment claims through the lenso the shareholders (and the parent corporation), namel the investor that

tpicall has a benecial interest in the investment, however complex theintermediate holding structure. What happens when the ocus shits toclaims brought not b the ultimate benecial owner o the investment, butb the intermediate corporation through which the investment is made inanother State? Such intermediate corporations are sometimes reerred to as“holding,” “shell” or “mailbox” corporations. These corporations are tpicall incorporated in avourable tax jurisdictions. The usuall have no signicantassets or operations and are established or the sole purpose o owning shares

o other corporations. The question examined in this section is whether theseintermediate corporations can submit their own claims to arbitration.Tribunals have allowed intermediate corporations direct access to

arbitration whenever aced with a treat denition o an “investor” limited tothe incorporation under the laws o one o the parties to the BIT. The onl

80 Id. paras. 73–74. The Tribunal rendered a nal Award on Jul 14, 2006 in avour o the Claimantin the amount o US$ 165 million. In 2006, Argentina commenced an annulment proceeding againstthe Award. The Decision o the ad hoc Committee on Annulment was issued on September 1, 2009. The

application or annulment was rejected.81 For instance, this situation arose in the case o EnCana v. Ecuador , LCIA Case No. UN3467,

Award, para. 115 (Feb. 3, 2006). In this case, the Canadian corporation EnCana submitted a claimalleging that Ecuador’s denial o VAT reunds to its two Barbados-based subsidiaries through which itmade its investment violated its rights under the Canada–Ecuador BIT. In this case, our contracts orthe exploration o oil and gas had been concluded b the two subsidiaries with the state oil agenc,Petroecuador. Based on a particular provision o the BIT, the Tribunal recognised the legal standing o theparent compan to claim or its own damage (but not or those o the Barbados-based subsidiaries). TheTribunal nevertheless rejected the claims based on other grounds. See also Lauder v. The Czech Republic ,UNCITRAL, Award (Sept. 3, 2001) [“Lauder Award”].

82 This is, or instance, the conclusion reached b the Tribunal in Tza Yap Shum v. Peru, ICSID CaseNo. ARB/07/6, Decision on Jurisdiction, paras. 106–07 (June 19, 2009). See also ILA German Branch,Subcommittee on Investment Law, Working Group, The Determination o the Nationality o Investors under Investment Treaties: A Preliminary Report 69 (Inst. Econ. L., Martin Luther Univ. Halle-Wittenberg,Dec. 2009).




have enquired beond the corporate structure o the claimant, b piercing thecorporate veil, when the treat expressl dened “investor” in relation to thenotion o control.83

A good illustration o this trend is the case o Saluka v. Czech Republic decided under the UNCITRAL Arbitration Rules.84 This case involved theinvestment made b the Japan-based Nomura Group in the corporation IPB (a Czech bank), through a U.K.-based subsidiar, Nomura Europe plc (“Nomura Europe”). The Claimant in this arbitration was a Dutch corporation, Saluka, which was wholl controlled b Nomura Europe. As explained b the Tribunal,Saluka was created “or the sole and express purpose o holding the shares inIPB which Nomura Europe was at the time in the process o purchasing.”85 Inother words, Saluka was a “shell” corporation.

In deence, the Czech Republic’s main argument was that the “real” claimantin this arbitration was not Saluka, which was a mere shell corporation, butNomura Europe. It argued that U.K.-based Nomura Europe had no standing under the Netherlands–Czech Republic BIT. The Czech Republic requestedthe Tribunal to pierce the corporate veil to discover the real interest behindthe Dutch-based holding corporation.86 The Tribunal rst acknowledgedthe “closeness o the relationship” between Nomura Europe and Saluka, butnoted that “the companies concerned ha[d] simpl acted in a manner which

is commonplace in the world o commerce.”87

The Tribunal held that, basedon the broad denition o “investor” contained in the BIT, “an legal personconstituted under their laws is entitled to invoke the protection o the Treat.”88 The Tribunal urther explained that it was “beond [its] powers . . . to importinto the denition o ‘investor’ some requirement relating to such a relationshiphaving the eect o excluding rom the Treat’s protection a compan whichthe language agreed b the parties included within it.”89 The Tribunal alsostated that although it would “in some circumstances be permissible . . . to look behind the corporate structures o companies involved in proceedings beore

83 Rachel Thorn & Jennier Doucle, Disregarding the Corporate Veil and Denial o Benefts Clauses:Testing Treaty Language and the Concept o “Investor” , in Michael Waibel et al. (eds.), The Backlash

Against Investment Arbitration 11–12 (Kluwer 2010); ILA German Branch Report, supra note 82, at45; McLachlan et al., supra note 4, at 191.

84 Saluka Investments BV (The Netherlands) v. The Czech Republic , UNCITRAL, Partial Award (Mar.17, 2006) [“Saluka Partial Award”].

85 Id. para. 226.86 Id. para. 227.87 Id. para. 228.88 Thus, the Tribunal noted that “[t]he parties to the Treat could have included in their agreed

denition o ‘investor’ some words which would have served, or example, to exclude wholl-ownedsubsidiaries o companies constituted under the laws o third States, but the did not do so.” Id. para. 229.

89 Saluka Partial Award, supra note 84, para. 229.




it,” in the instant case, however, the “alleged raud and maleasance have beeninsucientl made out to justi recourse to a remed which, being equitable,is discretionar.”90

Another argument raised by the Respondent was that Saluka did not have“bona fde , real and continuous links to the Netherlands” and thereore could notclaim under the Netherlands–Czech Republic BIT.91 In other words, it was arguedthat Saluka was not really a Dutch corporation. The Tribunal noted that it had

some smpath or the argument that a compan which has no realconnection with a State Part to a BIT, and which is in realit a mereshell compan controlled b another compan which is not constitutedunder the laws o that State, should not be entitled to invoke the

provisions o that treat.92

For the Tribunal, “such a possibilit lends itsel to abuses o the arbitralprocedure, and to practices o ‘treat shopping’ which can share man o thedisadvantages o the widel criticized practice o ‘orum shopping.’”93 However,the Tribunal concluded that:

The parties had complete reedom o choice in this matter, and the

chose to limit entitled “investors” to those satising the denition setout in Article 1 o the Treat. The Tribunal cannot in eect imposeupon the parties a denition o “investor” other than that whichthe themselves agreed. That agreed denition required onl thatthe claimant-investor should be constituted under the laws o (in thepresent case) The Netherlands, and it is not open to the Tribunal to addother requirements which the parties could themselves have added but which the omitted to add.94

Similar arguments were raised b the Respondent in the case o ADC v.Hungary .95 In that case it was argued that the Tribunal had no jurisdiction overthe dispute because the Claimants were, in act, “shell” corporations which hadbeen established b Canadian investors in Cprus.96 The Tribunal simpl noted

90 Id. para. 230.91 Id. para. 239.92 Id. para. 240.93 Id. para. 240.94 Id. para. 241.95 ADC Afliate Ltd. and ADC & ADMC Mgmt. Ltd. v. Republic o Hungary , ICSID Case No.

