I. INTRODUCTION
The paradigm shift from inter-State diplomatic protection under customary law to investor–State arbitration under international investment agreements (IIA) aims to strengthen the protection of foreign investors.Footnote 1 Such depoliticisation would shepherd disputes from the ‘realm of diplomacy’ back to the ‘realm of law’.Footnote 2 As observed by Judge Nervo in Barcelona Traction, diplomatic protection has had a chequered history, including abuses, unjust claims, and military aggression by imperialist States against weaker States.Footnote 3 As the chapter of colonisation drew to a close in the twentieth century, Judge Jessup remarked that the days of ‘gun-boat diplomacy’ were happily behind us.Footnote 4
Yet friction between capital-exporting and capital-importing nations still lingers today. Whilst the identity of actors and choice of weapons may have evolved, the potential for abuse remains. There is growing concern that the IIA regime has bred a new class of merchants and mercenaries thriving on debt collection—resulting in the ‘commoditisation’ of treaty claims.Footnote 5 This phenomenon is most recently exemplified by the Westmoreland v Canada arbitration in which Canada challenged the NAFTA tribunal's jurisdiction over a claim commenced by an American company formed by the secured creditors of an insolvent American company solely as a vehicle to acquire the latter's assets in four Canadian coal mines (inclusive of its NAFTA claim against Canada).Footnote 6
Under their domestic law, many jurisdictions recognise the assignment of debts and choses in action, including common law (United StatesFootnote 7 and United KingdomFootnote 8) and civil law (GermanyFootnote 9 and SwitzerlandFootnote 10). However, to what extent is assignment of claims allowed under international law? On the one hand, host States are understandably irked by ‘insiders’ of their own nationality (or ‘intruders’ from third States) acquiring a matured investment for the preponderant purpose of forging artificial access to an IIA where none previously existed. On the other hand, limiting access to original investors unfairly results in their impecuniosity compunding their injury, or worse, incentivises host States to double-down on heavy-handed measures to drive foreign investments to the brink. The search for a middle way to bridge the divide has attracted recent scholarly discourse—notably GohFootnote 11 and WehlandFootnote 12—primarily from a teleological perspective. In contrast, to resolve this legal conundrum, it is preferable to fall back on the basics of treaty interpretation.
This analysis consists of three parts. The first explains why such a textual approach is grounded both in principle and pragmatism (Section II). Next, it reviews the jurisprudence constante of investment tribunals on jurisdiction ratione materiae, ratione personae and ratione temporis (Section III). This aims to demonstrate how well treaty interpretation works in practice, rather than establishing definitive interpretations of particular IIAs. A diverse sample of case studies has been selected to cover transfers of investments ranging from assignments of assets (via arm's-length sale and purchase contracts) to acquisition of shares (via corporate restructuring between related companies). Third, it identifies emerging trends on the jurisdictional scope of modern IIAs (Section IV). Briefly, the preliminary conclusions are as follows:
• There is no general presumptive rule under international law which prohibits nor permits the assignment of investments due to the sui generis nature of IIAs.
• The validity of such assignments is ultimately dependent on the treaty text of IIAs, examined through the jurisdictional lenses of ratione materiae, ratione personae and ratione temporis.
• Any gap allowing for the possible abuse of the IIA regime is sufficiently plugged by the jurisprudence constante of arbitral tribunals, and the more sophisticated textual architecture of modern IIAs.
II. THE TEXTUAL APPROACH
Since the 1980s, the proliferation of IIAs has displaced traditional diplomatic protection mechanisms as the principal means of resolving disputes between investors and host States.Footnote 13 Naturally, the starting point for ascertaining the scope of rights enjoyed by investors to directly institute arbitration against host States arising from IIAs lies in the customary rules of treaty interpretation as reflected in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (VCLT).Footnote 14 This holds true for jurisdictional and definitional clauses.Footnote 15 As opined by the Yukos Universal v Russia tribunal:
The principles of international law … [do] not allow an arbitral tribunal to write new, additional requirements — which the drafters did not include — into a treaty, no matter how auspicious or appropriate they may appear.Footnote 16
Such deference to treaty law accords with jurisprudence of the International Court of Justice (ICJ). In Barcelona Traction, the ICJ examined Belgium's claim against Spain under the customary rule of diplomatic protection because of the absence of any treaty.Footnote 17 Later, in ELSI, the ICJ Chamber dismissed the United States’ claim against Italy under the Treaty of Friendship, Commerce and Navigation without mentioning Barcelona Traction.Footnote 18 Such silence was later explained away by the ICJ in Diallo on the basis that the United States’ claim had been grounded on treaty law, not custom.Footnote 19 Such a clear dichotomy between treaty and custom in the field of investor protection cuts both ways. Just as IIAs are unhelpful in identifying customary rules of diplomatic protection in jurisdictional matters, customary rules are unhelpful when interpreting IIAs due to their sui generis and lex specialis nature.Footnote 20
Indeed, as vividly put by Paulsson, IIAs have created a unique form of ‘arbitration without privity’ which leaves investors ‘standing on a broad highway’ rather than navigating ‘through the eye of [the] thinnest needle’ on the ‘road to arbitration’.Footnote 21 Jurisdictional requirements in investor–State arbitration (vis-à-vis ICSID) are less formalistic and stringent than State-to-State disputes (vis-à-vis the ICJ).Footnote 22 Most notably, the customary rule of exhaustion of local remediesFootnote 23 is displaced by Article 26 of the ICSID Convention.Footnote 24 Another example is the inapplicability of the ‘real and effective nationality’ testFootnote 25 under Article 25 of that convention.Footnote 26
Here, the critical issue is whether a subsequent investor (assignee) which owns or controls an investment transferred from the original investor (assignor) can invoke the IIA between the host State and the assignee's State. In arbitral practice, this question directly affects the host State's consent to arbitration, and consequently, goes to the root of the tribunal's jurisdiction.Footnote 27
The cardinal rule is that a treaty shall be interpreted ‘in good faith’ based on the ‘ordinary meaning’ of the terms in ‘their context and in the light of its object and purpose’.Footnote 28 Primary sources to determine a treaty's context include, amongst others, its preamble, annexes, accompanying agreements or instruments, and subsequent agreements or practices.Footnote 29 Recourse may be made to secondary sources, including the treaty's travaux préparatoires, either to confirm the meaning resulting from the general rule or to resolve any ambiguities or absurdities from such meaning.Footnote 30 Further, aside from such fundamental rules, a few guiding principles on interpreting jurisdictional clauses can be drawn from arbitral practice:
• The basic pre-requisite for arbitration is an arbitration agreement which must be expressed in clear and unequivocal terms.Footnote 31
• An IIA's object and purpose may be examined in order to identify the common intention of the States Parties, but such examination must not be used as a pretext to embark on a teleological exercise (with a view to ascertaining the subjective intention of individual States Parties,Footnote 32 considering desirable policy considerations,Footnote 33 or achieving systemic integration with other international regimesFootnote 34).
