The Role of Sovereign Wealth Funds and National Oil Companies in Investment Arbitrations

Investments by sovereign wealth funds (SWFs) and national oil companies (NOCs) have reached unprecedented heights in recent years.[2] Although SWF and NOC investments have generated some controversy – some host states have raised national security concerns – commentators have noted the relatively limited attention that has been devoted to SWFs and NOCs in investment arbitration law.[3] This chapter attempts to shed some light on critical issues relating to SWFs and NOCs in the international investment regime.

This chapter discusses and explains SWFs and NOCs and the impact that they have had on the investment regime. It then deals primarily with jurisdictional issues relating to the standing of SWFs and NOCs as potential claimants in investment arbitration. Subsequently it looks at the substantive protections that might be available to SWFs and NOCs under investment treaties.

Understanding SWFs and NOCs, and their significance
in the investment regime

Although SWFs and NOCs qualify as state-owned entities in international law, there are key differences between them.[4]

Understanding SWFs and NOCs

SWFs are investment vehicles established by governments to earn higher returns on the excess of their foreign exchange reserves.[5] The earliest SWF was established in Kuwait in the 1950s. A number of countries now maintain such funds, including Abu Dhabi, Algeria, Brazil, China, Libya, Norway, Russia, Saudi Arabia and Venezuela.[6] Considering the wide range of forms a SWF can take, international institutions have found it difficult to arrive at a precise definition that would encompass all the features of an SWF.[7] The Organisation for Economic Co-operation and Development (OECD) has not provided a definition. In 2008, however, the International Working Group of Sovereign Wealth Funds (IWG), in coordination with the IMF, developed guiding principles relating to SWFs. These are often referred to as the ‘Santiago Principles’ and, although they are not binding, they do provide guidelines and best practices regarding SWFs. Appendix I of the Santiago Principles defines an SWF as follows:

SWFs are defined as special purpose investment funds or arrangements, owned by the general government. Created by the general government for macroeconomic purposes, SWFs hold, manage, or administer assets to achieve financial objectives, and employ a set of investment strategies which include investing in foreign financial assets. The SWFs are commonly established out of balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports.[8]

SWFs have grown in size and influence since their inception,[9] and now possess huge amounts of investment capital. In 2007 and 2008, capital available to the four largest SWFs was estimated as follows: ‘[T]he Abu Dhabi Investment Authority, Norway’s Government Pension Fund, Saudi Arabia’s SAMA Foreign Holdings, and China’s SAFE – are believed to be worth US$627 billion, US$445 billion, US$431 billion, and US$347 billion of capital, respectively.’[10] These amounts place SWFs in a unique category as foreign investors in the investment regime.

NOCs, on the other hand, are state-owned or controlled entities typically involved in oil and gas exploration, production and distribution.[11] NOCs control most of the world’s oil and gas reserves and have therefore become pivotal players in the investment regime.[12] In recent years, NOCs have been increasing investments outside their home countries and have entered into several joint venture projects.[13]

Concerns relating to investments by SWFs and NOCs

Investments by SWFs and NOCs have raised certain concerns, particularly in host countries. Critics point to the fact that these entities are not purely commercial entities and might therefore be inclined to promote ideological goals rather than purely commercial goals.[14] Others have expressed concerns regarding the lack of transparency in the management of SWFs and NOCs or the fact that they might not be as efficient as private entities.[15]

Other critics go further, raising national security concerns, highlighting, in particular, large investments that are made by SWFs or NOCs in politically sensitive sectors.[16] For example, the potential acquisition of several ports in the US in 2007 by Dubai Ports World, owned by the Government of Dubai, gave rise to national security concerns in the US Congress.[17] Similarly, national security concerns regarding the potential acquisition of Unocal, a US oil company, by the China National Offshore Oil Corporation led the US House of Representatives to pass a resolution requesting the US President to conduct a ‘thorough review’ of the transaction.[18] The resolution stated, in particular:

Whereas oil and natural gas resources are strategic assets critical to national security and the Nation’s economic prosperity; . . .
Resolved, That it is the sense of the House of Representatives that–
(1) the Chinese state-owned China National Offshore Oil Corporation, through control of Unocal Corporation obtained by the proposed acquisition, merger, or takeover of Unocal Corporation, could take action that would threaten to impair the national security of the United States; and
(2) if Unocal Corporation enters into an agreement of acquisition, merger, or takeover of Unocal Corporation by the China National Offshore Oil Corporation, the President should initiate immediately a thorough review of the proposed acquisition, merger, or takeover.[19]

We discuss below whether such measures might breach investment treaty obligations.

