The Protection of Foreign Investments and Investors under International Law
This paper has two (2) pages (including this page).
Instructions to candidates:
1. WORD LIMIT: 2000 words (excluding footnotes). Keep to the word-limit strictly.
Students will be penalized for exceeding the word limit.
2. Students must answer the question in Part I and one question out of the two questions
in Part II.
3. Footnotes can only be used for references – not for substantive arguments.
4. If you are citing a source, you must refer to it.
5. There is no need to state the full name of each case you are referring to in the
text/footnote (e.g. SGS v. Pakistan case is enough).
6. Students must work alone and cannot talk to their classmates about their paper, or
exchange papers. Any action taken by students making the paper not fully original by
themselves will be handled according to the College’s regulations. This action might
also result in disqualification of the paper.
7. It is prohibited to copy sections or sentences from online sources or other scholarly
sources without citing them.
8. The materials relevant to the questions below are the material taught in class and the
materials in the course reading list. Students may use additional sources (i.e. additional
case law and scholarly writing) but this is not necessary.
9. The papers must be submitted only by the Assignment box in the class’ Moodle page
by 27.8.2020 at 12:00 (noon) in a Word format file (either .doc or .docx) only. Other
formats will not be taken into consideration.
PART I 1 (60 points (
Question One [word limit: 1300 words]
Special-C, a US incorporated company, has invested in the Slovak Republic, via its fully
controlled Slovak incorporated company (Goldax), approximately USD 10 million in order to
develop cigarette factories.
Two years after Special-C started running the factories via Goldax, violent anti-cigarette
protestors started to attack the factories at night and caused considerable damage. Although,
the government has denounced the attacks, some news sources stated that protestors received
orders from the government. The government denied the news reports. Interestingly, small
cigarette factories that are owned by the government did not suffer any attacks.
While the police said that it will try to catch the violent protestors and sent police units to the
factories during some of the demonstrations, the police refused to place 24-hour security
services around the factories because it argued that it was not the responsibility of the police
to secure privately-owned factories.
As a result of these attacks, the image of Goldax and its profits have dropped significantly.
Shortly afterwards, the government decided to impose a 75% tax on cigarette factories that are
owned directly/indirectly by foreign investors. The government also announced that it is not
going to respect its commercial contracts with Goldax. The government justified its actions on
the need to protect public health and address the social unrest. The government also argued
that Goldax never acquired all the necessary licences for its factories. This argument was
denied by Goldax.
Goldax sued the Slovak Republic in front of the Slovak domestic court for breaches of
commercial contracts but the Slovak court confirmed the legality of the actions of the Slovak
Special-C instituted arbitration proceedings against the Slovak Republic to seek compensation
for losses sustained as a result of Slovakia’s breaches under international law. This request
was submitted in accordance with the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States, dated March 18, 1965 (the “ICSID
Convention”), the 1991 Treaty between the United States of America and the Czech and
Slovak Federal Republic Concerning the Reciprocal Encouragement and Protection of
Investment (the “US Slovak Republic BIT” ) which entered into force on December 19, 1992
(see Annex 1)
The US and Slovak Republic are parties to the ICSID Convention.
Please discuss how an arbitral tribunal may rule regarding this dispute. Address both the
jurisdiction issues (i.e. whether Special-C can bring a claim) and the substantive issues (i.e.
protections which Special-C can rely upon and the defences, in any, that Slovakia could rely
upon). You must refer to the relevant provisions in the US-Slovak Republic BIT. Please note
that there is no need to discuss damages. In addition, there is no need to discuss provisions in
the US-Slovak Republic BIT which relate to topics which we did not cover in the course.
1 This is a fictional dispute
Part II (40 points) [word limit: 700 words]
You are required to choose and answer one question
Critically discuss to what extent, if at all, investment treaties hamper States’ right to regulate.
Explain how States try to protect their right to regulate and explain how tribunal try to and
should balance between States’ right to regulate and the protection of foreign investments.
