Two different approaches can be found in investment treaties.

In a typical investment treaty,

the nationality of a company is determined by either (a) the place of incorporation or seat of

the legal entity, or (b) the country of ownership or control of the legal person. It should be

noted that some agreements apply a combination of some or all of these elements, an example

of which is the 1995 Swiss model BIT. The relevant passage of Art. 1(1) reads: 452

The term ‘investor’ refers with regard to either Contracting Party to…

legal entities, including companies, corporations, business associations, and other

organisations, which are constituted or otherwise duly organised under the law of that

Contracting Party and have their seat, together with real economic activities, in the

(b) territory of that same Contracting Party;

legal entities under the law of any country which are, directly or indirectly, controlled by

nationals of that Contracting Party or by legal entities having their seat, together with real

(c) economic activities, in the territory of that Contracting Party. (29)

It should further be noted that there might be a substantial further difference between the

adoption of a pure “place-of-incorporation” test and one based on the location of a company's

seat, or siège social.

a Place of incorporation or seat

The place-of-incorporation test is chosen by many investment treaties, indeed probably the

majority. For example, the Energy Charter Treaty, in Art. 1(7)(a)(ii), defines an “investor” as

“a company or other organization organized in accordance with the law applicable in that

Contracting Party”. (30)
Domestically, the place-of-incorporation principle dominates in the company laws of the

United States, the United Kingdom and the Netherlands (31) and, thus, the model BITs of these

countries incorporate this test. (32)

Other investment agreements, however, look to the effective seat of the legal person. An

example of this approach is contained in the 1991 German model BIT, whose Art. 1(4)(a)

states that a company for purposes of the agreement is any legal person “having its seat in the

territory of the Federal Republic of Germany”. (33)

453

The seat of a company can be found where it is incorporated and has its effective centre of

administration. (34) It should not be confused with the statutory seat, which is the registered

office of a company. The aim of adopting the company-seat test in domestic law is both to

prevent companies from avoiding regulation merely by incorporating in a state favourable to

companies (the so-called “Delaware-Effect”) and to allocate companies to the state most

interested (in economic terms) in governing it. A state will be interested in governing a

company if its directors, shareholders, employees, beneficiaries and creditors are located

within its borders. The state in which all these interested parties can be found is, according to

the theory, the state where the company has its effective centre of administration. (35) The

company-seat principle is mainly used in continental European countries such as Germany,

Belgium, France, Luxembourg, Austria, Portugal and Spain (36)(although it is interesting to

note that this does not always lead those countries to adopt it as the test for the nationality of

a legal person in its investment treaties, a good example being the German model BIT quoted

above).
A further refinement of the company-seat principle in investment treaties (which derives from

a perceived need to avoid so-called “treaty-shopping”) is the addition in some treaties of an

explicit “economic connection” requirement, which is additional to either the place of

incorporation or the company seat, as the case may be. An alternative example of the former

(place of incorporation plus economic links) is the Greek model BIT. Art. 1(3) provides that

investors are “legal persons … which are constituted or otherwise duly organised under the

laws of that Contracting Party and have their effective economic activities in the territory of

that same Contracting Party”. Although this test does not refer to the effective centre of

administration, it does require a closer connection with the country of its incorporation

through effective economic activities than would a place of incorporation test alone.

A digression: A brief digression is perhaps useful at this point to consider other areas in

which the allocation of a legal person to a particular state may be important, for example,

European Community legislation, conflict of laws and international tax treaties.

European Community legislation makes use of the company-seat principle. So, for example,

certain provisions of Directive 2000/12/EC of 20 March 2000, relating to the taking up and

pursuit of the business of credit institutions, are applicable to companies that have their head

offices in the Community. These provisions are not, however, concerned with the nationality

of a company.

The tribunal held that Mr. Genin and Eastern Credit were entitled to claim under the treaty

because the treaty defined investments to include shares. Thus, Mr Genin and Eastern Credit

did not bring claims on behalf of EPB, but rather in order to protect their own rights as

shareholders of an Estonian company. The protected right potentially violated by the

Estonian government was not EPB's right to a licence, but the effect the revocation of the
licence had on the value of the shareholdings in that company held by the US nationals

entitled to bring the claim.

The Respondent argues, however, that the Claimant is not a “genuine entity” of Lithuania

first because it is owned and controlled predominantly by Ukrainian nationals. There is no

dispute that nationals of Ukraine own ninety-nine percent of the outstanding shares of Tokios

Tokelės and comprise two-thirds of its management. 5 The Respondent also argues, but the

Claimant strongly contests, that Tokios Tokelės has no substantial business activities in

Lithuania and maintains its siège social, or administrative headquarters, in Ukraine. The

Respondent contends, therefore, that the Claimant is, in terms of economic substance, a

Ukrainian investor in Lithuania, not a Lithuanian investor in Ukraine.