Jurisdictional issues relating to SWFs and NOCs

There are three jurisdictional issues of particular relevance to SWFs and NOCs. The first concerns an issue of jurisdiction ratione materiae: whether pre-admission screening of proposed investments of SWFs or NOCs breaches treaty obligations. The second and third concern issues of jurisdiction ratione personae: whether SWFs or NOCs qualify as foreign investors under bilateral investment treaties and under the International Centre for Settlement of Investment Disputes (ICSID) Convention, since the ICSID Convention does not permit arbitration between states. Each of these questions raises interesting legal issues.

Pre-admission review of SWFs/NOCs and breaches of investment treaties

Considering the political sensitivity involved, many countries have established pre-screening procedures applicable to SWF and NOC investments; this is typically done pursuant to a domestic statute that empowers national government agencies to review potential investments by foreign persons to determine the effect of these investments on, inter alia, national security. In the United States, for example, the Committee on Foreign Investment in the United States (CFIUS) was created in 1975 by an executive order to deal with data collection, analysis of inbound investment and to screen potential foreign investments for national security purposes.[20] The US Department of Treasury describes the role of CFIUS in the following manner:

CFIUS is an inter-agency committee authorized to review transactions that could result in control of a U.S. business by a foreign person (‘covered transactions’), in order to determine the effect of such transactions on the national security of the United States. CFIUS operates pursuant to section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 (FINSA) (section 721) and as implemented by Executive Order 11858, as amended, and regulations at 31 C.F.R. Part 800.[21]

Similar procedures have been developed in France, China, Canada, Japan, Korea, Russia and Germany.[22] The question arises whether they violate obligations under an investment treaty.

Considering that there is a wide array of options with respect to bilateral investment treaty (BIT) drafting styles, there appear to be three prevalent approaches to pre-admission review of investments. Table 1, below, describes these approaches and highlights what might be the potential consequence under each.

Table 1: Different approaches to pre-admission review

IssueApproach 1Approach 2Approach 3
Treaty provisionBIT is silent on issue.India-Kazakhstan BIT, Article 3(1):‘Each Contracting Party shall encourage and create favourable conditions for investors of the other Contracting Party to make investments in its territory, and admit such investments in accordance with its laws and policy.’2012 US Model BIT, Article 3(1): ‘Each Party shall accord to investors of the other Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.’
Potential consequenceTypically, BIT protection would extend only to admitted investments and therefore, pre-admission reviews would be outside the scope of the treaty’s protection.23This approach is referred to as the ‘admissions’ model. States must create favourable conditions, however, the actual admission of an investment is conditional on host state laws and policy.24 Only if there is breach of these requirements, would there be a breach of the BIT.National treatment is guaranteed to investors pre-investment. If the claimant can establish it was in ‘like circumstances’ and not given equal treatment to domestic investors, there could be a breach of the BIT. Commentators sometimes refer to this as the ‘pre-establishment’ model.25

The traditional, prevailing approach appears to be that pre-admission screening of a potential investor or investment would not be prohibited under international law or under most investment treaties.[23] Therefore, as a general matter, a state could review any potential investment and decide whether to admit it or not. States can, however, waive this right by expressly providing for pre-admission protection,[24] which can be afforded in a variety of ways. Some treaties, such as the India–Kazakhstan BIT, envision a best-efforts obligation in admitting investments and an effort, on the part of the states, to ‘encourage’ and ‘create’ favourable conditions.[25] However, they are not ‘hard’ obligations wherein a state is obligated under all circumstances to admit the investment in its territory. In contrast, other treaties, such as the 2012 US Model BIT, go further. This Model envisions national treatment protection even at the stage of admitting investments. Under this approach, an investor can invoke a substantive breach of the treaty protection if a domestic investor that is in a like circumstance is afforded preferential treatment. However, finding an investor that is ‘in like circumstances’ might not be a simple task. The problem was explained by Professor Sornarajah as follows:

There is the possibility that the national treatment standard is violated where a state refuses to permit acquisition of shares by a SWF of a state with which it has an investment treaty granting pre-entry rights of investment. . . . However, for violation of the national treatment standard, as seen above, it must be shown that the discrimination was in a situation where there were ‘like circumstances’. The test requires comparison. The identification of a national ‘comparator’ is important. Such a comparator would be difficult to find, as it is unlikely that any national investor would have the ‘deep pockets’ of the SWF, its association with a foreign state, or possess motivation by national as well as commercial interests.[26]

If pre-admission protection is provided, as in the 2012 US Model BIT, states can still agree to carve out exceptions in other parts of the treaty. In the absence of any such exception, an investor will be entitled to invoke breach of any substantive protection that is granted, unless the state can raise a defence under customary international law.

