Protecting Cross-Border Private Equity Investments: A Practical Guide to International Investment Treaties

I. Introduction

Private equity firms pursuing cross-border investments increasingly face political and regulatory headwinds—from abrupt legal changes to targeted interference in portfolio company operations.  Strategic sectors such as energy, infrastructure, healthcare, and technology are under heightened government scrutiny, often in jurisdictions where local courts lack independence.  In such environments, relying solely on domestic courts can be slow, unpredictable, and politically influenced. 

One underutilized but powerful tool is the international investment treaty.  There are over 2,000 Bilateral Investment Treaties (“BITs”) in force globally, plus numerous multilateral agreements with similar investment protections.  These agreements create enforceable rights for foreign investors, including access to neutral dispute resolution and protection against discriminatory or unlawful state action.  The United States alone is party to over 40 BITs.  Yet, many private equity managers are unaware of how these treaties can be leveraged both defensively and offensively.  

This Alert discusses recent cases brought by private equity investors as examples for how investment treaties offer protections that domestic courts do not.  It also discusses some of the threshold prerequisites you may consider when structuring your investments to ensure that you obtain maximum protection under the international treaty regime.

II. Recent Treaty Claims by Private Equity And Other Financial Investors

In one recent example, investment manager Mason Capital won a $43 million award from the Republic of Korea.[1]  That case arose from the 2015 merger of Samsung C&T Corporation and Samsung Electronics, Inc.  Mason alleged that the Korean government unlawfully pressured the National Pension Service (“NPS”) to approve the merger, resulting in an undervaluation of Mason’s Samsung C&T shares.[2]  Rather than sue in Korean courts, Mason brought arbitration under the US-Korea Free Trade Agreement (“KORUS FTA”).  The tribunal agreed with Mason and found that Korean officials corruptly interfered with the NPS vote.[3]  The tribunal also overruled Korea’s jurisdictional objections, and ultimately held that Mason held a valid investment under the treaty.[4]  A similar claim brought by Elliott Associates L.P. was also successful, although on a different legal theory.[5] 

In another recent investment arbitration, LARAH v. Uruguay, a private equity firm alleged that the Uruguayan government hindered its portfolio company’s access to financing, interfered with its management, and organized a public campaign to discredit its managers.[6]  The arbitration was initiated under the Panama-Uruguay Bilateral Investment Treaty (“Panama-Uruguay BIT”).[7]  The tribunal agreed with the investor and dismissed all of Uruguay’s jurisdictional objections, finding that the investor’s exercise of management activities was sufficient to trigger Uruguay’s treaty obligations, even where it only held indirect ownership.[8]  The case settled for $61 million.[9]

Other high-profile cases are ongoing.  In 2024, a private equity fund filed a claim against Poland relating to an investment in a Polish pharmacy chain.[10]  The claims arose out of the Polish government’s restrictions on the expansion, purchase, and sale of pharmacies harm its pharmaceutical investments in Poland and violate the Poland-US BIT.[11]  And in March 2025, a Canadian investor launched a $2.7 billion arbitration against Peru.[12]  That suit alleges Peru breached the Canada-Peru Free Trade Agreement by illegally interfering with the collection of tolls by Rutas de Lima, a toll road operator controlled by the investor.[13]  Both of these cases remain ongoing.

Although international investment arbitrations may result in large financial recoveries, they also raise important questions about the procedural and jurisdictional prerequisites for a successful treaty claim.  The next section discusses some threshold issues that may help you determine whether a treaty can help protect your investment.

III. Ensuring Treaty Coverage—A Practical Checklist

An investment treaty is an instrument signed between two states that protects the rights of investors from one state that make an investment in the other state.  For example, if you are a US person with an investment in Korea, you may be protected under the US-Korea Free Trade Agreement.  But not every foreign asset is protected by every treaty.  Investors should be cognizant of the threshold criteria they must meet before an investment treaty applies.  These questions are especially pertinent for investors who use multiple investment vehicles with different legal personalities.

A. Investor Definition: Do You Qualify As An Investor Under Any Treaty?

The first step of any investment arbitration is determining whether you are a covered investor under the treaty.  At a basic level, investment treaties require the investor to be a national of the state that is party to a treaty.  This applies to equity shareholders as well, with international principles holding that “a wrong done to the company frequently causes prejudice to its shareholders.”[14]  But this exercise can quickly become complex for investment managers who utilize holding companies, offshore entities, or limited partnership vehicles. 