• The interpretive exercise must be balanced and objective, without any presumption in favour of the host State or investor.Footnote 35
• It is permissible to step beyond the ‘four corners’ of the IIA at hand to compare it with the treaty text of other IIAs entered into with third States.Footnote 36
It is worth noting that scholars,Footnote 37 lawyers, or even arbitrators may be tempted to refer to the jurisprudence constante of past arbitral decisions in order to determine some general rule in international investment law. Two authorities spring to mind.
On the one hand, the tribunal in Daimler v Argentina opined:
As the large and thriving global market for distressed debt attests, most jurisdictions allow for legal claims to be either sold along with or reserved separately from the underlying assets from which they are derived. The reason is that such severability greatly facilitates and speeds the productive re-employment of assets in other ventures.Footnote 38
On the other hand, the tribunal in Mihaly v Sri Lanka opined:
A claim under the ICSID Convention with its carefully structured system is not a readily assignable chose in action as shares in the stock-exchange market or other types of negotiable instruments, such as promissory notes or letters of credit.Footnote 39
Never mind that both authorities stand at diametrically opposite positions. Neither authority holds much legal sway. First, their factual bases are too peculiar, narrow, and dissimilar—particularly, as to the timing of the assignment—to allow the extrapolation of any wider principle of international law.Footnote 40 Second, their differing outcomes can be easily reconciled and rationalised from the perspective of ratione temporis.
This textual analysis primarily focuses on the Energy Charter Treaty (ECT).Footnote 41 Ratified by over 50 States in Europe and Central Asia,Footnote 42 the ECT has lived up to expectations as being the ‘most ambitious multilateral treaty’ and ‘a quantum leap’ in investment protection.Footnote 43 Since 2014, the ECT has overtaken NAFTAFootnote 44 as the most frequently invoked IIA both in terms of total numbersFootnote 45 and on an annual basis (2014–20).Footnote 46 Negotiations on treaty modernisation commenced in 2018.Footnote 47 With such expansive reach, the ECT arguably now sits at the centre of investor–State arbitration.
That said, reference to the ECT and other IIAs is for illustrative purposes only. Ultimately, treaties are autonomous creatures. Each IIA is to be interpreted without preconceived notions of what the States Parties intended. The quest to ascertain the jurisdictional scope of IIAs must begin with a clean slate.
III. THE JURISDICTIONAL TRIPLE-LAYER DEFENCE
It is the common practice of international courts and tribunals to examine jurisdictional challenges under three heads: ratione materiae, ratione personae and ratione temporis. This applies to all forms of manifestation of State consent to dispute settlement, whether by way of treaty (compromissory clausesFootnote 48) or unilateral declarations (optional clause declarations accepting compulsory jurisdictionFootnote 49).
All three heads are interrelated and overlapping. There is no strict hierarchy. Arbitral tribunals are free to consider jurisdictional objections in any particular order.Footnote 50 The ICJ typically examines whichever head ‘is more direct and conclusive’Footnote 51 when considering jurisdictional challenges.
Although conspicuously absent from the treaty text of most IIAs, recognition of all three jurisdictional concepts is strongly implied in Article 25 of the ICSID Convention: jurisdiction ratione materiae (‘investment’),Footnote 52 ratione personae (‘national’),Footnote 53 and ratione temporis (‘on the date on which the request was registered’).Footnote 54 This is reinforced by Article 4(2) of the ICSID Additional Facility Rules stipulating that the ICSID Secretary-General shall only administer cases where parties have consented to ICSID's jurisdiction under Article 25 of the ICSID Convention ‘in the event that the jurisdictional requirements ratione personae of that Article shall have been met’.Footnote 55
This provides a three-layered defence mechanism which filters claims falling outside the protective sphere of an IIA (and consequently the jurisdictional scope of its dispute settlement body). Whilst some parts of the analysis offered here may not fit squarely within established arbitral practice (especially as regards jurisdiction ratione temporis), that should not detract from the utility of this approach in assisting treaty interpreters to determine the extent of a host State's consent to investor–State arbitration under an IIA.
Ultimately, the test of whether a particular assignment of investment is protected by an IIA can be narrowed down to three simple questions: What did the claimant invest? How much did the claimant contribute to such investment? When did the claimant acquire such investment? Put simply, the test turns on the nature, purpose, and timing of the assignment.
A. Jurisdiction Ratione Materiae
The test of jurisdiction ratione materiae (subject matter jurisdiction) turns upon the varying definitions of ‘investment’ across different IIAs. The definitional clauses embodied in the ECT are also to be found in a myriad of other modern IIAs, albeit with certain variations.Footnote 56
These definitional terms can be loosely categorised into two types: (a) pro-assignment, and (b) anti-assignment. Although these terms are neither definitive nor exhaustive in determining whether a specific IIA protects a specific investment, they exemplify the main provisions that tribunals typically deem most relevant when determining the extent of their jurisdiction.
1. Pro-assignment
Article 1(6) of the ECT defines ‘investment’ as ‘every kind of asset, owned or controlled directly or indirectly by an Investor’ which is ‘associated with an Economic Activity in the Energy Sector’. The words ‘owned’ and ‘controlled’ are disjunctive.Footnote 57 One of the enumerated examples of assets includes ‘claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment’.Footnote 58 Arbitral tribunals have consistently recognised that ‘claims to money’ include financial and credit instruments. In Petrobart v Kyrgyzstan, the tribunal found a contract for the sale of gas condensate (and a court judgment enforcing a debt arising from said contract) constituted an investment under this limb of the ECT.Footnote 59 In Fedax v Venezuela, a promissory note acquired from a Venezuelan investor was deemed a foreign investment, despite the identity of the investor having changed with every endorsement, so long as ‘credit is provided by a foreign holder of the notes’.Footnote 60
Moreover, Article 1(6) of the ECT stipulates that any ‘change in the form in which assets are invested does not affect their character as investments’. This proviso is wide enough to cover not only changes in the form of investment held by the original investor, but also any change in the ownership of an investment from the original investor to a subsequent investor. This was well illustrated in African Holding v Congo which concerned the assignment of contracts between two co-claimants creating a ‘continuum’ of an investment in which its ‘nature and character are kept unchanged’.Footnote 61 In finding that only the assignee claimant (and not the original investor and assignor claimant) had standing to commence the claim against Congo,Footnote 62 the tribunal provided this colourful but apt analogy:
Once money or claim leaves one pocket and goes into the other, only that other pocket can claim or collect it … The pockets may belong to the same pants, but they are still different pockets.Footnote 63
Hence, it is well-settled that an assignment of a contract or debt can be regarded as an ‘asset’ under the ECT and analogous IIAs. However, this is only half the picture since not every ‘asset’ constitutes an ‘investment’.
