Identifying the Host State: State Responsibility regarding Investments on Disputed Territories in International Investment Law

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M

ASTER

T

HESIS

E

LIAS

R

ITZI

I

DENTIFYING THE

H

OST

S

TATE

STATE RESPONSIBILITY REGARDING INVESTMENTS ON

DISPUTED TERRITORIES IN INTERNATIONAL INVESTMENT LAW

U

NIVERSITYOF

A

MSTERDAM

ELIAS RITZI KRADOLFSTRASSE 62

8583SULGEN SWITZERLAND

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ELIAS RITZI DISPUTED TERRITORIES

Index of Abbreviations... 3

Index of Authorities ... 4

Index of National Court Decisions ... 8

Index of Arbitral Awards ... 9

Index of Decisions of other International Tribunals ... 10

Index of Legal Acts and Rules ... 11

A. Introduction ... 14

B. Scope of the thesis ... 15

I. Disputed territory and territorial dispute ... 15

II. Definition of “disputed territory” for the puposes of the thesis ... 15

III. The importance of the notion of the “host state” ... 16

C. Is a state not factually controlling a part of its territory the host state of investments on that territory? ... 17

I. Case law of international tribunals ... 17

II. The perspective of international legal scholars ... 19

III. The investment treaty itself: A logical approach ... 20

D. Is a state only de facto controlling a territory responsible as a host state of investments on that territory? ... 21

I. Case law of international tribunals ... 21

II. The perspective of international legal scholars ... 22

III. The impact of the cases brought by Ukrainian investors against Russia regarding Crimean investments ... 23

IV. Conclusion on the applicability of investment treaties on factually controlled territory ... 25

E. Can quasi-states be host states of an investment? ... 27

I. Definition of quasi-states ... 27

II. Quasi-states as investment treaty parties in international law ... 28

III. Investment treaty practice of quasi-states... 29

IV. Investment agreements and foreign investment laws of quasi-states ... 30

V. Case Law on Quasi-States as host states of foreign investments ... 32

VI. Conclusion on the host state capacity of quasi-states ... 34

F. Can several entities simultaneously be the host states of investments on the same disputed territory? ... 35

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I. Case law on obligations of several states being simultaneously applied on the same territory ... 35 II. Several Host States on Disputed Territories: A Logical Approach ... 36

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Index of Abbreviations

Art. Article

BBC British Broadcasting Corporation

BIT Bilateral Investment Treaty

CIS Commonwealth of Independent States

ECHR European Court of Human Rights

Eds. Editors

e.g. for example

et al. and others

FET Fair and equitable treatment

ICJ International Court of Justice

ICSID International Centre for Settlement of Investment

ILC International Law Commission

LCIA London Court of International Arbitration

LLC Limited Liability Company

MFN Most Favoured Nation

Mr. Mister

no. number

nos. numbers

Para. Paragraph

PCA Permanent Court of Arbitration

PJSC Public Joint Stock Company

pp. Pages

S.A. Societé Anonyme

et seq. et sequens (and the following one) seqq. et sequentes (and the following ones)

TASS Телеграфное Агентство Советского Союза [Telegrafnoe

Agentstvo Sovetskogo Soyuza]

UK United Kingdom

UN United Nations

v. versus

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Index of Authorities

Cited as Reference

BalkanInsight BalkanInsight, Russia May Recognise Kosovo, UK Expert Says, 19 January 2017, available at:

https://balkaninsight.com/2017/01/19/russia-may-recognise-kosovo-uk-expert-says-01-19-2017/.

Balouziyeh JOHN BALOUZIYEH, What Palestinian Statehood May Mean for

Foreign Investors in Palestine, Kluwer Arbitration Blog, 18 June 2013, available at:

http://arbitrationblog.kluwerarbitration.com/2013/06/18/what- palestinian-statehood-may-mean-for-foreign-investors-in-palestine/?doing_wp_cron=1595425109.50526404380798339 84375. BBC Article of 30 January 2011

BBC News, South Sudan referendum: 99% vote or independence, 30 January 2011, available at: https://www.bbc.com/news/world-africa-12317927 BBC Article of 2 January

2019

BBC News, What's behind the China-Taiwan divide?, 2 January 2019, available at: https://www.bbc.com/news/world-asia-34729538

Black’s Law Dictionary Black’s Law Dictionary, available at: https://thelawdictionary.org/territory/

Brownlie IAN BROWNLIE, Principles of Public International Law, 7. Edition, 2008.

Cambridge Dictionary Cambridge Dictionary, available at:

https://dictionary.cambridge.org/de/worterbuch/englisch/territ ory

Carter/Wellhausen/Huth DAVID B.CARTER /RACHEL L.WELLHAUSEN /PAUL K.HUTH, International Law, Territorial Disputes, and Foreign Direct Investment; International Studies Quarterly, Volume 63, Issue 1, March 2019, pp. 58–71.

Costelloe DANIEL COSTELLOE, Treaty Succession in annexed Territory,

International and Comparative Law Quarterly, Volume 65, Issue 2, 2016, pp. 343-378.

Cullen/Wheatley ANTHONY CULLEN /STEVEN WHEATLEY,The Human Rights

of Individuals in De Facto Regimes under the European Convention on Human Rights, Human Rights Law Review, Volume 13, Issue 4, 2013, pp. 691–728.

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Dolzer/Schreuer RUDOLF DOLZER /CHRISTOPH SCHREUER,Principles of International Investment Law, 2. Edition, 2012

Dörr OLIVER DÖRR, in:OLIVER DÖRR /KIRSTEN SCHMALENBACH

(Eds.), Vienna Convention on the Law of Treaties: A Commentary, 2. Edition, 2018, Art. 31.

