Sovereign Investors as ICSID Claimants: Lessons from the Drafting Documents and the Case Law.

• Author: Sejko, Dini

TABLE OF CONTENTS I. INTRODUCTION 855 II. THE ICSID CONVENTION AND SOVEREIGN INVESTORS 858 A. A National of Another Contracting State -- Drafting Documents under Review 860 III. SCES AS ICSID CLAIMANTS -- A COMPREHENSIVE DATABASE 885 IV. EXAMINING THE CASE LAW 868 A. The First SOE to Bring an ICSID Claim 868 B. The Broches Test -- From Theory to Practice 870 C. Official Developmental Assistance and Not-for-Profit Infrastructure Projects 874 D. A Level Playing Field? 877 E. Chinese Investment and State Ownership 881 F. Are SWFs Testing Investor-State Arbitration Controversial Claimants? 886 V. SOVEREIGN CLAIMANTS -- JURISPRUDENCE CONSTANTE 890 VI. DETECTING STATE CONTROL 892 A. Piercing the Corporate Veil 893 B. Contextualizing Transactions and Statecraft 896 C. Red-Flagging State Control 898 VII. CONCLUSION 900 I. INTRODUCTION

The International Centre for Settlement of Investment Disputes (ICSID or the Centre) is a pivotal dispute-resolution institution for investment claims between foreign investors and recipient states. Almost all significant economies are contracting members of the ICSID Convention (the Convention). (1) ICSID awards are binding, and their financial obligations are enforceable virtually worldwide. The Centre has become an essential dispute-resolution venue. The use of investor-state arbitration to protect investors' interests vis-a-vis public interests has triggered considerable debate, especially concerning areas--such as public health and environmental protections--where the sovereign power to regulate clashes with the interest of investors. (2)

An area of notable debate is the use of investor-state arbitration, particularly ICSID, by investors linked to the government of the state of origin and, as such, allegedly acting under governmental influence to pursue geopolitical and geo-economic objectives. Despite long privatization processes that took place around the globe at the end of the twentieth century, the state's role in the economy has not been eclipsed. Sovereign wealth funds (SWFs) and state-owned enterprises (SOEs) have established remarkable positions in FDI flows. State capitalism draws greater attention from academics and policy makers because of the activism of actors and their legal and, more importantly, geopolitical implications. SOEs and SWFs are part of a larger taxonomic group called state-controlled entities (SCEs)--the vast panoply of entities with various structures and degrees of state control at the central or regional level. (3) SCEs can emerge from under multiple shadows cast by governmental umbrellas because control can be exercised in different forms, and it is worth emphasizing that SCEs are not unique to post-communist countries. SCEs can be ordinary companies established under private law; funds managed by the central banks created through special legislation, constitutional law, or even mentioned directly in the constitution of the state of origin; or public agencies. (4) Governments can effectively exercise control over SCEs with a concentrated equity shareholding below 50 percent or special voting rights in cases of diluted ownership. SCEs also include other business organizations controlled by SWFs or holding SOEs. SCEs headquartered in post-communist countries and operating under a state-capitalism paradigm have increasingly gone global, investing in a wide range of economic sectors. Their activism broadly raises issues in transnational regulatory fields as diverse as corporate law, international trade law, international investment law, competition law, and international taxation. (5)

SCEs, thanks to their substantial assets and long-term strategy, have demonstrated resilience during the COVID-19 pandemic while weathering market downturns and supporting local economies and distressed sectors. Some SCEs and, in particular, sovereign funds play an important role in the development of high-end economic sectors, such as tech and bio and even blockchain and crypto. (6) While SCEs, in general, are expected to play the same role as all multinational corporations and meet their environmental, social, and corporate governance goals, some SWFs are expected to lead and play a significant role in supporting the green revolution and meeting the objectives of the Paris Agreement. (7)

SCEs have brought disputes against the recipient country governments, highlighting the need for neutral dispute resolution venues, and ICSID has become the venue of choice. However, there are significant issues related to their participation in ICSID investment arbitration.

