Investor-State Dispute Resolution: Defining “Qualified Investor” and “Qualified Investment” under ICSID

According to a recent Forbes article, investor-state dispute resolution is one of the “fastest growing areas of international law.”^[1] While there are many types on international investment agreements, the most common form is bilateral investment treaties (BIT’s).^[2] Countries may enter into BIT’s that permit investor-related disputes to be settled in arbitration between the private party and the state.^[3] These treaties are considered and open door for private investors to arbitrate with a government who allegedly infringed a right.^[4] While there may be initial barriers to entry and jurisdiction, such as exhausting “local administrative and judicial remedies,” ultimately the ability to arbitrate investor-state disputes permits efficient and self-contained relief and adjudication.^[5]

Problems often arise in BIT’s regarding who is an “investor,” and thus able to reap the benefits of arbitration with a state. For an individual to rely on a BIT, he must show citizenship with the non-disputed state.^[6] That is to say, invoking a BIT requires diversity between the citizen seeking relief and the country from which relief is sought.^[7] Under the International Centre for Settlement of Investment Disputes (ICSID Convention), which is the most common “instrument” for arbitrating investor-state disputes, an individual investor must comply with Article 25 of the ICSID Convention and the investment treaty simultaneously in order to be eligible to bring suit against the alleged infringing or expropriating government. Article 25 of the ICSID Convention defines “national of another contracting state” to mean, “ any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration…but does not include any person who on either date also had the nationality of the Contracting State party to the dispute.”^[8]

While corporate citizenship is more complex, and different tribunals have varied its opinions, corporate citizenship is usually determined by the state of incorporation or seat of businesses (siege social). ^[9] The ICSID Convention broadly speaks to corporate citizenship by stating a “national of another contracting state” includes, “any juridical person which had the nationality of a Contracting State other than the State party to the dispute…and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.”^[10] As such, the ICSID Convention requires complete diversity, and thus an avenue for suit against the state, even when the company is located within the same state but may be owned or controlled by foreign parties. This likely acts as another way for foreign individuals to seek relief for an infringed or expropriated investment, even when their business’ nationality would conflict with the complete diversity requirement.

Another issue that often arises as a barrier to entry into investor-state arbitration include what is considered a “qualified investment.” Given that many arbitration awards under ICSID are confidential and that tribunals lack of binding precedent in arbitration, determining what is considered a “qualified investment” can be difficult without guidance and often falls back on the tribunal’s interpretation of the relevant BIT. One of the leading cases regarding qualified investments, Fedax v. Venezuala, the respondent challenged whether a promissory note should be considered a “qualified investment” under the appropriate BIT.^[11] Ultimately, the tribunal held that the broad language of the BIT which included phrases like “every asset,” includes non-physical investments like a promissory note.^[12] In another case, Mihaly v. Sri Lanka, an ICSID tribunal held that a pre-investment expenditure is not recoverable under a BIT because it is not considered a “qualifying investment.”^[13] The varied results of tribunals can result in frustration in the lack of uniformity with investor-state disputes. Ultimately, ICSID arbitration is still the investor’s best measure to recover from an alleged infringing or expropriating state action.

1. Harry G. Broadman, Arbitration of International Investor-State Disputes Sorely Needs Reform, Forbes (October 30, 2019, 11:06 a.m.) https://www.forbes.com/sites/harrybroadman/2019/10/30/international_arbitration_of_investor-state_disputes_sorely_needs_reform/#3b297fcb297f ↑
2. Id. ↑
3. Id. ↑
4. M. Sornarajah, The International Law on Foreign Investment 185 (Cambridge University Press 2010). ↑
5. International Centre for Settlement of Investment Disputes art. 26, Oct. 14, 1966, 575 UNTS 159 [hereinafter “ICSID Convention”]. ↑
6. Organisation for Economic Co-operation and Development, Definition of Investor and Investment in International Investment Agreements, (2008) https://www.oecd.org/investment/internationalinvestmentagreements/40471468.pdf [hereinafter “OECD”]; see also Id. at art. 25. ↑
7. See generally ICSID Convention, art. 25, Oct. 14, 1966, 575 UNTS 159. ↑
8. Id. ↑
9. OECD, supra note 6. ↑
10. ICSID Convention, supra note 7. ↑
11. Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction, (July 11, 1997). ↑
12. Id. ↑
13. Mihaly v. Sri Lanka, ICSID Case No. ARB/00/2, Award, (Mar. 15, 2002). ↑