In Mason v. Korea, for example, Korea argued that Mason’s general partner (“GP”) did not qualify as an investor under the KORUS FTA because the Samsung shares were held by a Cayman entity and not by the Delaware-registered GP which brought the lawsuit.[15]  The tribunal sided with Mason, finding that under both Korean and Cayman law, the Delaware GP had legal ownership of the shares held by the Cayman fund.[16]  Similarly, in LARAH v. Uruguay, Uruguay attempted to argue that LARAH was not a covered investor because it was only an “indirect” owner of Peruvian shares.[17]  The tribunal held that international arbitration rules, not Panamanian law, governed proof of ownership, and concluded that LARAH was a covered investor under the treaty.[18]

B. Investment Coverage: Do Your Assets Meet The Treaty’s Definition of “Investment”?

Treaties typically include tangible property, shares or stock, intellectual property, and monetary claims within the definition of “investment.”  Additionally, many treaties and arbitral tribunals have adopted the “Salini test,” which requires: (i) a contribution of capital or other resources; (ii) minimum time duration; (iii) the investor’s assumption of risk or expectation of gain or profit; and (iv) a contribution to the economic development of the host state.[19] 

Mason v. Korea addressed this question in detail.  There, the tribunal found that the GP’s contribution of decision-making, management, and expertise qualified as a “contribution” to the investment—even though the GP did not contribute any cash or tangible assets.[20]  The tribunal went on to find that the GP’s performance-based compensation satisfied the criteria for “risk assumption,” and ultimately ruled that the investment was protected under the KORUS FTA.[21]  Similarly, the tribunal in LARAH v. Uruguay found that LARAH’s investment was protected by the treaty even though it was “indirect” and made through other legal entities.[22]

Nonetheless, many investment treaties also require that an investment be established in accordance with the laws of the host state to receive protection.  In Fraport v. Philippines, a tribunal rejected the investor’s claims after finding that the contract upon which the investment was based violated a Philippines law restricting foreign control of a public utility.[23]  The scope of this requirement can vary, with some tribunals holding that any breach of host state law disqualifies an investment, while others require that the alleged breach violate “fundamental principles” of host state law.[24]

C. Treaty Status: Is There a Valid Treaty or a Sunset Clause from a Terminated One?

Is there a valid treaty between your home state and the state your investment is located?  One useful resource is the United Nations database of investment treaties, which details existing treaties and their status.[25]  Importantly, even terminated treaties may still offer protection through “sunset clauses” that extend coverage for 10, 15, or 20 years after termination.  Confirming the validity of a treaty is a key prerequisite to filing your case.

D. Forum Rules: Is There a “Fork-in-the-Road” Clause or Local Remedy Requirement?

Investment treaties may contain various types of forum restrictions.  So-called “fork-in-the-road” clauses compel investors to choose between domestic litigation and international arbitration.  Although the interpretation of these clauses may vary, investors should carefully consider the impact of these clauses.  In contrast, other treaties may require exhaustion of local legal remedies before pursuing international arbitration.  These jurisdictional considerations can make or break your case.

IV. Core Protections Most Relevant to Private Equity and Other Financial Investors

Once an investment is covered by a valid treaty, investors can benefit from various substantive protections, which typically include:

• Fair and Equitable Treatment (“FET”): This cornerstone protection shields investors from unfair, arbitrary, or discriminatory treatment. Actionable violations include denial of due process, frustration of legitimate expectations, harassment, regulatory instability, lack of transparency, and discriminatory treatment.  In Mason v. Korea, the tribunal concluded that the Korean government’s interference in the Samsung merger breached the FET standard and made the government liable to Mason.[26]
• Expropriation: Almost all investment treaties protect against unlawful government takings, whether direct (e., by seizure) or indirect (i.e., through regulatory measures that effectively deprive investors of the control or benefit of their investment). The LARAH v. Uruguay tribunal adjudicated this issue and found that the certain Peruvian actions, including opposing LARAH’s loan application and engaging in a public relations campaign, amounted to an indirect expropriation in violation of the treaty.[27]
• Most Favored Nation (“MFN”) Treatment: Many investment treaties require that investors of certain states are afforded treatment no less favorable than that accorded to investors of other states. MFN clauses often contain exceptions; for example, it is common for MFN treatment to not apply to tax measures.
• National Treatment (“NT”): In most investment treaties, the host state must accord foreign investors treatment no less favorable than is accorded domestic investors. Much like MFN clauses, NT clauses are often subject to carve-outs, especially in the areas of taxation, subsidies, or government benefits.
• Full Protection and Security (“FPS”): This protection guarantees that states provide investors and their investments with physical safety. FPS typically applies to the physical protection and security of the investor and investment, but it may also extend commercial or legal protection of investments.  Like FET, FPS may be restricted in scope.  For example, the India-Korea CEPA limits the scope of FPS to only those protections afforded under the minimum standard of treatment pursuant to customary international law.

