Passport, s'il vous plait? Investment treaty protection and the individual investor's citizenship.

• Author: Nelson, Timothy G.

When contemplating the protections afforded to private investors by Free Trade Agreements (FTAs) or Bilateral Investment Treaties (BITs)--and the concomitant right to pursue investor-state arbitration before bodies such as the International Centre for Settlement of Investment Disputes (ICSID)--we usually think of rights and claims held by corporate investors. The recent flurry of ICSID jurisprudence and literature on the topic of corporate nationality, (1) however, has overshadowed another powerful source of BIT/FTA protection, namely, rights held by individual investors.

This article will focus on the evolution of ICSID and other international jurisprudence concerning an individual investor's ability to bring investor-state claims. It will reveal the evolution of a relatively coherent and predictable framework for determining whether a natural person is entitled to protection under applicable BITs, FTAs, or other sources of international economic law.

1. INDIVIDUAL INVESTOR RIGHTS: AN OVERVIEW

   Historically, individual claimants have played an important role in developing international investment law. Several of the more important cases of the Permanent Court of International Justice and International Court of Justice (ICJ) on investor protection were "diplomatic protection" claims brought by states on behalf of individual investors. (2) Numerous cases before "mixed claims" or ad hoc commissions were also brought by or on behalf of individuals. (3) During the 1980s, the Iran-United States Claims Tribunal occasionally adjudicated cases where claimants were individuals, not corporations. (4)

   Claims by natural persons also occupy an important place in ICSID arbitration. (5) According to the ICSID website, of approximately 152 concluded cases, 17 involved individuals as the sole or lead claimant. Currently, 17 pending ICSID cases (of a total of 122 pending) involve an individual as the sole or lead claimant. (6) In several other ICSID cases, an individual claimant has proceeded jointly with a corporate claimant. (7)

   The advent of the ICSID/BIT arbitral system has largely eclipsed the past system of states pursuing "diplomatic protection" claims. Nevertheless, such cases still do arise from time to time. In Ahmadou Sadio Diallo, (8) the Republic of Guinea, exercising its right of diplomatic protection in respect of one of its individual citizens, brought claims against the Democratic Republic of Congo (DRC) based on its alleged mistreatment of an individual Guinean investor--including the DRC's alleged expropriation of a Congolese company owned by that citizen. The ICJ held that it had jurisdiction to adjudicate certain of these claims, (9) but candidly acknowledged that today "the role of diplomatic protection [is] somewhat faded, as in practice recourse is only made to it in rare cases where treaty regimes do not exist or have proved inoperative." (10)

   The availability of investment protection for an individual often depends on showing that he/she has a particular nationality. Over the last sixty years, various cases have addressed the applicable test for ascertaining an investor's nationality. In the last decade, these rules have been highly tested and refined in the ICSID context.

2. DEVELOPMENT OF RULES CONCERNING CITIZENSHIP AND NATIONALITY OUTSIDE OF THE ICSID CONTEXT

   1. The Nottebohm Case and the "Effective Link" Test

      The 1955 Nottebohm Case (11) is perhaps the best known international case to address individual investor nationality. In the early part of the twentieth century, Mr. Nottebohm, a German citizen, emigrated to Guatemala and later acquired numerous investments there. In October 1939, shortly after World War Two began in Europe, Mr. Nottebohm purported to relinquish his German citizenship and adopted that of a neutral country, Liechtenstein, without ever having established a residence in Liechtenstein. But Mr. Nottebohm was not treated as a neutral by the Guatemalan government. On the contrary, in 1943, Guatemala classified Mr. Nottebohm as a German citizen and therefore an "enemy alien," and deported him to the United States, where he spent two years and several months in a North Dakota internment camp. (12) His assets were treated as enemy property.

      After war's end, Liechtenstein brought claims on Mr. Nottebohm's behalf against Guatemala before the ICJ. Liechtenstein argued that Mr. Nottebohm should have been treated as a national of Liechtenstein, a non-combatant, neutral state, and not treated as an enemy national. In addressing this claim, the ICJ stated that "international law leaves it to each State to lay down the rules governing the grant of its own nationality." (13) Nevertheless, given the absence of any "real prior connection" between Nottebohm and Liechtenstein and the "exceptional circumstances of speed and accommodation" in which Liechtenstein furnished Mr. Nottebohm with a passport, the ICJ held Guatemala was not required to recognize Mr. Nottebohm's Liechtenstein citizenship. (14)

      Nottebohm has frequently been cited in cases involving individual citizenship issues as furnishing a possible basis for challenging an investor's claims of nationality. It has even been cited in cases where corporate nationality was challenged (thus far without apparent success), (15) and has also been urged by some commentators as a possible basis for denying recognition to "flags of convenience" of vessels. (16) Nevertheless, as further discussed below, Nottebohm's continued vitality in the realm of ICSID/BIT arbitration is debatable.