2. Anti-assignment
Only an ‘investment associated with an Economic Activity in the Energy Sector’ is protected under the ECT. This is a fundamental criterion. In Amto v Ukraine, the tribunal construed the term ‘associated with’ as requiring a ‘factual rather than legal association’.Footnote 64 In other words, a ‘functional relationship’ with the energy sector was required, whilst a ‘mere contractual relationship with an energy producer’ was insufficient.Footnote 65
A deep dive into Energorynok v Moldova illustrates how this criterion can be used to distinguish assignments of genuine investments from mere contractual debts.Footnote 66 The arbitration concerned an electricity supply agreement between Ukraine and Moldova (APO).Footnote 67 Due to an electrical overflow from Ukraine to Moldova, the Moldovan State enterprise was obliged to pay compensation.Footnote 68 The Ukrainian counterparty transferred the debt to another State enterprise (the claimant) which became the ‘legal successor’ over the APO rights.Footnote 69 The claimant commenced a civil suit in the Moldovan court and obtained judgment.Footnote 70 After repeated failures in enforcement, the claimant commenced arbitration against Moldova under the ECT.Footnote 71
The tribunal had little hesitation in finding that the APO constituted a protected investment.Footnote 72 The critical issue, however, was whether the contractual debt assigned to the claimant was similarly protected.Footnote 73 The tribunal distinguished Petrobart v Kyrgyzstan on the basis that the case concerned an original investor claiming for payment of gas supplied by itself, and not another party.Footnote 74 In contrast, the claimant in the present case never had any role, control or influence in the transmission of electricity to Moldova.Footnote 75 The claimant's financial interest resided in the ‘claim of money’ itself (debt recovery), and not the economic activity (transmission of electricity).Footnote 76 Hence, the tribunal concluded that it lacked jurisdiction over the dispute because the claimant merely acquired a debt and this fell short of acquiring an investment protected under the ECT.Footnote 77
A similar finding on closely analogous facts was reached in Energoalians v Moldova.Footnote 78 The Ukrainian claimant acquired two debts owed by the same Moldovan State enterprise as a result of defaulting on payments due under two contracts to supply electricity to power grids in Moldova.Footnote 79 The first debt arose from a tripartite contract requiring the claimant (supplier) to supply electricity to a Swiss company based in Ukraine (buyer) for onward use by the Moldovan State enterprise (recipient).Footnote 80 The recipient's debt to the buyer was assigned to the claimant supplier.Footnote 81 The second debt arose from a similar series of transactions with one singular but critical difference—the supplier was a third party, and not the claimant.Footnote 82 Under the ECT, the tribunal found that it only had jurisdiction ratione materiae over the first debt, where the claimant had participated in the contract for supply of electricity,Footnote 83 but not the second debt where the claimant had no participation whatsoever.Footnote 84 Once again, the factual link between the ‘claim of money’ and ‘economic activity’ was central to its reasoning.Footnote 85
There is, however, another interesting twist to the tale. Under the Ukraine–Moldova BIT, the tribunal found that it lacked jurisdiction for both debts.Footnote 86 Unlike the ECT, the Ukraine–Moldova BIT defines ‘investment’ as ‘every kind of asset invested in connection with economic activities by an investor of one Contracting Party in the territory of the other Contracting Party’.Footnote 87 According to the tribunal, these additional words imply that an ‘investment’ only arises when an investor carries out economic activity in the host State ‘at the moment of the respective asset acquisition’ (or alternatively, the ‘acquisition of an asset should be necessarily followed by a commencement of new economic activity’ by the investor).Footnote 88 Since the electricity was supplied only up to the Ukrainian–Moldovan border, neither the claimant nor the buyer had carried out any economic activity in the energy sector of Moldova.Footnote 89 Further, post-assignment, the debt recovery suits commenced in the Moldovan courts did not qualify as a new ‘economic activity.Footnote 90
Mention must also be made of the controversial Salini test that posits four additional elements to the definition of ‘investment’: (i) contribution of capital; (ii) duration; (iii) element of risk; and (iv) contribution to the host State's economy.Footnote 91 Even today, arbitral tribunals remain divided on this—it is embraced by some,Footnote 92 but rejected by others.Footnote 93
There is no need to wade into this legal quagmire,Footnote 94 except to make three observations. First, the test only applies (if at all) to the extent consistent with the treaty text construed in accordance with the general rules of treaty interpretation, for the same reasons previously cited in support of the textual approach (Section II). Second, an assignment of investment will typically only have difficulty meeting the fourth limb—especially a bare assignment of a contractual debt where the investment has long matured and no longer contributes in any meaningful way to economic activity. Even tribunals receptive of the Salini test are generally inclined to exclude the requirement of the fourth limb (or presume its existence from the fulfilment of the other three limbs).Footnote 95 Indeed, only the first three limbs have been incorporated in modern IIAs incorporating the Salini test in the definition of ‘investment’.Footnote 96 Third, the test as a whole (including the fourth limb) is a weak filter capable of catching only the most blatant forms of bare assignments.
Returning to the crux of this analysis, it can be seen that the words ‘associated with’ or ‘in connection with’ the ‘investment’ can narrow the scope of a tribunal's jurisdiction ratione materiae in relation to claims over investments acquired by a subsequent investor through assignment. In short, the relationship between the asset acquired and the original investment remains a key variable in the equation.
B. Jurisdiction Ratione Personae
The test of jurisdiction ratione personae (personal jurisdiction) primarily turns upon the definition of ‘investor’. Article 1(7)(a)(ii) of the ECT defines a corporate ‘investor’ as ‘a company or other organisation organised in accordance with the law applicable in that Contracting Party’. Another relevant provision is Article 17(1) of the ECT which embodies what is commonly known as a ‘denial of benefit’ clause:
Each Contracting Party reserves the right to deny the advantages of this Part to … a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organised.Footnote 97
Further, Article 26 of the ECT sets out the procedure for dispute settlement by way of investor–State arbitration (paraphrased for brevity):Footnote 98
• Disputes between a host State and an investor relating to an investment in the Area of the host State shall, if possible, be settled amicably.
• If such disputes cannot be settled, the investor may choose to submit the dispute for resolution through international arbitration by providing its consent in writing.
• Each host State gives its unconditional consent to the submission of a dispute to international arbitration.
• The unconditional consent given by the host State together with the written consent of the investor shall satisfy the requirement for ‘written consent’ under the ICSID Convention or ‘agreement in writing’ under the New York Convention.Footnote 99
This analysis of jurisdiction ratione personae under the ECT and analogous BITs will follow the twofold structure adopted in the previous section concerning jurisdiction ratione materiae.