Critically discuss whether investors can and should be able to rely on the most favoured
nation treatment to bypass procedural requirements and import better substantive protections
and better dispute resolution clauses from other treaties into the applicable investment treaty
between the host state and the home state.
US- Slovak Republic BIT
* After the breakup of Czechoslovakia in 1993, this treaty continued in effect for the
successor states, Slovakia and the Czech Republic. Signed October 22, 1991; Entered into
Force December 19, 1992. Thus, students can refer to this BIT as the US-Slovak Republic
TREATY WITH THE CZECH AND SLOVAK FEDERAL REPUBLIC CONCERNING
THE RECIPROCAL ENCOURAGEMENT AND PROTECTION OF INVESTMENT
The United States of America and the Czech and Slovak Federal Republic (hereinafter the
Desiring to promote greater economic cooperation between them, with respect to
investment by nationals and companies of one Party in the territory of the other Party;
Recognizing that agreement upon the treatment to be accorded such investment will
stimulate the flow of private capital and the economic development of the Parties;
Agreeing that fair and equitable treatment of investment is desirable in order to maintain a
stable framework for investment and maximum effective utilization of economic resources;
Reaffirming their desire to develop economic cooperation in accordance with the principles
and provisions of the Final Act signed in Helsinki on the lst of August 1975, and other
documents of the Conference on Security and Cooperation in Europe;
Convinced that private enterprise operating within free and open markets offers the best
opportunities for raising living standards and the quality of life for the inhabitants of the
Parties, improving the well-being of workers, and promoting overall respect for
internationally recognized worker rights; and
Having resolved to conclude a Treaty concerning the encouragement and reciprocal
protection of investment;
Have agreed as follows:
1. For the purposes of this Treaty,
(a) “investment” means every kind of investment in the territory of one Party owned or
controlled directly or indirectly by nationals or companies of the other Party, such as
equity, debt, and service and investment contracts; and includes:
(i) tangible and intangible property, including movable and immovable property, as
well as rights, such as mortgages, liens and pledges;
(ii) a company or shares of stock or other interests in a company or interests in the
(iii) a claim to money or a claim to performance having economic value, and
associated with an investment;
(iv) intellectual property which includes, inter alia, rights relating to: literary and
artistic works, including sound recordings, inventions in all fields of human
endeavor, industrial designs, semiconductor mask works, trade secrets, know-how,
and confidential business information, and trademarks, service marks, and trade
(v) any right conferred by law or contract, and any licenses and permits pursuant to
(b) “company of a Party” means any kind of corporation, company, association, enterprise,
partnership, or other organization, legally constituted under the laws and regulations of a
Party or a political subdivision thereof whether or not organized for pecuniary gain, or
privately or governmentally owned;
(c) “national, of a Party means a natural person who is a national of a Party under its
(d) “return” means an amount derived from or associated with an investment, including
profit; dividend; interest; capital gain; royalty payment; management, technical assistance
or other fee; or returns in kind;
(e) “associated activities” include the organization, control, operation, maintenance and
disposition of companies, branches, agencies, offices, factories or other facilities for the
conduct of business; the making, performance and enforcement of contracts; the
acquisition, use, protection and disposition of property of all kinds including intellectual
property rights; the borrowing of funds; the purchase, issuance, and sale of equity shares
and other securities; and the purchase of foreign exchange for imports;
(f) “nondiscriminatory” means treatment that is at least as favorable as the better of national
treatment or most-favored nation treatment;
(g) “national treatment” means treatment that is at least as favorable as the most favorable
treatment accorded by a Party to companies or nationals of third Parties in like
(h) “most favored nation treatment” means treatment that is at least as favorable as that
accorded by a Party to companies and nationals of third Parties in like circumstances.
2. Each Party reserves the right to deny to any company the advantages of this Treaty if
nationals of any third country control such company and, in the case of a company of the
other Party, that company has no substantial business activities in the territory of the other
Party or is controlled by nationals of a third country with which the denying Party does not
maintain normal economic relations.
3. Any alteration of the form in which assets are invested or reinvested shall not affect their
character as investment.
