The Interpretation of ‘Direction or Control’ in Investor–State Arbitration

doi:10.1017/9781009541312.006

6 - The Interpretation of ‘Direction or Control’ in Investor–State Arbitration

The Case of State-Owned Enterprises

from Part II - Methods of CIL Interpretation in International Courts

Published online by Cambridge University Press: aN Invalid Date NaN

Paula Baldini Miranda da Cruz

Edited by

Geir Ulfstein and

Marina Fortuna: Affiliation:
Rijksuniversiteit Groningen, The Netherlands
Kostia Gorobets: Affiliation:
Rijksuniversiteit Groningen, The Netherlands
Panos Merkouris: Affiliation:
Rijksuniversiteit Groningen, The Netherlands
Andreas Føllesdal: Affiliation:
Universitetet i Oslo
Geir Ulfstein: Affiliation:
Universitetet i Oslo
Pauline Westerman: Affiliation:
Rijksuniversiteit Groningen, The Netherlands

Book contents

Summary

This chapter explores how the interpretation of customary international law (CIL) can be shaped by the underlying premises and political values of a system. The argument it develops focuses on how investor–state arbitration has interpreted the CIL law rule establishing that the actions of state-owned enterprises will be attributed to the controlling state, as expressed in Article 8 of the Articles on the Responsibility of States for Internationally Wrongful Acts.

Keywords

customary international law investor-state arbitration state-owned enterprises attribution of conduct direction and control state responsibility

Type: Chapter
Information: Customary International Law and Its Interpretation by International Courts
Theories, Methods and Interactions
, pp. 130 - 155

DOI: https://doi.org/10.1017/9781009541312.006 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2024
Creative Commons: This content is Open Access and distributed under the terms of the Creative Commons Attribution licence CC-BY-NC-ND 4.0 https://creativecommons.org/cclicenses/

1 Introduction

In this chapter I explore how the interpretation of customary international law can be shaped by the underlying premises and political values of a system. My argument focuses on how investor–state arbitration has interpreted the customary international law rule establishing that the actions of state-owned enterprises will be attributed to the controlling state, as expressed in Article 8 of the Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA).Footnote ¹

International lawyers use the term ‘state-owned enterprise’ to refer to corporate entities that are not part of a state but are still owned or controlled by a state. State-owned enterprises pose challenges for international law because, although they are formally independent and autonomous entities, their corporate and operational ties with states can make it hard to distinguish their activities and goals from those of the states that own or control them. This sometimes nebulous relationship between states and state-owned enterprises has generated international concern that states might use state-owned enterprises to cover reprehensible and even illegal activities.Footnote ²

Without a specific international legal regime for state-owned enterprises, discussions on state involvement in the international activities of these entities should be grounded on general international law, including the customary rules on attribution that are expressed in the ARSIWA. Investment arbitration tribunals have generally agreed on the applicability of customary international law on state responsibility to cases that deal with attribution to states of actions that violate treaty protections.Footnote ³ However, they have approached these cases from several different perspectives and standards (Section 2). I argue that such variation arises from the specific characteristics of investment law – namely, a cautious approach towards state-owned enterprises, coupled with an individualized application of the ‘effective control’ test. These two elements have pushed tribunals towards interpreting Article 8 of the ARSIWA in an individualized way that calibrates general international law standards in the light of common investment law practices, the rules specifically agreed by the states involved, and the specific needs and circumstances of the parties (Section 3).

2 The Interpretation of Control in International Law and Investment Arbitration

The ARSIWA were developed by the International Law Commission (ILC) as a way of codifying and developing the international law on state responsibility. Although the ARSIWA themselves do not constitute a binding instrument, many of their provisions, including Article 8, are considered to reflect customary international law.Footnote ⁴ The ARSIWA themselves are rather a subsidiary instrumentFootnote ⁵ that describes these provisions in a way that is considered authoritative. It is worth mentioning here that despite the subsidiary nature of the ARSIWA as a source of international law, the recognized authority of the rules expressed in the ARSIWA has led international lawyers (including myself in this chapter) to broadly refer to these rules as binding.

According to Article 8 of the ARSIWA, the conduct of a non-state actor, including a state-owned enterprise, is attributable to a state if such entity ‘is in fact acting on the instructions of, or under the direction or control of, that State in carrying out the conduct’.Footnote ⁶ As I describe below, the interpretation of the term ‘control’ has been a subject of discussion in international law. The ILC, in its commentary to the ARSIWA, emphasized that there were different ways of interpreting the term ‘control’.Footnote ⁷ It is therefore up for those applying Article 8 to determine how to interpret and apply it in light of the circumstances of each case. As noted by the ILC:

It is clear then that a State may, either by specific directions or by exercising control over a group, in effect assume responsibility for their conduct. Each case will depend on its own facts, in particular those concerning the relationship between the instructions given or the direction or control exercised and the specific conduct complained of.Footnote ⁸

Although the ‘effective control’ test of the International Court of Justice’s (ICJ) is referred to as the standard test for attributing actions of state-controlled entities to states, it has been shaped to different circumstances. Although there are many possible approaches, tribunals have been generally consistent and applied similar tests when faced with similar sets of circumstances (Section 2.1). This effort for consistency contrasts with broader variations in approaches seen in the context of investment tribunals ruling on the attribution to states of the actions of state-owned enterprises (Section 3.2).

2.1 ‘Control’ in International Law

The best-known test for determining whether a state has enough control to be held responsible over the actions of other entities is the ‘effective control’ test set by the ICJ. In all cases where the ICJ has discussed the issue of attribution to states of actions committed by other entities, it has found that states could only be held responsible for the actions of actors that they effectively controlled. In the case of Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. USA), the ICJ established what it considered to be the threshold of control for attribution of conduct to states based on the rule expressed in Article 8. Nicaragua had turned to the Court claiming that the United States was responsible for supporting armed actions by a non-state armed group known as the Contras in Nicaraguan territory. The Court concluded that the United States should be held responsible for supporting the Contras. However, it also found that it could not hold the United States responsible for illegal actions committed by the Contras in their armed operations because, although the United States played a relevant role in the Contras’ operations, it did not have effective control over them.Footnote ⁹ The ICJ later reiterated its understanding that attribution under Article 8 of the ARSIWA would require evidence that a state has effective control over the actions of a non-state actor in the Armed Activities in the Congo caseFootnote ¹⁰ and in the Bosnia v. Serbia case.Footnote ¹¹

Other tribunals read the ICJ’s interpretation of control as the standard customary law test for attribution of conduct under Article 8 of the ARSIWA.Footnote ¹² However, the solution found by the ICJ was not the only possible one. For example, those operating in specialized fields of international law have found that it was sometimes necessary to adopt a lower threshold of control in light of the legal and practical circumstances of the cases they were handling.