ARB/03/16, Award (Oct. 2, 2006) [“ ADC Award”].96 Since Canada was not a contracting part to the ICSID Convention at the time o the proceedings,




that under the Cprus–Hungar BIT, a Cpriot “investor” protected b thattreat includes an “legal person constituted or incorporated in compliance with the law” o Cprus, which had been established or both Claimants. The

Tribunal concluded that:

As the matter o nationalit is settled unambiguousl b the Conventionand the BIT, there is no scope or consideration o customar law principles o nationalit, as refected in Barcelona Traction, which in an event are no dierent. In either case inquir stops upon establishmento the State o incorporation, and considerations o whence comes thecompan’s capital and whose nationals, i not Cpriot, control it areirrelevant.97

The Tribunal also observed that the principle o “piercing the corporate veil”“onl applies to situations where the real beneciar o the business misusedcorporate ormalities in order to disguise its true identit and thereore to avoidliabilit.”98 For the Tribunal, the principle was inapplicable to the instant casebecause “Hungar was ull aware o the use o Cpriot entities and maniestl approved it.”99

In the present authors’ view there is nothing inherently wrong with

“shell” corporations being able to submit arbitration claims provided, o course, that the treaty supports such a conclusion. A corporation’s access toarbitration under a BIT is determined by the treaty defnition o “investor”(and “investment”). There are no reasons why a holding corporation shouldnot have access to arbitration in cases where the defnition o “investor” doesnot include any requirements other than that o incorporation (such as,or instance, the requirement that a corporation be controlled by nationalso the State o incorporation or have substantial business activities in thatState).100 Thus, a tribunal “cannot read more into [a] BIT than one can

discern rom its plain text.”101 Also, as explained by the Saluka Tribunal,“it is not open to [a] Tribunal to add other requirements [in a BIT] which

the Respondent alleged that the Claimants (considered to be “Canadians”) were thereore not “nationalso another Contracting State” under Article 25 o the Convention.

97 ADC Award, supra note 95, para. 357.98 Id. para. 358.99 Id.100 See Mobil Corp. and others v. Venezuela , ICSID Case No. ARB/07/27, Decision on Jurisdiction,

paras. 156–57 (June 10, 2010) [“ Mobil Decision on Jurisdiction”]. But see Engela Schlemmer, Investment,Investor, Nationality and Shareholders , in Muchlinski et al., supra note 4, at 79–81 (stating that the“control test” should be used b tribunals to determine the nationalit o a corporation).

101 ADC Award, supra note 95, para. 359.




the parties could themselves have added but which they omitted to add.”102 In other words, it is clearly not or a Tribunal to cure any perceived treaty “deect” by adding other nationality criteria to the ones expressly mentioned

in the treaty. No principle o international law requires tribunals to adoptsuch liberal interpretation.103

This eature o modern investment treaties is said to acilitate the phenomenono “treaty shopping.”104 The “shopping” involves a oreign investor organising itscorporate structure by creating shell companies in a “home country o convenience”that has entered into a BIT with the host State o investment. In our view, this isperectly legitimate and acceptable in the context modern investment treaties.105 Thus, as explained by Rudol Dolzer and Christoph Schreuer, “nationality planning or ‘treaty shopping’ is not illegal or unethical as such.”106 A corporation usually

chooses a place o incorporation based not only on the overall avourable legal andbusiness environment, but also in regard to some other specic advantages. Onesuch common advantage is a low level o taxation. Another increasingly recognisedadvantage is the incorporation o a corporation in a jurisdiction having a widenetwork o investment treaties with other States. In particular, prudent investorsshould ensure the existence o wide procedural and substantive protections oeredunder a BIT entered into with the host State where an investment is made. It isonly natural or a oreign investor to structure its investment vehicle in a way

102 Saluka Partial Award, supra note 84, para. 241. See also The Rompetrol Group N.V. v. Romania ,ICSID Case No. ARB/06/3, Decision on Jurisdiction, para. 85 (Apr. 18, 2008) [“Rompetrol Decision on

Jurisdiction”], where the Tribunal stated:The Tribunal would in an case have great dicult in an approach that wastantamount to setting aside the clear language agreed upon b the treat Parties inavour o a wide-ranging polic discussion. Such an approach could not be reconciled

with Article 31 o the Vienna Convention on the Law o Treaties (which las downthe basic rules universall applied or the interpretation o treaties), according to

which the primar element o interpretation is ‘the ordinar meaning to be given tothe terms o the treat.

103 Hulley Enter. Ltd. (Cyprus) v. The Russian Federation, PCA Case No. AA 226, UNCITRAL,Interim Award on Jurisdiction and Admissibilit, para. 415 (Nov. 30, 2009) [“Hulley Interim Award”](“The Tribunal knows o no general principles o international law that would require investigating how a compan or another organization operates when the applicable treat simpl requires it to be organizedin accordance with the laws o a Contracting Part. The principles o international law, which havean unquestionable importance in treat interpretation, do not allow an arbitral tribunal to write new,additional requirements—which the draters did not include—into a treat, no matter how auspicious orappropriate the ma appear.”).

104 Gus van Harten, Investment Treaty Arbitration and Public Law 113–17 (Oxord 2007).105 Potential problems arising rom treat shopping in the dierent context o diplomatic protection

are discussed in ILA German Branch Report, supra note 82, at 34.106 Dolzer & Schreuer, supra note 4, at 54. See also Stephan W. Schill, supra note 4, at 234–35

(indicating that to allow this orm o treat shopping is preerable on polic grounds).




which is likely to maximize its legal protection when dealing with the host State o the investment.107 This is, ater all, the very goal o BITs.108

Other orms o treat shopping are, however, clearl condemnable. One

example o illegitimate treat shopping is, or instance, whenever a corporationchooses a place o incorporation or the sole purpose o commencing arbitrationproceedings under a specic BIT. In general, one indicia o non-bona fde treat shopping would be, or instance, i a holding corporation was created in a particular jurisdiction just shortly beore an arbitration claim is launched.