The qualification of an SCE as an investor and a national of a contracting state, and its subsequent access to ICSID arbitration has generated considerable controversy. (8) The problem involves definitions under international investment agreements (IIAs), (9) and the ICSID Convention. The ICSID Convention does not explicitly exclude SCEs from the scope of its jurisdiction ratione personae. Article 25 of the ICSID Convention defines a potential claimant in any legal dispute arising directly from an investment as a national of another contracting state. (10) The ICSID Preamble describes the role of the ICSID Convention as an instrument that supports private investment consistent with the need for international cooperation for economic development.

Significant scholarship identifies the success of the bilateral investment treaty regimes, with the contemporary emergence of the "Washington Consensus" and neoliberal market fundamentalism, (11) which relies on the state playing a minimal role in the economy, adding to the confusion. The World Bank (WB) Guidelines on the Treatment of Foreign Direct Investments confirmed that "the promotion of private foreign investment is a common purpose of the International Bank for Reconstruction and Development, the International Finance Corporation and the Multilateral Investment Guarantee Agency." (12) The WB Guidelines on the Treatment of Foreign Direct Investments reinforces the position that the WB system should serve the promotion of private investment. The statement is a soft law instrument and has persuasive weight for WB institutions. However, its value should not be overstated; it is not a treaty provision, so it is not binding.

SCEs are often perceived as organs and under the control of their owners, (13) causing interpretative ambiguities and divergences when determining whether SCEs can act as claimants under the ICSID Convention. On the one hand, the Preamble of the ICSID Convention, the WB Guidelines on the Treatment of Foreign Direct Investments, and the spirit of the Washington Consensus ensure a subliminal primacy to private investment and investors. On the other hand, the text of ICSID Convention Article 25 does not exclude state-owned investors from the scope of the convention.

Analysis of the ICSID case law regarding locus standi for SCEs helps examine interpretative instruments that determine their right to act as claimants and assess the development of the jurisprudence. In Part II, this Article reviews the ICSID Convention, the language of the Preamble, and the wording of Article 25 and examines the drafting documents. To contribute to the debate regarding the participation of sovereign investors in ICSID investor-state arbitration, Part III provides a holistic, systematic, and thorough analysis of the ICSID case law involving SCEs acting as claimants. Part IV groups the awards, focusing on salient issues of diverse factual and jurisdictional elements, such as the first case involving an SOE as a claimant, the use of the Broches test, the role of official development aid in FDI, the levelled playing field among investors, the expansive role of Chinese SCEs in FDI, and the role of SWFs. Part V explains the creation of a jurisprudence constants while Part VI explores instruments advantageous to arbitrators to assess the owner's role in sovereign investors' transactions. The last Part concludes.

2. THE ICSID CONVENTION AND SOVEREIGN INVESTORS

   The ICSID Centre was established on October 14, 1966, when twenty countries ratified the convention. Since then, the convention and the ICSID have become remarkable instruments for resolving investment dispute. The ICSID Convention was drafted by the executive directors of the International Bank for Reconstruction and Development. (14) Aron Broches led a large team of WB experts, together with experts from the participant countries, in a lengthy negotiation on multiple continents. (15) On March 18, 1965, the executive directors submitted the convention, with an accompanying report, to the member governments of the World Bank for signature and ratification. The primary goal of the ICSID Convention is to foster economic development through international cooperation. (16) The Centre supports that objective by offering reliable facilities for conciliation and arbitration of investment disputes between contracting states and nationals of other contracting states per the provisions of the Convention. (17) The Preamble recognizes a primary role of private investments in enhancing international cooperation for economic growth. (18) The Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States explains that the broad objective of the Convention is to encourage a larger flow of private international investment. (19)

   The final report reiterates that "adherence to the Convention by a country would provide additional inducement and stimulate a larger flow of private international investment into its territories, which is the primary purpose of the Convention." (20) The final text of the Convention does not contain any reference to private investment or investors and does not distinguish between private and public investment or investors. The Preamble elucidates the purpose of the Convention with references to economic development and the importance...