1. Pro-assignment
It is evident that the ECT's definition of corporate investors adopts the incorporation test, and not the control test.Footnote 100 Company A(x) is entitled to claim against State Y under an IIA between State X and State Y, so long as Company A(x) is legally incorporated in State X. It is immaterial that Company A(x) is a shell company with no business operations in State X. Understandably, a common objection of State Y is the lack of any genuine link of nationality between Company A(x) and State XFootnote 101 and abuse of forum shopping.Footnote 102 Still, such concerns cannot override the express words of the treaty, as succinctly noted by the Saluka tribunal when interpreting the Czech–Netherlands BIT:Footnote 103
The Tribunal cannot in effect impose upon the parties a definition of ‘investor’ other than that which they themselves agreed … and it is not open to the Tribunal to add other requirements which the parties could themselves have added but which they omitted to add.Footnote 104
Similar sentiments were expressed by the tribunal in Tokios Tokelės v Ukraine when interpreting the Ukraine–Lithuania BIT, reinforced by its object and purposeFootnote 105 and lack of a denial of benefits clauseFootnote 106 (unlike the Ukraine–United States BITFootnote 107 and the ECT). Does this mean that a denial of benefits clause would subsume the control test? Not exactly. In Plama v Bulgaria, the tribunal construed Article 17 of the ECT as being applicable only to its substantive provisions under Part III,Footnote 108 and as vesting a right exercisable by the host State by giving express notice within a reasonable time after the investment is made.Footnote 109 In short, Article 17 does not operate as an absolute and automatic jurisdictional barrier against investor claims.
Generally, the incorporation test dispels any objection to the exercise of jurisdiction ratione personae over claimants having indirect ownership or control over an investment. Likewise, the test equally dispels objections to the assignment of an investment from Company C(z) of State Z to Company A(x) of State X. It is immaterial that the assignment is designed to take advantage of Company A(x)'s nationality in State X to gain access to the BIT between State X and State Y.Footnote 110
Another possible objection to such an assignment revolves around the concept of consent and intuitu personae—that only an original investor can invoke the BIT against the host State. In other words, Company A(x), being the subsequent investor, cannot invoke the BIT against State Y (as such a right is only vested with Company C(z) as the original investor, who cannot invoke the IIA since State Z is a non-party). However, this objection fails on two counts.
First, under customary international law, there is no rule that prohibits the assignment of treaty claims. The doctrine of intuitu personae alluded to by scholars such as SchreuerFootnote 111 and Judge CrawfordFootnote 112 is to be understood in the context of diplomatic protection. As explained by Judge Jessup in Barcelona Traction, the rationale ‘for the rule on continuity of nationality of claims is the avoidance of assignments of claims by nationals of a small State to nationals of a powerful State’.Footnote 113 In contrast, an IIA is a hybrid platypus-like creature straddling public and private international law.Footnote 114 Douglas aptly characterises an IIA claim as a ‘direct claim’ (as opposed to a ‘derivative claim’ under diplomatic protection).Footnote 115
Second, the plain text of an IIA cannot be overridden by additional requirements under the customary law of diplomatic protection.Footnote 116 An investor's right to arbitration against the host State under an IIA is provided by its dispute settlement clause. Any recourse to investor–State arbitration rests on the fundamental notion that the host State has made an ‘open offer to arbitrate’ to all investors of other States Parties.Footnote 117 Their arbitration agreement is sealed (albeit counter-intuitively) when the investor submits a written notice of arbitration.Footnote 118 Since commencement constitutes acceptance, there is no further requirement of consent from the host State.Footnote 119 Such a unique arbitral mechanism is well entrenched in the ECT and the ICSID regime, as recognised by scholarsFootnote 120 and arbitral tribunals.Footnote 121
Hence, it is immaterial whether the host State is aware of the investor's existence or incorporation in the other State Party.Footnote 122 Nor is it relevant that the host State was initially aware of the investment made by the original investor in its territory, but unaware of its assignment to a subsequent investor of a different nationality. In short, a host State's consent to arbitration cannot be vitiated due to the absence of consent to (or even knowledge of) the assignment.
Any lingering doubt was laid to rest in Vannessa Ventures v Venezuela.Footnote 123 The investment concerned a joint venture between a governmental agency and original investor to extract gold and copper at the Las Cristinas mine.Footnote 124 Their shareholders’ agreement prohibited assignment without the counterparty's consent.Footnote 125 As works stalled, the original investor unilaterally sold its shares in the joint venture to the claimant.Footnote 126 Upon discovering the sale, the agency terminated the mining contract.Footnote 127 Venezuela raised a jurisdictional objection that the joint development of Las Cristinas was intuitu personae in nature and the assignment violated Venezuelan contract law on non-assignment.Footnote 128 In dismissing the objection, the tribunal opined:
Nonetheless, the intuitu personae character of the contracts does not itself put Claimant's ownership of shares in PDV outside the scope of the Canada-Venezuela BIT … The Tribunal's view that the participation of [the original investor], rather than any other company, was an essential part of the contractual arrangements in respect of Las Cristinas does not, therefore, preclude Claimant's ownership of shares in PDV from satisfying the BIT's definition of ‘investment.’Footnote 129
Hence, there is no doctrine of intuitu personae which precludes a subsequent investor from invoking an IIA claim against the host State from the aspect of jurisdiction ratione personae.Footnote 130
2. Anti-assignment
Nonetheless, it is plausible for the express terms of an IIA to preclude a subsequent investor from invoking its dispute settlement mechanism. One technique has already been touched upon—a denial of benefits clause. To draw a contrast with the ECT, the tribunal in Plama v Bulgaria provided the ASEAN Framework Agreement on ServicesFootnote 131 as a counter-example:
The benefits of this Framework Agreement shall be denied to a service supplier … not engaged in substantive business operations in the territory of Member States(s).Footnote 132
In Pac Rim v El Salvador, the tribunal found that Article 10.12.2 of CAFTAFootnote 133 was worded more broadly than the ECT and encompassed both the substantive section on investment protection and the procedural section on investor–State dispute settlement:
[A] Party may deny the benefits of this Chapter to an investor of another Party that is an enterprise and to investments of that investor if the enterprise has no substantial business activities in the territory of any Party … .Footnote 134
The extent to which a host State may ‘nullify’ its ‘consent to arbitration’ under a denial of benefits clause differs from treaty to treaty.Footnote 135 At any rate, even an expansive clause is only capable of precluding assignments of investments to a shell company.Footnote 136 Assignment between investors of different nationalities is still permissible, so long as the claimant investor maintains a commercial footprint in a State Party of the IIA. This is not difficult to establish, especially for multinational conglomerates and financial institutions with multiple subsidiaries spread out over multiple jurisdictions. Arbitral tribunals have construed the test of ‘substantial’ as one of ‘materiality’ rather than one of ‘magnitude’.Footnote 137 In short, a denial of benefits clause does not fully plug the ‘jurisdictional loophole’ that allows forum shopping by passive investors.Footnote 138
A more effective approach is to draw a link between the ‘investment’ and ‘economic activity’ within the host State. A few examples have been alluded to previously (eg Article 1 of the Ukraine–Moldova BIT and, to a lesser degree, the proviso to Article 1 of the ECT). A restrictive definition of ‘investment’ is marginally better than a denial of benefit clause. The former requires a closer factual and temporal link between the investor and the host State, whilst the latter merely requires a link between the investor and its home State.