Jurisdictional issues under BITs

The next jurisdictional issue that arises is whether the SWF or NOC qualifies as an ‘investor’ under the applicable BIT, and the tribunal therefore has jurisdiction ratione personae. SWFs and NOCs differ from traditional private corporations in that they are state-owned and, in the usual case, state-controlled. The question that arises from this situation is whether BITs envision such entities as falling within the scope of the treaty. Different treaties have addressed this in different ways, and Table 2, below, describes three common approaches, as well as the potential consequences of these approaches.

Table 2: Different approaches to state entities

IssueApproach 1Approach 2Approach 3
Treaty provisionNAFTA, Article 201(1): ‘“enterprise” means any entity constituted or organized under applicable law, whether or not for profit, and whether privately-owned or governmentally-owned, including any corporation, trust, partnership, sole proprietorship, joint venture or other association.’Ghana-China BIT, Article 1(b):
‘The term “investor” means: . . . In respect of Ghana:. . .
(ii) state corporations and agencies and companies registered under the laws of Ghana which invest or trade abroad.’
India-Turkmenistan BIT, Article 1(a):
‘(a) “Companies” means: . . .
(ii) in respect of Turkmenistan, every juridical person, associations, firms, companies and other societies or unions with the rights of a juridical entity founded in accordance with the legislation of Turkmenistan and located on its territory.’
Potential consequenceThe definition of enterprise expressly includes entities that are ‘governmentally-owned’ and, therefore, SWFs or NOCs would fall within scope of the treaty.The definition of investor for a Ghanaian company expressly includes ‘state corporations’. This is a question of domestic law but if NOCs or SWFs have been set up as ‘state corporations’, they would expressly fall within the definition of ‘investor’.Since the BIT itself does not specify whether State entities are included, a tribunal is likely to adopt a plain meaning analysis to see if SWFs or NOCs would fall within the scope of the treaty.


Some treaties, like NAFTA and the Ghana–China BIT, make clear that state entities fall within the definitions of enterprise or investor, and are therefore entitled to treaty protection.[28] But many older treaties, like the India–Kazakhstan BIT, are silent on whether governmentally-owned entities, such as SWFs or NOCs, fall within the treaty’s scope. In such a case, an investment tribunal is likely to adopt an interpretative exercise under the Vienna Convention on the Law of Treaties.[29] If an SWF or NOC meets the criteria under such a BIT (e.g., which requires only that an investor be incorporated or have its seat in the territory of a contracting party)[30] it would fall within the scope of the treaty protection.

Jurisdictional issues under the ICSID Convention

The ICSID Convention also requires a claimant to meet the requirements of the ICSID Convention itself, which outlines the outer limits for a tribunal’s jurisdiction.[31] Keeping this in mind, the next question to be considered is whether SWFs or NOCs meet the objective requirement under Article 25(2) of the ICSID Convention, which defines ‘National of another Contracting State.’[32] This question is significant because the ICSID Convention does not permit arbitration between two or more states.[33] Aron Broches, general counsel to the World Bank and a founding father of ICSID, in his 1972 Hague Academy of International Law lectures on the ICSID Convention, stated that companies that are owned by governments would not be disqualified under Article 25(2) of the ICSID Convention, unless they were acting as an agent for the government; and they were discharging an essentially governmental function. This is commonly referred to as the ‘Broches test’ and is described as follows:

I shall speak at some length about the determination of nationality in the light of the provisions of Article 25(2). But there is another question which is not dealt with by the Convention, namely whether an entity in order to qualify as a ‘national of another Contracting State’ must be a privately owned entity. . . . There are many companies whose shares are owned by the government, but who are practically indistinguishable from the completely privately owned enterprise both in their legal characteristics and in their activities. It would seem, therefore, that for purposes of the Convention a mixed economy company or government-owned corporation should not be disqualified as a ‘national of another Contracting State’ unless it is acting as an agent for the government or is discharging an essentially governmental function. I believe it is fair to say that there was a consensus on this point among those participating in the preparation of the Convention.[34]

The Broches test has been discussed and applied by investment arbitral tribunals. One of the earliest cases discussing the application of the Broches test was the CSOB v. The Slovak Republic case.[35] In its objection to jurisdiction in that case, the Slovak Republic argued that the claimant, CSOB, was a ‘state agency of the Czech Republic rather than an independent commercial entity’, and therefore the ‘real party’ in the dispute was the Czech Republic.[36] Since the ICSID Convention does not permit arbitration between two states, the matter necessarily fell outside the purview of the tribunal’s jurisdiction. The tribunal noted respondent’s submission that more than 65 per cent of CSOB’s shares were owned by the Czech Republic and an additional 24 per cent were owned by the Slovak Republic.[37] The tribunal, however, rejected these arguments, noting that the fact that CSOB is a public sector entity rather than a private sector entity did not address the ‘crucial issue’.[38]

