Dual Nationality Problem in International Investment Arbitration
“Multiple nationality” is a status in which a person is concurrently regarded as a citizen under the laws of more than one state. “Dual nationality,” being a citizen of two states, is the most common type of multiple nationality and therefore the various definitions of “multiple nationality” is always inclusive of the term “dual nationality.”. In Article 2 (b) of the European Convention on Nationality, “multiple nationality” is defined as “the simultaneous possession of two or more nationalities by the same person.”
In today’s highly globalized world, an investor may have more than one nationality, including the ones of both home and host state; this kind of situation can complicate the protection of an investment and the jurisdiction in arbitration.In such a case, the question arises, whether an investor who holds a dual nationality of both the state where the investment has been made and of the home country can initiate arbitration proceedings against host country.
Many IIAs contain provision related to multiple nationals. Some of these investment agreements are keeping the dual nationals within the scope of the agreement, while others exclude them from its scope. The EU-Canada Comprehensive Economic and Trade Agreement (CETA) is an example that is keeping the dual nationals within the scope of the agreement. Article 8.1 provides that “A natural person who is a citizen of Canada and has the nationality of one of the Member States of the European Union is deemed to be exclusively a natural person of the party of his or her own dominant and effective nationality.”But according to this Agreement, natural person’s dominant and effective nationality shall be determined for the purpose of the protection. If this determined nationality is that of the host state, then the protection of investment cannot be claimed under investment arbitration.
On the other hand, some BITs have provisions that exclude dual nationals from protection. Such as, in the Turkey-Colombia BITit has been expressed in Article 1(5) that: “This agreement shall not apply to investments made by natural person who are nationals of both Contracting Parties”. The Romania-Canada BIT also excludes dual nationals form the protection in Article 1(g)(i) declaring that: “the investor is, in the case of Romania, any natural person who according to the Romanian law is considered to be its citizen and who does not possess the citizenship of Canada”. The situation is same in the Mauritius-Egypt BIT, in Article 1(3)(a) it is stated that “the natural person derives his or her nationality in virtue of the laws of one of the contracting parties and is not simultaneously a national of the other contracting party”, so the treaty is not applicable to a national of one state that is simultaneously a national of the other contracting state.
ICSID Convention contains a clear and specific rule regarding dual nationals. According to Article 25(2)(a), national of another contracting state is a natural person who had the nationality of a contracting state other than the state party to the dispute; article also specifies that a national of another contracting state does not include any person who had the nationality of the contracting state party to the dispute.With this regulation the Centre explicitly deals with the issue of dual nationals, prescribing that a definition of investor does not include a person who also has a nationality of the contracting state that is a party to the dispute.
This feature was also emphasized in Executive Directors’ report as follows, “It should be noted that under clause (a) of article 25 (2) a natural person who was a national of the State party to the dispute would not be eligible to be a party in proceedings under the auspices of the Centre, even if at the same time he had the nationality of another State. This ineligibility is absolute and cannot be cured even if the State party to the dispute had given its consent.”On the other hand, the Convention does not contain any exclusion of dual nationals as shareholders of companies of the other contracting state, contrary to the specific exclusion of Article 25(2)(a) of the Convention regarding natural persons.
Like natural persons, juridical persons may also have more than one nationality. For instance, because of the tax purposes, many companies are incorporated in one state, but have their headquarters in another state. ICSID convention in Article 25(2)(a) only regulates dual nationality restriction for natural persons; Article 25(2)(b) of the Convention does not contain any provision about the dual nationality of juridical persons. This can be concluded as the Convention does not preclude juridical persons that have dual nationality to apply to arbitration. In this regard, if all nationalities of these corporation are those of contracting states, the Centre will have jurisdiction.
