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INTERNATIONAL INVESTMENT LAW LECTURE 1 INTRODUCTION OF INTERNATIONAL INVESTMENT LAW Ngo Trong Quan (LL M ) Deputy Chair of Discipline on International Trade and Investment Law Faculty of International.

INTERNATIONAL INVESTMENT LAW

LECTURE 1: INTRODUCTION OF INTERNATIONAL INVESTMENT LAW

Ngo Trong Quan (LL.M.) Deputy Chair of Discipline on International Trade and Investment Law

Faculty of International Trade and Business Law

ngotrongquan@hlu.edu.vn

1 History of International Investment Law

2 Sources of International Investment Law

3 Scope of Investment Treaties

• A road construction company called Toll-Stoy won a US$200 million contract to build a kilometre toll road from Port City, which is the seaside economic centre of Ruritania, to CapitalCity At great expense, Toll-Stoy sent two crews to Ruritania and one began building from Port Cityand one began construction from Capital City They were just about to meet up and complete theroad when they got to the Sacred Valley There disaster struck because the government could notrelease the land for the completion of the road There were indigenous people in the SacredValley who did not wish to leave their homes.

200-• Moreover, not just had Toll-Stoy got stuck at Sacred Valley, there were some indigenous peoplewho took it upon themselves to destroy some of Toll-Stoy's heavy equipment, including earthmovers They also broke fingers and toes of some of Toll-Stoy's employees It is not quite clearwhether the government knew that these vigilantes had it in mind to engage in violence

• In any event, Toll-Stoy sought an injunction in Ruritanian courts to remove the residents of SacredValley so that the road could be completed, and Toll-Stoy also filed for compensation in thecourts But neither of those efforts led to any kind of decision

Source: Arbitration International (2008), Birth of an ICSID Case – Act I, Scene I, Volume 24, Issue 1.

• Investment lawyer: Well, I know you were looking for a tough litigator to help you in Ruritania,but I’m here today to propose a completely different approach to this issue that you have inRuritania, and we believe based on our experience that it is an approach which is much morelikely to get you the kind of compensation that Toll-Stoy deserves.

• Toll-Stoy counsel: And what approach is this?

• Investment lawyer: Have you considered a claim under a BIT?

• Toll-Stoy counsel: A BIT?

• Investment lawyer: A Bilateral Investment Treaty

• Toll-Stoy counsel: A Bilateral Investment Treaty? What’s that?

• [Lengthy conversation about the BIT system…]

• Investment lawyer: Well, the BIT gets you out of Ruritanian courts and before a neutralindependent body of arbitrators that has the power to render an award for millions of dollars forToll-Stoy and you can take that award and have it treated as a judgment in a 142 countries aroundthe world

• Toll-Stoy counsel: Oh, now I’m interested Tell me more

Source: Arbitration International (2008), Birth of an ICSID Case – Act I, Scene I, Volume 24, Issue 1.

1 The History of International Investment Law

1.1 The genesis of international investment law

1.2 The development of international investment law

1.3 The current features of international investment law

1 The History of International Investment Law

1.1 The genesis of international investment law

• The law of protection of aliens abroad – substantive aspects

• The emergence of an international minimum standard

- Developed states’ concern with level of protection and treatment granted to their nationals in other states  Foreigners must be treated in accordance with a minimum standard of treatment (a requirement of international law independent of those by host states)

- Argentinian Jurist Carlos Calvo ( Calvo doctrine ): Host states could not treat foreign nationals more favorably than their own nationals  Foreigners must assert their rights before domestic courts and no right of diplomatic protection

by their home state or access to international tribunals

1 The History of International Investment Law

1.1 The genesis of international investment law

• The law of protection of aliens abroad – substantive aspects

• The emergence of an international minimum standard

- Neer v Mexico (1926): “The treatment of an alien, in order to constitute an

international delinquency, should amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.”