Perhaps the best approach is to draw a direct link between the investor and the investment (straddling over both jurisdiction ratione materiae and ratione personae). Ironically, this technique does not require any complex draftsmanship, and can be found hidden in plain sight within the most basic of IIAs. This was exemplified in SCB v Tanzania.Footnote 139 The claimant, a UK bank, wholly owned a Hong Kong subsidiary through direct and indirect shareholding.Footnote 140 The Hong Kong subsidiary purchased a loan issued by a consortium of Malaysian banks to a Tanzanian borrower.Footnote 141 The dispute primarily revolved around the non-payment of loans utilised to fund a Tanzanian power plant.Footnote 142
The principal provision under the spotlight was the jurisdictional clause in Article 8(1) of the UK–Tanzania BIT (which closely mirrors Article 26 of the ECT).Footnote 143 The question was whether the dispute concerned ‘an investment of [a UK company] in the territory of [Tanzania]’.Footnote 144 Another provision that attracted much scrutiny was Article 11 governing the applicable law which used the words ‘investments by investors’.Footnote 145 The crux of Tanzania's jurisdictional objection essentially turned on the prepositions ‘of’ and ‘by’ that connected the words ‘investor’ and ‘investment’.Footnote 146 The tribunal began by examining the word ‘of’ with meticulous linguistic rigour:
[W]ith respect to the preposition ‘of’ different meanings can be adduced. Some uses indicate a contributory relationship (as in the ‘the plays of Shakespeare’ or ‘the paintings of Rembrandt’), while others define ownership (as in ‘the house of Shakespeare’ or ‘the hat of Rembrandt’).
The phrase ‘an investment of the latter’ (Article 8 of the BIT) remains more equivocal. Neither the possessive nor the contributory connotation presents itself with the same degree of obviousness as in the examples suggested above.Footnote 147
After noting the UK–Tanzania BIT's interchangeable use of the terms ‘investments by investors’, ‘investment by nationals and companies’ and ‘investments by a national or company’,Footnote 148 the tribunal proceeded to examine the word ‘by’:
The preposition ‘by’ can indicate the relationship between subject and object when an active sentence is converted into a passive form … ‘She made a contribution’ becomes ‘A contribution was made by her.’ In this formulation, the associated verb sheds useful light on the contemplated relationship between object and subject.Footnote 149
Since the verb ‘made’ was sprinkled throughout the treaty's preamble, the definition of ‘investment’, and provisions on its temporal application, the tribunal found that the verb ‘implies some action in bringing about the investment, rather than purely passive ownership’.Footnote 150 After cross-checking with other secondary sources (ie the treaty's object and purpose,Footnote 151 other IIAs between Tanzania and third States,Footnote 152 and past arbitral decisionsFootnote 153), the tribunal concluded that the claimant's lack of active participation in the Tanzanian loans did not justify a finding of jurisdiction.Footnote 154 This was underscored by a restrictive interpretation of the jurisdictional clause:
To benefit from Article 8(1)'s arbitration provision, a claimant must demonstrate that the investment was made at the claimant's direction, that the claimant funded the investment or that the claimant controlled the investment in an active and direct manner …
[F]or an investment to be ‘of’ an investor in the present context, some activity of investing is needed, which implicates the claimant's control over the investment or an action of transferring something of value (money, know-how, contacts, or expertise) from one treaty-country to the other.Footnote 155
Three months earlier, in Alapli v Turkey, Arbitrator Park adopted a similar approach when interpreting the word ‘of’ in Article 26(1) of the ECT concerning dispute settlement (‘Investment of the latter in the Area of the former’) and Article 3(1) of the Netherlands–Turkey BIT concerning FET protection (‘investments of investors of the other Contracting Party’):Footnote 156
In each instance, the investor is assumed to be an entity which has engaged in the activity of investing, in the form of having made a contribution. An alleged investor must have made some contribution to the host state permitting characterization of that contribution as an investment ‘of’ the investor …
Put differently, the treaty language implicates not just the abstract existence of some piece of property, whether stock or otherwise, but also the activity of investing.Footnote 157
Unlike SCB v Tanzania, Arbitrator Park did not embark on an elaborate exercise of linguistic gymnastics. Indeed, one may wonder whether such an exercise is even necessary. After all, to most laypeople, the term ‘investment of investors’ should be sufficiently self-explanatory and mean that an investor is one who actually makes an investment.Footnote 158 Is the term free from ambiguity? Perhaps not. However, treaty interpretation is not a matter of legal perfection. IIAs should be construed through the eyes of an objective interpreter.Footnote 159 Neither sophisticated textual interpretationFootnote 160 nor further teleological interpretationFootnote 161 is required when the ordinary meaning is self-evident.
C. Jurisdiction Ratione Temporis
The concept of jurisdiction ratione temporis (temporal jurisdiction) can manifest itself in many ways. It is best to first dispense with those irrelevant to the present analysis, before concentrating on the ones that matter. First, the general rule of non-retroactivity precludes a treaty from binding a State in relation to acts occurring and ceasing before its entry into force for that State.Footnote 162 Here, the critical date refers to the date when the IIA comes into force between the States Parties.Footnote 163 Second, the general rule in arbitral practice is that only acts or omissions by the host State occurring after the investor's purported investment can engage its responsibility.Footnote 164 Here, the critical date refers to the date of the investment by the original investor (rather than the date of acquisition of the investment by a subsequent investor). Both of these critical dates are irrelevant because the present analysis presupposes that the preliminary events proceed in regular chronological order: the IIA entering into force, the making of the investment and the alleged breach by the host State (this being the key point in time).
Hence, what merits consideration are three other rules and their corresponding critical dates. First, under customary international law, a State can only exercise the right of diplomatic protection over a person possessing its nationality at the time of injury (the date of breach).Footnote 165 Second, based on investment arbitral practice, the doctrine of abuse of rights takes into account the timings of the purported investment, the claim, and most pertinently, the claimant's acquisition of the investment (the date of assignment).Footnote 166 Third, based on general judicial practice, any jurisdictional challenge is to be assessed at the date of institution of proceedings (the date of commencement of arbitration).Footnote 167
Ultimately, whether there is jurisdiction ratione temporis turns upon the timing of assignment.Footnote 168 Broadly, there are three possible periods: (a) pre-breach; (b) post-breach and pre-claim; and (c) post-claim. An assignment is most contentious when made within the second period. In addition, the determination of whether there is jurisdiction ratione temporis is primarily factual, rather than textual.