This flexibility is illustrated by the International Criminal Tribunal for the Former Yugoslavia (ICTY), which attributed the conduct of armed forces to states by making use of what became known as the ‘overall control’ test. In the Tadić case, the ICTY acknowledged the ‘effective control’ test developed by the ICJ, but found that its high threshold was incompatible with the strict hierarchy under which military operations take form. According to the ICTY: ‘The requirement of international law for the attribution to States of acts performed by private individuals is that the State exercises control over the individuals. The degree of control may, however, vary according to the factual circumstances of each case.’Footnote ¹³

Following this logic, the ICTY concluded that the ‘effective control’ test set by the ICJ was suited for situations where it was necessary to determine whether the actions of a private individual (or group of individuals) are attributable to a state. In these cases, the ICTY stressed, there must be evidence that such an individual received from a state specific instructions to act as its de facto agent.Footnote ¹⁴ However, such detailed examination would not be necessary when the state already has authority over an individual or group that operates under an organized hierarchy. Organized and hierarchical structures, such as military units, operate under more predictable, preexisting logics and strategies and therefore do not require a threshold as high as the one expressed by the ICJ in Nicaragua v. USA. The ICTY clarified that:

Normally a member of the group does not act on his own but conforms to the standards prevailing in the group and is subject to the authority of the head of the group. Consequently, for the attribution to a State of acts of these groups it is sufficient to require that the group as a whole be under the overall control of the State.Footnote ¹⁵

The ICJ responded specifically to the Tadić test in its Bosnia v. Serbia judgment, suggesting that the approach taken by the ICTY in this case was ‘unpersuasive’ and dismissing the possibility of applying it in the context of state responsibility.Footnote ¹⁶ The ICTY, however, kept following its own test as set in Tadić,Footnote ¹⁷ with defenders of this approach arguing that both tests can coexist because they are designed to deal with different circumstances.Footnote ¹⁸

The peculiarities of state-owned enterprises may also justify a specific approach to establish that a state controls them. In its commentary to Article 8 of the ARSIWA, the ILC discussed the attribution of conduct of enterprises that are owned and controlled by the state as an example of a situation that could warrant a threshold different from that used in ICJ case law. According to the ILC, the conduct of a state-owned enterprise should be attributed to the state pursuant to Article 8 of the ARSIWA when there is ‘evidence … that the State was using its ownership interest in or control over a corporation specifically in order to achieve a particular result’.Footnote ¹⁹

The ILC’s commentary relied on an example from the case law of the Iran–US Claims Tribunal (IUSCT) on the attribution of the conduct of state-owned enterprises. The IUSCT, a tribunal created as part of a set of measures to manage the political crisis between the United States and Iran arising from the 1979 hostage crisis and the subsequent freezing of Iranian assets by the United States, decided several cases that involved the attribution to the state of the actions of state-owned enterprises. These decisions were grounded on interpretation of Article VII(3) and (4) of the Claims Settlement Agreement, which provided for the attribution to Iran and the United States respectively of the acts of the entities they controlled.

In most cases, the IUSCT attributed the actions of state-owned enterprises to the state only if there was proof that the latter was using its controlling stake to direct the actions of the enterprise.Footnote ²⁰ However, in cases such as Foremost Tehran v. Iran the tribunal’s decision on attribution rested on the corporate characteristics of an enterprise – namely, ‘the identity of its shareholders and the composition and behaviour of its board of directors, which must be examined together’,Footnote ²¹ rather than on the specific interactions between the state and the corporations.Footnote ²² The reason for such variation was the position taken by the minority of judges, as stated in Judge Khalilian’s opinion in the case of SEDCO v. Iran:

Until now, the majority has taken the position, in its past Awards, that the term ‘control’ in Article VII (paras. 2, 3, 4) involves a qualitative predominance and, in the words of Chamber Three, ‘control over management’. … Nonetheless, it is worth noting, as a digression, that this same Tribunal has elsewhere correctly given the meaning of ‘control’ as set forth in paragraph 3, since it has held that two conditions must be met, before there can be a finding of control.Footnote ²³

The ILC, when examining the IUSCT case law, focused on the majority cases where the tribunal looked for evidence that the state had used its corporate power to push the state-owned enterprise towards adopting specific actions.Footnote ²⁴ The ILC found these majority cases representative, not only of the IUSCT practice for dealing with state-owned enterprises but of the position of international law in general.Footnote ²⁵

These examples show how there are multiple ways of interpreting and applying Article 8 of the ARSIWA. The term ‘control’, in the way that it is used in the ARSIWA, or even the ‘effective control’ terminology used by the ICJ, are polysemic terms – they do not encompass a single type of relationship between states and non-state entities. It is up to those applying Article 8 to examine whether each situation they face meets the conditions for attribution under that provision. However, this case-by-case approach does not mean that Article 8 should be interpreted indiscriminately or inconsistently. In fact, all bodies examined in this section have sought a consistent application of Article 8 when dealing with similar sets of facts. Consistency in these cases is achieved not by applying the exact same text, but rather through constant judicial dialogue. This logic can be seen in the intense dialogue between ICJ and the ICTY about whether there should be a single control test, and if so, which should be the correct one. Both concluded that there were different possible interpretations for the term ‘control’ and that the test that each of them had been applying so far was the correct one for the specific circumstances they were facing.Footnote ²⁶ Similarly, in the IUSCT the judges that were in the minority in cases such as SEDCO engaged in internal judicial dialogue when dissenting from its own case law.Footnote ²⁷

2.1.1 Control Tests in Investment Arbitration

Investment tribunals have followed a tendency similar to that of their counterparts in other fields of international law. However, there is a key difference between the bodies examined in Section 2.1 and investment arbitration tribunals. Unlike the former which are permanent institutions with a stable composition of judges, investment arbitration is a fragmented dispute settlement system. Although investment arbitration is developed on the basis of common principles and goals, cases are grounded on agreements that are negotiated and drafted individually, each with its own particularities. Neither these agreements nor the tribunals that settle the disputes arising from them have formal ties with each other. There is also no formal obligation to follow precedent, meaning that tribunals may rely on previous case law when appropriate, but are not forced to follow it.Footnote ²⁸ As a result, the findings made by a tribunal in one case do not bind other tribunals, making it hard to make definitive affirmations about the field.

With that caveat made, investment tribunals have generally acknowledged the ICJ’s ‘effective control’ test as the standard approach for holding states responsible for the actions of non-state actors. In the case of Marfin v. Cyprus, for example, the tribunal stressed that investment arbitration jurisprudence had consistently upheld the ICJ test and that there was no reason to depart from it.Footnote ²⁹ As a consequence, the tribunal found that Cyprus could not be held responsible for treaty violations allegedly committed by a private bank, because although Cyprus had sometimes interfered in the bank’s administration and guided some of its decisions, there was no evidence that Cyprus had effective control over the bank’s alleged violations.Footnote ³⁰

Arbitral tribunals’ attitudes towards the ICJ test vary, however, when the cases concern state responsibility for the actions of a state-owned enterprise. While many cases have followed the ICJ’s threshold of effective control, others have adopted much lower standards. Cases can be divided into three groups:

1. those applying the ‘effective control’ standard set by the ICJ;
2. those that consider the ‘effective control’ standard too high for cases involving state-owned enterprises and instead determine that states that cleared or authorized an action by a state-owned enterprise are responsible for those actions; and
3. those that presume that states are responsible for the actions of any enterprise in which they hold more than 50 percent of the shares.