Instead, the tribunal stated that the Broches test was appropriate to determine whether a state-entity’s activities fall outside the scope of the ICSID Convention and concluded that, even though CSOB was owned by the state, its activities were primarily commercial:

It cannot be denied that for much of its existence, CSOB acted on behalf of the State in facilitating or executing the international banking transactions and foreign commercial operations the State wished to support and that the State’s control of CSOB required it to do the State’s bidding in that regard. But in determining whether CSOB, in discharging these functions, exercised governmental functions, the focus must be on the nature of these activities and not their purpose. While it cannot be doubted that in performing the above-mentioned activities, CSOB was promoting the governmental policies or purposes of the State, the activities themselves were essentially commercial rather than governmental in nature.[39]

The tribunal therefore dismissed respondent’s objection. Some commentators have criticised the ‘inadequate reasoning’ of this tribunal, particularly since it did not consider the second prong of the Broches test (i.e., the question whether CSOB was acting as an agent for the government).[40] Notwithstanding such objections, the CSOB v. Slovak Republic case is the first application of the Broches test.

Another application of the Broches test was the CDC v. Seychelles case. The claimant, CDC, a UK public company, was described by the tribunal as a ‘governmental instrumentality for investing in developing countries [that was] wholly owned by the UK Government, but acted on a day-to-day basis without Government instruction or operational involvement’.[41] The Republic of Seychelles had initially raised an objection to jurisdiction, but eventually withdrew its objection and did not contest the tribunal’s jurisdiction.[42] However, the tribunal, in its award, made clear that CDC’s activities were commercial and not governmental:

CDC’s activities are commercial in substance and nature. CDC’s investments in the Seychelles related to the expansion of the capacity of the Baie Ste Anne Power Station on the Island of Praslin and the upgrading of Victoria A Power Station on the Island of Mahé. These investments were made on a commercial basis.[43]

Thus, the tribunal examined whether the entity was essentially acting in a commercial or in a governmental capacity – much like in CSOB.

A related question that arises when considering this issue is whether the Broches test would also apply to situations where there is control by the State or only to situations concerning ownership by a state. Commentators have suggested that the Broches test should apply to both situations of ownership and control.[44] The issue of investments that might be partially commercial and partially governmental has not been explored in the jurisprudence at this stage, and it does not appear that any investment tribunal has refused jurisdiction on this ground so far.

SWFs and NOCs must, of course, meet all other jurisdictional requirements, including the criteria for determining the existence of an ‘investment’ under the ICSID Convention. A common formulation for this was developed by the tribunal in the Salini v. Morocco case and one of the criteria relates to the contribution made to the economic development of the host state.[45] Many investments by SWFs are of course in financial instruments[46] that may not satisfy the ICSID Convention’s ‘investment’ requirement.[47]

Substantive protections available to SWFs and NOCs

If a tribunal ultimately determines that it possesses jurisdiction, the next questions to arise concern the substantive protections available to SWFs and NOCs under investment treaties. The jurisprudence concerning SWFs and NOCs has been fairly limited to date.[48] With regard to SWFs, this could be in part attributed to the fact that there has only recently been a growth in direct foreign investment by SWFs, and that the contribution of SWFs is still fairly limited.[49] However, once jurisdiction has been established, it would seem that the SWFs and NOCs would be entitled to all the protections that are available to any foreign investor under the applicable treaties.


Considering the political sensitivities involved, it is likely that SWFs or NOCs might have additional requirements imposed on them by host states, and this could potentially breach the discrimination, national treatment (NT) or most-favoured nation treatment (MFN) protections under a treaty. As a commentator has opined, ‘claims arising from NT and MFN could be the most likely cause of action, since most of the time the reason why an SWF investment is prohibited is because it is government-controlled. This could result in discriminatory treatment.’[50] As discussed above, the need to find a comparator in ‘like circumstances’ could be essential for any breach of NT.[51]

Fair and equitable treatment, legitimate expectations, and expropriation

SWFs or NOCs could also be subject to treatment that violates the fair and equitable treatment standard or their legitimate expectations.[52] Indeed, the OECD has noted that ‘[e]xisting OECD principles call for fair treatment of SWFs.’[53] If host state measures have had a severe, lasting impact on an investment, the measure might also potentially breach the expropriation provision in the treaty.[54] The Ras al-Khaimah Investment Authority (the investment authority for one of the seven UAE emirates) reportedly has initiated an approximately US$50 million claim under the UNCITRAL arbitration rules against India for termination of a supply agreement by an Indian state.[55] This case has been initiated pursuant to the UAE–India BIT and is the only case known to the authors in which an SWF has relied on a BIT.

