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Nationality Requirement in International Investment Arbitration

It will be appropriate to consider the definition of the foreign investor before proceeding to define the nationality of an investor. Investor, in general, can be defined as a person or organization that puts money into financial schemes, property or other means of investment with the expectation of achieving a profit. Accordingly,a foreign investor can be defined as a real person investor who is the national of home state, companies with legal entities established in accordance with the legislations or partnerships created by investors from different states to make large-scale investments aiming to invest in a foreign country in order to make a profit.[1]

All investment treaties provide definitions of whom they consider to be investors[2]; but in international law there are no common principals applicable to determination of particular investors. Regarding all investment treaties, in general, it can be concluded that the decisive criterion in definition of investor is the “nationality”.

Investment treaties include substantive provisions that provide protection to foreign investors and private foreign investments. In addition, these treaties provide the foreign investor with direct recourse to international arbitration. Determining the nationality of an investor plays an important role in international investment arbitration; because this nationality is crucial in deciding an individual's or juridical person’s right to initiate arbitral proceedings against a state. Additionally, the nationality requirement generally prevents any national from seeking treaty protection against its home state. The jurisdictional requirement ratione personae depends on the determination of the investor’s nationality and possession of the nationality of the host state can be bar to becoming a party to arbitral proceedings against that state.[1]The reason for nationality requirement is obvious; individuals’ nationality accord them a particular position in international law. Nationality gives individuals the benefit of the additional right or privilege to be able to refer an investment dispute to international arbitration without having to rely on state for protection or intervention.[2]

Both ICSID and other investment treaties require that the individual or private investors[3], who have the advantage of making use of dispute settlement facilities that they have given the right to apply in investment treaties, must be a national of another contracting state.[4]To illustrate, according to Article 25(1)of ICSID convention “The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre.” Regarding this article, for the competence of ICSID, the dispute shall be between a contracting state and a national of another contracting state; this is the jurisdictional requirement ratione personae.

Additionally, Article 25(2)(a) of the Convention defines national of another contracting state as: “Any natural person who had the nationality of the 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.” According to this article, investors are required to meet a positive and a negative nationality requirement. To satisfy the positive requirement, investors are required to be nationals of a contracting state. To satisfy the negative requirement, investors must not have the nationality of the host state.[5]

[1]Lim, Chin Leng-Ho, Jean-Paparinskis, Martins: International Investment Law and Arbitration: Commentary, Awards and Other Material. Cambridge, 2018. p. 234; Ismail, Mohammed: International Investment Arbitration: Lessons from Developments in the MENA Region.New York, 2013. p. 98; Trevino, Clovis: Treaty Claims by Dual Nationals: A New Frontier?Retrieved from Kluwer Arbitration Blog, 2015. Available at http://arbitrationblog.kluwerarbitration.com/2015/10/08/treaty-claims-by-dual-nationals-a-new-frontier/. Accessed June 1, 2020. [2]Schlemmer2008, p. 72. [3]In principle, investors must be private investors; but this does not exclude wholly or partly government-controlled companies acting as investors to comply as a private investor. The decisive criteria here is that whether the company is discharging governmental functions or is acting in a commercial capacity. (See UNCTAD: Dispute Settlement - International Centre for Settlement of Investment Disputes - Requirements Ratione Personae. New York, 2003. p. 16. Available at https://unctad.org/en/Docs/edmmisc232add3_en.pdf. Accessed June 1, 2020.) [4]Although the main purpose of all investment treaties is to attract investments and investors to the host state, every treaty has its own objectives; because of this reason contracting states are free to choose the nationality requirements, according to according to relations and political order between states, that in their view better suit a particular BIT. [5]Also, Article 25(2)(b) of the Convention defines nationality for a juridical person as: “any juridical person which 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 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.

[1]Today, the definition of foreign investors is changing. Investments by poorly organized individuals or groups are lagging behind, with the vast majority of investments being made by multinational companies and for long terms. (Tiryakioğlu, Bilgin: Doğrudan Yatırımların Uluslararası Hukukta Korunması.Ankara, 2003. p. 32.) [2]For example, Article 1(2) of the BIT between Republic of Belarus and Hungary defines investor as: “The term investor shall mean any natural or legal person of one Contracting Party that has made an investment in the territory of the other Contracting Party. a. The term natural person shall mean any individual having the citizenship of either Contracting Party in accordance with its laws and regulations. b. The term legal person shall mean with respect to either Contracting Party, any legal entity incorporated or constituted in accordance with the laws and regulations having its central administration or principal place of business in the territory of one Contracting Party.”

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