Cases applying the ICJ’s ‘effective control’ standard include Jan de Nul v. Egypt, where the tribunal examined whether actions of an Egyptian agency with distinct legal personality were attributable to the state of Egypt. The tribunal focused strictly on international rules on attribution and followed general standards for the interpretation of ARSIWA Articles 4, 5, and 8,Footnote ³¹ making specific reference to the ICJ’s effective control test.Footnote ³² Such an approach was also followed by the tribunals in Hamester v. Ghana, White Industries v. India, and Tulip Real Estate v. Turkey.Footnote ³³

In several other cases the tribunals adopted much lower thresholds of control. In the Bayindir v. Pakistan case, the tribunal had to determine whether Pakistan should be held responsible for clearing actions of the National Highway Authority (NHA) that violated investment protections owed to the claimant. The tribunal was aware that state clearance met neither of the thresholds set in the ICJ’s effective control test and the ICTY’s overall control test, but chose nevertheless to attribute the NHA’s conduct to Pakistan under Article 8 of the ARSIWA.Footnote ³⁴ The tribunal summarized its logic in the following way:

[T]he Tribunal is aware that the levels of control required for a finding of attribution under Article 8 in other factual contexts, such as foreign armed intervention or international criminal responsibility, may be different. It believes, however, that the approach developed in such areas of international law is not always adapted to the realities of international economic law and that they should not prevent a finding of attribution if the specific facts of an investment dispute so warrant.Footnote ³⁵

The tribunal unfortunately did not go further into clarifying what were the ‘specific facts of the investment dispute’ that justified its departure from tests that were already established in international case law. Nevertheless, such interpretation was later followed by the tribunal in Deutsche Bank v. Sri Lanka. In this case, the tribunal found that the actions of a state-owned entity should be attributed to Sri Lanka on the basis of evidence that the entity was following a governmental directive when it started the program that led to the dispute.Footnote ³⁶

Most tribunals are not, however, so explicit on the reasons that led them to depart from the general ‘effective control’ test. Take, for example, the case of Maffezini v. Spain. The question that was raised before the tribunal concerned the attribution to the state of the actions of SODIGA, a state-owned company engaged in a joint venture with the claimant. In its analysis, the tribunal stressed that the applicable law to determine attribution was that of state responsibility, in particular the provisions contained in the (then) draft ARSIWA. However, its analysis followed very different lines from those in the ARSIWA or those used by other international law courts. The tribunal ruled that the actions of state-owned entities are presumed to be attributable to the state if that entity (1) was owned by the state, (2) was controlled by the state, or (3) performed state functions.Footnote ³⁷ The tribunal then focused on what it described as a ‘structural test’, through which the tribunal allowed itself to presume that any entity in which the government owned more than half of the shares would be operating under its control. Based on this test, the tribunal concluded that the Spanish state was responsible for SODIGA’s actions because it owned ‘no less than’ 51 percent of its shares.Footnote ³⁸

The tribunals in RFCC v. Morocco and Salini v. Morocco approached ‘control’ in Article 8 from a similar perspective. Both cases arose from contracts between foreign investors and the Société Nationale des Autoroutes du Maroc (ADM), a state-owned enterprise responsible for many of Morocco’s highways. In RFCC v. Morocco, the tribunal concluded that Morocco had control over ADM after examining the information on its corporate ownership and its administration contained in its bylaws.Footnote ³⁹ In Salini v. Morocco, the tribunal went further with its suggestion of attributing to states the actions of all state-owned enterprises, which the tribunal defined as ‘any commercial company dominated or predominantly controlled by the State or by State institutions, whether it has a legal personality or not’.Footnote ⁴⁰ Years later, this approach was reiterated in the case of Helnan v. Egypt, where the tribunal attributed the actions of a corporation to Egypt based solely on the fact that it was owned by Egypt.Footnote ⁴¹

In some cases, tribunals have also combined elements from different interpretations, tailoring their analysis of control to the circumstances of the case. In the case of Karkey Karadeniz v. Pakistan, the tribunal applied a test that included both corporate and effective control when applying Article 8 of the ARSIWA. The case concerned contracts signed by the claimant with a Pakistani corporation as part of a broader governmental plan to tackle the Pakistani energy crisis. The tribunal started its examination by pointing out that the company itself had acknowledged that it was ‘owned and controlled by the government of Pakistan’, suggesting that it would apply the criterion of corporate control to the ‘control’ threshold in Article 8 of the ARSIWA.Footnote ⁴² However, the tribunal then stressed that the evidence on record indicated that it was the government of Pakistan that had negotiated the contract and selected the corporation that was going to enter into it as a buyer.Footnote ⁴³ Ultimately the tribunal’s conclusion was that the company’s ‘acts related to the conclusion and execution of the Contract were directed, instructed or controlled by Pakistan, and are accordingly attributable to Pakistan, irrespective of the disclaimer contained in the RFP [Request for Proposal]’.Footnote ⁴⁴

The interpretation of the term ‘control’ in Article 8 of the ARSIWA will therefore vary depending on the specific circumstances of a case, the broader legal framework, and the rules which the tribunal is applying to the case. In this sense, investment arbitration tribunals dealing with questions of attribution of conduct of state-owned enterprises to states have followed similar patterns to the ones seen in other international law contexts. The use of the ‘effective control’ test by the ICJ in preference to a lower standard is a way to prevent it from overstepping its functions and ensuring that it does not meddle in states’ domestic affairs. On the other hand, the ICTY employed a lower threshold justified by the fact that armed troops operate under the oversight of the state and follow a rigid hierarchy.

However, as shown by the IUSCT, the particularities of state-owned enterprises may warrant for a specific interpretation of the term ‘control’. The control test applied by the majority of the IUSCT determined, first, whether the state was able to use its shares or other corporate or institutional mechanisms to control the actions of the enterprise. Secondly, the tribunal would look at whether the state had indeed used those powers to control the enterprise and have it perform the specific actions discussed in the case at hand. In investment law, tribunals applying Article 8 of the ARSIWA have employed three different tests, holding states responsible (1) only for the actions of state-owned enterprises they effectively controlled and specifically directed, adopting a test similar to that of the IUSCT; (ii) for any action they authorized; or (iii) for any action of the state-owned enterprises over which they held corporate control.

3 Investment Law Shaping the Concept of Control

In the absence of specific provisions on state responsibility for the actions of state-owned enterprises, the applicable rules are those contained in the ARSIWA, which is deemed to mostly reflect customary international law. However, the interpretation of such rules is shaped by the specific factual and legal context of each case. The factual context relates to the particularities of the relationship between the state and the entity, including the powers that the state holds as a shareholder and the specific interactions between the state and the enterprise in the circumstances of the case. The legal context comprises the characteristics of the field of international law and the instruments applicable to the relationship between the parties, including the legal principles that guide them, and how the stakeholders see and apply the rules contained in these instruments.Footnote ⁴⁵

In this section, I discuss two particularities of international investment law that may help explain why arbitrators adopt lower thresholds of control when applying Article 8 of the ARSIWA to the actions of state-owned enterprises. International investment law is a field that is largely inspired by the goal of depoliticizing investment relations, which translates into discouraging states from participating directly in investments.Footnote ⁴⁶ This underlying goal may push arbitrators to approach state-led investment initiatives cautiously (Section 3.1). On top of that, arbitrators have in other situations equated ‘effective control’ with corporate control, thus suggesting that investment tribunals interpret Article 8 of the ARSIWA much more flexibly than courts that operate in other fields of international law (Section 3.2). Ultimately, a tribunal will calibrate the threshold of the control by looking at the characteristics of the field, general international law standards, and the particularities of each case (Section 3.3).