But problem arises when one of the nationalities of the corporation is that of the host state. From the wording of the Convention, it can be understood that, such a situation will not directly restrain the jurisdiction of the Centre; a tribunal may therefore look behind the legal veil of incorporation to determine in which state the control and ownership of the company really lies. The decisive test of “place of incorporation” or “seat” should be applied for determination of the nationality and the state which company has a close, substantial and effective may then be treated as the nationality of that state. After the application of this test, a determined effective nationality will shape the jurisdiction of the Centre. Additionally, a concurrent possession of the nationality of host state will not exclude jurisdiction.
Likewise, the CETA only regulates the status of natural persons; there is no provision about judicial persons. The reason for such an approach can be that, a company can have businesses in many different countries, but still, it has a nationality of one single state. This nationality is determined in BITs through tests already mentioned supra. Thus, when a dispute arises, the tribunal will determine the nationality and decide about jurisdiction accordingly. There is no need for a provision about dual nationality for the juridical persons.
Finally, some BITs are silent about dual nationality, they neither regulate nor prohibit the protection of dual nationals under the investment agreement. In such case another question arises: “When an investment treaty is silent about the standing of dual nationals, should dual nationals get protection as foreign investors (and should their effective nationality eb examined by the tribunal) or should such investors get no treaty protection at all?”
Lack of Provisions in BITs
Arguments that dual nationals may be allowed to sue their own country rest on the simple ground that there is no provision in the IIAs prohibiting them from doing so. At this stage, it would be appropriate to look at the purpose of states in signing an investment agreement with other states. In general, the purpose of IIAs are attracting investors by creating favorable conditions for investments, increasing economic cooperation between the states, ensuring the protection and encouragement of foreign investments, increasing the flow of capital and technology transfer, opening to new markets, protecting foreign investor against changes in national legislations, expropriation, hidden expropriation or similar unjust treatment such as nationalization.
For the interpretation of purpose of the treaties, one must follow the interpretation rules of the Vienna Convention on the Law of Treaties that prescribe that a treaty should be interpreted in the light of its object and purpose which is usually stated in its preamble.Thus, IIAs are aiming to encourage foreign investments, settle the disputes between parties through arbitration and avoid resolving them before a host state’s local court; they are regulating foreign investors and investments.
Considering the purpose of these treaties according to Vienna Convention, when negotiating and concluding a treaty, states never give consent to application to arbitration for their nationals against themselves. Thus, if it is accepted that the tribunals should apply the customary rule of effective nationality and uphold jurisdiction, if the investor has a stronger connection with his home state, it will be a broad interpretation of the state’s consent and would contradicts the parties’ intentions.
The topic of “lack of provisions in BITs” was discussed in case law. In Serafín and Karina García v. Venezuela case, the Tribunal have analyzed the text of the Spain-Venezuela BIT, which is silent about the status of dual nationals, for the purpose of determining if the dual national claimants had standing to sue Venezuela under the treaty. Respondent argued that, the BIT’s definition of investor is “a physical person having the nationality of one of the Contracting Parties who invests in the other Contracting Party”, so this BIT excluded physical persons with the nationality of both contracting parties.
Venezuela also argued that allowing dual nationals to sue their own state would go against the object and purpose of the investment treaty, as applicable rules of international law impede the admission of claims brought by physical persons with dual nationality, especially if the nationality of the respondent state is the predominant or effective nationality of the claimant. Claimants rejected Venezuela’s statements and pointed to Venezuela’s treaty practice and argued that other BITs that Venezuela had entered into with other states, such as Italy, Canada, and Iran have provisions about dual nationality; so, when treaty parties have sought to exclude dual nationals, they have done it expressly. Claimants also retorted that neither the treaty nor applicable rules of international law exclude dual nationals from enjoying the protection of the treaty.
The Tribunal decided in favor of claimants, holding that the Spain-Venezuela BIT fails to regulate the status of dual nationals and did not impose any limitation on them, so it is not possible to devoid of effect the nationality granted freely by a state and accepted as valid by the other. The Tribunal also noted that, dual nationals may qualify as investors under the Spain-Venezuela BIT as the Tribunal finds that customary nationality rules are not applicable in the BIT context; the respondent’s argument on the application of the principle of effective and dominant nationality for purposes of interpreting and applying BITs in general in not acceptable.
