International Investment Law

In former times  investors did not have dirct access to international remedies to pursue claims against foreign states for violation of their rights. They depended on the so called diplomatie protection of their homes states, which works as follows

1.  the state espouses the claim of the investor (takes up the claim)
2. pursues/continoues it in its own name. --> on the horizontal level then

Diplomatic protection can only be done if the

• investor exhausted the local remedies
• investor have been continously (from injury until claim)  a national of the protecting state

Disadvantages:

• investor has no right for dipl protection
• government may refuse to take up the claim
• government may accept a reduced settlement. etc

Mind also disadvantages for the state (e.g. disruption of international relations)

Thc Permanent Court of International Justice (PIJ) explained in the Mavrommatis Palestine Concession case:

It is an elementary principle of international law that a State is entitled to protect its subjects, when injured by acts contrary to international law committed by another State, from whom they have been unable to obtain satisfaction through the ordinary channels. By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights – its right to ensure, in the person of its subjects, respect for the rules of international law.““

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interpretation according to Art 31 (1) VCLT

• literal interpretation: meaning of the words
• systematic interpretation: in context to the other provisions
• teological interpretation: according to the sense/purpose of the provisions

domestic law.

There are 2 concepts:

• ius soli (when you are born in the state, you get its nationality) 
• ius sanguinis (depends on the nationality of the parents)
• some states also give the nationality to ppl because of long term residence

Soufraki/UAE: 

Soufraki (Investor) was Italian. He also applied for the Canadian Nationality without telling Italy about that. But According to Italian law this would lead to loosing Italian citizenship. --> tribunal decided that he is not Italian

Feldman/Mexico

Feldman lived in Mexico for a long time but had the US nationality. The tribunal decided, that he only has the nationality of US!!. Achtung, nicht mit dual nationality verwechseln. Wenn man wirklich 2 nationalitäten hat, dann zählt diejenige die "more effective" ist! 

The question is: how can the local company be made a foreign company...

3 strategies: 

• Art 1117 NAFTA: a foreign company can sue a state on behalf of (im interesse) another party--> the local company klagt also quasi FÜR den ausländischen INvestor, ist also nur "zwischengeschaltet"
• Art 25 ICID: Parties may agree, that a local company is treated as a foreign national (legal fiction)
• Most important solution: the local company itself (the shares of it) is considered as investment, then there is no doubt about the qualification as foreign investment

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siehe BIT --> sehr breite definition "all assets", verschiedene layers, portfolio investment etc also eigentlich alles was economic value hat ist asset.

in icid keine definition

• subnstantial commitment of assets 
• certain duration 
• regularity of profits and return 
• element of risk (entrepreneurial risk) 
• significant contribution to the (economic) developement of host state

somtimes in addition: 

• conformity with the laws of the host state
• The investment must take p0lace in the territory of the host state

in order to raise a claim there must be to things fullfilled: 

1. investment according to (investment treaty) Bit etc 

2. investment according  to Art 25 ICID-Convention --> to have a forum where you can raise the claim

• International mimimum standards --> wenn es keinen BIT gibt, sonst ist BIT protection höher
• expropriation 
• national treatment (NT) 
• Most favoured nation treatment (MFN)
• Fair and equitable treatment (FET) 
• Full protection and security (FPS)
• umbrella clauses

Host state is more powerfull than the investor, because he is able to change the law and legal framework in which the investor operates in. Usually an investment takes a longer period of time. It might be that the host state changes its law the the strong detriment of the investor e.g. if an investor invests in an cole-fired power plant and the host state then forbids this type of power plant. 
Therefore the investor needs a protection, which is especially ensured by investment treaties. In these investment treaties a different mix of the named standards of treatment is included...

• IMS are applicable irrespective of whether the home and the host state have concluded an investment treaty or not
• Its customary international law --> unwritten; established by cunsuetduo (long term practice) and opinio juris (the belief that the parties are obliged to follow the rules of that law
• rather weak protection
• there are 2 opinions whether it's an relative or an absolute standard: 
  • calvo doctrine: relative standard. treatment only as good as nationals are treatet (latin american approach)
  • majority view: absolute standard: no discrimination necessary to violate the internationa minimum standards. stands for itself
• states remain free regarding admission (zulassung) of investments (no pre establishement protection)
• if they admittet the investment, the host state has to compy with the IMS
• PROTECTION: 
  • decent (ordentlich, anständig) treatment of investor; prohibition of arbitrariness (Willkür)
  • recognition as a legal subject (Rechtsfähigkeit muss anerkannt werden)
  • due process (ordentliches Verfahren)
  • expropriation only lawful if: 1. public purpose; 2. non-discriminatory, 3. compensation

in BIT A/Pol zB: "Investments of investors from one Contracting Party may be expropriated on the territory of 
the other Contracting Party only in the public interest, on the basis of a lawful procedure and 
against compensation..."

