Can Ex-Investors Bring a Claim Under a BIT? : The Scope of Investor and Investment-Centric Treaties

Courtesy of Ayushi Goel and Aarvi Singh

A foreign investor sells their rights in an investment. Subsequently, the host state passes a retrospective measure fixing their liability to pay a newly introduced administrative fees in relation to their former investment. Now, the erstwhile investor will have to pay out of their own pocket. In such a case, the investor would squarely fall within the protection offered by treaties that cover both investments and investors independently of each other. But, would this investor enjoy the protection of an investment-centric treaty?

Investment and Investor-centric treaties

An investment-centric treaty, it is argued, does not contemplate any protection to an investor independent of their investment.[1] On the other hand, an investor-centric treaty offers protection to both investors and investments.

NAFTA is an example of an investor-centric treaty. For instance, Article 1101(1)(a) and (b) provides independent protection to both investments and investors. Article 1101(1)(a) and (b) separately enumerates these categories of protection. Therefore, NAFTA gives investors standing to bring a claim even when the problematic measure affects only the investor, not the investment.

Another example of an investor-centric treaty is Article VI(1)(c) of the USA-Kazakhstan BIT (1992), which covers “an alleged breach of any right conferred or created by this treaty with respect to an investment.” The word created here is important because it creates rights. Such a wording gives the treaty a wider ambit than a regular investment-centric treaty. As an investor-centric treaty, the USA-Kazakhstan BIT (1992) has investor-protection at its heart.

Holdings of Arbitral Tribunals Thus Far

In the case of EnCana v. Ecuador, Ecuador argued that the claimant had sold its investments and therefore was no longer an investor. The claimant countered that it continued to be an investor even after it sold the investment. The Tribunal agreed with the claimant and held that the dispute resolution clause in the applicable BIT was wide enough to cover the claimant’s case. In the applicable BIT (Canada-Ecuador, 1996), an ‘investor’ is defined as one who makes an investment. Clearly, an investor that has made an investment in the past and ceases to be an investor is also covered within the ambit of one who makes an investment. Article XIII of the Canada-Ecuador BIT covers dispute resolution and employs the following phrase: “investor has incurred a loss or damage.” Upon a bare reading of the treaty’s language, the Tribunal held that the treaty covers ex-investors.

However, EnCana is significantly different from our hypothetical. In EnCana, the relevant person was still an investor at the time of service of the notice of arbitration. Thus, the loss or damage occurred before the sale of the investment. In our hypothetical however, the loss or damage occurs after the sale of the investment.

In Gemplus v. Mexicothe measure was also taken before the sale was made. Additionally, the Memorandum of Understanding of Sale clearly stated that the sale did not include the transfer of rights with regards to the existing and accrued legal claims. This was also the case in Aven v. Costa Rica and Daimler v. Argentina. In Gemplus, interestingly, Article 9 of the France-Mexico BIT includes both, loss or damage to investor or his investment. In Aven, Article 10.28 of the CAFTA-DR defined an investor as one that attempts to make, is making, or has made an investment.

In CSOB v. Slovakia, the International Centre for Settlement of Investment Disputes (ICSID) held that the relevant date for proving ownership of an investment is the date of commencement of arbitral proceedings.

In Mondev International v. United States, the investor lost ownership of the investment prior to the commencement of arbitral proceedings. The tribunal in that case exercised jurisdiction on the ground that the claimant had lost the investment solely because of the respondent’s actions. This is much closer to our hypothetical than the other cases mentioned above. However, it still significantly differs from it in two respects. One, in our hypothetical, the divesting is through voluntary sale, and is not imputable to the respondent’s actions. In contrast, the respondent caused the loss of ownership in Mondev by foreclosing a mortgage. Two, the measure complained of in Mondev was not retrospective in nature. But in our hypothetical, the measure complained of is distinct from the event of (voluntary) loss of ownership and is retrospective in nature.

The Aven tribunal accurately summarized the Mondev holding, saying that an investment sold after the commencement of arbitral proceedings meets the criteria for an “investment” as required under CAFTA-DR. An investor who sells afterwards however, is not eligible to invoke the treaty “unless certain special circumstances were present. These include, among others, the loss of investment by the actions of a third party or the retroactive application of a treaty.” Had the tribunal contemplated a scenario where claims were allowed to be brought even where the investment had been sold before the commencement of arbitral proceedings, it would have resolved our hypothetical.

In Daimler v. Argentina, the tribunal held that ICSID claims are distinct from the underlying investments. Unless the right to bring a claim has been expressly relinquished, the transfer of shares does not entail the transfer of the right to bring a claim with respect to those shares before the sale was effected. The tribunal found that the necessary condition for bringing a claim is that the claimant must have been an investor at the time when those measures were taken. Thus, Daimler does not shed light on our hypothetical, as in our case the sale had been effected before the measure was taken. That is, in our hypothetical the investor was no longer the owner of the investment at the relevant time.


Stakeholders who are interested in maximizing the scope of protection in the event that our hypothetical arises should contemplate incorporating a clause in the Memorandum of Understanding of Sale. This clause should clearly state that the legal claims arising in relation to the period before the sale shall rest with the seller, as in the case of Gemplus.

Drafting-wise, interested stakeholders should follow the wording of NAFTA Article 1139 and make the treaty expressly investor-centric by recognizing investor rights independently from investment. Similarly, Daimler discussed the severability of the investment and the right of an investor to bring a claim, the inference being that the two can be sold separately. It is up to tribunals to determine whether the parties intended to sell the two separately and whether the applicable treaty allows this kind of sale. If the answer to both the questions is in the affirmative, the tribunals should allow the claim, as the ex-investorstill retains the right to bring a claim and did not lose this right when it sold the investment.

[1] Douglas, Zachary. “The Distinction Between Investment Claims And Investor Claims.” The International Law of Investment Claims, Cambridge University Press, 2009.

Leave a Reply

Leave a Reply

Your email address will not be published. Required fields are marked *