The Convention does not define the method for determining the nationality of juridical

entities, leaving this task to the reasonable discretion of the Contracting Parties.81

Article 31 of the Vienna Convention provides that “[a] treaty shall be interpreted in good

faith in accordance with the ordinary meaning to be given to the terms of the treaty in their

context and in light of its object and purpose.”13 (Vienna Convention on the Law of Treaties,

art. 31(1) (May 22, 1969).)Article 1(2)(b) of the Ukraine-Lithuania BIT defines the term

“investor,” with respect to Lithuania, as “any entity established in the territory of the

Republic of Lithuania in conformity with its laws and regulations.”14 The ordinary meaning

of “entity” is “[a] thing that has a real existence.”15 The meaning of “establish” is to “[s]et up

on a permanent or secure basis; bring into being, found (a…business).”16 Thus, according to

the ordinary meaning of the terms of the Treaty, the Claimant is an “investor” of Lithuania if

it is a thing of real legal existence that was founded on a secure basis in the territory of

1
See Aron Broches, “The Convention on the Settlement of Investment Disputes between States and Nationals
of Other States,” 136 RECUEIL DES COURS 331, 359-60 (1972-II).
Lithuania in conformity with its laws and regulations. The Treaty contains no additional

requirements for an entity to qualify as an “investor” of Lithuania.

Under the well established presumption expressio unius est exclusio alterius, the state of

incorporation, not the nationality of the controlling shareholders or siège social, thus defines

“investors” of Lithuania under Article 1(2)(b) of the BIT.

The object and purpose of the Treaty likewise confirm that the control-test should not be used

to restrict the scope of “investors” in Article 1(2)(b). The preamble expresses the Contracting

Parties’ intent to “intensify economic cooperation to the mutual benefit of both States” and

“create and maintain favourable conditions for investment of investors of one State in the

territory of the other State.” The Tribunal in SGS v. Philippines interpreted nearly identical

preambular language in the Philippines-Switzerland BIT as indicative of the treaty’s broad

scope of investment protection.20 We concur in that interpretation and find that the object

and purpose of the Ukraine-Lithuania BIT is to provide broad protection of investors and

their investments. The object and purpose of the Treaty are also reflected in the Treaty text.

Article 1, which sets forth the scope of the BIT, defines “investor” as “any entity” established

in 20 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, Decision on

Jurisdiction, Case No. ARB/02/6 (Jan. 29, 2004), at para. 116 (“The BIT is a treaty for the

promotion and reciprocal protection of investments. According to the preamble it is intended

‘to create and maintain favourable conditions for investments by investors of one Contracting

Party in the territory of the other.’ It is legitimate to resolve uncertainties in its interpretation

so as to favour the protection of covered

The Respondent also argues that jurisdiction should be denied because, in its view, the

Claimant does not maintain “substantial business activity” in Lithuania. The Respondent

correctly notes that a number of investment treaties allow a party to deny the benefits of the
treaty to entities of the other party that are controlled by foreign nationals and that do not

engage in substantial business activity in the territory of the other party. For example, the

Ukraine-United States BIT states, “[e]ach Party reserves the right to deny to any company the

advantages of this treaty if nationals of any third country control such company and, in the

case of a company of the other Party, that company has no substantial business activities in

the territory of the other Party….”21 Similarly, the Energy Charter Treaty, to which both

Ukraine and Lithuania are parties, allows each party to deny the benefits of the agreement 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

organized.”22(Treaty between the United States of America and Ukraine Concerning the

Encouragement and Reciprocal Protection of Investment, Mar. 4, 1994, at art. 1(2) (entered

into force Nov. 16, 1996) (emphasis added). 22 The Energy Charter Treaty, Annex 1 to the

Final Act of the European Energy Charter Conference, at art. 17(1), Dec. 16-17, 1994,

Lisbon, Portugal, available at http://www.encharter.org/upload/1/TreatyBook-en.pdf

(emphasis added).)

In addition, a number of investment treaties of other States enable the parties to deny the

benefits of the treaty to entities of the other party that are controlled by nationals of the

denying party and do not have substantial business activity in the other party. For example,

the BIT between the United States and Argentina provides that “[e]ach Party reserves the

right to deny to any company of the other Party the advantages of this Treaty if (a) nationals

of any third country, or nationals of such Party, control such company and the company has

no substantial business activities in the territory of the other Party….”23 These investment

agreements confirm that state parties are capable of excluding from the scope of the

agreement entities of the other party that are controlled by nationals of third countries or by

nationals of the host country. The Ukraine-Lithuania BIT, by contrast, includes no such
“denial of benefits” provision with respect to entities controlled by third-country nationals or

by nationals of the denying party. We regard the absence of such a provision as a deliberate

choice of the Contracting Parties. In our view, it is not for tribunals to impose limits on the

scope of BITs not found in the text, much less limits nowhere evident from the negotiating

history. An international tribunal of We regard the absence of such a provision as a deliberate

choice of the Contracting Parties. In our view, it is not for tribunals to impose limits on the

scope of BITs not found in the text, much less limits nowhere evident from the negotiating

history. An international tribunal of defined jurisdiction should not reach out to exercise a

jurisdiction beyond the borders of the definition. But equally an international tribunal should

exercise, and indeed is bound to exercise, the measure of jurisdiction with which it is

endowed.24(Treaty between the United States of America and the Argentine Republic