Douglas ZACHARY DOUGLAS,Property, Investment, and the Scope of Investment Protection Obligations, in:ZACHARY DOUGLAS /

JOOST PAUWELYN /JORGE E.VIÑUALES (Eds.),The Foundations of International Investment Law: Bringing Theory into Practice, 2014, pp. 363-406.

Dupont PIERRE-EMMANUEL DUPONT,Foreign Investment and the Status of Kosovo in International Law, The Journal of World Investment & Trade, Volume 10, Issue 6, 2009, pp. 937-957. Happ/Wuschka RICHARD HAPP /SEBASTIAN WUSCHKA, Horror Vacui: Or

Why Investment Treaties Should Apply to Illegally Annexed Territories, Journal of International Arbitration, Volume 33, Issue 3, 2016, pp. 245–268.

Hepburn/Kabra JARROD HEPBURN /RIDHI KABRA,INVESTIGATION: Further

Russia investment treaty decisions uncovered, offering broader window into arbitrators’ approaches to Crimea controversy, Investment Arbitration Report, 17 November 2017.

Hewitt GEORGE HEWITT,Discordant Neighbours: A Reassessment of

the Georgian-Abkhazian and Georgian-South Ossetian Conflicts, Eurasian Studies Library, Volume 3, 2013. ICSID,state list International Centre or Settlement of Investment Disputes,

List of Contracting States and other Signatories of the Convention, 9 June 2020, available at:

https://icsid.worldbank.org/en/Documents/icsiddocs/List%20o f%20Contracting%20States%20and%20Other%20Signatories %20of%20the%20Convention%20-%20Latest.pdf

Investment Policy Hub Investment Policy Hub, List of the BITs of the State of Palestine, available at:

https://investmentpolicy.unctad.org/international-investment-agreements/countries/158/state-of-palestine.

Jose KHEMTA HJOSE, Why Does India Refuse to Recognise Kosovo?, The Quint, 19 November 2018, available at:

https://www.thequint.com/news/world/kosovo-why-did-india-deny-visa-to-boxer-world-championships.

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Karagiannis SYMEON KARAGIANNIS,in: Olivier Corten / Pierre Klein (Eds.), The Vienna Conventions on the Law of Treaties: A Commentary, 2011, Art. 29.

Kryvoi YARIK KRYVOI,Protecting Foreign Investors in Crimea: Is

Investment Arbitration an Option?, CIS Arbitration Forum, 29 July 2014.

Kuchmiienko OLGA KUCHMIIENKO,Chapter V: Investment Arbitration, How

does the Change in Effective Control over Territory Influence the Application of the Ukraine-Russia and Other BITS? To BITor NOT TO BIT?, in:CHRISTIAN KLAUSEGGER et al.

(Eds.), Austrian Yearbook on International Arbitration 2020, 2020, pp. 533-561.

Mayorga OFILIO MAYORGA, Occupants, Beware of BITs: Applicability

of Investment Treaties to Occupied Territories, Palestine Yearbook of International Law, Volume 19, 2017. Merriam Webster

Dictionary

Law Dictionary by Merriam-Webster, available at: https://www.merriam-webster.com/dictionary/territory

Milanovic MARKO MILANOVIC,Extraterritorial Application of Human

Rights Treaties: Law, Principles, and Policy, 2011.

Miltner BARBARA MILTNER,Territory and Its Relationship to Treaties,

in:MICHAEL J.BOWMAN /DINO KRITSIOTIS (Eds.), Conceptual and Contextual Perspectives on the Modern Law of Treaties, 2018, pp. 468-506.

Ministry of Foreign Affairs of Kosovo

Ministry of Foreign Affairs and Diaspora of the Republic of Kosovo, International recognitions of the Republic of Kosovo, available at: http://www.mfa-ks.net/en/politika/483/njohjet-ndrkombtare-t-republiks-s-kosovs/483

Permanent Mission of Palestine to the UN

Permanent Observer Mission of The State of Palestine to the United Nations New York, Official Website, available at: https://palestineun.org/about-palestine/diplomatic-relations/ Quigley JOHN QUIGLEY, Palestine is a State: A Horse with Black an

White Stripes is a Zebra, Michigan Journal of International Law, Volume 32, Issue 4, 2011, pp. 749-764.

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State Investment Agency of Abkhazia

State Investment Agency of the Ministry of Economy of the Republic of Abkhazia, Our Project, available at:

http://investinabkhazia.org/en/projects/.

TASS TASS, Countries that recognized South Ossetia’s and Abkhazia’s independence, 29 May 2018, available at: https://tass.com/world/1007058

Taylor Sumner BRIAN TAYLOR SUMNER,Territorial Disputes at the

International Court of Justice, Duke Law Journal, Volume 53, 2004, pp. 1779-1812.

Tharoor ISHAAN THAROOR,Map: The countries that recognize

Palestine as a state, Washington Post, 7 November 2014, avialable at:

https://www.washintonpost.com/news/worldviews/wp/2014/1 1/07/map-the-countries-that-recognize-palestine-as-a-state/ Van Essen JONTE VAN ESSEN,De Facto Regimes in International Law,

Merkourios - International and European Security Law, Volume 28, Issue 74, 2012, pp. 31-49.

Wikipedia, List of territorial disputes

Wikipedia, List of territorial disputes, available at: https://en.wikipedia.org/wiki/List_of_territorial_disputes Zheng CHRISTOPHER R.ZHENG.The Territoriality Requirement in

Investment Treaties: A Constraint on Jurisdictional

Expansionism, Singapore Law Review, Volume 34, 2016, pp. 139-172.

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Index of National Court Decisions

Switzerland

Decision of the Swiss Supreme Court of 30 May 2017

Decision of the Swiss Supreme Court of 30 May 2017, Case No. 4A_532/2016, [original in German]

Decision of the Swiss Supreme Court of 4 July 2019

Decision of the Swiss Supreme Court of 4 July 2019, Case No. 4A_462/2018, [original in German].