1 The History of International Investment Law

1.1 The genesis of international investment law

• The law of protection of aliens abroad – substantive aspects

• The duty to provide compensation for expropriation and nationalization

- Mexico’s nationalization of American petroleum companies (1936): US

Secretary of State Cordell Hull claimed that the rules of international law allowed expropriation of foreign property but required “prompt, adequate, and effective compensation” ( Hull Formula )

- In 1962, the General Assembly adopted its Resolution 1803 on Permanent Sovereignty over Natural Resources which affirmed the right to nationalize foreign owned property and required only “appropriate compensation”

1 The History of International Investment Law

1.1 The genesis of international investment law

• The law of protection of aliens abroad – procedural aspects

• “Gunboat diplomacy”: use of force by home states of foreign investors to recover contractual debts

• Prohibition of threat or use of force in international law  Increased use of diplomatic protection (home state endorses the claim of its national against host state  elevating investor-state dispute to state-state dispute)

• Drawbacks of diplomatic protection (no obligation to exercise protection & no obligation to transfer monetary compensation to nationals)  The inclusion of dispute settlement provisions in contracts with states (submission of disputes to

1 The History of International Investment Law

1.2 The development of international investment law

• The call for a New International Economic Order

• Developing states’ support for the United Nations General Assembly Resolutions

3201, 3202, and 3281: a New International Economic Order and a Charter of Economic Rights and Duties of States:

UNGA Resolution 3281: “In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalizing state and by its tribunals,…”

• Developed states opposed to these Resolutions (due to lack of opinio juris to

constitute customary international law)

 Insecurity about the customary international law governing foreign investment

1 The History of International Investment Law

1.2 The development of international investment law

• Negotiation of new treaties on foreign investment

• First ever BIT Germany – Pakistan in 1959  Other countries follow the trend

• Resolution of investment disputes:

• Early treaties provided for submission of disputes to International Court of Justice or ad-hoc state-to-state arbitration

• Chad – Italy BIT in 1969 began offering investor-state arbitration

• Objective of international investment law: Protection of investors is instrumental (to attract foreign investors) and subsidiary (to foster economic development) E.g ICSID Convention 1965 Preamble:

Considering the need for international cooperation for economic development, and the role

of private international investment therein

1 The History of International Investment Law

1.3 The current features of international investment law

(As of 10 Aug 2022, https://investmentpolicy.unctad.org/international-investment-agreements )

• Developing states began to conclude BITs between themselves

• BITs become more reciprocal in practice (investment flows/investment disputes)

• The increase of multilateral treaties with investment provisions/chapters (the quest for a multilateral investment agreement failed) E.g USMCA, CETA, CPTPP

1 The History of International Investment Law

1.3 The current features of international investment law

2 The Sources of International Investment Law

• The Statute of the International Court of Justice (ICJ), Article 38, Para 1

The Court, whose function is to decide in accordance with international law such disputes

as are submitted to it, shall apply:

a international conventions, whether general or particular, establishing rules expressly

recognized by the contesting states;

b international custom, as evidence of a general practice accepted as law;

c the general principles of law recognized by civilized nations;

d subject to the provisions of Article 59, judicial decisions and the teachings of the most

highly qualified publicists of the various nations, as subsidiary means for thedetermination of rules of law

2 The Sources of International Investment Law

2.1 Investment Treaties

2.2 Customary International Law

2.3 Other Sources

2 The Sources of International Investment Law

2.1 Investment Treaties

• The most important source of law governing foreign investment

• Types of investment treaties

• Bilateral Investment Treaties (BIT)

• Treaties with Investment Provisions (TIP): FTA, RTA, EPA

• The purposes of investment treaties (observed from preambles)

• Cooperation between States

• Promotion and protection of foreign investment

• Economic development and sustainable development (new)

2 The Sources of International Investment Law

2.1 Investment Treaties

• Content of Investment Treaties:

• Provisions on scope of application

• Provisions on promotion and protection of foreign investment (e.g admission andestablishment, MFN, NT, FET, FPS, transfer of funds, protection against expropriation)

• Provisions on dispute settlement mechanism (investor-state and state-state)

• Final provisions on entry into force, amendment, duration, termination

 IIA practice is evolving in 3 main ways:

• More detailed provisions of IIAs

• Limitations on protection/treatment of foreign investors and protection of public interests

• Innovations in investor-state dispute settlement

2 The Sources of International Investment Law

2.2 Customary International Law

• 2 elements: state practice and opinio juris

• Customary rules on treaty interpretation

• Interpretation rules in the VCLT is widely recognized as codification of customaryinternational law

• Article 31 (General rules of interpretation), Article 32 (Supplementary means ofinterpretation) and Article 33 (Interpretation of treaties authenticated in two or morelanguages)

• Customary rules on state responsibility

• The ILC Articles on Responsibility of States for Internationally Wrongful Acts

• E.g state attribution, consequences of a wrongful act, reparation

2 The Sources of International Investment Law

2.3 Other Sources of International Investment Law

• Judicial decisions (case law)