1. Pre-breach
This is a safe zone in which investments can change hands between investors without legal complication. Imagine that Company C(z) of State Z furnishes a loan to build a power plant in State Y in 2010. The loan is subsequently assigned to Company A(x) of State X in 2013. Company A(x) continues to fund the power plant's operation through loan tranches until 2015. Changes to State Y's regulatory policies in 2017 render the power plant commercially unviable. The power plant owner defaults on the loan and becomes insolvent. Company A(x) commences arbitration against State Y under the IIA between State X and State Y in 2020 (no IIA exists between State Y and State Z).
Is there a compelling reason for State Y to object to Company A(x)'s claim? Not really. Although not the original investor, Company A(x) made an active contribution to the power plant, thus fulfilling the tests of jurisdiction ratione materiae and ratione personae.Footnote 169 State Y received economic benefits from the power plant regardless of whether Company A(x) initiated or acquired the loan. There is nothing unexpected or unfair in Company A(x) gaining access to the IIA (despite Company C(z)'s inability to do so) by piggy-backing on a pre-existing foreign investment because State Y's ratification of the IIA constitutes an ‘open offer’ to all nationals of State X to invest in its territory at any time.
In short, the earlier the assignment takes place, the less objectionable it becomes. A host State may justifiably be aggrieved, however, where the assignment is made closer to the date of purported breach and further away from the date of the original investment made by the assignor.
2. Post-breach and pre-claim
This is a danger zone in which abuses of the IIA regime are prone to materialise. On the one hand, it is not unusual for an investor to operate in a State which provides the most beneficial regulatory and legal environment, including for purposes of taxation or investment treaty protection.Footnote 170 An upstream modification of investment to take into account the possibility of future disputes is perfectly legitimate.Footnote 171 On the other hand, any incorporation made with the primary purpose of gaining access to an IIA constitutes ‘an abusive manipulation of the system of international investment protection’.Footnote 172 Such downstream modification made after a pre-existing dispute has already arisen (or is about to arise) is impermissible.Footnote 173 As aptly put by Paulsson, the rationale for ‘placing temporal limitations’ on the latter scenario is ‘that the door should be shut on nationals pretending to be foreigners’.Footnote 174
Where is the dividing line to be drawn? This was succinctly answered by the Pac Rim v El Salvador tribunal:
[T]he dividing-line occurs when the relevant party can see an actual dispute or can foresee a specific future dispute as a very high probability and not merely as a possible controversy … [B]efore that dividing-line is reached, there will be ordinarily no abuse of process; but after that dividing-line is passed, there ordinarily will be. The answer in each case will, however, depend upon its particular facts and circumstances … [A]s a matter of practical reality, this dividing-line will rarely be a thin red line, but will include a significant grey area.Footnote 175
There are two situations in which an assignment of an investment becomes abusive: internationalisation of a domestic dispute, and treaty shopping. The first situation is exemplified in a plethora of arbitral decisions.Footnote 176 In Phoenix Action v Czech Republic, an Israeli company (fully owned by a Czech citizen with dual Israeli nationality) bought two Czech companies ‘already burdened with the civil litigation’.Footnote 177 Since the transaction was ‘not for the purpose of engaging in economic activity’ but rather with the sole purpose to ‘transform a pre-existing domestic dispute into an international dispute’, the tribunal held that it was ‘not a bona fide transaction and cannot be a protected investment under the ICSID system’.Footnote 178
In Transglobal v Panama, a Panamanian company owned by a Panamanian national was awarded a concession to design, build, and operate a hydroelectric power plant in Panama.Footnote 179 Due to construction delays exceeding the contractual deadline, the government agency terminated the concession.Footnote 180 The concessionaire filed for administrative review in the Panamanian courts, and successfully obtained a judgment which kept the concession alive.Footnote 181 The concessionaire then executed a partnership and transfer agreement with the first claimant, an American company (which formed the second claimant, a Panamanian subsidiary, a month after) to facilitate the execution of the judgment.Footnote 182 Since the timing of the transaction evinced an attempt ‘to create artificial international jurisdiction over a pre-existing domestic dispute’, the tribunal upheld Panama's jurisdictional objection on the ground of abuse.Footnote 183
In Alapli v Turkey, Arbitrator Stern preferred to ground her dismissal of the claim on the basis of a lack of jurisdiction on grounds of ‘timing and bona fides’.Footnote 184 A Turkish national, ‘seeing a dispute looming with his own government’, established a Dutch company (the claimant).Footnote 185 American backers provided all the financing and technological know-how, and absorbed all risk of loss flowing from a power plant project awarded to the Turkish company under a concessionary contract.Footnote 186 The concession was assigned to a second Turkish company owned by the Dutch claimant.Footnote 187 Arbitrator Stern opined that ‘it would be unfair to allow Claimant to change its nationality in the grey period of the Parties’ relationship between good relations and a full-fledged dispute, when disagreement and acrimony have already arisen’.Footnote 188 Such a change was abusive because its main purpose was to gain access to international arbitration under the ECT and Netherlands–Turkey BIT—a recourse ‘which did not exist for the Turkish nationals and the Turkish company’.Footnote 189
The second situation of ‘treaty shopping’ arises when the investment possesses an international character. What the investor lacks—and seeks to establish—is a link of nationality with the host State. This was illustrated in Mihaly v Sri Lanka which concerned an assignment between two related companies. Mihaly (US) filed an ICSID claim against Sri Lanka arising from rights assigned by Mihaly (Canada) over a proposed power project in Sri Lanka.Footnote 190 Mihaly (Canada) could not directly invoke the ICSID Convention, since Canada was not a State Party at the material time.Footnote 191 The claim was deemed inadmissible.Footnote 192 The tribunal reasoned that the assignment could not improve Mihaly (Canada)'s procedural rights against Sri Lanka (or rather, the lack thereof) on the ground that ‘no one could transfer a better title than what he really has’ (‘nemo dat quod non habet’).Footnote 193 To allow the assignment to cure such a procedural defect ‘would defeat the object and purpose of the ICSID Convention and the sanctity of the privity of international agreements not intended to create rights and obligations for non-Parties’.Footnote 194
In sum, arbitral tribunals take a dim view of assignments of investments made with the predominant purpose of manufacturing artificial access to an IIA. This is especially so when the assignment is timed shortly after the purported breach occurred or a potential dispute is already looming on the horizon.