Concerning the Reciprocal Encouragement and Protection of Investment, Nov. 14, 1991, at

art. 1(2). 24 See, e.g., Compañia de Aguas del Aconquija S.A. and Vivendi Universal

(formerly Compagnie Générale des Eaux) v. Argentine Republic, Decision on Annulment,

Case No. ARB/97/3 (July 3, 2002). “In the Committee’s view, the Tribunal, faced with such a

claim and having validly held that it had jurisdiction, was obliged to consider and to decide

it.” Id. at para. 112. “[T]he Committee concludes that the Tribunal exceeded its powers in the

sense of Article 52(1)(b), in that the Tribunal, having jurisdiction)

Rather, under the terms of the Ukraine-Lithuania BIT, interpreted according to their ordinary

meaning, in their context, and in light of the object and purpose of the Treaty, the only

relevant consideration is whether the Claimant is established under the laws of Lithuania. We

find that it is. Thus, the Claimant is an investor of Lithuania under Article 1(2)(b) of the BIT.

We reach this conclusion based on the consent of the Contracting Parties, as expressed in the

Ukraine-Lithuania BIT. We emphasize here that Contracting Parties are free to define their

consent to jurisdiction in terms that are broad or narrow; they may employ a control-test or
reserve the right to deny treaty protection to claimants who otherwise would have recourse

under the BIT. Once that consent is defined, however, tribunals should give effect to it,

unless doing so would allow the Convention to be used for purposes for which it clearly was

not intended.para 39 tokios tolkws

As the tribunal in Amco Asia Corp. v. Indonesia said in rejecting the respondent’s request to

attribute to the claimant the nationality of its controlling shareholder, the concept of

nationality in the ICSID Convention is: …a classical one, based on the law under which the

juridical person has been incorporated, the place of incorporation and the place of the social

seat. An exception is brought to this concept in respect of juridical persons having the

nationality, thus defined, of the Contracting state party to the dispute, where said juridical

persons are under foreign control. But no exception to the classical concept is provided for

when it comes to the nationality of the foreign controller, even supposing—which is not at all

clearly stated in the Convention—that the fact that the controller is the national of one or

another foreign State is to be taken into account…. 26(Amco Asia Corp. and Others v.

Republic of Indonesia, Decision on Jurisdiction, Case No. ARB/81/1 (Sept. 25, 1983), 1

ICSID Reports 389, 396 (emphasis added) (”Amco”).)

Although Article 25(2)(b) of the Convention does not set forth a required method for

determining corporate nationality, the generally accepted (albeit implicit) rule is that the

nationality of a corporation is determined on the basis of its siège social or place of

incorporation.27 Indeed, “ICSID tribunals have uniformly adopted the test of incorporation

or seat rather than control when determining the nationality of a juridical person.”28

Moreover, “[t]he overwhelming weight of the authority…points towards the traditional

criteria of incorporation or seat for the determination of corporate nationality under Art. 25(2)

(b).”29 As Professor Schreuer notes, “[a] systematic interpretation of Article 25(2)(b) would

militate against the use of the control test for a corporation’s nationality.”30(Schreuer, at 278-
79; see also G.R. Delaume, “ICSID Arbitration and the Courts,” 77 AMER. J. INT’L LAW

784, 793-94 (1983); M. Hirsch, THE ARBITRATION MECHANISM OF THE

INTERNATIONAL CENTRE FOR THE SETTLEMENT OF INVESTMENT DISPUTES

85 (1993). 28 Schreuer, at 279-80 (citing Kaiser Bauxite Company v. Jamaica, Decision on

Jurisdiction, Case No. ARB/74/3 (July 6, 1975), 1 ICSID Reports 296, 303 (1993); SOABI v.

Senegal, Decision on Jurisdiction, Case No. ARB/82/1 (Aug. 1, 1984), 2 ICSID Reports 175,

180-81; Amco, at 396); see also Autopista Concesionada de Venezuela, C.A. v. Bolivarian

Republic of Venezuela, Decision on Jurisdiction, Case No. ARB/00/5 (Sept. 27, 2001), 16

ICSID Review-FILJ 469 (2001), at para. 108 (“Autopista”). 29 Schreuer, at 281. 30 Id. at

278. 31 Request for Arbitration, at Annex 5. 32 Id. at Annex 6. 33 Id. at Annex 13.)