This award sets an important precedent in treaty arbitration because it enables dual nationals to apply to arbitration against the country of their own nationalities when there is no provision in the BIT about dual nationals. This decision also highlights a major difference of potential permissiveness between the UNCITRAL rules and those of ICSID, both of which are present as options in the Spain-Venezuela BIT.
This situation also opens a door for manipulation of the nationality by investor as a tool to gain access to the dispute settlement mechanism contained in the relevant BIT. Additionally, this case highlights the asymmetry that may arise in the resolution of the question of standing of dual nationals by tribunals constituted under the ICSID Convention and under other arbitral institutions or ad hoc committees.
If it is accepted that dual nationals can apply to investment arbitration when the BIT issilent about this issue,investors that are holding dual nationalities of both home and host states and wish to apply for arbitration based on IIAs that do notregulate the status of dual nationals and did not impose any limitation on them, can choose ad hoc arbitration or other arbitral institutions so that they can avoid the restrictions of ICSID.Also, domestic investors seeking to internationalize and securetheir investment may be well-advised to get a second or maybe more nationalities to secure their investments.
Additionally, investors find their ways to “internationalize” their claims against their own states through the acquisition of a second nationality when a treaty regulates and covers dual nationality or when a treaty is silent on this issue. Additionally, Article 8.1. states that: “A natural person who has the nationality of one of the Member States of the European Union or is a citizen of Canada, and is also a permanent resident of the other Party, is deemed to be exclusively a natural person of the Party of his or her nationality or citizenship, as applicable.” ICSID Convention Article 25(2)(a): "National of another Contracting State means: 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 as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State party to the dispute.” World Bank: Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Washington D.C., 1965. Available at http://www.worldbank.org/icsid. Accessed May 14, 2020. In Champion Trading Company v. Arab Republic of Egypt, the Tribunal noted that: “Neither the Treaty nor the Convention contain any exclusion of dual nationals as shareholders of companies of the other Contracting State, contrary to the specific exclusion of Article 25 (2)(a) of the Convention regarding natural persons.” If one of the nationalities belongs to a non-contracting state, the juridical person has to demonstrate that it holds the nationality of a contracting state on the basis of incorporation or seat. The concurrent possession of the nationality of a non-contracting state, established on the basis of these same criteria, would not exclude jurisdiction. For instance, Turkey-Cambodia BIT, Argentine-Japan BIT and Turkey-Uzbekistan BIT has no provisions about dual nationals. Dolzer, Rudolf-Stevens, Margrete: Bilateral Investment Treaties.The Hague, 1995. p. 12; Franck, Susan: The Legitimacy Crisis in Investment Treaty Arbitration: Privitazing Public International Law Through Inconsistent Decisions. Fordham Law Review(73) 2005, 1521-1625. p. 1527; Vandevelde, Kenneth: U.S. International Investment Agreements. New York, 2009. p. 3. According to Article 31(1) and (2): “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 the light of its object and purpose. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes.” Relating to interpretation of BITs see Ismail2013. p. 98. Serafín García Armas and Karina García Gruber v. Bolivarian Republic of Venezuela. PCA: Case No. 2013-3. Available at https://www.italaw.com/cases/2869. Trevino 2015, p. 2. Additionally, the claimants pointed to the exclusion of dual nationals under Article 25 of the ICSID Convention to support their contention that the ICSID exclusion cannot be generalized to other forms of arbitration that might be available under the BIT. According to Tribunal, BITs constitute lex specialisbetween the parties and that resorting to customary international law is only necessary when the letter of the treaty is not sufficiently clear for its interpretation. Also, the Tribunal laid emphasis on the fact that Venezuela and Spain had entered into other BITs with other states that explicitly excluded dual nationals from the protection of the BIT. This led the Tribunal to assume that denial of benefits to dual nationals must be explicitly provided for in the text of the treaty.