Potential defences by the host state

The SWFs or NOCs must be prepared to deal with the likely objection that a host State might raise in the face of alleged breaches due to expropriation: the public policy or national security defence.[56] Further, the question arises whether such a defence might be self-judging would depend on the actual language used in the BIT.[57] Some BITs expressly state that the guarantees under a treaty are subject to host state laws. In such cases, if the measure in question is a consequence of a law, the SWFs or NOCs would have an additional hurdle to overcome.


The increasing prominence of SWFs and NOCs in recent years has raised a number of unresolved legal questions in investment arbitration. On the jurisdictional side, pre-admission screening of SWFs and NOCs poses a unique problem, particularly concerning reviews conducted under domestic law dealing with national security concerns. The recent trend in extending some investment protection to the pre-investment phase, as adopted by the US in the 2012 Model BIT, might have implications for such review. Beyond that, SWFs and NOCs are likely to fall within the scope of most treaties’ definitions of ‘investor,’ unless expressly excluded from a treaty’s protection. Further, they would also need to satisfy the ICSID Convention, and to do so, the Broches test.

On the substantive side, although the jurisprudence appears to be very limited, it is likely that the primary case for SWFs or NOCs would be a claim for discrimination or breach of a treaty’s FET provision.

As SWFs and NOCs continue to grow in prominence, negotiators of future investment treaties may consider whether to focus more attention on their unique character and develop specific rules applicable to their investments.


[1] Grant Hanessian is a partner at Baker & McKenzie LLP. The opinions expressed herein are those of the author and do not represent the views of his firm or clients.

[2] See, e.g., Wouter P F Schmit Jongbloed, Lisa E Sachs and Karl P Sauvant, Sovereign Investment: An Introduction, in Sovereign Investment: Concerns and Policy Reactions (Sauvant et al, eds) (Oxford University Press 2012), p. 4: ‘Sovereign wealth funds are not a new phenomenon, yet their number and the resources available to them have risen dramatically in recent years. Despite the multifarious impact of the Western financial crisis, eleven new SWFs were established in 2009, more than in 2006, the heyday of international finance. SWFs controlled, as of March 2011, a little over US$4 trillion in assets, nearly twice the amount controlled by hedge funds. Some observers predict that this amount could reach US$15 trillion or even US$20 trillion by 2020.’

[3] See, e.g., Paul Blyschak, ‘State-Owned Enterprises and International Investment Treaties: When are State-Owned Entities and Their Investments Protected?’, 6 Journal of International Law and International Relations 2 (2011), p. 2: ‘The lack of scholarship on this point deserves remediation.’

[4] See, generally, Edwin M Truman, ‘Do the Rules Need to be Changed for State-Controlled Entities? The Case of Sovereign Wealth Funds’, in Sovereign Investment: Concerns and Policy Reactions 404 (Sauvant et al, eds.) (Oxford University Press 2012).

[5] See Mark Gordon and Sabastian V Niles, Sovereign Wealth Funds: An Overview, in Sovereign Investment: Concerns and Policy Reactions (Sauvant et al, eds) (Oxford University Press 2012), p. 25: ‘SWFs are investment vehicles established by governments to invest a portion of their excess foreign exchange reserves in search of higher returns than are typically earned on official reserves. They are generally invested in safe, low-return instruments such as U.S. Treasury bonds . . . SWFs are managed separately from other government assets and state-owned enterprises, but remain subject to some degree of government control or management.’

[6] See, e.g., Paul Blyschak (n 3), p. 5; Meg Lippincott, ‘Depoliticizing Sovereign Wealth Funds Through International Arbitration’ 13 Chicago Journal of International Law 2 (2013), p. 645.

[7] See, e.g., Sonia Yeashou Chen, ‘Positioning Sovereign Wealth Funds as Claimants in Investor-State Arbitration’, 6 Contemporary Asia Arbitration Journal 2 (2013), p. 303: ‘SWF, due to its diversity and lack-of-transparency, is difficult to be precisely and uniformly defined.’; Meg Lippincott (n 6), p. 655: ‘The diversity of SWFs makes any definition difficult to arrive at complex.’

[8] Sovereign Wealth Funds: Generally Accepted Principles and Practices: ‘Santiago Principles’, International Working Group of Sovereign Wealth Funds, October 2008, Appendix I, paragraph 2.

[9] See, e.g., Wouter P F Schmit Jongbloed, Lisa E Sachs and Karl P Sauvant (n 2), p. 4.

[10] Mark Gordon and Sabastian V Niles (n 5), p. 26.

[11] Different Types of Oil and Gas Company, Planete Energies, 12 June 2015, available at (last accessed 25 June 2015): ‘Most of the leading producing countries have a national oil and gas company, majority-owned by the government, that is responsible for managing production and defending their national interests in the oil and gas sector. In the OPEC countries and in some non-OPEC countries, national oil companies have exclusive or near exclusive control of oil production.’