This is precisely the allegation that was raised by the Respondentin the case o Aguas del Tunari v. Bolivia.109 This case involved Aguas delTunari S.A. (“AdT”), a company incorporated in Bolivia, that entered intoa concession agreement with Bolivia and which commenced arbitration

proceedings alleging treaty breaches o the Netherlands–Bolivia BIT. Thecorporate structure o AdT is complex, but can be summarized as ollows: itis a Bolivian company, which was partially owned by some Dutch holding companies, which were in turn owned by Bechtel, a U.S. corporation.110 Bolivia argued that AdT could not rely on the Netherlands–Bolivia BIT, under

which a corporation incorporated in Bolivia can nevertheless be deemed asa “Dutch” investor provided that it is controlled “directly or indirectly” by Dutch entities. Bolivia argued that AdT was not really “controlled” by Dutch

companies because they were themselves owned by non-Dutch companies.The Tribunal ultimately held that it had jurisdiction over the claim pursuantto the Netherlands–Bolivia BIT.111

In doing so, the Tribunal examined Bolivia’s contention that these Dutchcompanies were mere “shells” that did not in act “control” the Claimant.112 The Tribunal also examined the charge that the corporate ownership structurehad been changed (and Dutch holding companies created) precisel to allow

107 Dolzer & Schreuer, supra note 4, at 54.108 On this point, see Kenneth J. Vandevelde, Case Comment: Aguas del Tunari, S.A. v. Republic o

Bolivia , 101(1) Am. J. Int’l. L. 179 (2007).109 Aguas del Tunari Decision on Jurisdiction, supra note 23.110 The complex ownership structure o AdT ater the December 1999 restructuring was described

b the Tribunal, id. para. 71, as ollows: our Bolivian companies each owned 5%, a Uruguaan compan owned 25% and a Luxembourg compan owned the remaining 55%. The Luxembourg compan wasa wholl-owned subsidiar o a Dutch compan (International Water (Tunari) B.V.) which in turn was

wholl owned b another Dutch compan (International Water Holdings B.V.). This Dutch compan was co-owned b et another Dutch compan (Bawater Holdings B.V.) and Edison S.p.a., a large Italianenerg compan. Bawater Holdings B.V., the highest Dutch compan in the ownership chain, was in turna wholl-owned subsidiar o Bechtel Holdings Inc., a U.S.-incorporated engineering and constructioncompan. Ultimatel, Bechtel owned 55% o AdT’s shares.

111 A settlement was later agreed to b the parties.112 Aguas del Tunari Decision on Jurisdiction, supra note 23, para. 208.




access to arbitration under the Netherlands–Bolivia BIT.113 The majorit o the Tribunal observed that it was perectl legitimate that an intermediate shellcorporation be inserted into a chain o ownership precisel or the purpose

o securing legal protection o an investment under a specic BIT: “It is notuncommon in practice, and—absent a particular limitation—not illegalto locate one’s operations in a jurisdiction perceived to provide a benecialregulator and legal environment in terms, or examples, o taxation or thesubstantive law o the jurisdiction, including the availabilit o a BIT.”114

The majorit o the Tribunal noted, however, that some orms o treat shopping should not be acceptable: “corporate orm ma be abused and thatorm ma be set aside or raud or other grounds.”115 For the majorit o theTribunal, however, the transer o ownership in the instant case was not a

“raudulent or abusive device to assert jurisdiction under a BIT”116 since theDutch corporations were “not simpl a corporate shell set up to obtain ICSIDarbitration over the present dispute.”117 The Tribunal alluded to “reasons o taxation” to explain wh the entities were established in the Netherlands.118 TheTribunal noted that the corporate structuring and the transer o ownership took place in December 1999, i.e. beore the alleged treat breach which occurred inthe spring o 2000.119 The Tribunal also noted that the “severit” o the events which later erupted in the spring o 2000 (major violent protests against the

concession agreement) was not oreseeable at the time when the corporatestructuring was done. This last conclusion has been disputed b some writerspointing out that at the time o the structuring, man problems had alread arisen with the investment and that it was thereore oreseeable that arbitration

113Thus, at the time when the concession agreement was signed, the U.S. had not entered into a BIT

with Bolivia. The U.S.–Bolivia BIT was signed on April 17, 1998 and came into orce on June 6, 2001.114 Aguas del Tunari Decision on Jurisdiction, supra note 23, para. 330(d). The Tribunal also stated:

[T]his case makes clear that which has been clear to negotiating states or some time,namel, that through the denition o “national” or “investor”, such treaties servein man cases more broadl as portals through which investments are structured,organized and, most importantl, encouraged through the availabilit o a neutralorum. The language o the denition o national in man BITs evidences thatsuch national routing o investment is entirel in keeping with the purpose o theinstruments and the motivations o the state parties.

Id. para. 332.115 Id. para. 245.116 Id. para. 330.117 Id. para. 321.118 Id. para. 330.119 Id. paras. 329–30.




proceedings could be undertaken to nd redress.120 The request or arbitration was led b the Claimant in November 2001.

The Aguas del Tunari case suggests that an corporate restructuring done

ater a treat breach should be considered as illegitimate treat shopping. Thisis clear since, as a matter o principle, a claimant commencing arbitrationproceedings must have the nationalit o the relevant Contracting Part at thetime o the breach. A contrario, an restructuring done prior to the commissiono a treat breach b the host State should be legitimate. The Tribunal’s reasoning would also seem to impl, perhaps surprisingl, that such restructuring couldeven be done ater problems have actuall arisen with the investment. In ourview, such a “last minute” corporate restructuring situation ma raise somereasonable grounds o suspicion about its legitimac. This is especiall the case

i arbitration proceedings are launched soon ater the incorporation in the new jurisdiction. In act, a respondent will be more likel to convince a tribunal o the existence o illegitimate treat shopping when onl a limited amount o time elapses between corporate restructuring and the moment when a requestor arbitration is led.