1. Each Party shall permit and treat investment, and activities associated therewith, on a
basis no less favorable than that accorded in like situations to investment or associated
activities of its own nationals or companies, or of nationals or companies of any third
country, whichever is the most favorable […]
2. (a) Investment shall at all times be accorded fair and equitable treatment, shall enjoy full
protection and security and shall in no case be accorded treatment less than that required by
(b) Neither Party shall in any way impair by arbitrary or discriminatory measures the
management, operation, maintenance, use, enjoyment, acquisition, expansion, or disposal
of investments. For purposes of dispute resolution under Article 3 VI and VII, a measure
be arbitrary or discriminatory notwithstanding the fact that a Party has had or has exercised
the opportunity to review such measure in the courts or administrative tribunals of a Party.
(c) Each Party shall observe any obligation it may have entered into with regard to
3. Subject to the laws relating to the entry and sojourn of aliens, nationals of either Party
shall be permitted to enter and to remain in the territory of the other Party for the purpose of
establishing, developing, administering or advising on the operation of an investment to
which they, or a company of the first Party that, employs them, have committed or are in
the process of committing a substantial amount of capital or other resources.
4. Companies which are legally constituted under the applicable laws or regulations of one
Party, and which are investments, shall be permitted to engage top managerial personnel of
their choice, regardless of nationality.
5. Neither Party shall impose performance requirements as condition of, establishment,
expansion or maintenance of investments, which require or enforce commitments to export
goods produced, or which specify that goods or services must purchased locally, or which
impose any other similar requirements.
6. Each Party shall provide effective means of asserting claims and enforcing rights with
respect to investment, investment agreements, and investment authorizations.
7. Each Party shall make public all laws, regulations, administrative practices and
procedures, and adjudicatory decisions that pertain to or affect investments.
8. The treatment accorded by the United States of America to investments and associated
activities of nationals and companies of the Republic of CSFR under the provisions of this
Article shall in any State, Territory or possession of the United States of America be no less
favorable than the treatment accorded therein to investments and associated activities of
nationals of the United States of America resident in, and companies legally constituted
under the laws and regulations of other States, Territories or possessions of the United
States of America.
9. The nondiscrimination and most favored nation provisions of this Treaty shall not apply
to advantages accorded by either Party to nationals or companies of any third country by
(a) that Party’s binding obligations that derive from full membership in a free trade area or
customs union; or
(b) that Party’s binding obligations under any multilateral international agreement under the
framework of the General Agreement on Tariffs and Trade that enters into force subsequent
to the signature of this Treaty.
10. The Parties acknowledge and agree that “associated” activities, include without
limitation, such activities as:
(a) the granting of franchises or rights under licenses;
(b) access to registrations, licenses, permits and other approvals (which shall in any event
be issued expeditiously);
(c) access to financial institutions and credit markets;
(d) access to their funds held in financial institutions;
(e) the importation and installation of equipment necessary for the normal conduct of
business affairs, including but not limited to, office equipment and automobiles, and the
export of any equipment and automobiles so imported;
(f) the dissemination of commercial information;
(g) the conduct of market studies;
(h) the appointment of commercial representatives, including agents, consultants and
distributors and their participation in trade fairs and promotion events;
(i) the marketing of goods and services, including through internal distribution and
marketing systems, as well as by advertising and direct contact with individuals and
(j) access to public utilities, public services and commercial rental space at
nondiscriminatory prices, if the prices are set or controlled by the government; and
(k) access to raw materials, inputs-and services of all types at nondiscriminatory prices, if
the prices are set or controlled by the government.
1. Investments shall not be expropriated or nationalized either directly or indirectly through
measures tantamount to expropriation or nationalization (“expropriation”) except: for public
purpose; in a nondiscriminatory manner; upon payment of prompt, adequate and effective
compensation; and in accordance with due process of law and the general principles of
treatment provided for in Article II(2). Compensation shall be equivalent to the fair market
value of the expropriated investment immediately before the expropriatory action was taken
or became known, whichever is earlier; be calculated in a freely usable currency on the
basis of the prevailing market rate of exchange at that time; be paid without delay; include
interest at a commercially reasonable rate from the date of expropriation; be fully
realizable; and be freely transferable.