United Arab Emirates

Pearl Petroleum v. Kurdistan, Judgment of the Dubai International Financial Centre Courts.

Pearl Petroleum v. Kurdistan, Judgment of the Dubai

International Financial Centre Courts of 20 August 2017, Case No. ARB 003/2017.

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Index of Arbitral Awards

ICSID Arbitration

Axos v. Kosovo ACP Axos Capital GmbH v. Republic of Kosovo, ICSID Case No. ARB/15/22, Award, 3 May 2018.

LCIA Arbitration

Pearl Petroleum v Kurdistan, Partial Final Award of 30 June 2015

Pearl Petroleum Company Ltd. and others v. The Kurdistan Regional Government of Iraq, LCIA Case No. 132527, Partial Final Award, 30 June 2015.

PCA Arbitration

Active Partners Group v. South Sudan

Active Partners Group Limited v. The Republic of South Sudan, PCA Case No. 2013/4, Final Award, 27 January 2015. Aeroport Belbek and

others v. Russia

Aeroport Belbek LLC and Mr. Igor Valerievich Kolomoisky v. Russian Federation, PCA Case No. 2015-07, [award not publicly available].

Everest Estate and others v. Russia

Everest Estate LLC and Others v. Russian Federation, PCA Case No. 2015-36, [award not publicly available].

Lugzor and others v. Russia

Limited Liability Company Lugzor and Others v. Russian Federation, PCA Case No. 2015-29, [award not publicly available].

Oschadbank v. Russia Oschadbank v. Russian Federation, PCA Case No. 2016-14, [award not publicly available].

PJSC Ukrnafta v. Russia PJSC Ukrnafta v. Russian Federation, PCA Case No. 2015-34, [award not publicly available].

Stabil LLC and others v. Russia

Stabil LLC and Others v. Russian Federation, PCA Case No. 2015-35, [award not publicly available].

South China Sea Case The Republic of the Philippines v. The People’s Republic of China, PCA Case No. 2013-19, Award on Jurisdiction and Admissibility, 29 October 2015.

The Channel Tunnel Group Limited and France-Manche S.A. v. Great Britain and France

The Channel Tunnel Group Limited and France-Manche S.A v. The secretary of state for transport of the government of the United Kingdom of Great Britain and Northern Ireland and le ministre de l’équipement, des transports, de l’aménagement du territoire, du tourisme et de la mer du gouvernement de la république française, PCA Arbitration, Partial Award, 30 January 2007.

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Index of Decisions of other International Tribunals

International Court of Justice

Namibia Advisory Opinion Legal Consequences for States of the Continued Presence of South Africa in Namibia (South West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, ICJ Report 1971.

European Court of

Human Rights

Catan and others v. Moldova and Russia

Catan and others v. Moldova and Russia, ECHR Applications Nos. 43370/04, 8252/05 and 18454/06, Judgment, 19 October 2012.

Ilascu and others v. Moldova and Russia

Ilaşcu and others v. Moldova and Russia, ECHR Application No.

48787/99, Judgment, 8 July 2004.

Pocasovschi and Mihaila v. Moldova and Russia

Pocasovschi and Mihaila v. The Republic of Moldova and Russia, Application No. 1089/09, Judgment, 29 May 2018. Sandu and others v.

Moldova and Russia

Sandu and others v. The Republic of Moldova and Russia, ECHR Applications Nos. 21034/05 and 7 others, Judgment, 17 July 2018.

European Commission of Human Rights

George Vearncombe and others v. United Kingdom and Germany

George Vearncombe, Werner Herbst, Lothar Clemens and Ellen Spielhagen v. United Kingdom and the Federal Republic of Germany, Application No. 12816/87, Judgment on

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Index of Legal Acts and Rules

Bilateral Investment Treaties

Egypt-Palestine BIT Egypt-Palestine BIT, 1999 [original in arabic].

France-Mexico BIT Agreement between the Government of the Republic of France and the Government of the United Mexican States on the Reciprocal Promotion and Protection of Investments, 2000.

Germany-Palestine BIT Agreement between the Government of the Federal Republic of Germany and the Palestine Liberation Organization for the benefit of the Palestinian Authority concerning the

Encouragement and Reciprocal Protection of Investments, 2005.

Kosovo-Albania BIT Agreement between the Government of the Republic of Kosovo and the Council of Ministers of the Republic of Albania for the Promotion and Protection of Investments, 2016.

Kosovo-Austria BIT Agreement between the Government of the Republic of Kosovo and the Government of the Republic of Austria On Promotion and Protection of Investments, 2010.

Kosovo-Belgium and Luxembourg BIT

Agreement between the Government of the Republic of Kosovo and the Belgium-Luxembourg Economic Union on the Reciprocal Promotion and Protection of Investments, 2010.

Kosovo-Canada BIT Agreement between the Government of the Republic of Kosovo and the Government of Canada for the Promotion and Protection of Investment, 2018.

Kosovo-Macedonia BIT Agreement between the Government of the Republic of Kosovo and the Government of the Republic of Macedonia concerning the Encouragement and Reciprocal Protection of Investment, 2015.

Kosovo-Switzerland BIT Agreement between the Republic of Kosovo and the Swiss Confederation on the Promotion and Reciprocal Protection of Investments, 2011.

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Kosovo-Turkey BIT Agreement between the Government of the Republic of Kosovo and the Government of the Republic of Turkey on the Reciprocal Promotion and Protection of Investments, 2012. Kosovo-UAE BIT Agreement between the Government of the Republic of

Kosovo and the Government of the United Arab Emirates on the Mutual Promotion and Protection of Investments, 2016. Russia-Abkhazia BIT Соглашение между Правительством Российской

Федерации и Правительством Республики Абхазия о поощрении и взаимной защите инвестиций [Agreement between the Government of the Russian Federation and the Government of the Republic of Abkhazia on the

Encouragement and the Mutual Protection of Investment], 2010.