The act that legitimate corporate restructuring ma be done ater problemshave actuall arisen with the investment but must, in an event, be eected beore an actual treat breach, is conrmed b the recent case o Mobil v. Venezuela .121

This case involves Mobil Corporation, a U.S. corporation, which initiall wholl owned intermediar companies incorporated in the United States and in theBahamas, which in turn had a participation in two local Venezuelan companiesinvolved in two projects. In 2005, Mobil restructured its investments throughthe creation o an intermediar Dutch entit (called Venezuela Holdings, BV), which in 2006 acquired all shares o the alread existing U.S. and Bahamasintermediar companies. The Dutch entit was thereore inserted in thecorporate chain that invested in two projects in Venezuela.122 In 2007, severalcompanies in this corporate chain led a request or arbitration under, inter

alia , the Netherlands–Venezuela BIT. Venezuela contended that this BIT did

120 William L. Kirtle, The Transer o Treaty Claims and Treaty-Shopping in Investor-State Disputes ,10(3) J. World Inv. & Trade 450–52 (2009); Alexandre de Gramont, Ater the Water War: The Battle or

Jurisdiction in Aguas Del Tunari, S.A. v. Republic o Bolivia, 3(5) Transnat’l Disp. Mgmt. 24 (2006).121 Mobil Decision on Jurisdiction, supra note 100, para. 186 .122 The Tribunal described the corporate chain as ollows:

As a result o this restructuring, Mobil (Delaware) owns 100% o Venezuela Holdings (Netherlands), which owns 100% o Mobil CN Holding (Delaware),

which owns 100% o Mobil CN (Bahamas), which nall owns a 41 2/3% interestin the Cerro Negro Association. Venezuela Holdings (Netherlands) also owns 100%o Mobil Venezolana Holdings (Delaware), which owns 100% o Mobil Venezolana (Bahamas), which nall owns a 50% interest in the La Ceiba Association.

Id. paras. 21–22.




not provide a basis or ICSID jurisdiction over the dispute. Thus, it arguedthat some o the Claimants were not Dutch nationals and that the DutchClaimant (Venezuela Holdings) was a “corporation o convenience” created in

anticipation o litigation with Venezuela or the sole purpose o gaining accessto ICSID jurisdiction. The Tribunal rst held that Venezuela Holdings and its wholl owned U.S. and Bahamian subsidiaries were all Dutch nationals under Article 1(b)(iii) o the BIT. The Tribunal then addressed the argument o abuseo right submitted b the Respondent.

It is important to note that the restructuring took place ater there werepending disputes with the host State relating to roalties and income tax,but beore nationalization measures were taken (in 2007) b the Venezuelanauthorities. The Tribunal admitted that “the main, i not the sole purpose o

the restructuring was to protect Mobil investments rom adverse Venezuelanmeasures in getting access to ICSID arbitration through the Dutch-Venezuela BIT.”123 However, the Tribunal considered that “this was a perectl legitimategoal as ar as it concerned uture disputes ” related to nationalization measures.124 The Tribunal made it clear that to “restructure investments onl in order togain jurisdiction under a BIT or [pre-existing] disputes” would constitutean abusive manipulation o the ICSID sstem and the BIT.125 The Tribunalthereore held that it had jurisdiction under the BIT over claims submitted b

Venezuela Holdings and its wholl owned U.S. and Bahamian subsidiaries, butonl or disputes which arose ater the Dutch holding compan was created andhad acquired shares o these intermediar companies.126

One common reason wh an investor ma wish to choose a specic placeo incorporation or the sole purpose o commencing arbitration proceedingsunder a BIT is to avoid the application o one well-known general principleo international law. Thus, in general, nationals o one State are not allowedto submit claims against that State in international ora.127 Internationalarbitration is not the proper orum to resolve disputes between a State and its

domestic investors.128 In principle, such domestic disputes should be settledbeore national courts. In the context o investment treaties, the question arises when a national o one State (State A) establishes a holding compan in anotherState (State B), which then makes an investment in State A: should that shell

123 Id. para. 190.124 Id. para. 204 (emphasis added).125 Id .126 As o Ma 2011 the case was still pending.127 Markus Burgstaller, Nationality o Corporate Investors and International Claims against the Investor’s

Own State , 7(6) J. World Invest. & Trade 857 (2006).128 See, however, Article 25(2)(b) o the ICSID Convention providing or one exception to that rule

or locall incorporated corporations that are oreign-controlled .




compan (controlled b a national o State A) be allowed under a BIT betweenState A and B to bring a claim against State A?

This issue arose in the context o Tokios Tokeles v. Ukraine.129 This case

involves a claim led against Ukraine under the Lithuania–Ukraine BITb Tokios, a Lithuanian corporation which was 99% owned b Ukrainiannationals. The majorit o the Tribunal ruled that Tokios could bring a claimagainst Ukraine because the BIT dened a Lithuanian “investor” as “an entit established in the territor o the Republic o Lithuania in conormit with itslaws and regulations,” without an requirement that such entit be controlledin an wa b Lithuanian natural persons.130 The president o the Tribunal,Proper Weil, dissented and argued that the “ICSID arbitration mechanism [was]meant or international investment disputes, that is to sa, or disputes between

States and oreign investors.”131 He also argued that oreign investors shouldnot be allowed “to use a oreign corporation, whether pre-existent or created or that purpose , as a means o evading the jurisdiction o their domestic courts andthe application o their national law.”132 In his view, the Tribunal should haveexamined the origin o capital and, thereore, considered Tokios as a Ukrainiancorporation and denied it access to arbitration under the BIT.

Other subsequent tribunals,133 as well as the vast majority o authors,134 havesupported the conclusion reached by the majority o the Tribunal based on the

explicit denition o “investor” under the BIT. Most importantly or the purposeo the present discussion, the majority o the Tokios Tribunal rightly concludedthat the Claimant was not engaged in any orm o illegitimate orum shopping.Thus, Tokios was not created or the purpose o gaining access to ICSID arbitrationunder the Lithuania–Ukraine BIT. In act, the incorporation took place six years beore the entry into orce o the BIT.135 In other words, at the time o Tokios’incorporation in Ukraine, the owners could not have even envisaged arbitrationproceedings since they did not know that a treaty would eventually be signed.

Another recent case where a similar situation arose is Rompetrol v. Romania ,

involving a claim submitted against Romania under the Netherlands–Romania

129 Tokios Tokel ė s v. Ukraine , ICSID Case No. ARB/02/18, Decision on Jurisdiction (Apr. 29, 2004)[“Tokios Decision on Jurisdiction”].

130 Id. para. 28. The Tribunal also concluded that Tokios was a “national o another Contracting State” under Article 25 o the ICSID Convention. Id. para. 71.

131 Dissenting opinion o Prosper Weil, para. 5 (emphasis in original).132 Id. para. 30 (emphasis added).133 For instance, the Tribunal in The Rompetrol Group N.V. v. Romania , Decision on Jurisdiction,

supra note 102, para. 85, indicated that the view expressed b Weil had “not been widel approved inacademic and proessional literature, or generall adopted b subsequent tribunals.” See also ADC Award,supra note 95, para. 360.

134 See, e.g., McLachlan et al., supra note 4, at 151–52. But see Burgstaller, supra note 127, at 874–81.135 Tokios Decision on Jurisdiction, supra note 129, para. 56.