2. A national, or company of either Party that asserts that all or part of its investment has
been expropriated shall have a right to prompt review by the appropriate judicial or
administrative authorities of the other Party to determine whether any such expropriation
has occurred and, if so, whether such expropriation and any associated compensation,
conforms to the principles of international law.
Nationals or companies of either Party whose investments suffer losses in the territory of
the other Party owing to war or other armed conflict, revolution, state of national
emergency, insurrection, civil disturbance or other similar events shall be accorded
treatment by such other Party no less favorable than that accorded to its own nationals or
companies or to nationals or companies of any third country, whichever is the most
favorable treatment, as regards any measures it adopts in relation to such losses.
1. Each Party shall permit all transfers related to an investment to be made freely and
without delay into and out of its territory. Such transfers include: (a) returns; (b)
compensation pursuant to Article III; (c) payments arising out of an investment dispute; (d)
payments made under a contract, including amortization of principal and accrued interest
payments made pursuant to a loan agreement; (e) proceeds from the sale or liquidation of
all or any part of
an investment; and (f) additional contributions to capital for the maintenance or
development of an investment.
2. Except as provided in Article III, paragraph 1, transfers shall be made in a freely usable
currency at the prevailing market rate of exchange on the date of transfer with respect to
spot transactions in the currency to be transferred.
3. Notwithstanding the provisions of paragraphs 1 and 2, either Party may maintain laws
and regulations (a) requiring reports of currency transfer; and (b) imposing income taxes
by such means as a withholding tax applicable to dividends or other transfers. Furthermore,
either Party may protect the rights of creditors, or ensure the satisfaction of judgments in
adjudicatory proceedings, through the equitable, nondiscriminatory and good faith
application of its law.
1. For purposes of this Article, an investment dispute is a dispute between a Party and a
national or company of the other Party arising out of or relating to (a) an investment
agreement between that Party and such national or company; (b) an investment
authorization granted by that Party’s foreign investment authority to such national or
company; or (c) an alleged breach of any right conferred or created by this Treaty with
respect to an investment.
2. In the event of an investment dispute between a Party and a national or company of the
other Party, the parties to the dispute shall initially seek to resolve the dispute by
consultation and negotiation, which may include the use of non-binding, third party
procedures. Subject to paragraph 3 of this Article, if the dispute cannot be resolved through
consultation and negotiation, the dispute shall be submitted for settlement in accordance
with previously agreed, applicable dispute-settlement procedures; any dispute-settlement
procedures, including those relating to expropriation, specified in the investment
agreement shall remain binding and shall be enforceable in accordance with the terms of
the investment agreement, relevant provisions of domestic laws and applicable
international agreements regarding enforcement of arbitral awards.
3. (a) At any time after six months from the date on which the dispute arose, the national or
company concerned may choose to consent in writing to the submission of the dispute for
settlement by conciliation or binding arbitration to the International Centre for the
Settlement of Investment Disputes (“Centre”) or to the Additional Facility of the Centre of
pursuant to the Arbitration Rules of the United Nationals Commission on International
Trade Law (“UNICTRAL”) or pursuant to the arbitration rules of any arbitral institution
mutually agreed between the parties to the dispute. Once the national or company
concerned has so consented, either party to the dispute may institute such proceeding
(i) the dispute has not been submitted by the national or company for resolution in
accordance with any applicable previously agreed dispute-settlement procedures; and
(ii) the national or company concerned has not brought the dispute before the courts
of justice or administrative tribunals or agencies of competent jurisdiction of the
Party that is a party to the dispute. If the parties disagree over whether conciliation or
binding arbitration is the more appropriate procedure to be employed, the opinion of
the national or company concerned shall prevail.
(b) Each Party hereby consents to the submission of an investment dispute for settlement by
conciliation or binding arbitration.