3.1 Caution towards State-Led Initiatives in the Development of International Investment Law and Investment Arbitration

Investment arbitration is often guided by a general cautiousness towards state-led initiatives. International investment law was developed around the principle of investment neutrality, which assumes that state involvement in investment relations may generate political risks that harm foreign investment.Footnote ⁴⁷ The term ‘political risk’ is not defined legally but is used in investment and business circles to refer to risks associated with political fluctuations such as changes of power and policy. Many of the protections contained in investment agreements are aimed at reducing political risks that foreign investors may face in the host state – for example, most-favored-nation and fair-and-equitable-treatment clauses. Most-favored-nation clauses prevent the host states’ relationships with other states from interfering with investment relations by allowing foreign investors to claim most-favored-nation treatment.Footnote ⁴⁸ Fair-and-equitable-treatment provisions require foreign investors to be treated ‘fairly and equitably’Footnote ⁴⁹ – terms that have been interpreted as a blanket protection for foreign investors against host state actions that seem to be politically motivated or ‘irrational’.Footnote ⁵⁰

This logic of limiting state power also applies to investment arbitration. Investors often feel that the host states’ domestic courts – the default forum for them to settle these disputes – may be biased against foreign investors or lack the expertise to deal with investment treaty claims. Even before clauses providing for arbitration as a means to settle disputes started to be introduced in investment treaties, states and investors were already reaching out to organizations such as the World Bank to request informal assistance to settle their disputes.Footnote ⁵¹ At the same time, the international dispute settlement options that existed then were limited and politically sensitive. To start a case against the host state, investors had to convince their home states to exercise diplomatic protection. This forced investors to spend significant time and political resources without any guarantee that the case would be picked up by their home states or lead to a desirable outcome.Footnote ⁵² Investment arbitration as a mechanism of dispute settlement that investors can use directly, without having to appeal to their state of origin, was thus considered a more politically neutral option than both domestic dispute settlement and diplomatic protection.Footnote ⁵³

In addition to depoliticizing the access of investors to international dispute settlement mechanisms, there is also the goal of depoliticizing the resolution of disputes themselves. Investment law often deals with subjects that are highly sensitive to states,Footnote ⁵⁴ and one of the central goals of investment arbitration is to reduce state influence over litigation outcomes.Footnote ⁵⁵ This includes, for example, prohibiting investors’ home states from directly engaging in investment disputes, as provided in Article 27 of the ICSID Convention.Footnote ⁵⁶

The ICSID Convention also prevents states from making use of investment arbitration as investors themselves. The idea of having investor-states as parties to investment arbitration was raised and rejected during the negotiations of the ICSID Convention. Many of the states involved in negotiations feared that allowing states to access investment arbitration as investors would facilitate political capture of the system, which would defeat the purpose of creating a depoliticized system.Footnote ⁵⁷ Article 25(1) of the ICSID Convention, which establishes ICSID jurisdiction, therefore excludes the possibility of interstate disputes:

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 …

Similarly, the early development of investment arbitration seems to have embedded in its discussions the idea that, although formally separate from states, state-owned enterprises would probably not be eligible claimants in investment arbitration because they operated under state control. Early ICSID drafts determined that, for jurisdictional purposes, state-owned enterprises should be equated to states.Footnote ⁵⁸ The final draft of the ICSID Convention also allowed states to consent to foreign investors filing claims directly against their state-owned enterprises, therefore presuming that those enterprises were part of host states themselves.Footnote ⁵⁹ Even today, there are investment treaties with provisions limiting the protections afforded to state-owned investors and, as a consequence, their capacity to resort to investment arbitration.Footnote ⁶⁰

However, the creators of this dispute settlement system were aware that these preconceptions were subjective and could not reasonably justify a blanket prohibition against state-owned claimants making use of investment arbitration. When faced with the question of whether state-owned enterprises should be excluded from filing investment arbitration cases, Aaron Broches, former general counsel of the World Bank and one of the main sponsors of the ICSID Convention, acknowledged that they could play distinct roles in an economy, but seemed to believe that truly independent and market-oriented state-owned enterprises were an exception. In Broches’s words, ‘[t]here would appear to be no reason why a state-owned enterprise, if it elected to assimilate itself to a private enterprise rather than a government agency’Footnote ⁶¹ should be treated differently from a privately owned corporation.

Most of the discussions on state-owned enterprises in investment law were, however, informal and were not translated into explicit treaty provisions. Broches’s writings on the ICSID negotiations indicate that the drafters of these treaties may have thought that it was not necessary to add such a level of detail on state-owned enterprises, since they shared a ‘common understanding’ on the subject. This understanding was that although state-owned enterprises could not be automatically equated to states, most of them presented a risk for a free market economy because they operated under strict state supervision. This notion, however, covered only the political behaviour and characteristics of state-owned enterprises.

It is worth noting that this tendency to overgeneralize treaty terms on state-owned enterprises also prevails in modern investment treaties. With the exception of the EU–China Comprehensive Agreement on Investment, which specifically lists the entities covered by its provisions,Footnote ⁶² the few treaties that contain provisions on how to distinguish state-owned from other corporations or from states still do so in very broad terms, such as ‘when it exercises any regulatory, administrative or other governmental authority’.Footnote ⁶³

While the legal instruments shaping international investment law do not provide much guidance on how to deal with legal questions involving state-owned enterprises, they show that stakeholders engaged in developing international investment law and investment arbitration were cautious towards recognizing rights of state-owned enterprises as investors. As stressed by the tribunal in Maffezini v. Spain, the overall framework of international investment law presumes that state-owned enterprises will, as a general rule, operate alongside states and even as part of their structure.Footnote ⁶⁴ In the extreme, relying on such notions may lead to decisions such as the one taken by the tribunal in Bayindir v. Pakistan, which concluded that it could attribute to a state the actions of any enterprise that it owns, regardless of there being specific evidence showing that the state indeed exercised control over that entity.Footnote ⁶⁵

3.2 Using ‘Effective Control’ as a Flexible Standard

A second element shaping how investment arbitration approaches the attribution to states of state-owned enterprise actions is the flexibility with which investment tribunals have approached the term ‘effective control’. Tribunals have relied on the terminology of effective control in various contexts and referring to different thresholds of control, including corporate control. In the context of investment arbitration, the term ‘effective control’ has been used to indicate that a tribunal must look at the facts of each case, rather than relying on general formulas that presume control.

The legal issue with regard to which the tribunals show the greatest flexibility in the interpretation of the standards of effective control is the determination of the nationality of foreign investors. As stated in Article 25(1) of the ICSID Convention, modern investment arbitration is supposed to be between a state and a national of another state. Therefore, a corporate foreign investor will be allowed to file an investment claim on its own only if it proves that it is a national of a state party to a relevant treaty. However, it is not easy to determine the nationality of an investor, since many host states require investments to be made through local subsidiaries that would not normally qualify as foreign investors. In general international law, the nationality of a corporate investor is determined on the basis of its place of incorporation,Footnote ⁶⁶ which makes it impossible for foreign shareholders to file claims seeking relief for damages suffered through a local subsidiary. Aware that this would hamper the access of transnational companies to investment arbitration,Footnote ⁶⁷ the drafters of the ICSID Convention included in Article 25(2)(b) the possibility for states to agree to treating local subsidiaries controlled by foreign corporations as foreign nationals:

(2) ‘National of another Contracting State’ means: …

(b) 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.Footnote ⁶⁸

Many investment treaties thus include in their dispute settlement chapters provisions that also treat as foreign investors subsidiaries that are controlled by a national of a foreign state.Footnote ⁶⁹ However, such provisions require proof that the claimant parent company has corporate control over the local subsidiary.Footnote ⁷⁰ Although the most obvious form of corporate control would be to hold more than half of the subsidiary’s shares, there are many ways of controlling a corporation – for example, through special voting rights, golden shares, or joint ownership, to name but a few. Perhaps to avoid being blindsided by looking only at majority shareholding, tribunals have treated as nationals of a state claimants that are under the ‘effective’ corporate control of an entity established in that state.Footnote ⁷¹

Despite the use of terminology identical that used by the ICJ in the Nicaragua v. United States case, the test used by arbitral tribunals to determine the nationality of investors could not be more different from the one employed by the ICJ. Whereas the ICJ test focused on whether a state had de facto control over another entity’s specific actions, the test used by arbitral tribunals to determine the nationality of investors involves an inquiry into the company’s corporate control mechanisms. In the case of Rompetrol v. Romania, the tribunal examined the successive changes in the ownership of Rompetrol since 1993 to determine who had ‘effective control of the corporate entities in question’.Footnote ⁷² The Vivendi I annulment committee adopted a similar approach to examine whether a transfer of control over one of the claimants could affect its nationality, stressing that a company could be considered a foreign national only if it was ‘effectively controlled, directly or indirectly, by nationals of one of the contracting parties’.Footnote ⁷³

