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Article: May 2016: International Arbitration Update

May 01, 2016
Business Litigation Reports

García’s Green Light to Dual Nationals in Investor-State Arbitration. The decision in Serafín García Armas v. República Bolivariana de Venezuela, PCA Case No. 2013-3, Decision on Jurisdiction (Dec. 14, 2014) touches on a very interesting question that will surely see greater discussion and debate within the investment dispute settlement community in the years to come. That question is whether an investor who is a national of State A but who also is a dual national of State B and who makes an investment in State A may invoke the protections of the bilateral investment treaty (“BIT”) between State A and State B as an investor of State B. In other words, can the investor invoke his State B nationality to sue State A under the BIT between both countries, even though he also is a national of State A? García answered this question affirmatively, marking a significant opening for claims by dual nationals against countries of which they are nationals.

Key Background and Jurisdictional Issue. In García, Serafín García Armas and Karina García Gruber both sued Venezuela for expropriation in violation of the Spain-Venezuela BIT. García Armas was a Spanish national by birth and later acquired a second nationality from Venezuela; García Gruber was a Venezuelan national by birth and later acquired Spanish nationality. They both sued Venezuela under the Spain-Venezuela BIT opting for an investment treaty arbitration under the UNCITRAL rules rather than under the ICSID Convention.

Venezuela objected to the jurisdiction of the arbitration tribunal on various grounds, including that the Garcías were nationals of Venezuela and, as such, did not have standing to sue Venezuela under the Spain-Venezuela BIT. They reasoned that only nationals of Spain could sue Venezuela under the BIT and that Venezuelan nationals—even those who also had Spanish nationality—were not parties who could sue it under the BIT.

Venezuela argued that there was a general prohibition against claims by dual nationals against their own states in investor-state arbitrations, and suggested that this was an implied principle or tenet of customary international law. Specifically, Venezuela argued that as a general rule of international law, it could not be sued by its own nationals under an investment treaty that it signed with another country to promote investment by foreign nationals of that country. It further argued that in the case of dual nationals, the tribunal should consider the dominant and effective nationality of the investors, which according to Venezuela was Venezuelan. This “dominant and effective nationality test” would have required a detailed, factual analysis by the tribunal to determine which nationality was the dominant one utilized by the investors at certain times.

Though the Spain-Venezuela BIT and the UNCITRAL rules do not expressly prohibit claims by dual nationals, Venezuela argued that when Venezuela offered its consent to arbitration under the BIT, it did so under, among others, the ICSID Convention, and thus implicitly incorporated the exclusion of dual nationals that is contained in Article 25(2)(a). Venezuela also argued that the BIT’s definition of a national as a person who has the nationality of “one”— in the singular—“of the Contracting Parties” excluded persons who had the nationality of two (both) states.

Tribunals Decision. The tribunal rejected Venezuela’s arguments and found that it had jurisdiction over the Spain-Venezuela BIT claims filed by the Garcías against Venezuela. In so doing, the tribunal gave primacy to the specific provisions of the Spain-Venezuela BIT over implied principles and the general rules of customary international law, as the BIT was the lex specialis. In interpreting the language in the BIT, the tribunal considered various other legal sources, such as the Treaty of Friendship Between Venezuela and Spain, the Vienna Convention on the Law of Treaties, and customary international law. In the end, the key reasoning underlying its holding was based on the text of the BIT.

The Tribunal concluded that the BIT’s definition of “national of one contracting state” included persons who had Spanish nationality even if those persons also had Venezuelan nationality. It found that the BIT did not contain express restrictions against dual nationals bringing claims against either contracting state. The tribunal held that the reference to “one of the Contracting Parties” is not a numerical limitation on nationality but part of a non-exclusive distinction between “one” and the “other,” not between “one” and “two.” The tribunal held that under the text of the Spain-Venezuela BIT, it did not matter whether the Garcías’ Spanish nationality was “merely formal.” Given the absence of any express limitations in the BIT prohibiting dual nationals from advancing claims against its own states, it was sufficient that the Garcías had Spanish nationality. To hold otherwise, according to the tribunal, would be to revise the text of the BIT by adding a restriction that could have been included (as it was in other BITs) but was not.

Importantly, the tribunal also rejected Venezuela’s invitation to apply the dominant and effective nationality test to the question of whether the Garcías could sue Venezuela as Spanish nationals under the Spain-Venezuela BIT. Again, the tribunal examined the text of the BIT’s language and found that no such requirement was included within the BIT. It thus rejected the application of this test as irrelevant to its analysis.

