Nationality Requirements For A Natural Person In Investor-State Arbitration

Introduction

Investors who are natural persons can directly claim against the state in which they have invested, under the investor state arbitration.  For an investor to come under the ambit of such arbitration, he must have the nationality of a particular nation. In a globalized world economy, it is through a compound structure made up of different companies having roots in different sovereigns owned by nationals of different countries that the investment is made through therefore in such cases, it can be difficult to identify the echelon of the corporate world that determines the nationality of the investor moreover the determination of nationality of natural persons can turn out to be Pandora’s box when many international Business people carry two or more passports.

The multiple aspects of nationality requirement have been dealt with under the ICSID in numerous judgements. These decisions include Champion Trading v. Egypt[i] and Soufraki

  1. United Arab Emirates. Investment treaties give birth to these cases. States negotiate these treaties for two purposes, firstly to protect their own nationals with investments in a host State and secondly to attract foreign investment. Investment treaties limit their benefits to investors who can satisfy certain nationality requirements. For example, ICSID has its jurisdiction limited to investors from States Parties to the Centre’s Convention. Article 25(1) of that Convention reflects these limits on the nationality of the investor:

“The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an

Investment, between a Contracting State … and a national of another Contracting State…

States are quick to challenge the standing of an investor if the investor does not meet the nationality requirement. Since the last few decades the investor-state arbitration has been on a rise which has clarified the state of affair sunder which an investor meets the nationality requirements. Though the requirement of nationality applies to both the natural person and a corporate claimant, this article is restricted to the nationality requirements of a natural person only.

A. DEDUCTION OF NATIONALITY THROUGH APPLICABLE NATIONAL LAWS

Investment treaties are steered by international law but international law will turn to municipal law for the determination of nationality, this can be concluded from two ICSID judgements that grappled with the issue of nationality:

  1. Champion Trading v. Egypt

 Facts:  In 1990s the U.S. investors took merit from the Egyptian laws that liberalised the cotton trade by investing in cotton trading through locally established company, National Cotton Company (NCC). The dispute arose when the venture crashed and the shareholders in NCC claimed against Egypt at the ICSID for transgression of the Egypt-United States BIT. Among the claiming shareholders were three U.S. citizens along with few companies. These three U.S. citizenswere born in the U.S to U.S citizen and were member of the Wabha family. What led to the demise of the Wabha’s claim was the fact that the father had a Egyptian nationality as well.

Held: The Wabhas were also Egyptian nationals apart from being U.S. citizen hence barred from claiming against Egypt byArticle 25(2) of the ICSID Convention.Only disputes between a Contracting State and a “national of another Contracting State” are covered under the ambit of the ICSID under article 25(1) of the ICSID convention. Article 25(2) of ICSID states that “national of another Contracting State” does not “include any person who on either date also had the nationality of the Contracting State party to the dispute”.

The Egyptian laws provide that the male offspring of Egyptian nationals hold on to their nationality forone hundred generations, regardless of their place of residence or birth, the tribunal placed their reliance upon the same laws to conclude that the Wabhas held an Egyptian nationality.Given that the three Wabha investors were all son of an Egyptian national hence they retained their Egyptian nationality and therefore were not allowed any standing before the tribunal under article 25(2) of the ICSID convention.

Under the article I(1)(e) of the Egypt- United states BIT “a natural person of a state is a natural person under its applicable laws”, this is a common clause in most BITs therefore the decision of the tribunal to use the Egyptian nationality laws was harmonious with the definition of nationality in most BITs.

The canon of applying the nationality laws of the state to determine the nationality has its own drawbacks which were identified in the Champion trading itself. The tribunal noted:

“if a country continues to apply the jus sanguinis over many generations. It willbe a point of discussion if the following generations born, which has no ties whatsoever with the country of its forefathers, could still beconsidered to have, for the purpose of the Convention, the nationality of this state.”

From Soufraki v. United Arab Emiratesit can be concluded that the limitations to the above rule cannot be easily reached.

  1. Soufraki v. United Arab Emirates

Facts: Mr. Soufraki signed a concession contract as a Canadian with the U.A.E. forthe development of the ports in UAE, when the alliance turned sour, Mr. Soufrakiclaimed that apart from having a Canadian citizenship he also had a Italian citizenship and therefore he can claim for contraventions of the Italy-U.A.E BIT.

Held: The tribunal did not rule in favour of Mr. Soufraki because he was not considered to be an Italian under the Italian Nationality laws at the time he made the claim, the tribunal came to such a conclusion despite the fact that Mr. Soufraki produced numerous documents and a declaration of the Italian foreign Affairs Minister that he was an Italian citizen.

The tribunal deduced this after conducting its own probe into Mr. Soufraki’s claim of Italian citizenship, as the tribunal was sceptical of the fact that whether the authors of the documents and declaration were fully aware of Mr. Soufraki’s position. The Tribunal recognized that:

“it is difficult for Mr. Soufraki, whose business interests span continents and who constantly travels the world, to reconstruct his actual residence during a twelve- or thirteen-month period more than ten years earlier. Had Mr. Soufraki, been properly advised at the time, he could have easily reacquired Italian nationality by a timelyapplication. It appreciates that, had Mr. Soufraki contracted with the U.A.E through a corporate vehicle incorporated in Italy, rather than contracting in his personal capacity, no problem of jurisdiction would now arise.”

B. PRINCIPLE OF EFFECTIVE NATIONALITY

The principle of effective nationality has been there in international law since the Nottebohm case and its importance has been accentuated by many cases as it recognises that nationality is more than a legal tenuous bond. Following cases have been included so as to clarify the role played by the principle of effective nationality in Investor state arbitration.

  1. Champion Trading v. Egypt

In this case it was concluded that the principle finds no application in the cases construing article 25(2) of the ICSID convention. The Tribunal stated:

“The Nottebohm and A/18, in the opinion of the Tribunal, find no application

in the present case. The Convention in Article 25(2)(a) contains a clear and specific rule

regarding dual nationals. The Tribunal notes that the above cited A/18 decision containedan important reservation that the real and effective nationality was indeed relevant ‘unlessan exception is clearly stated.’ The Tribunal is faced here with such a clear exception.”[ii]

  1. Olguín v. Paraguay

Facts: A Peruvian by the name of Mr. Olguin claimed that Paraguay’s actions transgressed the Peru-Paraguay BIT. On the other hand, Paraguay contended that Mr. Olguin was a national of U.S because that he was living in that country at the time of the claim, for this Paraguay relied on the Peruvian nationality laws which say that in case of dual nationality, a person’s registered address determines the exercise of specific rights of that person.

Held:“What both of his mother countries’ understanding regarding, forexample, the person’s exercise of political rights, civil rights, the responsibility for hisdiplomatic protection and the importance of his registered address for determining any such rights has no bearing on the legitimate legal fact that Mr. Olguín effectively has dualNationality. To this Tribunal, the effectiveness of his Peruvian nationality is enough to determine that he cannot be excluded from the provisions for protection under the BIT.”

C. CONCLUSION

The nationality requirement cannot be underestimated as it is one of the quintessential conditions that an investor must satisfy before bringing a claim against a state so thatan investor who has been injured knows if he has any standing to the claim. The friction between the geriatric and modern rules has been highlighted in the case such as Soufraki. Investor state arbitration has jumped over many hurdles over time but modern times present modern challenges and the next sizeable challenge is that whether the existing instruments can accommodate the change or if we need a new set of instruments to better reflect the changed world.

Parth Tyagi
2nd Year Student at National Law Institute, Bhopal

You can contact Parth Tyagi at tyagiparth99@gmail.com

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