The Republic of Argentina has also advanced the view that, in addition, CMS cannot claim

for its proportional share in TGN, as this would imply that the shareholders have a standing

different from that of the company. If TGN arrives at an agreement with the Republic of

Argentina, it is further stated, CMS could only oppose such arrangement as an intra-corporate

question and not as the holder of an independent right of action.

different one. ICSID decisions in cases involving the Argentine Republic have established

that a shareholder, even an indirect one, can bring a claim under a BIT. For example, the

CMS v. Argentina tribunal analyzed the issue in the context of the Argentina - US BIT,

drafted in terms very similar to the BIT applicable in this case, and held that there was “no

bar in current international law to the concept of allowing claims by shareholders

independently from those of the corporation concerned”. It added that this was true “even if

those shareholders are minority or non-controlling shareholders” 10.( CMS Gas Transmission

Company v. Argentine Republic, op .cit., ¶ 48.)

The Tribunal therefore finds no bar in current international law to the concept of allowing

claims by shareholders independently from those of the corporation concerned, not even if

those shareholders are minority or non-controlling shareholders.para 48 argentina vs cms

The various security interests granted by IPTL as security for the loan, referred to in

paragraphs 16-23 of the Request for Arbitration, which fall within the specific category of

investment at Article 1(a)(i) of the BIT. c. As a result of those security interests, SCB,

through SCB HK, has exercised its rights over the shares in IPTL in order to appoint a

receiver over those shares. The shares in IPTL fall within the specific category of investment

at Article 1(a)(ii). d. In addition, SCB also possesses “investments” under the BIT by virtue

of its contractual rights under which it has “claims to money and performance under contract

having a financial value” within the meaning of Article 1(a)(ii) of the BIT. SCB’s interests in

the Facility Agreement, the PPA, the Security Deed, the Charge of Shares, the

Implementation Agreement and all other instruments thform part of the suite of project

finance agreements have a financial and economic value and are entitled to the substantive

protections of the BIT.25

Respondent notes that Article 8(1) of the BIT grants the Tribunal jurisdiction over a dispute

“arising between that Contracting Party and a national or company of the other Contracting

Party concerning an investment of the latter in the territory of the former.” Emphasis added.

Respondent interprets the language of the BIT such that it covers only those investments in

Tanzania that were “actually made or directly owned by a national or company of the United

Kingdom.”29

Respondent contends that SCB’s position that it indirectly holds an investment in Tanzania

cannot be reconciled with the requirement “of” contained in Article 8, and with the language

of other provisions of the BIT.31 According to Article 8(a), an arbitral tribunal may have
jurisdiction over legal disputes between one “Contracting Party and a national or company of

the other Contracting Party concerning an investment of the latter in the territory of the

former.” Emphasis added.

According to Respondent, Claimant’s investment consists of “(a) loans to IPTL that SCB HK

purchased from Danaharta, (b) security interests that IPTL granted as security for the loans,

(c) shares of IPTL, over which a receiver has been appointed pursuant to the security interests

in the loans, and (d) claims to money and performance under the PPA, the Security Deed, the

Charge of Shares, the Implementation Agreement, and “all other instruments” that form part

of the project finance agreements for the Tegeta Power Plant project.”32

Respondent argues that Claimant blurs the distinction between an indirectly made investment

and an indirectly held investment. 33 Respondent distinguishes an “indirect investment”

where a claimant invests its own funds through the use of a third-party conduit from instances

where a claimant has not made any contribution to the investment but merely has some form

of ownership interest in another entity that made the investment.34 Respondent argues that

Claimant has not shown its contribution of any funds to the alleged investment and rejects

Claimant’s view that one need not have a direct, controlling ownership for an indirect

investment(though indirect invesltment is allowed under our bit but that indirect must be or is

it be controlled or not that the question). In fact, according to Respondent, the record

establishes that SCB does not exercise any control over the alleged investment.35

Respondent contends that SCB HK, not SCB, made, owns and controls the investment at

issue, as shown inter alia by the 2005 SPA documenting the sale and purchase of the “Sale

Assets” by SCB HK from Danaharta. According to the GoT, this is also evident from SCB

HK’s statements submitted in Malaysian courts and in the other pending ICSID arbitration.36
Respondent emphasizes the significance of the lack of evidence regarding Claimant’s

exercise of control over the alleged investment or over SCB HK. Respondent argues that

SCB failed to prove that “it owns a minority interest in SCB HK, that it owns shares in SC