[12] See, e.g., ‘The Role of National Oil Companies in the International Oil Market’, CRS Report For Congress, 21 August 2007, pp. 3-4: ‘These values suggest that the ten largest reserve holding companies, largely state owned, will be major forces in the world oil market about seven times as long as the five major international oil companies. In a market where reserve position is likely to translate into production and pricing power, the state oil companies are in a dominant position, and the international oil companies are likely to continue to play a lesser role. It is also not likely that the reserve positions of the companies will change in favor of the international oil companies in the future.’; Jorge Leis, John McCreery and Juan Carlos Gay, ‘National Oil Companies Reshape The Playing Field, Bain & Company’ (10 October 2012), available at (last accessed 25 June 2015): ‘The rise to prominence of national oil companies (NOCs) has shifted the balance of control over most of the world’s oil and gas reserves. In the 1970s, the NOCs controlled less than 10% of the world’s oil and gas reserves; today, they control more than 90%.’; Paul Blyschak (n 3), p. 7: ‘Thirteen separate NOCs control more reserves than does ExxonMobil, the world’s largest private oil company. Some NOCs have grown so large they have been termed ‘states within states’ at times capable of so dominating national politics that, rather than defending governmental interests, their agendas have come to direct governmental affairs.’

[13] See generally, Jared Anderson, ‘Foreign Investors, NOCs Involved in World’s Largest Recent Oil & Gas Deals, Breaking Energy’ (9 April 2013), available at
nocs-involved-in-world-s-largest-recent-oil-and/ (last accessed 25 June 2015).

[14] See, e.g., Paul Blyschak (n 3), pp. 7–8: ‘Chief among these considerations is that in conducting their business, SOEs might consider subjugating market interests to political goals.’; H Marjosola, ‘Sovereign Wealth Funds, Foreign Investment Policies and international Investment Law – A Comment on Compatibility’, 7 Transnational Dispute Management 4 (2010), p. 3: ‘The fact that SWFs are owned and at least indirectly controlled by governments has raised many political concerns.’; Mathias Audit, ‘Is the Erecting of Barriers Against Foreign Sovereign Wealth Funds Compatible with International Investment Law’, SIEL Working Paper No. 29/08, p. 2: ‘Regardless of the search of financial return, SWFs could be used by their home governments to achieve international policy goals. As such, host countries may frown upon SWFs’ investments on their soil.’; Yvonne C L Lee, ‘The Governance of Contemporary Sovereign Wealth Funds’, 6 Hastings Business Law Journal 1 (2010), p. 201: ‘Two key concerns about SWF investments, the lack of transparency and ominous investment strategy, have been raised by politicians in recipient countries such as the US’; Sonia Yeashou Chen (n 7), pp. 305-306: ‘The government control of SWFs has raised broad policy concerns, including the lack of transparency and the potential use of SWF capital for strategic or political purpose. A lack of transparency undermines the theory of efficient markets of economic systems, and SWFs may be driven by geopolitical interests in addition to financial interest.’

[15] See generally, Mark Gordon and Sabastian V Niles (n 5), pp. 31–36.

[16] Meg Lippincott (n 6), p. 651: ‘SWFs also pose a unique national security challenge for policymakers due to concerns about their legitimacy and integrity as investors. SWFs could potentially be used to promote the political goals of their sovereign owners and threaten the political and economic security of states in which they invest.’; Wouter P F Schmit Jongbloed, Lisa E Sachs and Karl P Sauvant (n 2): ‘The most important and prevalent concern about SCE investment relates to the issue that such investments may have detrimental impacts on host countries’ national security. In particular, sovereign investment in strategic industries has raised numerous concerns, including, for instance, about foreign access to sensitive technologies or of foreign control over natural resources, key industrial complexes or critical infrastructure.’

[17] Paul Blyschak (n 3), p. 8.

[18] Mark Gordon and Sabastian V Niles (n 5), p. 34.

[19] See House of Representatives Resolution 344, 109th Congress (2005-2006) (emphasis added).

[20] Paul Blyschak (n 3), p. 11. See also, Clay Lowery, ‘The U.S. Approach to Sovereign Wealth Funds and the Role of CFIUS’, in Sovereign Investment: Concerns and Policy Reactions 413 (Sauvant et al, eds.) (Oxford University Press 2012).

[21] See ‘The Committee on Foreign Investment in the United States (CFIUS), U.S. Department of Treasury: Resource Center’, available at (last accessed 25 June 2015 (emphasis added).

[22] Mark Gordon and Sabastian V Niles (n 5), p. 33.

[23] Paul Blyschak (n 3), p. 16: ‘Most [international investment treaties] afford protection only to post-investment activities. This means that, generally speaking, the decision made by national investment authorities screening proposed inbound foreign investment by SWFs and [state-owned corporations] will not be subject to review by investment arbitration tribunals.’