BIT by a holding corporation incorporated in the Netherlands, but ultimately controlled by a Romanian national.136 Romania argued, inter alia , that theClaimant was not a “oreign investor,” but a Romanian national who had merely

incorporated a shell company in the Netherlands.137

According to Romania, relying on Weil’s dissenting opinion in Tokios , “[t]o allow claims by own nationals throughthe device o a oreign shell company would be a radical change rom establishedinternational law and have a wide impact on the network o BITs.”138The Claimantdenied having been engaged in any “treaty shopping” since the holding company

was incorporated in the Netherlands six years beore the arbitration claim was ledand or reasons unrelated to arbitration (including “good corporate governancelaws, a avourable tax treaty and a good inrastructure”).139

The Tribunal concluded that it had jurisdiction over the claim because

the Claimant met the ormal requirements o the ICSID Convention andthe BIT.140 The Tribunal noted that the parties had the “sole authorit todetermine the criteria b which juridical persons with a dened status undereach other’s law ma enjo the protections o their BIT.”141 Thus, the parties were ree to choose incorporation “as a necessar and also sucient criterion o nationalit or purposes o ICSID jurisdiction without requiring in addition anexamination o ownership and control, o the source o investment unds, or o the corporate bod’s eective seat.”142 The Tribunal also denied that allowing

jurisdiction would be an abuse o the ICSID mechanism.The Tokios and Rompetrol cases suggest that the actual goal or the creationo a shell corporation is what trul matters when deciding whether a certainset o acts represent non-bona fde treat shopping. It must be shown thatthe aim o incorporation in a certain jurisdiction (in the example above, StateB) is not solel to gain access to international arbitration. Bona fde corporatestructuring would include, or instance, cases (i) when the incorporation o a holding compan in State B is done beore an BIT even exists between States A and B, (ii) when the incorporation is done many years beore an arbitration

proceedings are actuall launched against State A,143 and (iii) when the corporate

136 Rompetrol Decision on Jurisdiction, supra note 102.137 Id. para. 50.138 Id. para. 52.139 Id. para. 67.140 Id. para. 98. Article 1(b) o the Netherlands–Romania BIT reads, in part, as ollows: “(b) the term

‘investors’ shall comprise with regard to either Contracting Part: . . . ii. legal persons constituted underthe law o that Contracting Part . . . .”). As o Ma 2011 the case was still pending.

141 Id. para. 81.142 Id. para. 83.143 See, e.g., Rumeli Telekom A.S. and Telsim Mobil Telekomikasyon Hizmetleri A.S. v. Kazakhstan,

ICSID Case No. ARB/05/16, Award, para. 326 (Jul 29, 2008) (noting that the Claimant companiesexisted or man ears beore the dispute arose and beore an arbitration proceedings were undertaken




structuring is undergone or reasons that are clearl unrelated to eventualarbitration proceedings.144

One recent example o a clear situation o abusive treaty shopping arose in

the case o Phoenix Action, Ltd. v. Czech Republic.145

Phoenix Action (“Phoenix”)is an Israeli corporation wholly owned by a Czech national, Mr. Beno. In 2002,Phoenix purchased two Czech corporations, Benet Praha (“BP”) and BenetGroup (“BG”) both incorporated in the Czech Republic. These two corporations were ultimately owned by members o Mr. Beno’s close amily. At the time o the transaction, both BG and BP were involved in legal disputes in the CzechRepublic. In act, BP was under a criminal investigation in the Czech Republicover alleged customs duty evasion. This investigation had led Mr. Beno, anexecutive ocer o BP, to leave the country or Israel in 2001. Soon ater, he

established Phoenix under Israeli law. Merely two months ater Phoenix’s purchaseo BG and BP, the Israeli corporation commenced arbitration proceedings againstthe Czech Republic alleging breach o the Israel–Czech Republic BIT. In 2008,Phoenix sold BP back to its original owner or the same price paid in 2002.

For the Tribunal, the question at the heart o the dispute was not theundisputed act that Phoenix was an Israeli company and that it was allowed tosubmit an arbitration claim under Article 1(3) o the BIT.146 The real question was whether the dispute was connected with any investment . In its Award, the Tribunal

emphasized the importance o the principle o good aith. For the Tribunal,its mission was to “prevent an abuse o the system o international investmentprotection under the ICSID Convention, in ensuring that only investments thatare made in compliance with the international principle o good aith and donot attempt to misuse the system are protected.”147 The Tribunal concluded thatPhoenix’s purchase o the two corporations was an abuse o rights. Thus, “all thedamages claimed by Phoenix had already occurred and were inficted on the twoCzech companies, when the alleged investment was made.”148 For the Tribunal,“the unique goal o the ‘investment’ was to transorm a pre-existing domestic

dispute into an international dispute subject to ICSID arbitration under a bilateralinvestment treaty.”149 In other words, the ultimate aim behind the “investment”made by Phoenix in the Czech Republic was to benet, as an Israeli corporation,

and, thereore, that the “have certainl not been created or treating-shopping purposes”).144 Kirtle, supra note 120, at 45–50.145 Phoenix Action Award, supra note 20, paras. 142–44.146 Article 1(3) o the Israel–Czech Republic BIT denes the term “Israeli investor” as ollows: “b)

legal entities incorporated or constituted in accordance with Israeli law and having their permanent seatin the territor o the State o Israel.”).

147 Phoenix Action Award, supra note 20, para. 113.148 Id. para. 136.149 Id . para. 142.




rom the Israel–Czech Republic BIT and to launch international arbitrationproceedings against the Czech Republic. The Tribunal concluded that this was“not a bona fde transaction” which “cannot be a protected investment under the

ICSID system.”150

For the Tribunal, the claim was “an abusive manipulation o the system o international investment protection under the ICSID Conventionand BITs.”151 The Tribunal urther described the “abusive manipulation” thatsuch treaty shopping would represent or the ICSID system:

I it were accepted that the Tribunal has jurisdiction to decide Phoenix’sclaim, then an pre existing national dispute could be brought to anICSID tribunal b a transer o the national economic interests to a oreign compan in an attempt to seek protections under a BIT. Such

transer rom the domestic arena to the international scene would ipso acto constitute a “protected investment”—and the jurisdiction o BITand ICSID tribunals would be virtuall unlimited. It is the dut o theTribunal not to protect such an abusive manipulation o the sstem o international investment protection under the ICSID Convention andthe BITs. It is indeed the Tribunal’s view that to accept jurisdiction inthis case would go against the basic objectives underling the ICSIDConvention as well as those o bilateral investment treaties. The