• expropriation: "Expropriation is the act of a government taking private property; eminent domain is the legal term describing the government's right to do so"
• confiscation: expropriation withour confiscation (unlawful expropriation) "In law, the act of seizing property without compensation and submitting it to the public treasury."
• nationalisation: large scale, full sector
   
• de jure exprop: legal deprivation of property; removing the legal titel (zB Staat schreibt sich statt XY ins GB)
• de facto expropr: equal effect to taking the legal titel away. zB Umwidmung

• public interest 
• non discrimination
• lawful procedure: tell about investor about public interest, must be able to make arguments, must get a reasoned decision
• compensation
  • Calvo: relative standard -->same compensation as nationals
  • Hull formula (prevailing doctrine)
    • prompt 
    • adequate
      • developing countries: full compensation
      • others: appropriate compensation
    • effective: in a freely convertible currency
• asset/property on territory of host state: The right to exporpriate only covers assets that are located on the territory of the host state
•  

o    Calvo doctrine

o    in addition to the absolute standard most BITs state that investments shall be treated no less favourably than investments of the own nationals (relative standard)

o    in most European BITs this is a post-establishment standard which means that it only applies once the investment is established; in US BITs it is often stated as a pre-establishment standard

o    de jure discrimination/de facto discrimination: what is clearly forbidden is to impose stricter standards on foreign investors; however also selecting criteria which basically cover foreign investors are forbidden (the impact of the measure matters; the intent is not decisive) --> wie Europarecht

• zB A/Pol BIT: "no less favourably than investment..by investors from third countries" 
• relative: objektiv of comparison are investors from third countries
• exceptions of benefits resulting from custums union (klar, dass zB USA nicht so behandelt wird wie Staaten innerhalb EU)
   
• procedual: depends on the specific BIT and how the MFN clause is formulated. IF procedual provisions are included: Better provisions from other BIT concerning Procedual provisions must be applied...
•  

• Austria-Poland BIT: ..."shall treat them at any rate in a just an equitable manner" --> similar wording in every BIT
• absolute standard
• very important standard because of its broad interpretation; used very often, also if there is an exporpriation it is often used as "savety valve" (Rückversicherung)

There are two different opinions how broad the FET-clauses can be interpretet (keep in mind that especially host states have an incentive to keep the interpretation and thereby the protection rather low)

1. The FET is nothing more than international minimum standards in a modern way --> link to IMS, therefore pretty narrow interpretation
   • e.g. Art 1150 NAFTA: FET not beyond minimum standards
2. There are also treaties that do NOT link the FET to the IMS --> borader interpretation

examples for the scope of FET: 

• Neer Case: very high threshold, very narrow; bad faith of the state needed; today no one would interpret FET that narrwoly
• Waste management  inc/Mexico: nowadays the prevailing view of the floor of FET. Those following the NAFTA approach would say its the ceiling (also mittel weite Auslegung
• Tecmed/Mexico: duties of host state go extremly far ("act in totally transparent manner" etc) 

Keep in mind: no need for bad faith of the host state!

legitimate expectations: 

• would a neutral third party have developed the same expectation?
• kepp in mind that 

Austria-Poland BIT: "Investments shall enjoy the full protection of this agreement" 

• absolute standard
• against physical threats and harrassement --> police protection. e.g. demonstrators block a powerplant for months and the police doesn't intervent at all. But there is a right to demonstrate --> balancing of interests
• States need to exercise due diligence (gebotene Sorgfalt)
• some say that it also includes legal protection
• there is an overlap with FET standard. The more FPS is extended towards legal protection, the more it overlaps with FET
•  

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Yes but only under certain conditions:government owned and controlled companies can also be investors, as long as they act in a commercial rather than in a governmental capacity. Some states act through Sovereign wealth funds (SWFs): Normal 0 21 false false false DE-AT X-NONE X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Normale Tabelle"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-fareast-language:EN-US;} these are also concidered as investors as long as they fullfill the mentioned criaterias. 

All national treatment clauses apply once a business is established (post-entry national treatment). This covers both regulatory and contractual matters. Some investment treaties, especially those concluded by the United States and Canada, also include provisions concerning a right of access to a national market on the basis of national treatment (pre-entry national treatment).