• Subsidiary means to determine the rule of law

• No rule of binding precedent (stare decisis) in public international law

• But de facto precedential effect, e.g in Burlington s Ecuador

As stated in the Decision on Jurisdiction, the Tribunal considers that it is not bound by previous decisions Nevertheless, the majority considers that it must pay due regard to earlier decisions

of international courts and tribunals It believes that, subject to compelling contrary grounds, it has a duty to adopt solutions established in a series of consistent cases It further believes that, subject to the specifics of a given treaty and of the circumstances of the actual case, it has a duty to seek to contribute to the harmonious development of investment law, and thereby to meet the legitimate expectations of the community of States and investors towards the certainty of the rule of law (Decision on Liability, para 187)

2 The Sources of International Investment Law

2.3 Other Sources of International Investment Law

• General principles of law (E.g Pacta sunt servanda, Good faith,…);

• Teachings of publicists;

• Equity (settlement based on considerations of justice from specifics of the case andperceptions of arbitrators)

• Art 38.2 ICJ Statute: This provision shall not prejudice the power of the Court to decide a case ex aequo

et bono, if the parties agree thereto.

• Art 42.3 ICSID Convention: The provisions of paragraphs (1) and (2) shall not prejudice the power of the

Tribunal to decide a dispute ex aequo et bono if the parties so agree.

• Investor-state contracts;

• International trade law related to investment (E.g WTO’s GATS, TRIMS);

• Soft law instruments (E.g non-binding UNGA Resolutions, 1992 World Bank Guidelines on

THANK YOU

ngotrongquan@hlu.edu.vn

INTERNATIONAL INVESTMENT LAW

LECTURE 2: SCOPE OF INVESTMENT TREATIES

Ngo Trong Quan (LL.M.) Deputy Chair of Discipline on International Trade and Investment Law

Faculty of International Trade and Business Law

ngotrongquan@hlu.edu.vn

1 Preambles of Investment Treaties

2 Geographical Scope (Where is the investment made?)

3 Temporal Scope (When is the investment made?)

4 Scope of Investor (By whom is the investment made?)

5 Scope of Investment (In what form is the investment made?)

6 Exclusion from Treaty Scope

1 Preamble of Investment Treaties

• Content: Declaration of the parties’ intention, motivation and desire in concluding the IIAs

• Legal value: Forming the “ context ” (purpose of the treaty) that gives meaning

to treaty rules (Art 31 VCLT 1969)  An interpretative guideline on treaty language

• E.g CMS v Argentina (2005):

The Treaty Preamble makes it clear […] that one principal protection envisaged is that fairand equitable treatment is desirable “to maintain a stable framework for investments andmaximum effective use of economic resources.” There can be no doubt, therefore, that astable legal and business environment is an essential element of fair and equitabletreatment

1 Preamble of Investment Treaties

• Two categories of preambles

• Category 1: Focusing on fostering economic cooperation among contracting parties and

promoting favorable conditions for reciprocal investments

China – Vietnam BIT (1993)

Desiring to encourage, protect and create favorable conditions for investment by investors of one Contracting State in the territory of the other Contracting State based on the principles of mutual respect for sovereignty, equality and mutual benefit and for the purpose of the development of economic cooperation between both States

• Category 2: Focusing on achieving investment protection in consistence with public policy

goals

US Model BIT (2012)

Desiring to achieve these objectives in a manner consistent with the protection of health, safety, and the environment, and the promotion of internationally recognized labor rights;

2 Geographical Scope

• Investment in the territory of the host state

• Legal question: Whether the investor needs to establish a significant physical presence inthe host state? (territorial nexus of the investment)

• Inmaris v Ukraine: A jurisdictional question

• SGS v Phillippines: Investments made outside the territory of the respondent state would

not be covered by the BIT

• Fedax v Venezuela (Investor acquired promissory notes issued by host state)

While it is true that in some kinds of investments listed under Article l(a) of the Agreement, such as the acquisition of interests in immovable property, companies and the like, a transfer of funds or value will be made into the territory of the host country, this does not necessarily happen in a number of other types of investments, particularly those of a financial nature It is a standard feature of many international financial transactions that the funds involved are not physically transferred to the territory of the beneficiary, but put

at its disposal elsewhere.