Tribunal has to ensure that the ICSID mechanism does not protectinvestments that it was not designed or to protect, because the are inessence domestic investments disguised as international investments orthe sole purpose o access to this mechanism.152

A similar situation arose in the case o Cementownia v. Turkey .153

Cementownia “Nowa Huta” S.A. (“Cementownia”) is a Polish compan which commenced arbitration proceedings against Turke under the Energ Charter Treat over Turke’s termination o concession agreements granted to

two Turkish electricit corporations (Çukurova Elektrik A.S. (“CEAS”) andKepez Elektrik Türk A.S. (“Kepez”)). Cementownia claimed to have acquiredshares in these two Turkish corporations. Importantl, Cementownia andthese two companies were controlled b Mr. Uzan, a Turkish national. TheTribunal declined jurisdiction over the dispute based on lack o evidence thatCementownia ever owned shares in the two Turkish corporations and described

150 Id.151 Id. para. 144.152 Id . (emphasis added).153 Cementownia “Nowa Huta” S.A. v. Turkey , ICSID Case No. ARB(AF)/06/2, Award (Sept. 17,

2009).




the claim as “a mere artice” to “abricate international jurisdiction where noneshould exist.”154 On the question o treat shopping, the Tribunal rst observedthat prior to the date o the alleged purchase b Cementownia o shares o these

Turkish corporations this was a purel Turkish domestic dispute:

Being a Turkish national holding shares in CEAS and Kepez, underthe Energ Charter Treat, Mr. Kemal Uzan could not bring aninternational claim against his own State. This could onl occur i a person holding oreign nationalit owned or controlled the investment.[Cementownia] possessed oreign nationalit and, in particular, thenationalit o another State part to the Energ Charter Treat [Poland].This meant that i [Cementownia] actuall acquired an interest in the

two companies, prima acie it would have the right to take what untilthat point o time had been a purel local grievance arising under locallaw, subject to resolution in the local courts, and in respect o mattersoccurring ater the date o acquisition it could submit a claim to aninternational arbitration appling international law.155

The Tribunal had no hesitation in describing the situation as “unabashedl treat shopping” and added that:

As other tribunals have ound, treat shopping per se is not in principleto be disapproved o, but in some instances it has been ound to be a mere artice emploed to manuacture an international dispute out o purel domestic dispute. Given the dispute’s histor and the temporalaspects o the case . . . had the Tribunal ound that the share transersactuall did occur . . . , it would have held that this case ell within thecategor o an artice.”156

The Phoenix and Cementownia cases show that in the context o a disputethat has already arisen between the parties, the creation o a holding company in a certain jurisdiction or the sole purpose o commencing arbitrationproceedings under a specifc BIT would be considered to be illegitimatetreaty shopping. Clearly, corporate restructuring should not be allowed whenits very goal is to artifcially transorm a purely domestic dispute into aninternational one.

154 Id. para. 117.155 Id .156 Id .




Another orm o illegitimate “treaty shopping” is related to the assignmento shares or claims rom one entity to another.157 As explained by the Tribunal inSociété Générale v. Dominican Republic , the transer o investments “has become

a normal eature o a global economy” and is “not as such disqualifed romtreaty protection.”158 This is clearly the case, or instance, when the transer o shares is done prior to any dispute between the parties about the investment.159 More troubling is the situation where a oreign investor rom a State (State A)that has not enacted a BIT with the host State o investment (State C) decides,ater the commission o the alleged treaty breach, to assign its shares (or even toassign its claim) to another already-existing company incorporated in a thirdState (State B) which entered into a BIT with the host State o investment.160 Insuch a case, the assignment is or the sole purpose o commencing arbitration

proceedings against the host State. It is an attempt to gain access to jurisdictionin the absence o treaty relationship between the investor’s State o origin (State

A) and the host State (State C). Tribunals have held that such an assignment would be illegitimate treaty shopping. For instance, the Tribunal in the Société Générale case clearly indicated that a transer o rights must be a bona fde transaction “not devised to allow a national o a State not qualiying orprotection under a treaty to obtain an inappropriate jurisdictional advantageotherwise unavailable by transerring its rights ater-the-act to a qualiying

national.”

161

The abusive nature o this orm o treat shopping is even more obvious when shares are assigned to a compan that has just been incorporated in a thirdState only or the purpose o gaining access to international arbitration. Thisissue arose in the case o Banro American Resources et al. v. Democratic Republic o the Congo.162 Banro Resource, a Canadian corporation, was part to a mining contract with Congo that included an arbitration clause providing or ICSIDarbitration. Congo declared the contract null and void and seized the oces

157 The question o assignment has been discussed in ew cases. See, e.g., Mihlaly Int’l Corp. v. Sri Lanka , ICSID Case No. ARB/00/2, Award, para. 14 (March 15, 2002); Arican Holding Co. o America,Inc. & Société Aricaine de Construction au Congo S.A.R.L. v. Democratic Republic o Congo , ICSID CaseNo. ARB/05/21, Award (Jul 29, 2008) [“ Arican Holding Award”].

158 Société Générale In respect o DR Energy Holdings Ltd. and Empresa Distribuidora de Electricidad del Este, S.A. v. The Dominican Republic , LCIA Case No. UN7927, Award on Preliminar Objections to

Jurisdiction, para. 44 (Sept. 19, 2008) [“Société Générale Award on Jurisdiction”].159 See, e.g., Autopista Concesionada de Venezuela CA v. Bolivarian Republic o Venezuela , ICSID Case

No. ARB/00/5, Decision on Jurisdiction (Sept. 27, 2001).160 See Kirtle, supra note 120.161 Société Générale Award on Jurisdiction, supra note 158, paras. 109–10 (emphasis added).162 Banro American Resources, Inc. and Société Aurière du Kivu et du Maniema S.A.R.L. v. Democratic

Republic o the Congo, ICSID Case No. ARB/98/7, Award (Sept. 1, 2000), 17 ICSID Rev.—FILJ 382(2002) (excerpts).




o SAKIMA, a locall incorporated corporation set up under the contract, which was 99% owned b Banro Resource. Since Canada was not a part tothe Convention, Banro Resource was prevented rom commencing ICSID

arbitration proceedings against Congo. In order to circumvent this problem, a U.S. corporation was created, Banro American Resources, and 93% o BanroResource’s shares in SAKIMA were transerred to that new corporation. A ew das later this newl created U.S. corporation led a request or arbitration withICSID. The Tribunal pierced the corporate veil o that corporation to identi its owner. The Tribunal held that it lacked jurisdiction because the requirementthat the claimant had to be a national o a Contracting State was not met.163