Neither of the tribunals in the cases of Rompetrol or Vivendi I referred or drew connections to Nicaragua v. United States or to Article 8 of the ARSIWA. This raises the question of whether these two investment tribunals had the intention to apply and interpret the ICJ’s effective control test through the lens of investment law when adopting such terminology. Nevertheless, the use of the term ‘effective control’ has led other tribunals to treat such case law as part of a common analytical framework. In Pan American Energy and BP Argentina v. Argentina, the claimants and the tribunal referred to case law on the determination of nationality and on attribution of conduct to justify the use of corporate control as a criterion to determine nationality.Footnote ⁷⁴ The resulting award thus combined the case law on ‘effective control’, thereby creating another new test for attribution of conduct under these criteria.Footnote ⁷⁵

Investment tribunals therefore approach the interpretation of the term ‘control’ under Article 8 of the ARSIWA from a rather unique perspective. In the absence of a distinction between ‘corporate nationality control’ and ‘control over non-state actor’s conduct’, the concept of ‘effective control’ ceases to be a specific threshold for control in the context of investment arbitration. Rather than using it as a reference to a threshold of control, investment tribunals seem to treat the ‘effective control’ standard as translating an obligation to examine each case individually and to evaluate different legal approaches to reach a solution that is appropriate to the specific circumstances of the case.

3.3 Judicial Reasoning as a Compass for Determining a Threshold for Control

The flexibility with which tribunals have approached the ‘effective control test’ is not exceptional in investment arbitration. As argued elsewhere, investment arbitration tribunals approach situations on a case-by-case basis, tailoring their legal solutions to the characteristics of the agreements at hand and the specific needs of the parties to the dispute.Footnote ⁷⁶ Faced with the question of attribution of state-owned enterprise conduct to states based on Article 8 of the ARSIWA, investment tribunals will therefore determine what threshold of control to apply in each case by calibratingFootnote ⁷⁷ standards used in general international law and the specific characteristics of the international investment law applicable to the case at hand.

An examination of the way in which investment arbitration tribunals applied Article 8 of the ARSIWA raises the question not only of the threshold of control that they apply but even more so the elements that they take into consideration to determine the threshold of control applicable to each case. A tribunal that rules on whether to attribute the actions of a state-owned enterprise to a state pursuant to Article 8 of the ARSIWA will have to consider whether the (very high) threshold of control set by the ICJ is appropriate to the circumstances of the case at hand,Footnote ⁷⁸ including the rules agreed upon by the treaty parties; the common practices in the field;Footnote ⁷⁹ the treaty parties’ laws on state-owned enterprises;Footnote ⁸⁰ and evidence of the involvement of the treaty party in the state-owned enterprise or in events related to the case.Footnote ⁸¹

The highest threshold of control that a tribunal could adopt would be the one applied by the ICJ in the Nicaragua v. United States case, which holds states responsible only for actions that they have specifically controlled by, for example, ordering or directing the state-owned enterprise to act in such a way. The lowest threshold would be to attribute to the state the actions of any entity in respect of which it has participatory decision-making power, regardless of whether it is indeed involved in the decisions taken concerning that entity. Between these two extremes there is a range of other possible thresholds that may be adopted depending on the context of a case. A tribunal may, for example, hold states responsible for the actions of non-state entities when they have evidence that the state formally cleared or authorized those actions. All of these approaches are in principle allowed by international investment law and investment arbitration, as arbitral tribunals have the power to interpret and apply international law to solve the conflict they have at hand.

Tribunals’ powers to interpret and apply open-ended rules such as the one expressed in Article 8 of the ARSIWA is tied to an obligation to provide reasoning. Article 48(3) of the ICSID Convention requires tribunals to state the reasons upon which they have made their decisions. Article 34(3) of the UNCITRAL Arbitration Rules contains a similar obligation, which applies unless the parties have agreed otherwise. In ICSID proceedings, an arbitral award that lacks an account of the tribunal’s reasoning may even be annulled pursuant to Article 52(1)(e) of the ICSID Convention. The amount of detail that a tribunal must give to fulfill its obligation to provide its reasoning will vary from case to case. As noted by the annulment committee in Wena, there is no single compulsory format in which the tribunal must present its reasons, and it can even leave its reasons implicit, ‘provided that they can be reasonably inferred from the terms used in the decision’.Footnote ⁸² For example, we can assume that a tribunal dealing with Article 8 of the ARSIWA that applies the exact same threshold for control as the ICJ did in Nicaragua did so because it saw no specific reason to recalibrate the general international law standard. However, if a tribunal issues a decision that seems to depart from previous understandings, it should consider explaining why it decided to do so.Footnote ⁸³

Although tribunals enjoy considerable freedom when interpreting open-ended rules such as that expressed in Article 8, references to different approaches in a single award suggest that, in investment arbitration, the term ‘effective control’ refers more to a standard of evaluation than a specific threshold of control.Footnote ⁸⁴ Take the tribunal in Karkey Karadeniz, for instance, which justified its decision on attribution on the basis of elements that refer to corporate control, de facto control, and specific instructions – namely (1) the state-owned had acknowledged that it was owned and controlled by the government of Pakistan; (2) the government of Pakistan had approved the contract related to the dispute; (3) the government of Pakistan was the guarantor of that contract; and (4) the buyer was not allowed to interfere in licenses granted in the contract, which was interpreted as a sign of bad faith.Footnote ⁸⁵ The diverse interpretations, each unique to a particular award, demonstrate the elasticity the term ‘effective control’ has within this system.

In the absence of a specific threshold of control to be applied uniformly across cases, a correct application of Article 8 of the ARSIWA relies on judicial reasoning. Rather than simply looking at the case law for possible tests and picking one, investment arbitration tribunals must explain their reasons when ruling on what would be the correct threshold of control to be applied in the case before them. As tribunals are not limited in the reasoning that they need to present to justify their decision, they have the power and freedom to decide what elements they will consider relevant in each case and how they weigh each of those elements. However, those reasons must be clear and rational from the stance of international investment law.

4 Conclusion

Although the ICJ’s effective control test is commonly described as a standard solution for applying Article 8 of the ARSIWA, the ICJ has itself recognized that this test cannot be applied universally.Footnote ⁸⁶ Being a polysemic term, ‘control’ in Article 8 can only be interpreted in the light of the circumstances of a particular case. As a consequence, tribunals applying Article 8 have each had to develop their own control tests according to the legal and factual particularities of the cases before them. The process of interpreting these tests required tribunals to dialogue with each other in order to determine what elements it was appropriate for them to rely on when interpreting control in the cases before them.

Investment tribunals have often interpreted Article 8 of the ARSIWA differently in each case. Rather than establishing a single threshold that would be applied in every case involving state-owned enterprises, arbitral tribunals gauge the ideal threshold of control on the basis of the characteristics and needs of each case. Each tribunal operates independently and therefore has the power to decide alone what factors it will take into consideration when it determines the level of control, such as (1) the importance of following general international law precedent; (2) the specific characteristics of the case at hand, including the parties’ needs and the particularities of the treaty that they agreed upon; and (3) the legal principles that guide international investment law and common practices in investment arbitration. In this chapter, I have focused on the last of these elements and identified two characteristics of international investment law that play a relevant role in tribunals’ interpretations of Article 8 of the ARSIWA in cases involving state-owned enterprises.