3. Post-claim
This is yet another safe zone for assignments. Since the critical date for determining jurisdiction is the date of institution of proceedings, jurisdiction once established cannot be defeated or affected by subsequent events.Footnote 195 Concomitantly, tribunals look kindly upon changes in ownership of investment during arbitral proceedings.Footnote 196 And rightly so, for investor–State arbitrations are notorious for lasting many years, due to legal complexities and voluminous documentary evidence. As opined by the tribunal in CSOB v Slovakia:
It is generally recognized that the determination whether a party has standing in an international judicial forum for purposes of jurisdiction to institute proceedings is made by reference to the date on which such proceedings are deemed to have been instituted. Since the Claimant instituted these proceedings prior to the time when the two assignments were concluded, it follows that the tribunal has jurisdiction to hear their case regardless of the legal effect, if any, the assignments might have had on Claimant's standing had they preceded the filing of the case.Footnote 197
In El Paso v Argentina, the tribunal rejected the applicability of any rule of continuous ownership since IIA claims are typically premised upon loss of ownership and control (ie expropriation), and imposing such a requirement would defeat the entire purpose of investor–State dispute resolution mechanisms.Footnote 198 Any profits received by the claimant from the disposal of the investment might be relevant in the quantum of compensation.Footnote 199
It is rather odd that the tribunal in Daimler v Argentina felt compelled to opine that IIAs ‘accord standing only to the original investor and not to any subsequent would-be purchasers of the underlying investment’.Footnote 200 The rationale given was the following:
The better view would seem to be that ICSID claims are at least in principle separable from their underlying investments … Rather, the Tribunal finds that it should accord standing to any qualifying investor under the relevant treaty texts who suffered damages as a result of the allegedly offending governmental measures at the time that those measures were taken – provided that the investor did not otherwise relinquish its right to bring an ICSID claim.Footnote 201
Such a dictum is deeply troubling. The tribunal appears to draw an analogy with the doctrine of separability under private international law. First, it is doubtful whether the doctrine is applicable to IIAs. As previously seen, consent in investor–State arbitration is asymmetrical in nature—the arbitration agreement crystallises upon an investor's acceptance of a host State's ‘open offer to arbitrate’ by the very act of commencing arbitration.Footnote 202 Due to the peculiarity of States ‘expressing their consent in the absence of privity’ with unknown prospective investors, any analogy drawn with contract-based arbitration ‘must be treated with caution’.Footnote 203
Second, the dictum overstates the legal effect of the doctrine, taking it beyond its intended purpose (ie that an arbitration agreement survives the termination, rescission, discharge or invalidity of the main contract).Footnote 204 Indeed, it is generally accepted that the assignment of a contract automatically includes the arbitration agreement ‘without the need for any separate or additional assignment’.Footnote 205
Third, and most disconcertingly, severability would imply that the right to invoke an IIA's dispute settlement mechanism over an investment vests exclusively with the original investor. What, then, would make the transfer of such right effective? Surely it cannot require the consent of the host State, as this goes against the ‘open offer to arbitrate’ system of IIAs.Footnote 206 An unnecessary artificial legal fiction is created if—recalling the analogy of African Holding v Congo—money moving from one pocket to another still leaves some small change in the original pocket.
It is conceivable that the tribunal in Daimler v Argentina may have envisaged a ‘qualifying investor’ as being broad enough to cover a subsequent acquirer of the investment who continues to actively contribute to the investment (as opposed to a passive investor). Such an interpretation is reinforced by fixing the critical date at the date of breach (akin to the ‘dividing line’ test). If so, the test of active contribution (ratione personae) and doctrine of abuse of rights (ratione temporis) already cover this. There is no need to muddy the waters by anchoring its normative basis in separability.
Hence, the better view is to relegate such dictum to the sidelines. The general rule is simple—any assignment of investments after the commencement of arbitration is relevant only to the issue of reparation, not jurisdiction.
IV. TRENDS IN MODERN INVESTMENT TREATIES
The last decade has witnessed a new wave of IIAs coming into force.Footnote 207 Notable examples include the United States–Mexico–Canada Agreement Footnote 208 (USMCA) replacing the NAFTA regime in 2020, and the agreement between the European Union (EU) and CanadaFootnote 209 (CETA). Presently, the EU is spearheading negotiations to modernise the ECT,Footnote 210 and has submitted a proposed draft text.Footnote 211 It is noteworthy that these new IIAs and proposed revisions to existing IIAs lean towards restricting the scope of investors and investments in step with the trajectory of arbitral decisions concerning jurisdiction ratione materiae, ratione personae and ratione temporis.
First, ‘investment’ refers to an asset having ‘the characteristics of an investment, which includes a certain duration and other characteristics such as the commitment of capital or other resources, the expectation of gain or profit or the assumption of risk’.Footnote 212 This essentially incorporates the three limbs of the Salini test (with the notable exception of the controversial fourth limb of ‘contribution to the host State's economy’). The more interesting revision, however, is the new proviso to ‘claims to money’. For instance, Article 8.1 of CETA stipulates:
For greater certainty, claims to money does not include:
(a) claims to money that arise solely from commercial contracts for the sale of goods or services by a natural person or enterprise in the territory of a Party to a natural person or enterprise in the territory of the other Party;
(b) the domestic financing of such contracts; or
(c) any order, judgment, or arbitral award related to sub-subparagraph (a) or (b).Footnote 213
This echoes the tribunal findings in Energorynok v Moldova and Energoalians v Moldova. The opening words ‘for greater certainty’ make it clear that the exceptions are intended to explain, rather than add to, the current understanding of the term ‘claims to money’. It is likely that these words were deliberately crafted to avoid a contrario interpretation of the term found in existing IIAs from being raised in disputes. In short, the proviso merely confirms what is already strongly implied in the treaty texts of traditional IIAs.Footnote 214
Second, ‘investor’ refers to a natural person or enterprise that seeks ‘to make, is making or has made an investment in the territory of the other Party’.Footnote 215 The word ‘make’ strongly implies the requirement of a nexus connecting ‘investor’ and ‘investment’, based on the test of active contribution alluded to by the tribunal in SCB v Tanzania and Arbitrator Park in Alapli v Turkey.Footnote 216
Further, aside from incorporation, the CETA requires an ‘enterprise’ to have ‘substantial business activities’ in its home State in order to qualify as an ‘investor’.Footnote 217 Under the USMCA, a host State has the option of denying investment protection to any enterprise falling short of the same requirement by invoking its denial of benefits clause.Footnote 218 This provides yet another (albeit weaker) safeguard precluding assignments of investments to shell companies.
