CYIL vol. 10 (2019)

MARTINA POHANKOVÁ CYIL 10 ȍ2019Ȏ Misteli notes that the interpretation provided by the tribunal can be read as the following: “investors cannot be expected to commit and invest in the host State under the possibility that, suddenly, the advantages granted to them under the applicable IIA will be wiped out.“ 30 This is however a misinterpretation of the situation in which the investors find themselves. The advantages would not be wiped out “suddenly” or in other words “unexpectedly”. The investor that falls within the scope of application of the denial of benefits clause must foresee that wiping out of its rights is a likely outcome of its decision to employ a letterbox company under the control of a third party. As indicated above, according to the Plama tribunal, pointing at the object and purpose of the ECT, the exercise of the denial should not have retrospective effect 31 , highlighting legitimate expectations of the investor and the “long time cooperation” objective. The tribunal suggests that “ [a] putative investor therefore requires reasonable notice before making any investment in the host state whether or not that host state has exercised its right under Article 17(1) ECT”, 32 in order to decide whether or not to invest in the territory in question. Personally, I see the aim of “mutual benefits”, 33 which are contained in the treaties probably as regularly as the “long term cooperation”, equally important. Is not part of the mutuality the possibility to exclude the rights of entities that do not bring anything in return? I find the prospective application rule difficult to accept because it imposes too disproportionate a burden on the state. The interpretation pointing at the deprivation of the investor’s legitimate expectations is not very convincing; investment is always a gamble to some extent. And the investor raises the level of such a gamble by deciding to invest through an entity that has no substantial activities in the home state and is controlled by beneficiaries that do not belong to the protected parties. Such a decision is surely balanced by other positive aspects, be it business, legal or tax aspects. In that case the investor must accept a higher level of uncertainty because, after all, it is the investor who caused it. In other words, as the Ulysseas tribunal concluded: “the tribunal sees no valid reasons to exclude retrospective effects. In respect to Claimant’s arguments that this would cause uncertainties as to the legal relations under the BIT, it may be noted that since the possibility for the host state to exercise the right in question is known to the investor when it made the investment […] the protection afforded by the BIT is subject during the life of the investment to the possibility of denial of the BIT’s advantages by the host state.” 34 This reasoning was accepted by some of the subsequent tribunals that employed it when dealing with the objection of the breach of legitimate expectations. 35 3. Drafting It is apparent that most of the mentioned problems could be effectively overcome by careful drafting of the provisions. Since most of the denial of benefits clause case law comes 30 MISTELI, L; BALTAG, C. Denial of Benefits’ Clause in Investment Treaty Arbitration. In: Queen Mary University of London, School of Law Legal Studies Research Paper No. 293/2018 , p. 17. 31 Plama v. Bulgaria , Decision on Jurisdiction para. 162. 32 Ibid, para. 161. 33 See, for example, preamble of the Czech Republic–Azerbaijan BIT highlighting the desire “to intensify economic cooperation to the mutual benefit of both Contracting parties” or the Czech Republic–Bahrain BIT preamble calling upon the desire to “develop economic co-operation to the mutual benefit of both States” . 34 Ullyseas v. Ecuador , Interim Award para. 173. 35 Rurelec v. Bolivia , Award para. 372.

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