CYIL vol. 10 (2019)

CYIL 10 ȍ2019Ȏ IN SEARCH OF THE PERFECT DENIAL OF BENEFITS CLAUSE to satisfy substantiality. 8 In the words of the tribunal: “the materiality nor the magnitude of the business activity is the decisive question”. 9 The tribunal in Pac Rim noted that the protection could not be denied to all holding companies en blanc and continued by enumerating the properties that it would expect from a holding company in order to consider that it has substantial business activities in the home state. To those belong the existence of the board of directors, keeping board minutes, a continuous physical presence of representation in the home state and a bank account. 10 However, if the claimant is a pure shell company with no active operations that can be attributed to it, producing merely “passive, limited and unsubstantial” 11 activities, such entity cannot pass the test of substantiality even if it was a part of a holding structure that is otherwise economically active and complex. 12 The notion of control was interpreted by the Plama tribunal as “the ability to exercise substantial influence over the […] management, operation and the selection of members of [the investor’s managing body] .” 13 Some of the later treaties include further explanation of the criterion. For example, in the Japan–Ukraine BIT a note is inserted, stating that: “For the purposes of this Article, an enterprise is: (a) “owned” by an investor if more than fifty (50) percent of the equity interest in it is owned by the investor; and (b) “controlled” by an investor if the investor has the power to name a majority of its directors or otherwise to legally direct its actions.” 14 Control can be either direct or indirect, leading through numerous layers of corporations up to the ultimate beneficial owner. However, usually, treaties do not contain any specification as to what level of control should be looked at. 2.2 Consequence of the absence of the clause or absence of some of its parts The underlying principles of denial of benefits clauses inevitably resemble the prohibition of abuse of rights in the text of the treaty. On that basis, a question may arise whether it is necessary to include the denial of benefits clause in the text of the treaty in the first place, when it is only an expression of this universally binding maxim. Would states not be able to invoke the abuse of rights without a specific reference to their right to do so? In Tokios Tokelés , the tribunal understood the absence of the clause as an important indication of the states’ will, regarding “the absence of [the denial of benefits clause] as a deliberate choice of the Contracting Parties. In [the view of the tribunal] , it is not for tribunals to impose limits on the scope of BITs not found in the text, much less limits nowhere evident from the negotiating history.” 15 The possibility to rely on the abuse of rights doctrine in order to “import” the contents of the denial of benefits clause was thus not admitted.

Ibid, para. 69.

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9 Ibid . 10 Pac Rim v. El Salvador , Decision on the Respondent’s Jurisdictional Objections para. 4.72. 11 Pac Rim v. El Salvador , Decision on the Respondent’s Jurisdictional Objections para. 4.75. 12 Pac Rim v. El Salvador , Decision on the Respondent’s Jurisdictional Objections para. 4.66. 13 Plama v. Bulgaria , Decision on Jurisdiction para. 170. 14 Ukraine – Japan BIT, Article 27. 15 Tokios Tokelès , Decision on Jurisdiction para. 36.

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