Sherwood, or that SC Sherwood owns shares of SCB HK.”38 The evidence adduced by SCB

to that effect is internal documents not corroborated by source documents and competent

testimony.39 79. Respondent distinguishes the present case from Aguas del Tunari because in

that case, the claimant had ownership of a majority of the voting rights, and Respondent

claims that Claimant here has not proven that it owns any shares of SCB HK.40 Even if it is

proven that Claimant does own shares of SCB HK, Respondent argues that Claimant would

in fact directly own only a minority of the shares, the rest being indirectly or beneficially

owned through a trust arrangement with SC Sherwood. Therefore, Respondent argues that

SCB has no right to exercise the associated voting rights because SCB HK’s articles of

incorporation specifically state that SCB HK does not recognize any rights supposedly held

in trust.41 80. For Respondent, SCB attempts to assert claims “based entirely on an

‘investment of’ SCB HK, a Hong Kong corporation that has no right under the UK-Tanzania

BIT.”42 According to Respondent, SCB HK authorized SCB to initiate this arbitration on

SCB HK’s behalf, while SCB HK is simultaneously pursuing a separated arbitration

concerning its rights in the very same investment.43

In this connection, Respondent asserts that Claimant’s asset which is the subject matter of the

present case is based on deceit and misrepresentation, and is accordingly unlawful under

Tanzania law, the BIT, and international law.

According to Respondent, the country which was benefited by the restructured loan was

Malaysia, because Danaharta, a Malaysian company successfully removed debt from its

books.
The Tribunal readily admits that an investment might be made indirectly, for example

through an entity that serves to channel an investor’s contribution into the host state. Special

purpose vehicles have long facilitated cross-border investment. Such indirectlymade

investments, however, would involve investing activity by a claimant, even if performed at

the investor’s direction or through an entity subject to investor’s control.

As discussed more fully below, to constitute Claimant’s status as treaty investor, so that the

Loans may be considered investments “of” Claimant, implicates Claimant doing something

as part of the investing process, either directly or through an agent or entity under the

investor’s direction. No such actions were performed.

Respondent submits that the term “of” must be read to require some “association between

[the investor and the investment], typically one of belonging.”170 Respondent points to

common illustrations such as “the son of a friend” or “the photograph of the bride.”

Respondent thus suggests that something more than indirect ownership is required. 211.

Respondent contests Claimant’s position, contending that “investment” requires more than

passive ownership and implicates some contribution, flow of funds, or “involvement” to meet

the jurisdictional requirements of the UK-Tanzania BIT

. The Tribunal is mindful that with 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”). 217. 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. 218. The Tribunal has carefully considered the context of this phrase in the treaty,
looking to different provisions of the BIT to provide guidance on the contemplated

relationship between an investor and an investment

The preposition “by” connects investor and investment in Article 11 of the BIT, addressing

rules more favorable than those of the BIT in the context of “investments by investors.”171

The first paragraph of the preamble of the BIT similarly refers to “investment by nationals

and companies.”172 Neither provision suggests a relationship different from that otherwise

regulated by the BIT. On its face, each uses “investments by investors” or “investment by

nationals and companies” interchangeably with the phrase “investments of a national or

company” employed elsewhere in the BIT. 220. The preposition “by” can indicate the

relationship between subject and object when an active sentence is converted into a passive

form. “He read a book” is transformed into “A book was read by him.” “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.

No such verb appears in the phrase in Article 8(1) at issue or, for that matter, in the other

provisions noted above. This absence leaves it open to interpretation whether “by” in Article

11 and the preamble implies “investment held/owned by” investor, or “investment made by”

investor, a formulation that would connote a more active relationship between investor and

investment. 222. Elsewhere in its provisions, however, the treaty repeatedly uses a verb to

address the relationship between investor and protected investments. Article 1(a) of the BIT

defines the term “investment” for purposes of the treaty. In its first paragraph, it refers to the

“territory of the Contracting State in which the investment is made.” Its last paragraph

includes within its definition of investment “all investments, whether made before or after the

date of entry into force of this Agreement.” Similarly, the third sentence of Article 14 extends

the protections of the treaty for twenty years after termination of “investments made whilst

this Agreement is in force.” Again, nothing in these provisions suggests that the Contracting
States in these provisions contemplated a relationship between investor and investment

different from that in other provisions of the treaty, including Article 8(1). As noted above,

the verb “made” implies some action in bringing about the investment, rather than purely

passive ownership. 223. By contrast, the BIT nowhere uses the verb “own” or “hold” in

connection with an investment by or of an investor.

For the Tribunal, the text of the BIT reveals that the treaty protects investments “made” by an

investor in some active way, rather than simple passive ownership.

Several elements in the object and purpose set out in the preamble are instructive. First, as

noted above, the Contracting Parties’ focus was on increasing “investment by nationals and

companies of one State in the territory of the other State.” “By” here signifies that the

company of the first State is the actor, and implies an active role of some kind for that

company. Second, the Contracting Parties contemplated a cause-and-effect relationship

between the Treaty’s “encouragement and protection ... of such investments” and the

increased prosperity and individual business initiative that was the desired result. This, again,

is consistent with an active role contemplated for the investor. It is difficult to see how the

treaty’s protections could promote investment by nationals of a Contracting State if the

national of the Contracting State had no role in deciding to make the investment, funding the

investment, or controlling or managing the investment after it was made.