[24] M Sornarajah, ‘Sovereign Wealth Funds and the Existing Structure of the Regulation of Investments’, 1 Asian Journal of International Law 2 (2011), p. 274: ‘Another preliminary point to remember is that the entry of foreign investment can be prohibited by the host state. This is a matter of sovereign prerogative. . . . The right to prevent entry may, however, be surrendered by an investment treaty which recognizes a pre-entry national treatment standard.’

[25] See, e.g., ‘Identification of Common Features and Differences of Existing International Investment Instruments from the Perspective of the European Community and its member States (including Rights and Obligations of Home and Host Countries and of Investors and Host Countries)’, WTO Working Group on the Relationship Between Trade and Investment, WT/WGTI/W/30 (27 March 1998), paragraph 1.1: ‘The Bilateral Investment Treaties concluded in great number by the member States of the Community are similar in structure, but vary in legal detail. They do not affect the right to regulate the admission of foreign investors. Typically, admission (or ‘promotion’) clauses are best effort clauses encouraging admission, and are often qualified by provisions such as ‘according to each Party’s laws’, or ‘subject to’ or ‘in exercise of its powers conferred by law’. Neither do these BITs provide for the same right that national companies have for making investments (national treatment).’

[26] M Sornarajah (n 27), pp. 281–282 (emphasis added).

[27] Paul Blyschak (n 3), p. 24 (‘where an [international investment treaty] definition of “investor” speaks solely of any or all ‘legal entities’ it is reasonable to conclude that this should include both privately and publically held companies.’).

[28] See also ‘Asean Comprehensive Investment Agreement’, dated 26 February 2009, Article 4(e): ‘“juridical person” means any legal entity duly constituted or otherwise organised under the applicable law of a Member State, whether for profit or otherwise, and whether privately-owned or governmentally-owned, including any enterprise, corporation, trust, partnership, joint venture, sole proprietorship, association, or organization.’ (emphasis added).

[29] Article 31(1) of the Vienna Convention on the Law of Treaties: ‘1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’

[30] See, e.g., ‘Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Ghana’, signed on 31 March 1989, entered into force on 7 July 2000, Article 1(b)(ii): ‘legal persons constituted under the law of that Contracting Party.’; ‘Treaty Concerning the Promotion and Mutual Protection of Investments between the Federal Republic of Germany and Bolivia’, signed on 23 March 1987, entered into force on 9 November 1990, Article 1(4)(a): ‘Any juridical person as well as any commercial or other company or association with or without legal personality having its seat in the German areas of application of this Treaty, irrespective of whether or not its activities are directed at profit.’

[31] H Marjosola (n 14), p. 6: ‘The outer limits of the ICSID’s jurisdiction ratione personae are set by negative requirements: ICSID does not solve pure commercial disputes between private parties nor does it allow states to access the Centre in the capacity of investors.’

[32] Article 25(2)(b) of the ICSID Convention: ‘any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.’

[33] See Article 25 of the ICSID Convention.

[34] Aron Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of Other States’, 136 Recueil des Cours (1972), pp. 354-355 (emphasis added); see also Mark Feldman, ‘The Standing of State-Owned Entities under Investment Treaties’, in Yearbook on International Investment Law & Policy 2010-2011 (Sauvant, ed.) (Oxford University Press 2012), p. 622.

[35] Ceskoslovenska Obchodni Banka, A.S. (CSOB) v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision on Jurisdiction, 24 May 1999.

[36] ibid., paragraph 15.

[37] ibid., paragraph 18.

[38] ibid.

[39] ibid., paragraph 20 (emphasis added).

[40] Paul Blyschak (n 3), pp. 31-41.

[41] CDC Group plc v. Republic of the Seychelles, ICSID Case No. ARB/02/14, Decision on Annulment, 29 June 2005, paragraph 2.

[42] CDC Group plc v. Republic of the Seychelles, ICSID Case No. ARB/02/14, Award, 17 December 2003, paragraph 6.

[43] ibid, paragraph 17 (emphasis added).

[44] Paul Blyschak (n 3), p. 42: ‘This conclusion – that the Broches test should be engaged by government controlled entities as well as government-owned entities – is also generally supported by related investment law and investment arbitration state case law.’