Russia-Palestine BIT Соглашение между Правительством Российской

Федерации и Правительством Государства Палестина о поощрении и взаимной защите инвестиций [Agreement between the Government of the Russian Federation and the Government of the State of Palestine on the Encouragement and the Mutual Protection of Investment], 2016.

Russia-South Ossetia BIT Соглашение между Правительством Российской Федерации и Правительством Южная Осетия о

поощрении и взаимной защите инвестиций [Agreement between the Government of the Russian Federation and the Government of South Ossetia on the Encouragement and the Mutual Protection of Investment], 2009.

Russia-Ukraine BIT Agreement between the Government of the Russian

Federation and the Cabinet of Ministers of the Ukraine on the Encouragement and Mutual Protection of Investments, 1998. Switzerland-Egypt BIT Agreement between The Swiss Confederation and The Arab

Republic of Egypt on the Promotion and Reciprocal Protection of Investments, 2010.

Switzerland-Georgia BIT Agreement between the Swiss Confederation and Georgia on the Promotion and Reciprocal Protection of Investments, 2014.

USA-Croatia BIT Treaty between the Government of the United States of America and the Government of the Republic of Croatia concerning the Encouragement and Reciprocal Protection of Investment, 1996.

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ECHR Convention for the Protection of Human Rights and Fundamental Freedoms, 1950.

VCLT Vienna Convention on the Law of Treaties, 1969.

UN Security Council Resolutions

UN SC Resolution 1808 (2008)

United Nations Security Council, Resolution 1808 (2008), UN Doc S/RES/1808, 15 April 2008.

ILC Documents

ILC Articles on the Law of Treaties 1964

ILC, Report of the International Law Commission covering the work of its sixteenth session 11 May – 24 July 1964, UN Doc A/5809 (A/19/9).

ILC Articles on the Law of Treaties 1966

ILC, Report of the International Law Commission on the second part of its seventeenth session and on its eighteenth session, UN Doc. A/6309/Rev.1, pp. 177-274.

National Law

Investment Promotion Law of Transdniestria

Law of the Pridnestrovian Moldavian Republic "On state support for investment activities" [original in Russian], available on: http://www.vspmr.org/legislation/laws/zakonodateljnie-akti- pridnestrovskoy-moldavskoy-respubliki-v-sfere- promishlennosti-torgovli-privatizatsii-stroiteljstva-transporta- energetiki-i-svyazi/zakon-pridnestrovskoy-moldavskoy- respubliki-o-gosudarstvennoy-podderjke-investitsionnoy-deyateljnosti-.html

Order of the government of Transdniestria on the draft investment

agreement

Order of the Government of the Transdniestrian Republic on the approval of the draft investment agreement [original in Russian], available on:

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A. Introduction

The Wikipedia page on “list of territorial disputes” mentions more than 150 territories that are currently disputed.1 This means that there are millions of people living on a territory, the status

of which is disputed.2 Especially in recent times there have been developments in several

countries that have sparked new territorial disputes or reignited existing ones. Examples for such events are the independence referendum in Catalonia in 2017 and the annexation of Crimea by Russia in 2014. Aside from the fact that territorial disputes are still widespread in today’s world, also the economic impact of such disputes should not be underestimated. This effect is especially stark with regards to the inflow of foreign investments. A territorial dispute leads to a decline in foreign investments on the territory that is disputed mainly because of the legal uncertainty that it is associated with.3

This means that the existence of a territorial dispute has significant economic effects on foreign investments.

Despite its economic relevance in reality, the issue of the impact of territorial disputes on investment protection has so far not been addressed by international legal scholars. The first and so far only territorial dispute that has led to investment treaties being invoked before an international tribunal was the annexation of Crimea by Russia. After the occupation of Crimea, several Ukrainian investors brought claims against Russia based on the Russia-Ukraine BIT, which led to several tribunals for the first time discussing the implications of a territorial dispute for international investment law.4 It may well be that the high number of disputed territories

and the precedent set by the cases mentioned will lead to more cases with regards to other disputed territories.

Given the rising practical relevance of investments on disputed territories and the fact that many legal questions are still unclear, this thesis will try to shed light on the issue. There are a number of legal questions that arise in the context of an investment on a disputed territory. However, the most basic question from the standpoint of the investor, that is at the core of the problem is the following: Which state is responsible for my investment?

1 Wikipedia, List of territorial disputes.

2 Only Taiwan, Kurdistan, Crimea and Palestine taken together have almost 70 million inhabitants. 3 Carter/Wellhausen/Huth, p. 60 et seqq.

4 Russia-Ukraine BIT; These cases include: Lugzor and others v. Russia, Oschadbank v. Russia, PJSC Ukrnafta v. Russia, Stabil LLC and others v. Russia, Everest Estate and others v. Russia, Aeroport Belbek and others v.

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This question, while trivial in an ordinary investment protection case, can be very complicated in the context of a disputed territory. This is because a state is internationally responsible as host state of all foreign investments on its territory and the very question on which state’s territory the investment is is the bone of contention. In the following thesis the question of how to determine whether a state is responsible as the host state of an investment on a disputed territory, will be answered.

B. Scope of the thesis

I. Disputed territory and territorial dispute

Territory becomes disputed when there is a dispute as to which entity is entitled to exercise sovereignty over the territory.5 There are different categories of territorial disputes in

international law. The dispute may be about the status of the involved state itself, if all the territory of a particular state and therefore also its very existence is the subject of the dispute. Examples of this would be the disputed existence of the Republic of Abkhazia6 or of the

Republic of China (Taiwan).7 The dispute may concern a certain area on the border of two or

more states, as for example the conflict between Russia and Ukraine over Crimea or the conflict between several states over islands in the South Chinese Sea.8

Furthermore, there may be constellations in which the state exercising de facto control over the territory is the state that has the title to this territory from the point of view of international law. In many other cases however, the very dispute may evolve around the fact that not the state that has the title to a territory but another entity de facto controls the territory. While such an entity might be another state, in many cases it can also be a different entity such as a de facto regime or a rebel movement.9

II. Definition of “disputed territory” for the puposes of the thesis

Hence, there is a variety of constellations of territorial disputes and disputed territories. These constellations also vary in their relevance for the rights of foreign investors under international investment law.