Article 2, entitled “Promotion and Protection of Investment,” sets out in its first paragraph

perhaps the most general obligation of the BIT, shedding further light on the treaty’s object

and purpose. Elaborating on “promotion” of investments, Article 2(1) requires that “Each

Contracting State shall encourage and create favourable conditions for nationals or

companies of the other Contracting State to invest capital in its territory and, subject to its

right to exercise powers conferred by its laws, shall admit such capital.” Emphasis supplied.
It uses the active verb “to invest,” which again suggests an active relationship between

investor and investment

Having considered the ordinary meaning of the BIT’s provision for ICSID arbitration when a

dispute arises between a Contracting State to the BIT and a national of the other Contracting

State concerning an investment “of” the latter set out in Article 8(1) of the UKTanzania BIT,

the context of that provision and the object and purpose of the BIT, the Tribunal interprets the

BIT to require an active relationship between the investor and the investment. 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. Passive ownership of

shares in a company not controlled by the claimant where that company in turn owns the

investment is not sufficient.

231. The Tribunal is not persuaded that an “investment of” a company or an individual

implies only the abstract possession of shares in a company that holds title to some piece of

property.

232. Rather, for 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.

For the sake of analytic rigor, the Tribunal considers it useful to distinguish between (i) the

concept of “indirect” as an adjective to describe a form of ownership implicating a chain of

intermediate entities separating an asset from its ultimate shareholder (an indirect holding)

and (ii) the notion of “indirectly” making an investment, with the adverbial form designating
a type of action taken to implement an investment, when one person acts to invest through the

agency of another (to invest indirectly).

238. The Tribunal notes a second distinction. Notions of “indirect” and “indirectly” often

present themselves in connection with both (i) arguably relevant language in other investment

treaties and (ii) arguably persuasive investor-state case law.

For a putative investor to have valid rights pursuant to the UK-Tanzania BIT, that investor

should have “made” the investment in an active sense, even if operating through the agency

of a company under its control. The activities qualified as relevant investment under the BIT

would include the activity of purchasing debt, which was done by SCB Hong Kong, not

Claimant

The restructuring occurred long after the investment. It was took effect only in order to gain

access to ICSID. The disputes were not only foreseeable, but they had actually been

identified and notified to Respondent before the Dutch company was even created. The

restructuring did not create a protected investment under the good faith standards articulated

in the Phoenix v. Czech Republic case. There was an abuse of rights.

Finally it submits that in any case, Claimants Venezuela Holding, Mobil CN Holding and

Mobil Venezolana Holdings are not “the owners” of the direct investments in Venezuela or

“the one who actually controlled” them11 27. Venezuela contends that the BIT does not

provide a basis for ICSID jurisdiction over the dispute. It submits that Venezuela Holdings is

a “corporation of convenience” created in anticipation of litigation against the Republic of

Venezuela for the sole purpose of gaining access to ICSID jurisdiction. It concludes that “this

abuse of the corporate form and blatant treaty-shopping should not be condoned” . Therefore

they do not qualify as “international investors” under the Investment Law. 12

Venezuela further recalls that Mobil CN and Mobil Venezolana are companies organized

under the laws of the Bahamas and that Mobil CN Holding and Mobil Venezolana Holdings

are companies organized under the laws of the State of Delaware (USA). It submits that in

any event those companies cannot bring claims as “Dutch nationals” in their own right. It

contends in particular that this is incompatible with Article 25 of the ICSID Convention.

The BIT does not require that there be no interposed companies between the ultimate owner

of the company or of the joint venture and the investment. Therefore, a literal reading of the

BIT does not support the allegation that the definition of investment excludes indirect

investments. Investments as defined in Article 1 could be direct or indirect as recognized in

similar cases by ICSID Tribunals102

The principle of good faith has been recognized by the International Court of Justice as “one

of the basic principles governing the creation and performance of legal obligations”103. It

has been recognized in the law of treaties104 and has been referred to by a number of courts

and tribunals including the Appellate Body of the World Trade Organisation105 and ICSID

tribunals106 171. The concept of détournement de pouvoir (misuse of power) has also been

relied upon in international law, in particular in the law of the sea . 107, the law of

international organisations108, and in European Community law109(Nuclear Tests – ICJ

Report 1974 p. 268 §46 – p.473 § 49; Armed action (Honduras v/Nicaragua – ICJ Report

1988 p. 105 § 94. 104 Vienna Convention on the Law of Treaties 23 May 1969, Articles 26

and 31 §1. 105 WTO Appellate Body WT/DS/08/AB/R – 24 February 2000 – US Tax

Treatment for foreign sales corporations § 166- WT/DS/184/AB/R 24 July 2001. 106 Amco

Asia Corporation v. Indonesia. ICSID Case No. ARB/81/1, Decision on Jurisdiction, (25

September1983); SPP v. Egypt ,Decision on Jurisdiction II, (14 April 1988), § 63; Inceysa v.