   2. The Flegenheimer Case

      The Flegenheimer claim, (17) like Nottebohm, arose from events during World War II. In that case, a post-World War II reparations commission was called upon to determine whether a particular individual investor possessed United States nationality, as he claimed. To establish that the post-war Conciliation Commission had jurisdiction over a claim, the claimant needed to show it was a "United Nations national," a term that included U.S. nationals. The claimant, Mr. Flegenheimer, asserted U.S. citizenship and sought reparation against Italy for allegedly confiscating shares in an Italian company owned by him. Mr. Flegenheimer attempted to prove citizenship by means of a certificate showing that he was a United States national, but the Commission refused to treat this certificate as conclusive: "[I]n an international dispute, official declarations, testimonials or certificates do not have the same effect as in municipal law. They are statements made by one of the Parties to the dispute which, when denied, must be proved like any other allegation." (18) In other words, the Commission was required to independently ascertain Mr. Flegenheimer's assertion of United States nationality, and the certificate of the U.S. government was not dispositive.

      After investigating the facts, the Flegenheimer commission held that: (1) although born in Germany, Mr. Flegenheimer acquired U.S. citizenship at birth in 1890 through "filial" status, by virtue of having an American father; (2) for five years after his birth, Mr. Flegenheimer resided in Germany, thus causing him to lose his U.S. citizenship by operation of U.S. law implementing the terms of one of the "Bancroft Treaties" between the United States and the constituent states of nineteenth century Germany; (3) later, in 1940, Mr. Flegenheimer was stripped of his German citizenship by virtue of Nazi Germany's anti-semitic nationality laws; and (4) Mr. Flegenheimer did not subsequently reacquire U.S. citizenship. (19) Thus, the Commission held, Mr. Flegenheimer was not a U.S. national, and it had no jurisdiction over his claims.

      The particular result of the Flegenheimer case--that the Bancroft Treaties had operated to strip the claimant of U.S. citizenship--was perhaps unfortunate, given that the U.S. Supreme Court held only a few years later that the Bancroft Treaties unfairly subjected foreignborn citizens to rules regarding revocation of citizenship that were inconsistent with those applicable to native-born citizens, in violation of the Fifth Amendment to the U.S. Constitution. (20) Nevertheless, the legal methodology of Flegenheimer, under which a tribunal is responsible for making its own independent assessment of whether a claimant had the requisite nationality, has proven to be durable.

   3. Treatment of Dual Citizenship By Claims Tribunals

      Claims tribunals have occasionally been called upon to consider the position of dual nationals, especially when one of the claimant's nationalities is that of the respondent State. In the Merge Case, (21) the Italian-United States Conciliation Commission (the same body that determined Flegenheimer) addressed whether dual Italian/U.S. citizens could bring claims against Italy. After surveying claims tribunal jurisprudence of the late 19th and early 20th centuries, as well as the Nottebohm decision, the Commission noted that arbitral tribunals had indeed permitted claims by dual nationals, provided the claimant's "real and effective nationality" was not that of the respondent state. Such nationality, which it also referred to as the "prevalent" nationality, was to be measured by such factors as "habitual residence, family ties, his participation in public life, attachment shown by him for a given country and inculcated in his children." (22) The claimant in that case, Mrs. Merge, was not "dominantly" a United States national because she had not resided in the United States, had traveled on her Italian passport, and had used her Italian citizenship as a basis for avoiding internment in Japan when she lived there during the war. (23)

      In 1981, in the wake of the Khomeini revolution and hostage crisis, the United States and Iran agreed to submit a variety of claims to a special claims tribunal. As part of the claims settlement agreement, it was agreed that the Iran-U.S. Claims Tribunal could hear "claims of nationals" of the United States or Iran. (24)

      Several of the...