If for example a state holds the title to a territory and also controls the territory but has its title to the territory disputed by a different entity’s claims, this puts very different questions in front

5 Taylor Sumner, p. 1779.

6 On the dispute regarding Abkhazia see Hewitt. 7 BBC Article of 2 January 2019.

8 Shaw, p. 491; South China Sea Case.

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of a foreign investor than if a territory is controlled by an entity that is not entitled to do so. The first constellation does not per se affect the investor’s rights, while the second constellation creates a number of very fundamental questions under international investment law.

This thesis will therefore only deal with territories that are controlled by one entity, while belonging to another from the standpoint of international law.10 The term “disputed territory”

will therefore be used in this thesis as meaning “territory not factually controlled by the state legally entitled to it”.

Defining the term “disputed territory” in this way creates a few difficulties. In order to define which territory is not controlled by the state it belongs to, one has to determine to which state a particular territory belongs. This in turn is often a task that is impossible to fulfil, especially within the boundaries of this thesis. While from the perspective of some scholars, international tribunals and states a territory might be factually controlled by the state that is legally entitled to do so, for others the same territory might be a disputed territory as defined for the purposes of this thesis.11 It is therefore not the objective of this thesis to precisely define the legal status

of the territories that are referred to as examples of a disputed territory. Every territory that is controlled by an entity whose title over the territory is not recognized by a significant portion of the international community will be considered an example of a “disputed territory” for the purposes of this thesis.

III. The importance of the notion of the “host state”

The starting point in answering the research question of this thesis is the notion of state responsibility in international investment law. This notion is closely linked to the state being the “host state” of an investment. A “host state” in international investment law is a state, in which a foreign investment has been made.12 Being a host state means bearing the rights and

obligations of a host state in relation to the investor and its investment. On the one hand, a host state has the right to, within the boundaries of international law, impose its governmental authority and legislation on the investor and its investment. On the other hand, the host state is responsible if it violates the rights of the investor.13 Such rights include both the guarantees the

10 The latter being the state that is entitled to control the territory.

11 For instance the existence of the state of Palestine is considered to be a fact by most scholars and a big portion of the international community while a significant portion of the international community does not consider Palestine to be a state. See below part E.III.

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host state has agreed to in treaties with the state of nationality of the investor and also the obligations under customary international law.14

It is therefore of crucial importance for the international responsibility of a state under international investment law, whether it is considered to be the host state of an investment. In a constellation of one entity exercising de facto control over a territory and another state having a de jure title to the territory, the question is whether de facto control, de jure title or both is required to be the internationally responsible host state of an investment.

C. Is a state not factually controlling a part of its territory the host state

of investments on that territory?

As stated above, a disputed territory for the purposes of this thesis is a territory, which legally forms part of one state, but is controlled by another entity. Such territories are illegitimately controlled by one entity, while the state it belongs to does not exercise control of that territory. In this regard the question arises whether the investment treaties of that state should still be applicable even though the state does not control that territory.

The starting point of any discussion of whether a state’s treaty obligations are applicable on a territory that this state does not factually control, is Art. 29 VCLT. This Article provides that “[u]nless a different intention appears from the treaty or is otherwise established, a treaty is binding upon each party in respect of its entire territory.” The plain wording of this provision does not answer the question whether the “entire territory” of a state also includes territories that are not factually controlled by that state. Whether such territories are included in the “entire territory” within the meaning of Art. 29 VCLT also does not become clear from the negotiating process of this provision. Neither the draft of Special Rapporteur Waldock from 1964 nor the Draft Articles of 1966 with their respective commentaries provide any clarity on the issue.15

I. Case law of international tribunals

There have so far not been any known investment treaty cases brought by investors against states that concerned investments located on territories that the state did not factually control. Therefore, one has to look at other fields of international law in order to identify case law on the question whether a state’s treaty obligations are applicable on a territory that is not factually controlled by that state.

14 Dolzer/Schreuer, p. 13 et seq. and p. 17.

15 ILC Articles on the Law of Treaties 1964, Art. 57, p. 179 et seq.; ILC Articles on the Law of Treaties 1966 Art. 25, p. 213 et seqq.

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The main source of a substantive amount of case law on this issue is international human rights law. The consistent position of the ECHR has been that the European Convention on Human Rights is applicable on a disputed territory both with regards to the state being entitled to control but not de facto controlling as well as the state de facto controlling the territory.

The Ilascu and others v Moldova and Russia decision is an example for this position of the ECHR. It concerned the territory of Transdniestria that is legally a part of Moldova, but is controlled by Russia-backed separatists. With regards to Russia, the ECHR reached the conclusion, that the Convention was applicable based on the fact that Russia de facto controlled the territory.16 At the same time, the applicability of the Convention for Moldova was based on

the fact that legally, Transdniestria was a part of Moldova.17 The conclusion with regards to

Moldova was not changed by the fact that Moldova did undisputedly not control the territory in question. On the merits of the case, the ECHR found that both Russia and Moldova had violated the Convention by their actions and inactions on the territory of Transdniestria.18

The question however arises to what extent the case law regarding the European Convention on Human Rights is of use in answering questions of treaty applicability under international investment law.