There are a few important features of this case that limit its potential applicability. First, that the Garcías sued under the UNCITRAL rules and not under the ICSID Convention is an important point of distinction with other investment treaty cases bought under the ICSID Convention. Unlike the ICSID Convention, whose Article 25 expressly excludes claims by dual nationals against countries whose nationality they shared on the date on which the parties consented to submit their dispute to arbitration as well as on the date on which the request for arbitration was registered, the UNCITRAL rules have no such prohibition. Thus, while the García holding is of important applicability in the context of non-ICSID investment treaty arbitrations, it is not applicable to investor-state disputes brought under the ICSID Convention. Of course, numerous BITs provide access to UNCITRAL arbitration, which further confirms the relevance and potential impact of the Garcia case.

A second point of distinction centers on the language of the Spain-Venezuela BIT. Unlike other investment treaties that Venezuela has entered into, the Spain-Venezuela BIT does not define “nationals” in a way that excludes claims against it by dual nationals. The absence of an express exclusion in the Spain-Venezuela BIT of claims against Venezuela by dual nationals along with the precise wording of the definitions within the BIT of “nationals” were key factors for the tribunal’s analysis allowing for dual nationals to claim against Venezuela in García, as the tribunal distinguished the express prohibitions in other instruments. For example, the tribunal noted that the Italy-Venezuela BIT expressly excludes from the ambit of that BIT “nationals of both Parties,” while the Spain-Venezuela BIT defines “nationals” as persons “who have the nationality of one of the Contracting Parties . . . and make investments in the territory of the Other Contracting Party.” The tribunal noted that this latter definition in the Spain-Venezuela BIT allowed for claims by dual nationals whereas Venezuela had expressly excluded such dual national claims within the Italy-Venezuela BIT. Thus, the García case will only be applicable in cases were the investment treaty has language that does not expressly exclude dual nationals from suing countries whose nationality they share.

Though a single case does not establish a trend, the tribunal’s reasoning could have wide applicability, as many investment treaties lack express restrictions on claims by dual nationals, and further provide for UNCITRAL arbitration. For dual nationals considering claims against their host states, García’s holding marks an important step toward providing them with an avenue to redress their claims.

The Future of Claims by Dual Nationals. In the wake of García, there have been at least two cases brought by dual nationals against their own states. In one case, a Russian-French dual national is suing Russia. In a second case, a French-Mauritian dual national is suing Mauritius. Both cases are under the UNCITRAL rules.

Nonetheless, there remain clear limits to claims by dual nationals. First, as noted, García does not affect claims filed under the ICSID Convention, or claims filed under investment instruments that expressly prohibit claims by dual nationals against their own states. Second, some investment treaties define “nationals” or “investors” in a way that requires a deeper examination of the investor's nationality than was necessary in García. For example, treaties that require a tribunal to examine an investor's “dominant and effective” nationality will require that the investor have substantial connections to the country whose nationality he claims during the relevant time periods. Such treaties are designed to prevent “passport shopping.”

And, finally, the question of when a nationality must be held for purposes of jurisdiction will most certainly be the subject of future discussion and debate. Indeed, this was the topic of a dissenting opinion in García. The dissenting arbitrator opined that the nationality requirement must be satisfied when the investment is made, whereas the majority held that the only key dates were when the alleged violations occurred and when the dispute was submitted to arbitration.

Conclusion. García appears to have paved the way for dual nationals to sue their own states in certain cases. García will likely influence not only arbitrations involving dual nationals, but also broader considerations of investors and states in respect of potential investment treaty claims

Some relevant considerations for investors:

- Acquiring a second nationality may prevent dismissal for lack of jurisdiction over a claim against the investor’s own state. If the governing BIT allows it, a dual national may initiate arbitration under the UNCITRAL arbitration rules against a state whose nationality he or she possesses and thereby avoid the restriction against dual nationality in the ICSID Convention.

- Under certain circumstances, a dual national may be able to avoid jurisdictional problems by renouncing the nationality of the respondent state.

- Corporate claimants owned by dual nationals may face jurisdictional objections, especially in cases under the ICSID Convention.

Considerations for states:

- When negotiating investment treaties, states may wish to expressly exclude claims by dual nationals.

- States should not count on implied principles or general rules of customary international law as to the standing of dual nationals; any desired exclusion should be express.

- Short of banning claims by dual nationals, investment treaties can impose requirements that make such claims harder to pursue. These requirements include a “dominant and effective” test or similar requirement to prevent passport shopping.