Investment Arbitration Reporter

By Luke Eric Peterson

At the heart of the preliminary jurisdictional decision in the Rompetrol v. Romania case - discussed in this IAReporter news item - is the finding that ICSID arbitration may be open to foreign-incorporated companies controlled by nationals of the state that is being sued. In the Rompetrol case, a Dutch company – controlled by a Romanian national – was permitted to sue Romania as a foreign (i.e. Dutch) investor under the Netherlands-Romania bilateral investment treaty (BIT)

A similar issue confronted an earlier ICSID arbitration panel in the case of Tokios Tokeles v. Ukraine, where the majority ruled that a Lithuanian company (controlled by Ukrainian interests) could mount an international arbitration against the Ukraine (thereby foregoing any need to pursue the dispute in the Ukrainian courts).

However, the dissenting arbitrator in the Tokios Tokeles case, Prof. Prosper Weil denounced the use of the World Bank’s foreign investment arbitration centre in disputes where the true origins of the capital in dispute were domestic.

In Prof. Weil’s view:

“The ICSID mechanism and remedy are not meant for, and are not to be construed as, allowing - and even less encouraging – nationals of a State party to the ICSID Convention to use a foreign corporation, whether preexistent or created for that purpose, as a means of evading the jurisdiction of their domestic courts and the application of their national law.”

Romania drew heavily on Prof. Weil’s opinion, and insisted that its own dispute with TRG was essentially a complaint by a Romanian national against the Romanian Government - albeit via the use of a Dutch shell-company as an intermediary between the two parties.

Thus, on Romania’s view, TRG should have been prohibited from suing Romania at ICSID because a national should not be able to sue its own state under international law.

Furthermore, where there was a dual nationality at issue (Dutch and Romanian), arbitrators should, according to Romania, inquire into the “effective” or genuine nationality of the claimant, for example by piercing the corporate veil and scrutinizing the passports of those controlling the corporate levers from behind that veil.

In sharp contrast, TRG insisted that the terms of the Netherlands-Romania BIT were very clear – and very generous – insofar as any company legally incorporated in the Netherlands could qualify as a Dutch investor entitled to the protections set out in the treaty. In turn, such a Dutch company should be entitled to invoke ICSID arbitration - rather than rely on the Romanian courts - by virtue of the treaty’s terms.

(TRG also denied that it had engaged in arbitration “forum-shopping”, noting that the investors had chosen to incorporate a holding company in the Netherlands some six years before the arbitration claim was filed and for a variety of reasons (e.g. taxation considerations, favourable corporate governance laws, and stronger legal protections than available in Romania).)

Ultimately, the tribunal would hold that the ICSID Convention left it to states to decide for themselves what sorts of nationality-tests to apply to prospective users of the ICSID system. If governments elected to sign BITs which set the nationality bar extremely low, this was their prerogative to do so.

The tribunal also rejected Romania’s demands for an “effective” or genuine nationality test to be imposed on TRG. In so doing, the arbitrators expressly noted that Prof. Weil’s dissenting opinion in an earlier ICSID case was not “widely approved in the academic or professional literature, or generally adopted by subsequent tribunals”.

Your browser may not support display of this image. Finally, the tribunal also dismissed Romania’s contention that there was a general rule of international law which would oblige arbitrators to look beyond the four corners of the investment treaty and inquire into the genuine nationality of a legal entity.

Investment Arbitration Reporter is a specialized news publication tracking developments in the area of international investment law and policy.

The publication does not offer legal or financial advice or recommendations of any kind.
 
To offer news-tips or comments, email the Editor, Luke Eric Peterson, at: editor@iareporter.com