V. Advantages of Dispute Resolution Under Investment Treaties

Investment treaties also have procedural requirements that may help in the resolution of investment disputes:

A. The “Cooling-Off” Period: An Opportunity for Confidential Settlement

Nearly all investment treaties contain a mandatory “cooling off” period during which an investor must confidentially notify the host state of a dispute before initiating formal proceedings.  By some accounts, nearly 25% of disputes are settled in this period.[28]  To begin the cooling-off period, an investor usually provides written notification of dispute to the host state, which opens the channels for negotiation.

B. International Arbitration: Procedural Advantages over Domestic Litigation

If negotiation is unsuccessful, investors may file an arbitration demand.  Arbitration can take place via ad-hoc tribunals under the United Nations Commission on International Trade Law, under the auspices of an international arbitration institution like the World Bank’s International Centre for Settlement of Investment Disputes (“ICSID”), or through private arbitral institutions like the International Chamber of Commerce.  Cases are heard by a neutral panel of arbitrators agreed upon by the parties (or, alternatively, appointed by the arbitral institution).  Arbitral tribunals have the authority to make jurisdictional and merits rulings, and issue enforceable awards. 

International arbitration offers several procedural advantages over domestic litigation:

• Neutrality: ISDS arbitrators are third-party neutrals who are not subject to the political pressures of the host state.
• Confidentiality: Unlike in national courts, ISDS hearings, settlements, and awards may be protected by confidentiality provisions.
• Expertise: The parties may agree on arbitrators who are experts in the subject matter of the dispute, unlike domestic judges who are often generalists.
• Enforceability: Ad hoc arbitral awards are enforceable in over 170 nations pursuant to the New York Convention, and ICSID awards are enforceable in over 150 member states, helping ensure the judgments can be collected upon through assets located in different jurisdictions.

VI. Conclusion

For today’s international investors, political and regulatory risks abound.  The governmental interference in investments discussed at the beginning of this Alert does not begin to scratch the surface of the risks investors face.  When faced with these challenges, investment managers should consider the benefits of international investment treaties, which establish substantive rights and provide access to neutral dispute resolution mechanisms.

Proactive steps investors should consider when structuring their investments include:

• Assessing whether their investment structure satisfies the definitions of “investor” and “investment” under the relevant treaty;
• Structuring new investments to maximize treaty protection;
• Documenting legitimate expectations at the time of investment; and
• Consulting with experienced counsel before a dispute escalates.

***

If you have any questions about the issues addressed in this memorandum, or if you would like a copy of any of the materials mentioned in it, please do not hesitate to reach out to:

Rajat Rana
Email:  rajatrana@quinnemanuel.com
Phone: +1 (212) 849-7000

Nash Santhanam
Email:  nashsanthanam@quinnemanuel.com
Phone: +1 (213) 443-3211

To view more memoranda, please visit www.quinnemanuel.com/the-firm/publications/ 

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Footnotes

[1]   Susannah Moody, Hedge Fund’s Award Against Korea Published, Global Arbitration Review (May 21, 2024) https://globalarbitrationreview.com/article/hedge-fudnds-award-against-korea-published.

[2]   Min-jun Lee & Mi-geon Kim, South Korea Won’t Appeal ISDS Ruling in Samsung C&T Merger Case, The Chosun Daily (Apr. 18, 2025) https://www.chosun.com/english/national-en/2025/04/18/AR6CQGUF4NALXGC6HHQR6ILCCU.

[3]   Moody, Hedge Fund’s Award Against Korea Published.

[4]   Id.

[5]   See Joel Richardson & Theodore Weisman, Mason Capital and Elliott Associates Awards: Divergence in Approach but Convergence in Conclusion, Kluwer Arbitration Blog (Sept. 26, 2024) https://arbitrationblog.kluwerarbitration.com/2024/09/26/mason-capital-and-elliott-associates-awards-divergence-in-approach-but-convergence-in-conclusion.  While the Mason tribunal found that Korea violated the KORUS FTA through President Park’s interference in the NPS’s vote, the Elliott tribunal found that the NPS’s conduct was specifically attributable to the Korean state.  Id.

[6]   Toby Fisher, Uruguay Settles Airline Award, Global Arbitration Review (Jan. 31, 2025) https://globalarbitrationreview.com/article/uruguay-settles-airline-award.

[7]   Id.