CONCLUSION

Ultimatel, the legal standing o corporations (and their shareholders) tosubmit arbitration claims against a host State depends on the wording o theapplicable legal instrument under which the arbitral tribunal is constituted.Modern investment treaties generall provide shareholders investing abroad withunprecedented substantive and procedural legal protection against intererence with their investments b the governments o the States in which the invest. Assummarised b Stanimir Alexandrov, “it is beond doubt that shareholders have

standing in ICSID to submit claims separate and independent rom the claimso the corporation” and “this principle applies to all shareholders, no matter whether or not the own the majorit o the shares or control the corporation.”164 Arbitral tribunals have also recognised the right o a oreign investor to submita claim or damages suered b a local corporation incorporated in thehost State even when such interest is onl indirect through an intermediatecorporation. Tpicall, this right exists independentl o the actual nationalit o the intermediate corporation. Finall, arbitral tribunals have also recognisedthe right o intermediate (“shell”) corporations to submit their own claims to

arbitration. These developments have even led some authors to suggest theexistence o a new “rule” o customar international law providing shareholders with a procedural “right” to bring arbitration claims against the State where the make the investment.165 These are undoubtedl overall positive developments

163 Id. paras. 23–26. The Tribunal concluded that Banro Resource could not assign more rights toanother compan, Banro American Resources, than those it had under the mining contract. Id.

164 Alexandrov, supra note 22, at 30. But see Gabriel Bottini, Indirect Claims under the ICSID Convention, 29(3) U. Pa. J. Int’l L. 563 (2008).

165 Laird, supra note 22, at 86, 96. For a rebuttal to this proposition, see Patrick Dumberr, The Legal Standing o Shareholders beore Arbitral Tribunals: Has Any Rule o Customary International Law Crystallised? , 18(3) Mich. St. J. Int’l L. 353 (2010).




or the protection o oreign investors. This evolution nevertheless gives rise toseveral legitimate concerns rom the perspective o capital-importing States thathave entered into numerous BITs.

The rst area o concern relates to the act that BITs tpicall do notdistinguish between minorit and majorit shareholders which can submitseparate claims rom that o the corporation. As a matter o principle, allshareholders, big and small, should receive legal protection under a BIT thatdoes not expressl distinguish between them. This situation nevertheless raisessome concerns where a corporation’s share capital is divided between numerousshareholders each holding a ver small percentage o the total number o shares(imagine, or instance, 100 dierent shareholders each owning a mere 1% o the corporation’s shares). Nothing (apart, o course, rom the high costs o

pursuing international arbitration) would prevent all these dierent shareholdersrom fling their own separate claims against the host State or the same treat breach. Another area o concern is related to the protection oered to indirectinvestments made though multiple layers o intermediate corporations. Again,under a tpical BIT, each holding compan in a long chain o ownership couldle its own separate claim against the host State or the same treat breach.166

As a result, capital-importing countries having entered into a signicantnumber o BITs will increasingly run the risk o being respondents in multiple

(and oten simultaneous) arbitration claims led by dierent entities included inthe increasingly sophisticated and complex corporate structure o oreign investors.Such multiple claims will clearly result in very high legal costs or respondentStates. They will also increase the likelihood o inconsistent arbitral decisions.

This possibilit is not merel theoretical, as shown b the Lauder saga.167 Mr. Lauder, a U.S. national, was the ultimate beneciar o an investmenthe made in the Czech Republic through an intermediate corporation (CME,a Dutch corporation). Mr. Lauder commenced an arbitration claim underthe U.S.–Czech Republic BIT, while CME, 6 months later, started its own

proceeding beore a dierent arbitral tribunal under the Netherlands–CzechRepublic BIT. Both claims arose rom the same acts . It should be noted thatthe Czech Republic reused to consolidate the proceedings as requested b the Claimants. The disturbing aspect o these two parallel arbitration cases is

166 Provided, o course, that the host State has entered into BITs with the State o incorporation o each o these intermediate corporations and that the BIT contains broad language.

167See Judith Gill, Inconsistent Decisions: An Issue to Be Addressed or a Fact o Lie? , in Federico Ortino

et al. (eds.), 1 Investment Treaty Law: Current Issues 23 (Brit. Inst. o Int’l & Comp. L. 2006);Susan D. Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions, 73 Fordham L. Rev . 1521 (2005); Bernardo M. Cremades & IgnacioMadalena, Parallel Proceedings in International Arbitration, 24(4) Arb. Int’l 507 (2008).




that one Tribunal concluded that the Czech Republic had expropriated theinvestment and awarded $360 million in damages to the Claimant,168 while theother Tribunal rejected the claim.169

The scenarios envisaged above also raise the issue o remoteness between a shareholder and the actual investment. Consider, or instance, the situation o a 1%minority shareholder o one corporation investing in the host State through a long chain o, say, a dozen dierent holding companies.170 This issue was addressed by the Enron Tribunal, which summarized a concern raised by Argentina as ollows:

The Argentine Republic has rightl raised a concern about the actthat i minorit shareholders can claim independentl rom theaected corporation, this could trigger an endless chain o claims, as

an shareholder making an investment in a compan that makes aninvestment in another compan, and so on, could invoke a direct righto action or measures aecting a corporation at the end o the chain.171

The Enron Tribunal concluded that such concern raises the “need toestablish a cut-o point beond which claims would not be permissible as the would have onl a remote connection to the aected compan.”172 For theEnron Tribunal, the establishment o a “cut-o point” beond which claims b

indirect shareholders would not be allowed should be based on “the extent o the consent to arbitration o the host State”:173

I consent has been given in respect o an investor and an investment,it can be reasonabl concluded that the claims brought b such investorare admissible under the treat. I the consent cannot be considered asextending to another investor or investment, these other claims shouldthen be considered inadmissible as being onl remotel connected withthe aected compan and the scope o the legal sstem protecting that

investment.174

The Tribunal emphasized that in the instant case, the participation o theClaimants in the investment “was specicall sought” b the host State and that

168 Lauder Award, supra note 81.169 CME Award, supra note 32.170 A similar scenario is mentioned in Brigitte Stern, Treaties as Agreements to Arbitrate: Comments , in

Albert Jan van den Berg (ed.), 13 ICCA Congress 569, 575 (Kluwer 2007).171 Enron Decision on Jurisdiction, supra note 55, para. 50.172 Id. para. 52.173 Id .174 Id.