If an investor has dual nationality only the "effetive one counts. "How does the actual life of the company takes place" 

based on stronger factual ties between the person concerned and one of these States whose nationality is involved. Different factors are taken into consideration, and their importance will vary from one case to the next: there is the habitual residence of the individual concerned but also the centre of his interests, his family ties, his participation in public life, attachment shown by him for a given country and inculcated in his children, etc.

many companies consist of rather complex networks of different legal persons; these legal entities won’t have their seat in the same country   

• The question is: who is the relevant legal person? Sometimes there is not only one company which is able to start a case but also a mother company or even a grandmother compan 
• The result of this rather liberal ruling of international tribunals is “treaty/forum shopping”; some tribunals as well as scholars try to limit this tendency since it is considered to be unfair

home state: the state whos nationality the investor has

host state: state in which the investment takes place; state in which the investor puts the investment

treaty: 

• concluded between states or other subjects of public internationa law like international organisations (e.g. EU)
• governend by public international law 
  Keep in mind that also states can act "privatwirtschaftlich"

contract

• concluded between subjects of domestic law (privates or companies) 
• governend by domestic law
  privates can only choose between different domestic laws and also lex mercatoria

Investment contract: 

agreement between a state and a private investor. They are usually governed by the domestic law of the host state (negotiation --> host state wins usually). 

• pre establishement phase: protection begins already in the planning phase (rare)
• post establishment phase: protection begins when the investment has already been made

1. international treaties

• between subjects of international law, ie states and IOs
  • examples for IOs are UNO, IOs, WTO, WHO, UNESCO BUT also EU 
  • EU: int organisation that can conclude treaties (zB TTIP and CETA)

1. customary law (GEwohnheitsrecht)

• relatively important in international law
• it has to be used if there is no treaty (international minimum standards) 
• requires consuetudo (long term pratice) and opinio iuris (the believe that it is obligatory)

1. soft law 

• The term "soft law" refers to quasi-legal instruments which do not have any legally binding force. e.g.:
  • Most Resolutions and Declarations of the UN General Assembly
  • Elements such as statements, principles, codes of conduct, codes of practice etc.; often found as part of framework treaties;

1. EU law (since treaty of Lisbon --> Art 207 TFEU

• states
• international (intergovernmental) organisations
  • UNO, WTO, EU etc
• individuals
  • befoer 1945 individuals haven't been subjects of international law. the international law worked only horizontally (subjekte auf gleicher ebene betroffen!?); the relaions between private individuals and state were governed by domestic law in a vertical manner. As a result the inverstor couldn't sue the host state directly. He had to go to the home state, who then put a claim on the host state... (mediatization)
  • after 1945: limited personality --> in some areas (investment law, international criminal law etc)  individuals are regulated directly by international law. One wanted to make the individual able to sue another state directly!!! 

Customary law:

• Over time specific international rules developed  E.g. there was protection against arbitrary punishment, compensation for expropriation etc...
• It's an unwirtten law, which is generated by long term practice (consuetudo) on the one hand and the belief that an action was carried out by states due to a legal obligation (opinio juris) 
• --> international minimum standards

Soft law: it's a law that's not binding and there are no consequences if you breach the soft "law"

treaty

• a formal contract between states or international organisations like the EU 
• governend by public international law 

contract: 

• agreement between natural persons or companies 
• governend by domestic law (
  • negotiation --> usually domestic law because of state power, also lex mercatoria (also domestic law) is possible 

whereas contract is a formal agreement between privates or companies.

• Treaties of friendship 
• bileteral investment treaties: most important (between 2 parties); a forerunner of the BIT is the friendship, commerce, and navigation treaty
• regional investment treaties: focus on certain regions of the planet (NAFTA!?)
• multilateral investment treaties: a lot of parties are involved --> almost global. e.g.: WTO?
• soft law

Both clauses are usually enclosed in a BIT 

NT-clause: National Treatment-clause: These clauses codify, that the same treatment which is applied to nationals must be applied to foreign investors: e.g. Austria/Poland BIT: "...no less facourably than investments of its own investors..."

MFN-Clause: Most favoured nation clause (Meistbegünstigungsklausel): It says, that the best possible treatment, wich is applied to everyone else. --> If a country has concluded 9 treaties, the "best one" for a specific case can be applied)

The conclusion of BITs has evolved from the second half of the 20th century

agreements between two states for the reciprocal encouragement, promotion and protection of investments in each other's territories by companies based in either country (firstGermany/Pakistan

1989 358 BITs, 2014 already 3271 BITS. Germany has concluded more than 130 BITS

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Provision included generally in international investment agreements under which foreign investors waive (aufgeben,verzichten)  their right to be protected by their national laws and accept the jurisdiction of the courts of the host country (where the investment is located or made).

 

These are regional integration treaties. They include preferential trade agreements (free trade in these zones) but also chapters on investment (very similar to BITs, e.g. Definition of investor, investment etc)  e.g. Chapter 11 NAFTA, Chapter 10 CAFTA. 

The Energy Charter Treaty (ECT) is an international agreement which establishes a multilateral framework for cross-border co-operations in the energy industry. The treaty covers all aspects of commercial energy activities including trade, transit, investments and energy efficiency. The treaty is legally binding, including dispute resolution procedures.