The European Convention on Human Rights and the jurisprudence of the ECHR is in some ways comparable to the system of international investment law. Both these systems oblige states to adhere to guarantees of treatment towards individuals. Furthermore, both of these systems provide individuals with the right to submit claims to an International Tribunal in case the individual’s rights provided for in the treaty (or treaties) have been violated.

However, there is one crucial difference. While the Convention states that it is applicable “within the jurisdiction” of the member states19, most investment treaties explicitly refer to the

“territory of the Contracting Parties”.20 It is in fact argued that the term “jurisdiction” is

significantly broader than the term “territory”.21 For this reason the case law of the ECHR is

not more than an indication that it is possible to apply treaty obligations of states on territories that are not factually controlled by that state.

16 Ilascu and others v Moldova and Russia, para. 393 et seq. 17 Ilascu and others v Moldova and Russia, para. 331. 18 Ilascu and others v Moldova and Russia, p. 114 et seqq. 19 Art. 1 ECHR.

20 See for example: USA-Croatia BIT, Art. 1(e); France-Mexico BIT, Art. 1 Para. 4; Switzerland-Egypt BIT, Art. 1 Para. 2.

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II. The perspective of international legal scholars

One of the few international legal scholars offering their views on the issue is Karagiannis, who states the following:

“It may also be noted that the failure of a State party to a treaty to exercise an

effective control over a portion of its territory will result in the non-applicability of the treaty to this part of the territory, except of course if the State that actually exercises control over this area is itself a party to the treaty.”22

Karagiannis supports his view by referring to the George Vearncombe and others v United Kingdom and Germany decision of the European Commission on Human Rights, which

concerned a shooting range built by the British military in occupied Berlin. The Commission deemed the case inadmissible with regards to Germany since Germany did not exercise any factual control over the military base in occupied Berlin. The Commission among others made the following argument:

“Acts performed by organs of an occupying State (including members of its army) are generally attributable to this State and not to the occupied State.”23

This decision does however not unambiguously support Karagiannis’ view since it at the same time declared that the conduct was not attributable and that for that reason the treaty is not applicable. This argument is not convincing since the lack of attributability is an issue of merit and not of treaty applicability and admissibility. Also the Ilascu and others v Moldova and

Russia decision mentioned above is cited by Karagiannis in support of his position. It has

however been shown above that this decision to the contrary shows that a state is bound by its treaties even on territories it does not control.24

It can thus be said that general international law does not provide a definitive answer to the question whether treaty obligations of states are applicable on territories that are not factually controlled by that state. Furthermore, the only case law dealing with this questions concerns a treaty system whose comparability to international investment law is doubtful.

The solution must therefore be found using the first part of Art. 29 VCLT, namely the intention that appears from the treaty itself.

22 Karagiannis, para. 66

23 George Vearncombe and others v United Kingdom and Germany, Decision on the Admissibility, p. 10. 24 See above part C.I.

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III. The investment treaty itself: A logical approach

The “intention” that “appears from the treaty” has to be found by interpreting the particular investment treaty itself. The interpretation according to the plain wording does not help in the case of most investment treaties since the text usually does not clarify whether territory that is not factually controlled by a party is considered “territory of the contracting state”. Therefore, the treaty has to be interpreted according to its object and purpose.25 Here, one should remember

what it would mean to deny the applicability of the investment treaty because the respondent state does not control the territory of the investment.

A state, for instance, although not factually controlling the territory on which an investment is located, could still violate the rights of the investor through state conduct. The object and purpose of any investment treaty would demand that such a violation would be treated the same as if the state did control the territory. If the applicability of an investment treaty is denied because of the lack of factual control over the territory, the investor is not protected from actions of the state that would otherwise be considered treaty violations. Such a situation would go against the object and purpose of any investment treaty.

Such a constellation also is not purely hypothetical because while a state might not control the territory on which the investment is located, it may still retain some ways of damaging the investment or its enjoyment by the investor.26 This is especially the case when state regulation

affects intangible rights of the investor. The only logical conclusion is that the object and purpose of any BIT demands that in such a case an investor can bring a case before an international tribunal according to an applicable BIT.

Furthermore, treaty practice shows that it is not an unusual notion to apply BITs also on a portion of a state’s territory that is not factually controlled by that state. For example the Switzerland-Georgia BIT explicitly states in Art. 1 Para. 4 that the BIT is applicable on “the territory within the internationally recognized state borders of Georgia”.27 This wording

explicitly includes Abkhazia and South Ossetia, portions of Georgian territory which are not factually controlled by the government in Tbilisi. This example shows that it is very much possible to apply a BIT on a territory that is not de facto controlled by a state party.

25 Art. 31 Para. 1 VCLT; Dörr, para. 52 et seqq.

26 Azerbaijan for instance bans persons who have previously entered Nagorno Karabakh from entering the country. Nagorno Karabakh is considered a part of Azerbaijan by the international community while not being de facto controlled by the government in Baku. Such a ban is a measure that could violate the rights of foreigners holding investments in Nagorno Karabakh even though Azerbaijan does not control the territory in question.

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It is true that in many cases the applicability of an investment treaty on a territory that is not under control would be a merely theoretical one. This is because due to the lack of factual control over the territory, violations of investors’ rights on disputed territory would often not be attributable to the de jure controlling state. However this does not mean that the applicability of the BITs of the de jure sovereign should be denied altogether because such a conclusion would bar the investor from even trying to prove the attribution of the violation of its rights. For the reasons stated above, the fact that the investment is located on a state’s territory, which is not controlled by that state, does not mean that this state’s investment treaties are not applicable on that territory. The state’s investment treaties are still applicable with the only difference being that in many cases, violations of these treaties happening on the disputed territory are not attributable to that state.

D. Is a state only de facto controlling a territory responsible as a host state

of investments on that territory?