[8]   Javier Ferrero Díaz, Uruguay Found Liable in Treaty Dispute with Airline Company Investor, Kluwer Arbitration Blog (July 26, 2024) https://legalblogs.wolterskluwer.com/arbitration-blog/uruguay-found-liable-in-treaty-dispute-with-airline-company-investor.

[9]   Fisher at 2.

[10]   Susannah Moody, US Investor Makes Good on Threat Against Poland, Global Arbitration Review (July 19, 2024) https://globalarbitrationreview.com/article/us-investor-makes-good-threat-against-poland; Wojciech Kosc, Poland Facing Arbitration Over Warburg Pincus’ Complaint About Rules Limiting Pharmacies, IntelliNews (Apr. 29, 2024) https://www.intellinews.com/poland-facing-arbitration-over-warburg-pincus-complaint-about-rules-limiting-pharmacies-323162.

[11]   Id.

[12]   Marcelo Rochabrun, Brookfield Files US$2.7 Billion Case Against Peru Over Toll Roads, Financial Post (Mar. 13, 2025) https://financialpost.com/news/brookfield-arbitration-peru-toll-roads; Marcelo Rochabrun & Layan Odeh, Brookfield’s Bet on a Road Becomes a $2.7 Billion Headache in Peru, Financial Post (last updated June 25, 2025) https://financialpost.com/fp-finance/brookfields-road-becomes-a-27-billion-headache-peru.

[13]   Juan Martinez, Brookfield’s $2.7 Billion Arbitration Case Against Peru: A Deep Dive, The Rio Times (Mar. 14, 2025) https://www.riotimesonline.com/brookfields-2-7-billion-arbitration-case-against-peru-a-deep-dive.

[14]   Mbengue Makane Moïse and Guyonnet Morgane, Shareholders, Jus Mundi (Dec. 2, 2024) https://jusmundi.com/en/document/publication/en-shareholders.

[15]   Final Award ¶ 100, Mason v. Republic of Korea, PCA Case No. 2018-55 (Apr. 11, 2024).

[16]   Id., ¶¶ 151-159.

[17]   Lisa Bohmer, Analysis: ICSID Tribunal Finds That Uruguay Breached BIT by Exacerbating Financial Difficulties of Local Airlines Through Inconsistent, Imprudent, and Irrational Conduct, IA Reporter (Mar. 15, 2024) https://www.iareporter.com/articles/analysis-icsid-tribunal-finds-that-uruguay-breached-bit-by-exacerbating-financial-difficulties-of-local-airline-through-inconsistent-imprudent-and-irrational-conduct.

[18]   Id.

[19]   Peter Tzeng, Salini Test, Jus Mundi (Mar. 24, 2025) https://jusmundi.com/en/document/publication/en-salini-test.

[20]   Mason v. Republic of Korea, ¶¶ 204-217.

[21]   Id., ¶¶ 219-225, 249.

[22]   Bohmer, Analysis: ICSID Tribunal Finds That Uruguay Breached BIT by Exacerbating Financial Difficulties of Local Airlines Through Inconsistent, Imprudent, and Irrational Conduct.

[23]   Matthew Levine, German Investor’s Claim Against the Philippines Over Manila Airport Concession Fails for the Second Time at ICSID, Investment Treaty News (May 21, 2015) https://www.iisd.org/itn/2015/05/21/german-investors-claim-against-the-philippines-over-manila-airport-concession-fails-for-the-second-time-at-icsid.

[24]   Jarrod Hepburn, In Accordance with Which Host State Laws?  Restoring the “Defense” of Investor Illegality in Investment Arbitration, Investment Treaty News (Nov. 19, 2014) https://www.iisd.org/itn/2014/11/19/in-accordance-with-which-host-state-laws-restoring-the-defence-of-investor-illegality-in-investment-arbitration.

[25]   International Investment Agreements Navigator, United Nations Conference on Trade and Development (last accessed May 21, 2025) https://investmentpolicy.unctad.org/international-investment-agreements.

[26]   Richardson & Weisman, Mason Capital and Elliott Associates Awards: Divergence in Approach but Convergence in Conclusion.

[27]   Bohmer, Analysis: ICSID Tribunal Finds That Uruguay Breached BIT by Exacerbating Financial Difficulties of Local Airlines Through Inconsistent, Imprudent, and Irrational Conduct.

[28]   Danilo Di Bella, Theorizing the Cooling-Off Provision as an Additional Standard of Investment Protection, Utrecht J. of Int’l & Eur. L., Vol. 36, Issue 1 (Mar. 10, 2021) https://utrechtjournal.org/articles/10.5334/ujiel.523.