[45] Salini Costruttori S.P.A. and Italstrade S.P.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction (16 July 2001), paragraph 42: ‘The doctrine generally considers that investment infers: contributions, a certain duration of performance of the contract and a participation in the risks of the transaction. In reading the Convention’s preamble, one may add the contribution to the economic development of the host State of the investment as an additional condition’ (internal citations omitted). Not all tribunals agree with the criteria developed by the Salini tribunal, more particularly on the contribution to the economic development of the host state. See, e.g., Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Decision on Jurisdiction (2 July 2013), paragraph 207: ‘Of its constitutive elements, the most controversial one has been held by some tribunals to be the contribution to the economic development of the host State due to the subjective character of this element and the resulting difficulty to ascertain its presence in a given investment. In order to determine whether an investment, at the time it is made, is capable of contributing to the economic development of the host State a tribunal would be required to conduct an ex post facto analysis of a number of elements that, considering also the time elapsed, ‘can generate a wide spectrum of reasonable opinions’. See also Matthew Weiniger and Harry Ormsby, ‘Treaty Column: Contrasting Approaches to “Contribution”’, Global Arbitration Review (7 April 2014).

[46] See, e.g., Mark Gordon and Sabastian V Niles (n 5), p. 25: ‘[SWFs] are generally invested in safe, low-return instruments such as U.S. Treasury bonds’.

[47] Tribunals have considered whether investments involving purely financial instruments were actually invested in the host country and contributed to the economic development of the host country. See, e.g., Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction (11 July 1997), paragraph 41: ‘While it is true that in some kinds of investments listed under Article l(a) of the Agreement, such as the acquisition of interests in immovable property, companies and the like, a transfer of funds or value will be made into the territory of the host country, this does not necessarily happen in a number of other types of investments, particularly those of a financial nature. It is a standard feature of many international financial transactions that the funds involved are not physically transferred to the territory of the beneficiary, but put at its disposal elsewhere. In fact, many loans and credits do not leave the country of origin at all, but are made available to suppliers or other entities. The same is true of many important offshore financial operations relating to exports and other kinds of business. And of course, promissory notes are frequently employed in such arrangements. The important question is whether the funds made available are utilized by the beneficiary of the credit, as in the case of the Republic of Venezuela, so as to finance its various governmental needs. It is not disputed in this case that the Republic of Venezuela, by means of the promissory notes, received an amount of credit that was put to work during a period of time for its financial needs.’; Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility (Majority Opinion) (4 August 2011), paragraph 374: ‘With regard to an investment of a purely financial nature, the relevant criteria cannot be the same as those applying to an investment consisting of business operations and/or involving manpower and property. With regard to investments of a purely financial nature, the relevant criteria should be where and/or for the benefit of whom the funds are ultimately used, and not the place where the funds were paid out or transferred. Thus, the relevant question is where the invested funds ultimately made available to the Host State and did they support the latter’s economic development? This is also the view taken by other arbitral tribunals.’

[48] M Sornarajah (n 27), pp. 278-279: ‘The assessments that have been made in some commentaries regarding investment treaties may be stating the case in optimistic terms. There have been no cases yet resulting from breaches of treaty obligations owed to SWFs. The earlier treaties were not made with SWFs in mind. However, as stated above, it may be a sound preliminary view that, since SWFs are operated as private interests, they are to be treated as private foreign investors and hence entitled to treaty protection.’

[49] See generally, Sonia Yeashou Chen (n 7), pp. 317–318.

[50] Sonia Yeashou Chen (n 7), p. 310.

[51] M Sornarajah (n 27), p. 284: ‘In the absence of a comparator, it would be difficult to allege discrimination. The comparator must have some similar characteristics and operate in the same sector. The SWF is essentially different from other foreign investors and this in itself sets it apart from others in the field as investors.’

[52] Sonia Yeashou Chen (n 7), p. 311: ‘Legitimate expectations of the FET is a likely raised claim. As in other cases, the regulatory changes may fail to protect SWFs’ legitimate expectations.’

[53] See ‘Sovereign Wealth Funds and Recipient Country Policies’, OECD Investment Committee Report (4 April 2008).

[54] M Sornarajah (n 27), pp. 284–285: ‘The fair and equitable standard has emerged in recent arbitral jurisprudence as the most productive of the causes of action as its scope has been expanded through interpretation. . . . The new scope created for it may throw open avenues for relief for SWFs that have been affected by governmental measures by the host state.’

[55] ‘UAE Investment Authority Takes on India’, Global Arbitration Review (13 January 2017). The Sovereign Wealth Fund Institute (SWFI) notes that the RAK Investment Authority has assets valued at US$1.2 billion. See RAK Investment Authority, Sovereign Investment Authority Institute, available at (last accessed 1 March 2017).

[56] Sonia Yeashou Chen (n 7), p. 312.

[57] M Sornarajah (n 27), p. 285: ‘If the national security exception is regarded as self-judging, as indeed it must be if it is expressly stated to be so in a treaty, then measures taken on that basis against a SWF would conclude the issue of responsibility under the investment treaty. There are many other defences that could be pleaded under the newer treaties as well as under customary international law.’

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