Salvador, ICSID Case No. ARB/03/26,(2 August 2006), §230. 107 United Nations

Convention on the Law of the Sea of 10 December 1982, Article 187. 108 See for instance
Administrative Tribunal of the International Labour Organisation – Judgments N°13 of 3

September 1954, N° 1129 of 3 July 1991 and N° 1392 of 1 February 1995. 109 Article 263 §

2 of the Treaty on European Union as revised in Lisbon. See for instance ECJC – Infried

Hochbaum v. Commission – Aff. C 107/90 – Rep. 1992 p. 174 § 14.)

The same is true of abuse of right. As Hersch Lauterpacht noted in his book entitled

“Development of International Law by the International Court”: “There is no right, however

well established, which could not, in some circumstances, be refused recognition on the

ground that it has been abused”110 173. It has thus long been recognized in arbitration that

“abuse of authority” . 111 or “abuse of administration”112 could engage State responsibility.

The Permanent Court of International Justice referred in two judgments to “abus de droit” in

general. In the Upper Silesia case, the Court recognized the right of Germany to dispose of

her [its?] property in this district until the actual transfer of sovereignty has been made under

the Versailles Treaty. However, it added that “a misuse of this right could endow an act of

alienation with the character of a breach of the Treaty”113(Sir Hersch Lauterpacht –

Development of International Law by the International Court – London 1958 p. 164 – See

also Oppenheim’s International Law – Longman 9th Edition by Jennings and Watts Volume I

§ 124. 111 Mixed Claims Commission France-Venezuela – Lalanne and Ledour Case –

United Nations Reports of International Awards – Volume X p. 17 and 18, in which the

arbitrator sanctionned an « abuse of authority » of the President of the Venezuelan State of

Guayana ». 112 Tacna – Arica Question (Chile v. Peru) - 4th March 1925 – United Nations

Reports of International Arbitral awards – Volume II p. 941 and 945. In that case the

arbitrator considered whether there had been « abuse of administration » by Chile in the

disputed area. It arrives to the conclusion that Chile had used its conscription “laws not so

much for obtaining of recruits… but with the result, if not the purpose, of driving young

Peruvians from the [disputed] provinces». So far as it has been done, the Arbitrator holds it to
be an abuse of Chilean authority ». 113 Permanent Court of International Justice – Polish

Upper Silesia – PCIJ – Report – Serie A – Judgment N°7 p. 30. The term « misuse of right »

comes from the English version of the judgment. It corresponds to « abus de droit » and «

manquement au principe de bonne foi » in the original French text. 114 Permanent Court of

International Justice - Free Zones of Upper Savoy and District of Gex – 7 June 1932 – Serie

A.B N°46.)

More recently, the Appellate Body of the World Trade Organisation stated that “the principle

of good faith, at once a general principle of law and general principle of international law,

controls the exercise of rights by States. One application of this general principle, widely

known as the doctrine of “abus de droit”, prohibits the abusing exercise of a State’s

right”115. The European Court of Justice in many cases also referred to such “abus de

droit”116 176. For their part, ICSID tribunals had a number of occasions to consider whether

or not the conduct of an investor does constitute “an abuse of the convention purposes” .

Respondent submits that this restructuring occurred long after the investments. It adds that it

did not consent to it. It contends that “the disputes were not only foreseeable, but they had

actually been identified and notified to Respondent before the Dutch company was even

created”129 128 Tokio Tokeles v. Ukraine – Dissenting Opinion § 25. . Thus, according to

Venezuela, the only purpose of this restructuring was to gain access to ICSID for existing

disputes. This was “an abusive manipulation of the system of international protection under

the ICSID Convention and the BITs”130 189. Claimants contest each of those points. They

explain that they were “surprised” by Venezuela’s “unilateral imposition of a 16 2/3 %

royalty rate in October 2004”, which in their opinion was contrary to the existing agreements.