Also in answering this question, the starting point is Art. 29 VCLT. But very similarly to what has been said above on the question of a state not factually controlling a portion of its territory, this article does not provide an answer to the question. Art. 29 VCLT simply states that “[u]nless a different intention appears from the treaty or is otherwise established, a treaty is binding upon each party in respect of its entire territory.” Whether this territory also entails factually controlled territory that the state in question is not entitled to control, does not become clear.

I. Case law of international tribunals

The question whether a state’s treaties are applicable on a territory that is only de facto controlled by that state was dealt with by the ICJ in the Advisory Opinion on Namibia. The ICJ was asked by the UN Security Council to render an advisory opinion on the legal consequences of the presence of South Africa in South West Africa. South Africa had been controlling the territory of South West Africa as a League of Nations mandate, which was then abolished by the UN Security Council in 1966.28 The ICJ found that the mandate had ended and the

occupation of South West Africa by South Africa was no longer lawful.29 The ICJ then

concluded that even though South Africa was not entitled to occupy the territory, this did not mean that it was not bound by its treaty obligations on that territory. The ICJ quite to the

28 Namibia Advisory Opinion, para. 106. 29 Namibia Advisory Opinion, para. 117 et seqq.

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contrary found that the fact that South Africa was not entitled “to administer the territory does not release it from its obligations and responsibilities under international law towards other states”.30 While the case concerned specific obligations entered into with regards to a specific

territory, the findings of the ICJ are still indicative. They show that even if a state controls a territory that is not a part of its de jure territory, that does not mean that its obligations do not apply.

Also the European Court of Human Rights has dealt with the question of treaty application on disputed territories. Its case law on this question is the most extensive amongst all international tribunals.31 The consistent position of the ECHR has been that the treaty obligations of the

Convention are not only applicable on the de jure territory of a member state but also on any territory the member state de facto controls.32 As was mentioned above when discussing the

treaty applicability on factually not controlled territory, the Convention is applicable “within the jurisdiction” of the member states33, while most investment treaties explicitly refer to the

“territory of the Contrating Parties”34. While it is in many contexts accepted that the term

“jurisdiction of a state” includes de facto controlled territories, the same conclusion cannot easily be drawn with regards to the term “territory of a state”.35 This means that the applicability

of the ECHR to disputed territories provides no more than an indication that it is indeed possible to apply a treaty providing for claimable guarantees of treatment to individuals on only de facto controlled territories.

II. The perspective of international legal scholars

Among scholars, the question of whether a state is bound by its treaty obligations and in particular by investment treaty obligations on territories it only de facto controls, is controversial.

Some scholars argue that if a treaty defines its scope by referring to the territory of a state, the obligations in such a treaty are only applicable on the territory of that state as defined by

30 Namibia Advisory Opinion, para. 118.

31 Catan and others v. Moldova and Russia; Ilascu and others v. Moldova and Russia; Pocasovschi and Mihaila v. Moldova and Russia; Sandu and others v. Moldova and Russia; Loizidou v. Turkey.

32 Ilascu and others v Moldova and Russia, Judgment, para. 393 et seq. 33 Art. 1 European Convention on Human Rights.

34 See for example: USA-Croatia BIT, Art. 1(e); France-Mexico BIT, Art. 1 Para. 4; Switzerland-Egypt, Art. 1 Para. 2.

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international law.36 Other scholars to the contrary argue that the treaty obligations of a state can

also extend to territories that are only de facto controlled by that state.37

The opponents of the application of treaty obligations on de facto controlled territories argue that the term “territory” has to be interpreted substantially narrower than the term “jurisdiction” and that the territory of a state is only comprised of the territory a state controls in accordance with international law.38 On the other hand, those scholars who argue that a state should be

bound by its (investment) treaty obligations on territories it only de facto controls argue that treaties usually do not exclude the application of their obligations to de facto controlled territories.39 Furthermore, it is argued that it would not contradict but rather be in the spirit of

the principle of non-recognition of the illegal aquiry of territory to have the treaty obligations of the de facto controlling state apply.40 This is because recognizing obligations of the de facto

controlling state does not mean to recognize the right of the state to control the territory.41

III. The impact of the cases brought by Ukrainian investors against Russia regarding Crimean investments

What has been said above does not provide a clear answer to the question whether a state only

de facto controlling a territory is the host state of investments on that territory. This is because

the scholarly opinions are divided but even more importantly because there has not been any case law on the issue. The annexation of the Crimean peninsula by Russia has however led to a number of investment protection cases brought against Russia on the basis of the Ukraine-Russia BIT.42 These decisions rendered by different arbitral tribunals have significantly

changed the legal situation regarding the question of whether a BIT can be invoked against a state with regards to a territory that this state only de facto controls. The above mentioned disagreement amongst scholars has proven not to be just about a hypothetical, but a very real and practical legal question.

36 Mayorga, p. 4; Kryvoi; Costelloe, p. 348;

37 Karagiannis, para. 66; Kuchmiienko p. 547 et seqq.; Milanovic, p. 10; Happ/Wuschka, p. 264. 38 Mayorga, p. 4.

39 Kuchmiienko p. 539; Milanovic, p. 10.

40 Kuchmiienko p. 547; Happ/Wuschka, p. 264 even argue that international investment tribunals are not bound by the duty not to recognize the illegal acquiry of territory.

41 Kuchmiienko p. 547 et seqq.; Happ/Wuschka, p. 264.

42 There are a number of cases which regard virtually the same fact pattern on the issue of territorial jurisdiction. In the following, only the case Stabil LLC and others v. Russia will be referred to since it contains the same reasoning with regards to the issue of Crimea being a disputed territory as the other cases. These cases include: Lugzor and others v. Russia, Oschadbank v. Russia, PJSC Ukrnafta v. Russia, Stabil LLC and others v. Russia, Everest Estate and others v. Russia, Aeroport Belbek and others v. Russia.