Third, and undoubtedly inspired by the doctrine of abuse of rights,Footnote 219 the EU recommends adding an expedited procedure to the ECT which would allow arbitral tribunals to dismiss ‘frivolous claims’:
For greater certainty, the tribunal shall decline jurisdiction if the dispute had arisen, or was foreseeable on the basis of a high degree of probability, at the time when the claimant acquired ownership or control of the investment subject to the dispute and the tribunal determines, on the basis of the facts of the case, that the claimant has acquired ownership or control of the investment for the main purpose of submitting a claim … .Footnote 220
In sum, the textual architecture of modern IIAs converges with the jurisprudence constante of arbitral tribunals on the scope of ‘investment’ and ‘investor’ in traditional IIAs (jurisdiction ratione materiae and ratione personae). There are also promising signs that States are committed to preventing forum shopping by way of sham assignments (jurisdiction ratione temporis).
V. CONCLUSION
There is no hard and fast rule as to whether an assignee of an investment can invoke an IIA claim against the host State. It is surely a bridge too far to prohibit assignments of IIA claims on the basis that the claimant must be an investor when the alleged breach occurred (as argued by Canada in Westmoreland v Canada).Footnote 221 Aside from extinguishing claims resulting from inheritance or succession (eg due to the investor's death or incapacity),Footnote 222 such an extreme position would unfairly entail an investor's ‘impecuniosity compound[ing] its injury’.Footnote 223 Even more worrying is the skewed incentive accorded to heavy-handed host States, as emphatically elucidated by Paulsson:
[C]onsideration should be given to the example that would be set if respondents were rewarded for accentuating the severity of the consequences of their breach, e.g., to drive investors into insolvency with the possible ‘prize’ to the respondent of forcing their dissolution and losing their standing, if not indeed to use local processes to expropriate their ‘investment’ out of existence.Footnote 224
IIAs are legal regimes reflecting the consent of States. It is axiomatic that treaty interpretation must be based, above all, upon treaty text.Footnote 225 As aptly put by the majority in Alapli v Turkey, on one hand ‘a conscientious arbitrator will not set jurisdictional barriers at unreasonable levels which deny investors’ legitimate expectations’, and on the other, ‘[n]either, however, should a tribunal facilitate use of treaties by persons not intended to receive their benefits’.Footnote 226
The triple-layered system provides an effective method for examining all types of jurisdictional objections, including assignments. However, it does not function as a rigid checklist. Rather, the layers are complementary lines of defence—like three vigilant guards on joint patrol. The jurisprudence constante of investor–State arbitrations provide ample examples of how these safeguards are fool-proof enough to catch and repel mischievous insiders or intruders masquerading as investors.
The tests of jurisdiction ratione materiae and ratione personae are closely intertwined. The language employed in many IIAs implies a factual link between investments and investors. This is evinced by the prepositions ‘of’ and ‘by’ to connect both terms, as well as the verb ‘make’ embodied in the object and purpose clause (‘encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area’).Footnote 227 The same factual patterns can trigger two or more jurisdictional red flags. In Alapli v Turkey, the claimant's last-ditch attempt to incorporate a Dutch entity to indirectly own a Turkish power plant failed to meet the ‘active contribution’ threshold (ratione personae) and improperly sought to internationalise an impending domestic dispute (ratione temporis).Footnote 228
The ECT cases of Energorynok v Moldova and Energoalians v Moldova illustrate how no amount of mischievous manoeuvres can permit the claim to slip through the cracks.Footnote 229 By treating the contractual debt as an ‘asset’, the claimants may find it easy to establish the link between ‘investor’ and ‘investment’ (ratione personae—pass). However, the debt itself did not constitute an ‘investment’ due to the lack of any economic activity in Moldova (ratione materiae—fail). And even if it did, the claimants would be incapable of surmounting the hurdle of timing, since the debt was assigned after the breach occurred and the dispute had arisen in the Moldovan courts (abuse of process). Indeed, it is arguable that the ratione temporis test in the narrow, traditional sense is also not met. This is because the timing of the purported investment made by the claimants also matches the timing of the assignment—the date that the contractual debt was acquired.Footnote 230 In other words, there was no investment by the claimants in Moldova before the alleged breach (ratione temporis—fail).
Hypothetically, what if the claims were premised on the electricity supply contract itself being the ‘asset’? Such an ‘asset’ evidently constitutes ‘investment’. However, this would not change the timing of the assignment. Further, the claimants’ status as ‘investors’ is highly questionable as they did not ‘make’ any ‘investment’ but merely owned a contractual debt after the ‘investment’ had long matured and ceased to contribute any economic activity in Moldova. Hence, such an alternative plea is still futile. Ultimately, the triple-layer defence links together a simple yet strong chain of reasoning grounded in logic.
Further, the jurisprudence constante of arbitral tribunals is gradually being reinforced by modern IIAs narrowing the scope of ‘investment’ and ‘investor’. The language has improved, so as to leave no room for doubt and misinterpretation. It is critical, however, to understand such a trend as confirming—rather than departing from—the meaning of such terms in traditional IIAs, which were already crystal clear. And if an IIA is inadequate, then it is for the States Parties to fix it through renegotiation. Arbitrators should resist the temptation of importing words to a treaty as ‘Band-Aid’ solutions to patch over perceived injustices. After all, the task of an international judicial body is to interpret treaties, and not to revise or reconstruct them.Footnote 231
There is, however, an elephant in the room that has been glossed over so far—nationality. Is a last-ditch assignment still abusive if both assignor and assignee share the same nationality? The answer is no. This is because intra-State assignments do not create a jurisdictional link where none previously existed. As long as the investment keeps flowing from State X to State Y, it is immaterial that the claimant is a subsequent investor acquiring the investment from the original investor.Footnote 232 Both being incorporated in State X the entities have equal access to arbitration under the IIA.
Seen in this light, there is nothing objectionable in principle with the assignment of the NAFTA claim from one American company (the original investor) to another American company (incorporated by the creditor of the original investor after the alleged breach) in Westmoreland v Canada. There is no break in the chain of investment flow from the United States to Canada, nor any jurisdictional advantage gained by the newly formed company stepping into the shoes of the original investor of the same nationality.Footnote 233 Or to use the colourful analogy from African Holding v Congo—money has moved from the right pocket to the left pocket of the same pants.Footnote 234 And both pockets (assignor and assignee) still belong to the same person (State X).
Thus the analysis comes full circle, back to the fundamental nature of IIAs as creatures of consent. As Arbitrator Park rightly observed in Alapli v Turkey, IIAs protect investments from ‘designated nationals’ and ‘are not intended as treaties with the world’.Footnote 235 Only an investment that changes hands between investors of different nationalities threatens to break this sacred bond forged between two States. Such a bond is only broken when changes of ownership or control over an investment overstep the boundaries carved out in the treaty text. For as much as the purpose of IIAs is to protect private investors, their mandate flows from the will of States. And nothing speaks louder in expressing the will of States than the words they choose to use in treaties.