They say that Mobil promptly “undertook a review of the extent of the legal protection for its

investments in Venezuela”. Upon doing so, it concluded in early 2005 that it should

restructure its Venezuelan investments through a holding company incorporated in the

Netherlands, which had a bilateral investment treaty with Venezuela” . According to

Venezuela it is therefore the duty of the Tribunal not to protect such manipulation and to

decline its jurisdiction

This choice was considered as “logical”, taking into account the double taxation agreements

concluded by the Netherlands and the activities that Exxon Mobil already had in that country

It thus appears to the Tribunal that the main, if not the sole purpose of the restructuring was

to protect Mobil investments from adverse Venezuelan measures in getting access to ICSID

arbitration through the Dutch-Venezuela BIT. . This choice was considered as “logical”,

taking into account the double taxation agreements concluded by the Netherlands and the

activities that Exxon Mobil already had in that country. 191. Such restructuring could be

“legitimate corporate planning” as contended by the Claimants or an “abuse of right” as

submitted by the Respondents. It depends upon the circumstances in which it happened.

In this respect, the Tribunal first observes that, contrary to the situation in Autopista v.

Venezuela, there was no contractual obligation in the present case for Mobil or its

subsidiaries to submit the proposed restructuring to the approval of the Venezuelan

authorities. Yet, Mobil did not hide this operation. In fact, Mobil Cerro Negro notified the

Respondent of Venezuela Holdings’ ownership of the Cerro Negro investment on 16 October

2006. On 7 March 2007, Venezuela Holdings also informed Venezuela of the acquisition of

the La Ceiba investments. The Respondent did not raise any objection at the time.

Therefore the investments made in 2006 in Cerro Negro were far lower than those made each

year from 1999 to 2001 (although higher than in 2002 and 2003). As stated by the

Respondent, they were financed, as through the funds “generated by the project itself rather

than brought into Venezuela from or through the Netherlands”136. This was so because the

project was already “up and running”137. The situation in the present case is thus quite
different from the situation which the arbitral tribunal had to consider in the Phoenix case.

The limited amount of investment made in particular in 2006 and the fact that it was financed

without external funding was in harmony with the project at the time of the restructuring as it

then stood. No adverse inference can be drawn from that situation. It should also be added

that the Treaty contains no requirement that the origin of the capital be foreign.

As recalled above, the restructuring of Mobil’s investments through the Dutch entity occurred

from October 2005 to November 2006. At that time, there were already pending disputes

relating to royalties and income tax. However, nationalisation measures were taken by the

Venezuelan authorities only from January 2007 on. Thus, the dispute over such

nationalisation measures can only be deemed to have arisen after the measures were taken

204. As stated by the Claimants, the aim of the restructuring of their investments in

Venezuela through a Dutch holding was to protect those investments against breaches of their

rights by the Venezuelan authorities by gaining access to ICSID arbitration through the BIT.

The Tribunal considers that this was a perfectly legitimate goal as far as it concerned future

disputes.(mobil vs venezuela)

The evidence indeed shows that the Claimant made an “investment” not for the purpose of

engaging in economic activity, but for the sole purpose of bringing international litigation

against the Czech Republic. This alleged investment was not made in order to engage in

national economic activity, it was made solely for the purpose of getting involved with

international legal activity. The unique goal of the “investment” was to transform a pre-

existing domestic dispute into an international dispute subject to ICSID arbitration under a

bilateral investment treaty. This kind of transaction is not a bona fide transaction and cannot

be a protected investment under the ICSID system. 108

The conclusion of the Tribunal is therefore that the Claimant's initiation and pursuit of this

arbitration is an abuse of the system of international ICSID investment arbitration. If it were

accepted that the Tribunal has jurisdiction to decide Phoenix’s claim, then any pre-existing

national dispute could be brought to an ICSID tribunal by a transfer of the national economic

interests to a foreign company in an attempt to seek protections under a BIT. Such transfer

from the domestic arena to the international scene would ipso facto constitute a “protected

investment” – and the jurisdiction of BIT and ICSID tribunals would be virtually unlimited. It

is the duty of the Tribunal not to protect such an abusive manipulation of the system of

international investment protection under the ICSID Convention and the BITs. It is indeed the

Tribunal’s view that to accept jurisdiction in this case would go against the basic objectives

underlying the ICSID Convention as well as those of bilateral investment treaties. The

Tribunal has to ensure that the ICSID mechanism does not protect investments that it was not

designed for to protect, because they are in essence domestic investments disguised as

international investments for the sole purpose of access to this mechanism.

the Tribunal concludes that the Claimant’s purported investment does not qualify as a

protected investment under the Washington Convention and the Israeli/Czech BIT.

Interestingly, this was also forcefully stated by the LCIA Tribunal in the case Société

Générale, where it stated that a transaction to acquire an investment always has to be closely

analyzed and that there are limits to the application of investment protection treaties: “One

such limit is that the transaction in question must be a bona fide transaction and not devised

to allow a national of a State not qualifying for protection to obtain an inappropriate

jurisdictional advantage otherwise unavailable by transferring its rights after-the-fact to a

qualifying national.” Société Générale v. Dominican Republic, UNCITRAL, LCIA Case No.

UN7927, Preliminary Objections to Jurisdiction, September 19, 2008, § 110.