When can a state-related entity file an investment treaty complaint? | Knowledge


A state-related entity must meet the requirements of the relevant treaty, including the definition of investor. It should also be perceived as acting commercially. It depends on the facts and the context.

Does the investment treaty cover the entity?

To see if a claim can be brought, start with the treaty definitions.

Some treaties list governments or entities that states own or control as eligible investors. The same may apply to official agencies, authorities, public bodies, development funds or the like. Some treaties exclude public enterprises.

Many treaties, however, do neither. Reference to state affiliation is infrequent. Corporations will often be state investors depending on where they are incorporated, where they have their headquarters or management, or who controls them. Sometimes a mixture of these.

Is it sufficient?

It is a matter of treaty interpretation. Arbitral tribunals establish rules of interpretation in almost all investment disputes. “A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” Now a dictionary is not the law. The treaty is. But if there is no lexical shift, that may be enough. At the very least, the other party might have to argue the opposite.

The courts can indeed be satisfied if the entity seems corresponds to the definition and is not expressly prohibited to claim. Anything else would add to the treaty, hence the reasoning.

If it’s tight text, consider strengthening your position:

  • Get the right court for the job. A court that does not think that there is an international forum only if the consent is obvious can make life easier for a plaintiff.
  • Does the rest of the treaty support a claim? Related treaty practice? The context of the definition of investor and the investor-State provision is important. Substantial protections generally benefit investors against states. That might suggest a difference. And international law reserves special rules for states, such as immunity. Procedurally, a redundant state-state mechanism could be inconvenient. Focusing on the right parts, topic, goals, and procedures can help.
  • Does the object and purpose of the treaty support a claim? It is sometimes said that investment treaties should depoliticize disputes. Or level the playing field against rulers. The ICSID Convention was designed for claims by nationals, not states. It encourages the flow of private capital. But BITs and FTAs ​​generally leave this open. Maybe the preamble alludes somehow. A state-related entity must be prepared to explain why its investment is worth protecting.

Why acting commercially helps

An applicant should not appear to be doing state bidding.

Courts have considered whether an entity is acting as state official or filled government functions. Independent of separate legal personality. And especially in ICSID arbitration. Investing activity should instead be commercial in nature. If so, access to arbitration would follow. But carrying the state flag on foreign territory may raise eyebrows. The focus tends to be narrow and transactional, which can favor an applicant.

And if business-related aspects dominate, it could also circumvent a discussion of whether non-commercial or governmental entities are covered by the treaty.

This borrows from public international law. What is the real state involvement? It is a matter of substance rather than form. Is the applicant so close to being an instrument or an alter ego of the State? Consider state responsibility, which is governments empowering, directing, or controlling agents. In the law of armed conflict, a state is an occupying power if it actually exercises authority in the area. And certain treaty obligations apply when a state exercises effective control outside its own territory.

Identifying sovereign or non-commercial behavior relies on evidence. It can be tricky to establish. Reported cases often involved companies that were at least partly state-owned but essentially independent and free from government control.

The more a state enterprise appears competitive and less pampered, the better. Things that help may include:

  • mixed or foreign ownership
  • no formal appointment procedures for senior managers
  • autonomous planning
  • a lack of predefined performance goals
  • bid and negotiate on commercial merit
  • self-sufficiency
  • separate accounts and finances
  • transparency and adoption of international reporting standards

An entity is less likely to qualify if it:

  • was instructed to make the investment
  • is led by heads of state
  • embedded officials, perhaps to gather intelligence or influence foreign actions
  • performs public services
  • collects taxes
  • manage the economy at home
  • regulates the sector in which it operates
  • helps write local rules
  • has its own set of rules
  • has a monopoly
  • claims immunity in court
  • benefits from guaranteed profits, state support, subsidies or tax breaks

Remember that ignoring government involvement in economic life would cast a shadow, but so would anger at the misuse of the investor-state system. Investments by public enterprises are enormous. Yet reluctance to open up strategic industries such as energy or technology to private capital can give the impression of unfair competition if international investment protection is invoked. State giants attacking global markets are a cause for concern.

The above points can either take the sting out of it or make it worse.


Comments are closed.