The first of these characteristics is the principle of investment neutrality that inspires international investment law and guides investment agreements. The principle of investment neutrality assumes that state participation or interference in investment relations may create political risks prejudicial to investment relations, and acts as a warning to stakeholders to approach any state-led initiative with caution. In practice, this caution guides the drafting of treaty provisions focusing on the protection of foreign investment and may lead tribunals to interpret provisions in ways that extend the scope of state liability for participating directly in foreign investment. The second characteristic is the fact that investment tribunals have used the term ‘effective control’ to refer to other levels of control besides the very high and stable threshold set by the ICJ in Nicaragua v. United States. This flexible approach towards effective control suggests that investment tribunals approach cases from a more individualized perspective and one that takes into consideration the principles that guide the field.

However, this individualized approach towards the application of Article 8 of the ARSIWA increases the burden laid upon tribunals to justify their decisions. Tribunals have the obligation to provide in their awards the reasons that led them to decide in a certain way. While there is no specific format for presenting these reasons, they must be clear to the reader and follow a rational line of thought. When calibrating the threshold of control that they are going to apply in each case, tribunals must therefore clarify what elements they considered relevant for such calibration, how they have weighted them, and why they concluded that the threshold applied is best suited for that specific case.

Footnotes

This chapter was produced in 2022 as part of the author’s PhD research. The views expressed herein are personal to the author and do not necessarily reflect those of any organization with which she is or has been affiliated.

¹ UNGA Res 56/83 (12 December 2001) UN Doc A/RES/56/83, annex.

² On general cautiousness towards state-owned enterprises, see generally A Musacchio and SG Lazzarini, Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond (Harvard University Press 2014); FMM Barnes, ‘International Investment Law and State-Owned Entities: Recurrent Key Issues and Future Directions’ in LE Sachs, L Johnson and J Coleman (eds), Yearbook on International Investment Law & Policy 2018 (Oxford University Press 2019) 432.

³ InfraRed Environmental Infrastructure GP Limited and ors v Spain (Decision on the Continuation of the Stay of the Enforcement of the Award) ICSID Case No ARB/14/12 (27 October 2020) [122].

⁴ Specifically in relation to Article 8 of the ARSIWA, see eg Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v Serbia and Montenegro) (Merits) [2007] ICJ Rep 43 [398] (‘On this subject the applicable rule, which is one of customary law of international responsibility, is laid down in Article 8 of the ILC Articles on State Responsibility’).

⁵ See Statute of the International Court of Justice (adopted 26 June 1945, entered into force 24 October 1945) 33 UNTS 993, art 38(1)(d).

⁶ UN Doc A/RES/56/83, annex (Footnote n 1) art 8.

⁷ ILC, ‘Draft Articles on Responsibility of States for Internationally Wrongful Acts with Commentaries’ (23 April–1 June and 2 July–10 August 2001) UN Doc A/56/10, commentary to art 8, paras (4)–(5).

⁸ Footnote ibid para (7).

⁹ Military and Paramilitary Activities in and against Nicaragua (Nicaragua v United States of America) (Merits) [1986] ICJ Rep 14 [115]–[116].

¹⁰ Armed Activities on the Territory of the Congo (New Application: 2002) (Democratic Republic of the Congo v Rwanda) (Jurisdiction) [2006] ICJ Rep 6 [160].

¹¹ Bosnia v Serbia (2007) (Footnote n 4) [399].

¹² See eg Responsibilities and Obligations of States Sponsoring Persons and Entities with Respect to Activities in the Area (Advisory Opinion) ITLOS Reports 2011, 10 [169].

¹³ The Prosecutor v Duško Tadić (Judgment) ICTY-94-1-A (15 July 1999) [117] (emphasis in original).

¹⁴ Footnote ibid [118].

¹⁵ Footnote ibid [120].

¹⁶ Bosnia v Serbia (Footnote n 4) [404]ff.

¹⁷ The Prosecutor v Prlić and ors (Judgment vol 1) IСTY-04-74-A (29 November 2017) [238]. See also The Prosecutor v Aleksovski (Judgment) ICTY-95-14-1-A (24 March 2000) [130]ff; The Prosecutor v Delalić and ors (Judgment) ICTY-96-21-A (20 February 2001) [47].

¹⁸ See generally A Cassese, ‘The Nicaragua and Tadić Test Revisited in Light of the ICJ Judgment on Genocide in Bosnia’ (2007) 4 EJIL 649.

¹⁹ ILC, ‘Draft Articles on Responsibility of States for Internationally Wrongful Acts with Commentaries’ (Footnote n 7) commentary to art 8, para (6).

²⁰ See eg International Technical Products Corporation and ITP Export Corporation, Its Wholly Owned Subsidiary v Iran and Its Agencies, the Islamic Republic Iranian Air Force and the Ministry of National Defense, Acting for the Civil Aviation Organization (Award No. 196-302-3) IUSCT Case No 302 (28 October 1985) [113].

²¹ Foremost Tehran, Inc, Foremost Shir, Inc, and ors v Iran, the Ministry of Economic Affairs and Finance, and ors (Award No 220-37/231-1) IUSCT Case Nos 37 and 231 (11 April 1986) [47]. See also PepsiCo, Inc v Iran, Foundation for the Oppressed, Zamzam Bottling Company, and ors (Award No 260-18-1) IUSCT Case No 18 (13 October 1986) [61]–[62].

²² Foremost Tehran v Iran (Footnote n 21) [49].

²³ SEDCO Inc v National Iranian Oil Company and Iran (Award No 419-128/129-2) IUSCT Case Nos 128 and 129 (30 March 1989) [10].

²⁴ See ILC, First Report on State Responsibility, UN Doc A/CN.4/490/Add.5 (22 July 1998), para 213. The cases examined by the ILC for these purposes were Schering Corporation v Iran (Award No 122–38-3) IUSCT Case No 38 (16 April 1984); Otis Elevator Company v Iran and Bank Mellat (formerly Foreign Trade Bank of Iran) (Award No 304-284-2) IUSCT Case No 284 (29 April 1987); Eastman Kodak Company v the Government of Iran (Award No 329-227/12384-3) IUSCT Case No 227 (11 November 1987); SEDCO v National Iranian Oil Company (Footnote n 23) Dissenting and Concurring Opinion of Judge Khalilian; Flexi-Van Leasing, Inc v Iran (Award No 259–36-1) IUSCT Case No 36 (13 October 1986).

²⁵ ILC, First Report on State Responsibility, UN Doc A/CN.4/490/Add.5 (22 July 1998), para 213.

²⁶ Bosnia v Serbia (Footnote n 4) [405] (‘It should be first observed that logic does not require the same test to be adopted in resolving the two issues, which are very different in nature … Thus, it is on the basis of its settled jurisprudence that the Court will determine whether the Respondent has incurred responsibility under the rule of customary international law set out in Article 8 of the ILC Articles on State Responsibility.’); Prlić (Footnote n 17) [238] (noting that ‘the ICJ refrained from taking a position on whether the Overall Control Test employed by the Appeals Chamber in Tadić was correct’ and that it saw no ‘cogent reason why the Appeals Chamber should depart from its well-settled precedent regarding the Overall Control Test’).

²⁷ SEDCO v National Iranian Oil Company (Footnote n 23) Dissenting and Concurring Opinion of Judge Khalilian [10] (arguing that the majority judgment in this case does not agree with most of the IUSCT case law).

²⁸ On precedent and the use of case law in investment arbitration, see generally AR Sureda, ‘Precedent in Investment Treaty Arbitration’ in C Binder, U Kriebaum, A Reinisch, and S Wittich (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford University Press 2009) 830; C Schreuer and M Weiniger, ‘A Doctrine of Precedent?’ in PT Muchlinski, F Ortino, and C Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press 2008) 1188.

