In classic investment arbitration disputes, an investor brings claims against a host country under an investment treaty, an investment contract, or both. Since only States are parties to bilateral investment treaties, they have obligations under these agreements. These treaties aim to give rights to foreign investors. Thus, the growth of investment disputes over the last thirty years was led by cases where the claimant was a foreign investor.
There are, however, exceptions. In reverse fashion, the host State may bring claims against a foreign investor. A State may make claims through a counterclaim[1] or bring claims directly as a claimant. This article will discuss the second option in further detail.
The Host State as Claimant
The prevailing view is that investment arbitration seeks to mainly protect investors’ rights.[2] However, equal access to arbitration by the host State is possible under the ICSID Convention. Indeed, the drafters of the Convention endorsed equal access to host States:
“[T]he Convention permits the institution of proceedings by host States as well as by investors and the Executive Directors have constantly had in mind that the provisions of the Convention should be equally adapted to the requirements of both cases.”[3]
Case Law
Despite formal equality, only a handful of host States have brought cases against an investor.[4] From a purely treaty-based perspective, moreover, little has been done to initiate host State arbitrations as claimant. In fact, after a review of current case law, not one dispute has been brought on the basis of an investment treaty.
The idea, however, that States cannot require investors to arbitrate claims is misled. As one notable arbitrator mentioned, this charge is “as colorful as misconceived.”[5] In reality, some treaties allow for either disputing party to bring a claim before a tribunal.[6] Therefore, a host State must prove that the treaty permits it to bring a claim forward and that the investor consented to arbitrate, in advance and on a general basis. Once proven, a tribunal should be able to retain jurisdiction under Article 25(1) of ICSID.[7]
State-Owned Enterprises as Claimants
State-owned enterprises have become increasingly active in foreign direct investment flows. In fact, they are becoming leaders in international investment, with 550 State-owned cross-border entities with more than USD 2 trillion in assets.[8]
The original purpose of investment arbitration was to protect private foreign investors against State measures. With the change of investment flows, State-owned companies generate a potential need to rely on investment arbitration to protect their investments. Parties may now pursue State-to-State claims in another venue, i.e., ICSID.
Case Law
Most cases dealing with State-owned companies as claimants do not address issues of jurisdiction. Two cases, however, have clarified the relevant standard. In CSOB v. Slovakia, the tribunal upheld the “Broches” test, named after the ICSID Convention’s chief architect:
“[F]or purposes of the Convention a mixed economy company or government-owned corporation should not be disqualified as a ‘national of another Contracting State’ unless it is acting as an agent for the government or is discharging an essentially governmental function.”
In its decision, the tribunal found it had jurisdiction because the State entity’s actions (here a bank) were commercial in nature.
The tribunal in BUCG v. Yemen upheld the application of the Broches test. As in CSOB, it found that BUCG’s participation in the airport project was that of a commercial contractor and not an agent of the Chinese government. It also found that the Chinese government’s role as ultimate decision-maker was irrelevant.
Conclusion
The ICSID system provides host States with a venue to bring their treaty and contractual claims. To date, this has been underutilised. However, new national strategies, such as China’s “One Belt One Road” initiative, may lead to greater use of investment treaty arbitration by States.
[1] There are many examples of counterclaims, but a notable case is Perenco v. Ecuador.
[2] E.g., Hege Elisabeth Veenstra-Kjos, “Counter-claims by Host States in Investment Dispute Arbitration ‘‘without Privity”” in P. Kahn and T. Walde (eds) Les aspects nouveaux du droit des investissements internationaux (Martinus Nijhoff Publishers, Leiden, Boston, 2007), 597, 600, 614, n. 91.
[3] Report of the Executive Directors on the ICSID Convention, Art. III(13), p. 41.
[4] E.g., Gabon v Societe Serete S.A., ICSID Case No ARB/76/1 (in 1978, the parties settled and ended proceedings); Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited ICSID Case No ARB/98/8; Government of the Province of East Kalimantan v PT Kaltim Prima Coal and Others, ICSID Case No ARB/07/3; Republic of Peru v. Caravelí Cotaruse Transmisora de Energía S.A.C., ICSID Case No. ARB/13/24 (the parties suspended proceedings in December 2013).
[5] Stephen Schwebel, A BIT about ICSID (Spring 2008) 23 Foreign Investment LJ 1, 5.
[6] Saipem S.p.A. v The People’s Republic of Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction and recommendation on Provisional Measures,
[7] Tribunals have applied the Article into four component parts generally: (1) the dispute must oppose a Contracting State and a national of another Contracting State, (2) the dispute must be of a legal nature, (3) the dispute must arise directly out of an investment, and (4) the parties must have expressed their consent to ICSID in writing.
[8] UNCTAD, World Investment Report 2014, Investing in the SDGs: An Action Plan (United Nations 2014), p. 20.