“the are thus included within the consent to arbitration given b the ArgentineRepublic.”175

The issue o remoteness o claims is likel to be one o the most contentious

in the uture. While some authors have criticized the Enron Tribunal’s reasoning on the “cut-o point” as lacking an “legal oundation,”176 recent awards haveacknowledged the seriousness o the issue.177 As explained b the Phoenix Tribunal, “some concern has indeed been voiced b international tribunals,and is shared by this Tribunal , that not any minor portion o indirectl ownedshares should necessaril be considered as an investment.”178 For good reasons,tribunals will, however, be reluctant to establish in each case where exactl should be the cut-o point. Indeed, no consensus exists on what “too remote”reall means in practical terms. Recentl, the Noble Energy Tribunal suggested

that two intermediate laers was not too remote.179 Similarl, the Société Générale Tribunal alluded to the act that there would be no need to established an cut-o point when there exists “one or several layers o intermediate companies orinterests intervening between the claimant and the investment.”180

States do not have to be passive bstanders with regard to these new developments. The can include language in their BITs to prevent an remoteness issues.181 The ollowing are some o the possibilities that can beenvisaged b States in the context o negotiating uture investment treaties:

175 Id. para. 56 (“The Claimants cannot be considered to be onl remotel connected to the legalarrangements governing the privatization, the are beond an doubt the owners o the investmentmade and their rights are protected under the Treat as clearl established treat-rights and not merel contractual rights related to some intermediar. The act that the investment was made through CIESA and related companies does not in an wa alter this conclusion.”).

176 Christoph Schreuer, Shareholder Protection in International Investment Law , 2(3) Transnat’l Disp.

Mgmt. 13–14 (June 2005).177 Arican Holding Award, supra note 157, para. 100 (“Comme le tribunal l’a ait remarquer dans

l’aaire Enron c. Argentine, il y a lieu d’établir une limite à ce processus, car il risquerait d’aller tellement loinque même des investisseurs éloignés pourraient devenir des demandeurs protégés.”).

178 Phoenix Action Award, supra note 20, para. 122 (emphasis added).179 Noble Energy, Inc. and Machalapower Cía. Ltda. v. Ecuador and Consejo Nacional de Electricidad ,

ICSID Case No. ARB/05/12, Decision on Jurisdiction, para. 82 (Mar. 5, 2008) (“This Tribunal does notdisagree with the statement made b the Enron tribunal. There ma well be a cut-o point somewhere,and uture tribunals ma be called upon to dene it. In the present case, the need or such a denitiondoes not arise. Indeed, the cut-o point, whatever it ma be, is not reached with two intermediate laers.The relationship between the investment and the direct shareholder, on the one hand, and the indirectshareholder, on the other, is not too remote.”).

180 Société Générale Award on Jurisdiction, supra note 158, paras. 49–50 (emphasis added).181 This is urther discussed in Anthon C. Sinclair, The Substance o Nationality Requirements in

Investment Treaty Arbitration, 20 ICSID Rev.—FILJ 378 (2005). See also Pia Acconci, Determining the Internationally Relevant Link between a State and a Corporate Investor, Recent Trends Concerning the

Application o the “Genuine Link” Test , 5 J. World Inv.& Trade 139 (2004).




• A BIT can exclude an protection o indirect investments made throughintermediate corporations b requiring that an investment be madedirectl in the host State.

•

A BIT can also exclude the possibilit o claims b holding companiesb requiring that the investor corporation not onl be incorporatedin a contracting part, but also that it be controlled b nationals o thecontracting part in which it is incorporated. Another related possibilit is to require the investor corporation to have substantial business activitiesin its countr o incorporation.

• In addition, States can include a “denial o benets” clause in their BITs.182 Such a clause tpicall allows a part to a BIT to den the benets o thetreat protection to an investor when its investment is ultimatel owned

or controlled b a national o a non-part and where the claiming investorhas no substantial business activities in the territor o the other part tothe treat. This is, or instance, the case under the NAFTA,183 the Energ Charter Treat,184 recent BITs concluded b Canada 185 and the U.S. ModelBIT.186

• Another lesser known option to reduce the possibility o uture claimsby shell corporations is to limit the geographical scope o applicationo a BIT. For instance, a notable exception to China’s 130 BITs is the

treaty recently signed (but not yet entered into orce) with Russia, which expressly excludes rom its scope o application the territorieso Hong Kong and Macau (and even Taiwan).187 One could envisagea situation where treaty negotiations between two States could leadto the exclusion o some jurisdictions which are typically used as “tax shelters.”

182 See Thorn & Doucle, supra note 83; Sinclair, supra note 181, at 378 .183 NAFTA, supra note 13, art. 1113.184 Energ Charter Treat, supra note 13, art. 17(1). The eect o this clause was discussed b the

Tribunal in Plama Consortium Ltd. v. Republic o Bulgaria , ICSID Case No. ARB/03/24 (ICSID), Decisionon Jurisdiction, para. 146 (Feb. 8, 2005). See also Hulley Interim Award, supra note 103, para. 436 .

185 Canada–Peru BIT, art. 18; Canada–Costa Rica BIT, art. 1(h); Canada Model FIPA, art. 18.186 U.S. Model BIT, art. 17 (a State ma den the benets o the treat i: (i) the compan is owned

or controlled b nationals o a third countr with which the United States does not maintain normaleconomic relations, and (ii) the compan has no substantial business activities in the United States).

187 This question is discussed in Nils Eliasson, Investor-State Arbitration and Chinese Investors: Recent Developments in Light o the Decision on Jurisdiction in the Case Mr. Tza yap Shum v. The Republic o Peru,2 Contemp. Asia Arb. J. 347, 366–67 (2009).




Finall, where a BIT is alread in orce, it is also possible or the contracting States to amend it to limit its scope or even to issue an ocial interpretation orunderstanding o a sensitive treat provision to clari its meaning.188

188 Thorn & Doucle, supra note 83, at 26. Thus, Article 31(3)(a) o the Vienna Convention onthe Law o Treaties indicates that the interpretation o a treat shall take into account “an subsequentagreement between the parties regarding the interpretation o the treat or the application o itsprovisions.” According to Anthony Aust, Modern Treaty Law and Practice 191 (Cambridge2000), “given that the parties can agree later to modi the treat, the can also subsequentl agree on anauthoritative interpretation o its terms.” For instance, the NAFTA Free Trade Commission issued a Noteo Interpretation o Certain Chapter 11 Provisions on Jul 31, 2001, in which the Contracting Partiesreiterate, inter alia , that “Article 1105(1) prescribes the customar international law minimum standardo treatment o aliens as the minimum standard o treatment to be aorded to investments o investors o

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Valasek & Dumberry - Legal Standing of Shareholders and Holding Corporations in Investor-State Disputes