²⁹ Marfin Investment Group Holdings SA, Alexandros Bakatselos, and ors v Cyprus (Award) ICSID Case No ARB/13/27 (26 July 2018) [674]–[675].

³⁰ Footnote ibid [679].

³¹ Jan de Nul NV and Dredging International NV v Egypt (Award) ICSID Case No ARB/04/13 (6 November 2008) [157].

³² Footnote ibid [173].

³³ Gustav F W Hamester GmbH & Co KG v Ghana (Award) ICSID Case No ARB/07/24 (18 June 2010) [159]; White Industries Australia Limited v India (Award) (30 November 2011) [8.1.18]; Tulip Real Estate Investment and Development Netherlands BV v Turkey (Award) ICSID Case No ARB/11/28 (10 March 2014) [306]–[308].

³⁴ Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Pakistan (Award) ICSID Case No ARB/03/29 (27 August 2009), [128]–[130].

³⁵ Footnote ibid [130].

³⁶ Deutsche Bank AG v Sri Lanka (Award) ICSID Case No ARB/09/2 (31 October 2012) [405](c), (d).

³⁷ Emilio Agustín Maffezini v Spain (Decision of the Tribunal on Objections to Jurisdiction) ICSID Case No ARB/97/7 (25 January 2000) [76]–[77].

³⁸ Footnote ibid [83] (‘[I]n spite of the fact that the government chose to create SODIGA in the form of a private commercial corporation, it did so by providing that the Instituto Nacional de Industria would own no less than 51% of the capital. In fact, as of December 31, 1990, the percentage of governmentally owned capital of SODIGA had increased to over 88%, including the stock holdings of the Xunta de Galicia, also a state entity in charge of the executive power in the Autonomous Community of Galicia, several savings and loans associations (cajas de ahorros), other regional development agencies and the Banco Exterior de España.’) and [89] (‘In view of the fact that SODIGA meets both the structural test of State creation and capital ownership and the functional test of performing activities of a public nature, the Tribunal concludes that the Claimant has made out a prima facie case that SODIGA is a State entity acting on behalf of the Kingdom of Spain.’ (emphasis added)).

³⁹ Consortium RFCC v Morocco (Decision on Jurisdiction) ICSID Case No ARB/00/6 (16 July 2001) [35]–[36].

⁴⁰ Salini Costruttori SpA and Italstrade SpA v Morocco (Decision on Jurisdiction) ICSID Case No ARB/00/4 (23 July 2001) [31] (‘Neither the Convention nor the Bilateral Treaty gives the slightest indication of what should be understood by “Contracting State”. The reference made to “any constituent subdivision” or “agency of a Contracting State” is of no importance in this regard, because ADM does not fulfil the conditions required by the Washington Convention to be a party to these proceedings. Generally, any commercial company dominated or predominantly controlled by the State or by State institutions, whether it has a legal personality or not, is considered to be a State-owned company. … In order to determine the degree of control and participation of a State in a company, the Tribunal, referring to an ICSID award rendered in a case between Emilio Agustin Maffezini and the Kingdom of Spain (ICSID Case No ARBI977), considers that it must take into account the international rules governing the liability of States. The assessment of the degree of State control and participation in a company is based on two criteria: the first, structural, in other words, related to the structure of the company and, in particular, to its shareholders; the other, functional, related to the objectives of the company in question.’).

⁴¹ Helnan Inqsazternational Hotels A/S v Egypt (Decision on Objection to Jurisdiction) ICSID Case No ARB/05/19 (17 October 2006) [92].

⁴² Karkey Karadeniz Elektrik Uretim AS v Pakistan (Award) ICSID Case No ARB/13/1 (22 August 2017) [572].

⁴³ Footnote ibid [573]–[579].

⁴⁴ Footnote ibid [582].

⁴⁵ For the sake of transparency, I want to clarify that my own views on how context plays into interpretation, and specifically legal interpretation, is mostly shaped by the works of Derrida, Gadamer, and Dworkin, especially J Derrida, Specters of Marx: The State of Debt, the Work of Mourning and the New International (Routledge 1994); HG Gadamer, Truth and Method (2nd rev edn, Continuum 2004); RM Dworkin, Law’s Empire (Harvard University Press 1986). See also LL Streck, Hermenêutica Jurídica e(m) Crise: Uma Exploração Hermenêutica da Construção do Direito (Livraria do Advogado 2018); E Voyiakis, ‘International Law, Interpretative Fidelity and the Hermeneutics of Hans-Georg Gadamer’ (2011) 54 GYIL 385.

⁴⁶ On this, see generally KJ Vandevelde, ‘Sustainable Liberalism and the International Investment Regime’ (1997) 19 MJIL 373; KJ Vandevelde, ‘The Liberal Vision of the International Law on Foreign Investment’ in CL Lim (ed), Alternative Visions of the International Law on Foreign Investment: Essays in Honour of Muthucumaraswamy Sornarajah (Cambridge University Press 2016) 43.

⁴⁷ Vandevelde, ‘The Liberal Vision’ (Footnote n 46).

⁴⁸ An example of typical wording for such clauses can be found in Article 4 of the 2012 US Model Bilateral Investment Treaty: ‘Most-Favored-Nation Treatment. 1. Each Party shall accord to investors of the other Party treatment no less favorable than that it accords, in like circumstances, to investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. 2. Each Party shall accord to covered investments treatment no less favorable than that it accords, in like circumstances, to investments in its territory of investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.’ ‘2012 U.S. Model Bilateral Investment Treaty <https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf> accessed 15 January 2022.

⁴⁹ See eg 2012 US Model Bilateral Investment Treaty (Footnote n 48) art 5(1): ‘Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.’

⁵⁰ See generally UNCTAD, ‘Fair and Equitable Treatment: A Sequel’ UNCTAD Series in International Investment Agreements II (2012) UN Doc UNCTAD/DIAE/IA/2011/5.

⁵¹ A Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of Other States’ (1972) 136 RdC 344–45.

⁵² Footnote ibid 344.

⁵³ JW Salacuse, The Law of Investment Treaties (3rd edn, Oxford University Press 2021) 535.

⁵⁴ Footnote ibid 495.

⁵⁵ U Kriebaum, ‘Evaluating Social Benefits and Costs of Investment Treaties: Depoliticization of Investment Disputes’ (2018) 33 ICSID Rev 14.

⁵⁶ Convention on the Settlement of Investment Disputes between States and Nationals of Other States (adopted 18 March 1965, entered into force 14 October 1966) 575 UNTS 159.

⁵⁷ ICSID, History of the ICSID Convention: Documents Concerning the Origin and the Formulation of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, vol II-1 (ICSID 1968) 401.

⁵⁸ ICSID, History of the ICSID Convention: Documents Concerning the Origin and the Formulation of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, vol II-2 (ICSID 1968) 832 (‘The competence of the Center shall extend to any legal dispute between a Contracting State (or any juridical person of public law controlled by that State) and a national of another Contracting State …’) and 867 (‘In this connection, Mr. Kpognon (Dahomey) suggested that, as far as the French text was concerned, words such as “personne morale de droit public” would achieve the desired purpose.’).

⁵⁹ Convention on the Settlement of Investment Disputes (Footnote n 56) art 25(3).