3 Temporal Scope

• Whether investments made prior to the entry into force of the treaty are covered

• Most BITs grant protection to both future and existing investments

• But, treaties do not have retroactive effect (Art 28 VCLT): treaties cover only state acts that occur after the entry into force of the agreement, or commenced before but prolonged in time until after the entry into force

• Temporal duration of the treaty itself

• Typically a minimum duration of 10 years (or longer/shorter)

• The ability to terminate the agreement with an advance notice to the other party

• Sunset/Survival clause: a period after BIT’s termination when investors still enjoy protection

• Australia – Hong Kong BIT 2019, Art 40

• 1 This Agreement shall remain in force unless either Party notifies the other Party in writing

to terminate this Agreement Such termination shall take effect 180 days after the date of receipt of the notification, or on such other date as the Parties may agree In respect of

covered investments made before the date on which the termination of this Agreement becomes effective (date of termination), Article 1 through Article 37 inclusive and Annexes 32

I through IV inclusive shall continue to be effective for a further period of 10 years from the date of termination.

4 Scope of Investor (The “Rule of Origin”)

• The nationality of investors serves 2 purposes:

• Substantive standards in the treaty will only apply to respective nationals; and

• Jurisdiction of an international tribunal is determined, among others, by claimant’s

nationality

Article 4 ASEAN Comprehensive Investment Agreement

(d) “investor” means a natural person of a Member State or a juridical person of a Member State that is making, or has made an investment in the territory of any other Member State;

(e) “juridical person” means any legal entity duly constituted or otherwise organised under the applicable law of a Member State, whether for profit or otherwise, and whether privately- owned or governmentally-owned, including any enterprise, corporation, trust, partnership, joint venture, sole proprietorship, association, or organisation;

(g) “natural person” means any natural person possessing the nationality or citizenship of, or right of permanent residence in the Member State in accordance with its laws, regulations and

4 Scope of Investor (The “Rule of Origin”)

• (1) Individual investors (Natural persons)

• Eligible natural persons to be considered as an investor must have a link with IIA state party: nationality/citizenship or permanent resident

• Most IIAs refer to nationality/citizenship

• Some IIAs refer to either nationality/citizenship or permanent resident (e.g.Morocco – Nigeria BIT 2016, ACIA 2009, Singapore – EFTA FTA 2002)  Permanentresidents of home State, regardless of their nationality, qualify as investors

• Some IIAs refer to different links for different IIA state parties (e.g Japan – Israel BIT2017)

• Some IIAs does not even mention nationality but provides directly that investorsmean “Germans within the meaning of the Basic Law for the Federal Republic ofGermany” (e.g China – Germany BIT 2003)

• ICSID Convention Art 25 does not set “permanent resident” as a valid link betweenthe contracting state and natural persons

4 Scope of Investor (The “Rule of Origin”)

• (1) Individual investors (Natural persons)

• Single nationality: Nationality of investors is determined primarily by the law of thecountry whose nationality is at issue (domestic law)

• Nationals of the home State notwithstanding their place of residence, i.e even if they reside outside the home State, shall be covered.

• E.g.: Mauritius-Singapore BIT (2000): The term “investor” means … a natural person

having the nationality of a Contracting Party in accordance with its applicable law.

• Evidence by a valid passport or other standard citizenship certification, but not

necessarily conclusive (Soufraki v UAE, paras 47-84: Where … the jurisdiction of an

international tribunal turns on an issue of nationality, the international tribunal is empowered, indeed bound, to decide that issue)

• Feldman v Mexico: Under general international law, citizenship rather than residence or

any other geographic affiliation is the main connecting factor between a state and an individual

4 Scope of Investor (The “Rule of Origin”)

• (1) Individual investors (Natural persons)

• Dual/multiple nationalities :

• Olguin v Paraguay (investor had dual nationalities of Peru and the USA, dispute under

Peru – Paraguay BIT): Peruvian nationality is enough

• Test of dominant and effective nationality: US Model BIT 2012, CETA 2016

• Investor shall be deemed to be exclusively a national of the State of his dominant and effective nationality

• Allows for consideration of a dual national’s individual circumstances to decide with which State the person has the closest connection

• Exclusion of dual nationals from treaty coverage

• Japan – Israel BIT 2017: Investor of a contracting party means a national of one state

and who is not also a national of the other state  Dual nationals are not covered

by the BIT

• ICSID Convention Article 25.2: Nationals of the host state is excluded from protection

(this ineligibility is absolute and cannot be cured even if the state party to dispute has given its consent)

4 Scope of Investor (The “Rule of Origin”)

• (2) Corporate investors (Juridical persons)