Originally, the Energy Charter process was based on integrating the energy sectors of the Soviet Union and Eastern Europe at the end of the Cold War into the broader European and world markets. Its role however extends beyond East-West cooperation and through legally binding instruments strives to promote principles of openness of global energy markets and non-discrimination to stimulate foreign direct investments and global cross-border trade.

With the End of the cold war, rousources ins oil in the territory of the soviet union became better cessibly to the rest of the market. At the same more Chatik because Soviet union split up in many coutries. With ECT they wanted to bring more order in this chaotik situation. 

Western contries invested in east countries, and the idea was to protect these investments

foreign direct investment:

in general: focus on management interests not an return of capital; foreign = transboundary element. The criterias mentioned in Art 207 TFEU for a direct investment are:

• long term relationship
• significant degree of influence
• significant degree of managerial control
• assumption of entrepreneurial risk
  --> easiest indicator is 10% or more shares

portfolio investment: 

•  passive investments,
• active management or control of the issuing company.
• purpose of the investment is solely financial gain,

distinction purpose:

1. Some international investment treaties only protect FDI (Achtung aber dann idR Unterscheidung nach Salini Test)
2. Art 207 TFEU: The EU hast the exclusive competence to conclude treaties on FDIs. Therefor only portfolio investments treaties can be concluded by member states

Vattenfall: Die Klage des Energiekonzerns Vattenfall gegen die Bundesrepublik Deutschland aufgrund des Atomausstiegs beruft sich auf den Energiecharta-Vertrag. 

1. case: Vattenfall had to fullfill certain conditions (Auflagen) to build a power plant in Germany. Therefor V initiatet a dispute settlement on the basis of the ECT. It said that these conditions would be against the fair and equitable treatment clause and is an indirect expropriation. 

2. case: because of Fukushima and the then following exit of nuclear energy in germany vattenfall had to close down 2 power plants --> arbitration (Schiedsverfahren) before the ICID-Tibunal

lift the regime of the enregy charter treaty (regional) to a level and achieve a global energy charter treaty --> recently! 

TTIP sieht auch Schiedsgerichtsverfahren – Investor-State Dispute Settlement (ISDS) – vor, in denen Unternehmen die Möglichkeit gegeben wird, Staaten zu verklagen. Solche Schiedsgerichte entscheiden an Stelle von nationalen Gerichten, bieten aber im Gegensatz zu diesen weniger Möglichkeiten der Überprüfung von Entscheidungen durch höhere Instanzen. Diese Verfahren werden von Kritikern als intransparent und demokratisch unkontrolliert betrachtet. Befürchtet werden Klagen, wenn durch staatliche Eingriffe Gewinnerwartungen geschmälert worden seien, z. B. wenn der Staat neue Umweltauflagen beschließtUnternehmen könnten nach Ansicht von Kritikern somit z. B. durch die Androhung von Schadensersatzforderungen die Kennzeichnungspflicht gentechnisch veränderter Lebensmittel oder ein Verbot der Gasförderung mittels Fracking verhindern. Ebenso könnten sie – ähnlich wie die Klage von Vattenfall gegen den deutschen Atomausstieg im Rahmen der Investorenschutzklausel des Energiecharta-Vertrags – versuchen, Entschädigungszahlungen für den Ausstieg aus der Kernenergie zu erzwingen. Ebenso wurden durch einen Vergleich bei einem Schiedsgerichtsverfahren die Umweltauflagen für das Kohlekraftwerk Moorburg geände

BSP Philipp Morris darf nur noch graue Packungen produzieren, wäre indirekt expropriation --> müssten Ausgleichszahlungen zahlen

International Centre for Settlement of Investment Disputes

It is an international arbitration (Schiedsgericht) where investment disputes are supported. Therefore it provides codes of pracite (Verfahresnregeln) and a certain infrastructure like rooms etc. The ICSID does NOT do any jursidiction itself. But it has codes of pracite (Verfahrensregeln). Arbitrators (Schiedsrichtier) do the jursidiction 

  The ICSID is a member of the World Bank Group, from which it receives funding, and is headquartered in Washington, D.C

The number of cases that where concluded highly rose...

Influence of the World Bank: Staaten können es sich nicht leisten vor WB unter Verruf zu geraten bzw kann diese Kredite verwehren. 

Stands for Multilateral Investment Guarantee Agency

The goal of this Agency is to promote foreign direct investments in developing counntries by offering political risk insurance and credit guarantees. Therefore Guaranties (investment insurrance) against "Non-Commercial Risks" :

• currency inconvertibility 
• government exporopriation
• war
• terrorism
• civil disturbanece
• breaches of contract