(i) to the Centre, [.] and to the Additional Facility of the Centre, and
(ii) to an arbitral tribunal established under the UNCITRAL Rules, as those Rules
may be modified by mutual agreement of the parties to the dispute (the Appointing
Authority referenced therein to be the Secretary-General of the Centre).
(c) Conciliation or arbitration of disputes under (b)(i) shall be done applying the provisions
of the Convention and the Regulations and Rules of the Centre, or of the Additional
Facility as the case may be.
(d) The place of any arbitration conducted under this Article shall be a country which is a
party to the 1958 United Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards signed at New York in 1958.
(e) Each Party undertakes to carry out without delay the provisions of any award resulting
from an arbitration held in accordance with this Article VI. Further, each Party shall
provide for the enforcement in its territory of such arbitral awards. 4. In any proceeding
involving an investment dispute, a Party shall not assert, as defense, counter-claim or
otherwise, that the national or company concerned has received or will receive, pursuant to
an insurance of guarantee contract, indemnification or other compensation for all or part of
its alleged damages. 5. In the event of an arbitration, for the purposes of this Article any
company legally constituted under the applicable laws and regulations of either Party of a
political subdivision thereof but that, immediately before the occurrence of the event or
events giving rise to the dispute, was an investment of nationals or companies of the other
Party, shall be treated as a national or company of such other Party (in accordance with
Article 25 (20)(b) of the Convention).
1. Any dispute between the Parties concerning the interpretation or application of the
Treaty which is not resolved through consultations or other diplomatic channels, shall be
submitted, upon the request of either Party, to an arbitral tribunal for binding decision in
accordance with the applicable rules of international law. In the absence of an agreement
by the Parties to the contrary, the arbitration rules of the United Nations Commission on
International Trade Law (UNCITRAL), except to the extent modified by the Parties or by
the arbitrators, shall govern.
2. Within two months of receipt of a request, each Party shall appoint an arbitrator. The two
arbitrators shall select a third arbitrator as Chairman, who is a national of a third State. The
UNCITRAL Rules for appointing members of three member panels shall apply mutatis
mutandis to the appointment of the arbitral panel except that the appointing authority
referenced in those rules shall be the Secretary General of the Center.
3. Unless otherwise agreed, all submissions shall be made and all hearings shall be
completed within six months of the date of selection of the third arbitrator, and the Tribunal
shall render its decisions within two months of the date of the final submissions or the date
of the closing of the hearings, whichever is later.
4. (a) Each Party shall bear the costs of its own representation in the arbitral proceedings.
(b) Expenses incurred by the Chairman, the other arbitrators, and other costs of the
proceedings shall be paid for equally by the Parties. The Tribunal may, however, at its
discretion, direct that a higher proportion of the costs be paid by one of the Parties.
The Parties agree to consult promptly, on the request of either, to resolve any disputes in
connection with the Treaty, or to discuss any matter relating to the interpretation or
application of the Treaty.
This Treaty shall apply to the political subdivisions of the Parties.
1. This Treaty shall enter into force thirty days after the date of exchange of instruments of
ratification. It shall remain in force for a period of ten years and shall continue in force
unless terminated in accordance with paragraph 2 of this Article. It shall apply to
investments existing at the time of entry into force as well as to investments made or
2. Either Party may, by giving one year’s written notice to the other Party, terminate this
Treaty at the end of the initial ten year period or at any time thereafter.
3. With respect to investments made or acquired prior to the date of termination of this
Treaty and to which this Treaty otherwise applies, the provisions of all of the other Articles
of this Treaty shall thereafter continue to be effective for a further period of ten years from
such date of termination.
IN WITNESS WHEREOF, the respective plenipotentiaries have signed this Treaty.
DONE in duplicate at Washington, this twenty-second day of October, 1991 in the English
and Czech languages, both texts being equally authentic.
FOR THE UNITED STATES OF AMERICA:
FOR THE CZECH AND SLOVAK FEDERAL REPUBLIC:
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