• Corporate nationality is more complex than individual nationality

• A variety of criteria to determine whether a juridical person is an investor of acontracting party

• Country of incorporation (legal establishment)  vulnerable to ‘treaty shopping’ practice

(Tokios Tokeles v Ukraine, Saluka v Czech Republic: Tribunals refused to pierce the corporate

veil to identify the true nationality of investors)

• A company duly constituted or organized under the laws of the home country, without further requirements or qualifications, qualifies as an investor

• E.g Art 1 Greece-Cuba BIT 1997 defines as investors: “with regard to either Contracting

Party, legal persons constituted in accordance with the laws of that Contracting Parties

• The place of incorporation, without further qualifications, is an objective criterion easy

to verify There is normally no doubt concerning the country under whose law a company has been constituted or organized

• Place of constitution/organization/incorporation is a permanent attribute of an entity

4 Scope of Investor (The “Rule of Origin”)

• (2) Corporate investors (Juridical persons)

• A variety of criteria to determine whether a juridical person is an investor of acontracting party

• Country of seat (effective management):

• E.g Art 1.2 China – Germany BIT 2003: Investor, in respect of Germany, means “any juridical person

as well as any commercial or other company or association with or without legal personality having its seat in the territory of the Federal Republic of Germany , irrespective of whether or not its activities are directed at profit”

• E.g Art 1.4 UK-Philippines BIT 1980: “A ‘Company’ of a Contracting Party must be incorporated or constituted and actually doing business under the laws in force in any part of the territory of that Contracting Party where a place of effective management is situated”

• The “seat” refers to an effective center of administration of the business operations (e.g place where board of directors regularly meet or shareholders’ meetings are held, where the company’s top management is located, etc.)

• It helps to exclude “mailbox” companies constituted with the sole purpose of benefiting from the treaty

• The requirement of substantive business operations: E.g Art 1.6 Belarus – Mexico BIT 2008:

“Investor of a Contracting Party” means: … a legal person either constituted or otherwise organized under the national legislation of a Contracting Party, and is engaged in substantive business operations in the territory of that Contracting Party ”

4 Scope of Investor (The “Rule of Origin”)

• (2) Corporate investors (Juridical persons)

• A variety of criteria to determine whether a juridical person is an investor of acontracting party

• Country of ownership or control (ultimate owner)

• The test of control is often combined with other formal criteria such as incorporation and seat to justify coverage of an investor under the treaty This element can be found in the French model BIT and some other BITs concluded

by Sweden, Switzerland, Belgium-Luxembourg and the Netherlands.

• Thunderbird v Mexico tribunal: “Control can also be achieved by the power to effectively

decide and implement the key decisions of the business activity of an enterprise and, under certain circumstances, control can be achieved by the existence of one or more factors such as technology, access to supplies, access to markets, access to capital, knowhow and authoritative reputation ”

• E.g Art 1.1 Belgium/Luxembourg-Philippines BIT: “ ‘Investor’ shall mean […] the ‘companies’,

i.e with respect to both Contracting Parties, a legal person constituted on the territory of one

Contacting Party in accordance with the legislation of that Party having its head office on the territory of that Party, or controlled directly or indirectly by the nationals of one Contracting Party, or by legal persons having their head office in the territory of one Contracting Party and

4 Scope of Investor (The “Rule of Origin”)

4 Scope of Investor (The “Rule of Origin”)

• Denial of benefits clause in BIT

• To exclude foreign investors without genuine link with their home states

Singapore – Australia FTA, Investment Chapter, Art 18

Subject to prior notification and consultation, a Party may deny the benefits of this Chapter

to an investor of the other Party that is an enterprise of the other Party and to investments

of that investor if the enterprise: (a) is owned or controlled by a person of a non-Party or of the denying Party; and (b) has no substantial business activities in the territory of the other Party.

5 Scope of Investment

• (1) Asset-based approach

• IIAs often adopt a broad definition referring to “every kind of asset”

• Definitional approach:

• Open-ended/illustrative (non-exhaustive): The term "investment" shall mean every kind of

assets, including in particular but not exclusively : …

• Closed (exhaustive): “Investment” means the following assets owned or controlled by investors of one Contracting Party and established or acquired in accordance with the national legislation of the other Contracting Party in whose territory the investment is made …

• A list of assets usually cover 5 categories:

• movable and immovable property and other property rights

• interests in the property of companies, such as shares, stock

• claims to money and claims to a performance under a contract having financial value

• Intellectual property rights

• Business concessions under public law