⁶⁰ See eg Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Panama for the Promotion and Protection of Investments (signed 7 October 1983, entered into force 7 November 1985) 2107 UNTS 300, art 1(d)(1) (excluding state-owned enterprises from the definition of investors); Treaty between the United States of America and the Republic of Senegal Concerning the Reciprocal Encouragement and Protection of Investment (signed 6 December 1983, entered into force 25 October 1990), annex (reservations to strategic sectors that are occupied by state-owned enterprises) <https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2249/download> accessed 2 February 2022; Agreement for the Reciprocal Promotion and Protection of Investments between the Argentine Republic and the United Arab Emirates (signed 16 April 2018, not in force) arts 3(3) and 4(3) (most-favored-nation clause ‘will depend on all the circumstances, including distinction between investors or investment’).

⁶¹ ICSID, History of the ICSID Convention (Footnote n 57) 11 para 30 (emphasis added).

⁶² China–EU Comprehensive Agreement on Investment (signed 22 January 2021) art 3bis (‘1. Covered entity means, at all levels of government, the following entities … (a) Enterprise in which a Party directly or indirectly, i. owns more than 50 per cent of the share capital; ii. controls, through ownership interests the exercise of more than 50 per cent of the voting rights; iii. holds the power to appoint a majority of members of the board of directors or any other equivalent management body; or iv. holds the power to control the decisions of the enterprise through any other ownership interest, including minority ownership; (b) Enterprise in which a Party has the power to legally direct the actions or otherwise exercise an equivalent level of control in accordance with its laws and regulations; (c) Any entity, public or private, including where relevant any subsidiary thereof, or a consortium, which in a relevant market in the territory of a Party is authorized or established formally or in effect by that Party as the sole supplier or purchaser of a good or service, but does not include an entity that has been granted an exclusive intellectual property right solely by reason of such grant; (d) Two or a small number of enterprises, public or private, including where relevant any subsidiary thereof, designated by a Party, formally or in effect, as the only suppliers or purchasers of a particular good or service in a relevant market in the territory of that Party.’).

⁶³ See eg Treaty between the Government of the United States of America and the Government of the Republic of Rwanda Concerning the Encouragement and Reciprocal Protection of Investment (signed 19 February 2008, entered into force 1 December 2012) art 2(2)(a), <https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2241/download> accessed 8 February 2022.

⁶⁴ Maffezini v Spain (Footnote n 37) [83] (‘The fact that an entity is owned by the State gives rise to a rebuttable presumption that it is a State entity.’).

⁶⁵ Bayindir v Pakistan (Footnote n 34) [128]–[130].

⁶⁶ Case Concerning the Barcelona Traction, Light and Power Company, Limited (New Application: 1962) (Belgium v Spain) [1970] ICJ Rep 3, 70.

⁶⁷ C Schreuer and others, The ICSID Convention: A Commentary (Cambridge University Press 2009) 792.

⁶⁸ Emphasis added.

⁶⁹ That said, an agreement to this effect has in practice been considered as implied in treaties that contain an ICSID dispute settlement clause. See Liberian Eastern Timber Corporation v Liberia (Award) ICSID Case No ARB/83/2 (31 March 1986); Cable Television of Nevis, Ltd and Cable Television of Nevis Holdings, Ltd v St Kitts and Nevis (Award) ICSID Case No ARB/95/2 (13 January 1997) [5.17], [5.18].

⁷⁰ R Dolzer and C Schreuer, Principles of International Investment Law (Oxford University Press 2012) 53. See Vacuum Salt Products Ltd v Ghana (Award) ICSID Case No ARB/92/1 (16 February 1994) [36].

⁷¹ See eg The Rompetrol Group NV v Romania (Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility) ICSID Case No ARB/06/3 (18 April 2008) [35]ff.

⁷² Footnote ibid.

⁷³ Compañía de Aguas del Aconquija SA and Vivendi Universal (formerly Aguas del Aconquija and Compagnie Générale des Eaux) v Argentine Republic (I) (Decision on Annulment) ICSID Case No ARB/97/3 (3 July 2002) [50].

⁷⁴ Pan American Energy LLC and BP Argentina Exploration Company v Argentine Republic (Decision on Preliminary Objections) ICSID Case No ARB/03/13 (27 July 2006) 198, 210, citing the following cases: Vivendi and ors v Argentina (I) (Footnote n 73); Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v Estonia (Award) ICSID Case No ARB/99/2 (25 June 2001); CMS Gas Transmission Company v Argentina (Decision on Jurisdiction) ICSID Case No ARB/01/8 (17 July 2003); Azurix Corp v Argentina (I) (Decision on Jurisdiction) ICSID Case No ARB/01/12 (8 December 2003); Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, LP v Argentina (Decision on Jurisdiction) ICSID Case No ARB/01/3 (14 January 2004); and Siemens AG v Argentina (Decision on Jurisdiction) ICSID Case No ARB/02/8 (3 August 2004) (on determination of nationality); and Maffezini v Spain (Footnote n 37); Asian Agricultural Products Ltd (AAPL) v Republic of Sri Lanka (Award) ICSID Case No ARB/87/3 (27 June 1990) (on attribution).

⁷⁵ Pan American Energy LLC and BP Argentina Exploration Company v Argentina (Decision on Preliminary Objections) ICSID Case No ARB/03/13 (27 July 2006) [221].

⁷⁶ E De Brabandere and P Baldini Miranda Da Cruz, ‘The Role of Proportionality in International Investment Law and Arbitration: A System-Specific Perspective’ (2020) 89 NJIL 471.

⁷⁷ On how investment tribunals deal with competing interests, see generally E De Brabandere, ‘(Re)calibration, Standard-Setting and the Shaping of Investment Law and Arbitration’ (2018) 59 BCLR 2607.

⁷⁸ As stressed by Cassese (Footnote n 18) 665ff.

⁷⁹ See eg Stadtwerke München GmbH and ors v Spain (Award) ICSID Case No ARB/15/1 (2 December 2019) [134] (noting that the applicable treaty does not provide that state-owned companies should be treated differently from companies owned by private investors).

⁸⁰ See eg Salini v Morrocco (Footnote n 40) [31] (actions of state-owned enterprises attributable to the state when their activities were ‘dominated or predominantly controlled by the State or by State institutions’, which in this case could be determined by looking at whether the state held corporate control over the enterprise and whether the corporate objectives of the corporation matched those of the states).

⁸¹ See eg Deutsche Bank v Sri Lanka (Footnote n 36) [405](c) and (d) (concluding that it was not necessary to examine control, as there was sufficient evidence that the state-owned entity had acted under the direct instruction of Sri Lanka, since it had no choice but to follow a directive from the government when starting the hedging program).

⁸² Wena Hotels Ltd v Egypt (Decision on Annulment) ICSID Case No ARB/98/4 (5 February 2002) [81]. See also Perenco Ecuador Limited v Ecuador (Decision on Annulment) ICSID Case No ARB/08/6 (28 May 2021) [166].

⁸³ On the need for tribunals to detail their reasoning when departing from previous jurisprudence in order to maintain coherence, see Dworkin’s concept of ‘chain novel’ and law as integrity in Dworkin (Footnote n 45) 176ff and 229ff.

⁸⁴ See eg Maffezini v Spain (Footnote n 37) [76]–[77]; RFCC v Morocco (Footnote n 39) [35]–[36]; Salini v Morocco (Footnote n 40) [31].

⁸⁵ Karkey Karadeniz v Pakistan (Footnote n 42) [573]ff.

⁸⁶ Bosnia v Serbia (2007) (Footnote n 4) [405] (commenting on the ICTY test, the ICJ stated that ‘the degree and nature of a State’s involvement in an armed conflict on another State’s territory which is required for the conflict to be characterized as international, can very well, and without logical inconsistency, differ from the degree and nature of involvement required to give rise to that State’s responsibility for a specific act committed in the course of the conflict’).