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The cases were brought by Ukrainian investors who had made their investment on Crimea at a time when the territory was undisputedly a part of Ukraine. The investments at the time were thus made by Ukrainian investors within Ukraine. These investors now argued that their rights were violated by Russia in its capacity as the host state in the sense of the Ukraine-Russia BIT. The arbitral tribunals therefore had to decide whether the Ukraine-Russia BIT could be invoked against Russia on a territory that is not a part of Russia from the standpoint of international law, but nevertheless (and undisputedly) is de facto controlled by Russia.43

The tribunal in Stabil LLC and others v. Russia came to the conclusion that Russia was indeed bound by the BIT merely because it de facto controls the territory of the investment. The Tribunal made several arguments as to why de facto controlled territories should be included in the definition of “territory of the contracting parties”.44

The starting point of the argument of the Tribunal was an interpretation of the term “territory” according to the VCLT. Here, the Tribunal took into account that English, Russian and Ukrainian legal dictionaries defined the word “territory” without reference to the principle of sovereignty. This interpretation was in the eyes of the tribunal not changed by the fact that Art. 1 Para. 4 of the BIT refered to the territory of the contracting parties as “the territory of the Russian Federation or the territory of the Ukraine and also their respective exclusive economic zone and the continental shelf as defined in conformity with the international law [emphasis added]”. In this regard the Tribunal came to the conclusion that the phrase “in conformity with international law” only referred to the exclusive economic zones and continental shelves, but not to the term territory in general.45

After interpreting the plain wording of the BIT, the Tribunal took into account Art. 29 VCLT, under which a treaty is presumed to apply to a state’s “entire territory”. The tribunal noted that “entire territory” under Article 29 was not limited to territory under a state’s lawful occupation.46

The tribunal then went on interpreting the BIT provisions in their context and teleologically. The tribunal argued that the BIT in general linked the territory of a state to the state’s ability to legislate in a particular territory and that it was Russia who had this ability. The tribunal then stated that the BIT’s object and purpose of enhancing economic operation and safeguarding foreign investments did not permit a restrictive interpretation of the BIT that “would exclude

43 Kuchmiienko p. 536 et seqq; Hepburn/Kabra. 44 Hepburn/Kabra.

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investments that ended up being located on a contracting state’s territory as the result of that state’s territorial expansion”. The tribunal reasoned that it would not serve the BIT’s purpose to “leave without protection foreign investments on a territory over which a state exercises exclusive control […] particularly in circumstances where that state is not only the main beneficiary-state of these investments but also the only state in a position to protect foreign investments”.47

Finally the tribunal made the argument that good faith prevented Russia from “blowing hot and cold”: Russia could not claim territorial control over Crimea while at the same time denying BIT protection to Ukrainian investments on Crimea. Furthermore, the tribunal held that Russia had made repeated unilateral public declarations that Crimea is part of its territory which could be relied upon by third parties.48

IV. Conclusion on the applicability of investment treaties on factually controlled territory

The analysis of the scholarly opinions and case law above shows that it is largely undisputed that a state has at least some obligations with regards to territories it de facto controls. While there is some support for the position that all treaty obligations of a state are applicable on a territory it factually controls, the better view is that a determination of whether a state is or is not bound must be made individually for every treaty.

It is not logical to just argue that when a treaty refers to the “territory” of a state as opposed to the “jurisdiction” of a state, the treaty is not applicable on a particular territory unless a state exercises its control legitimately. In this regard the better view is that a determination of whether a treaty is applicable on a certain territory cannot limit itself to an interpretation of the word “territory” and to the assumption that the meaning of this word must in any case be narrower than the word “jurisdiction”. Such a determination to the contrary must include a thorough analysis of the context of the definition and the object and purpose of the particular treaty. It is therefore also not sufficient to just make a conclusion based on the fact that a treaty does not exclude its application on only de facto controlled territories.

Such a thorough analysis was made by the tribunal in Stabil LLC and others v. Russia, which led to a convincing result because it took into account not only the treaty text and its context as well as object and purpose but also the facts of the particular case and especially the conduct of

47 Hepburn/Kabra. 48 Hepburn/Kabra.

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the respondent state. This was necessary because the mere interpretation of the word “territory” with the help of legal dictionaries does not lead to a clear result.49

There have so far only been investment protection cases with very similar fact patterns regarding the same BIT, the same disputed territory and none of the decisions in these cases are publicly available. Apart from these decisions case law and scholarly opinions are contradictory and often not very indicative with regards to the situation in international investment law. Nevertheless, an analysis of all these sources shows that it is possible to answer the question of whether and under what conditions a state should be considered the host state of an investment even if it only de facto controls the territory where the investment is located.

BITs refer to the territory of a state because it is only on its own territory that a state has the possibility to respect or violate an investor’s rights. The reason for including the term “territory” in a BIT is to prevent a state from violating the investor’s rights in its exercise of sovereignty. This is because most substantial guarantees in BITs are linked to the territoriality of the host state.50 For this it does not matter whether the sovereign control is exercised legitimately or not

because this does not change the fact of the investor’s rights being respected or violated.51

Therefore, the object and purpose of a BIT and especially the reason for including the term “territory” in a BIT leads to the conclusion that a BIT should also be applicable on a territory that is only de facto controlled by a contracting party.

The second convincing argument in favour of the applicability of BITs on disputed territories lies in the principle of good faith. If a state claims to legitimately control a territory and at the same time has agreed to be bound by certain commitments on its territory, it would be contrary to the good faith principle of consistency to allow a state to successfully argue that its commitments are not applicable on that territory.

The state de facto controlling a territory is for the same reason very unlikely to claim in front of an arbitral tribunal that the territory of the investment is not its territory as defined in the investment treaty. This theoretically would not change anything regarding the legal assessment whether a BIT is applicable because the Tribunal has the obligation to make a determination on jurisdiction without one of the parties making a specific submission disputing the territorial

49 E.g.: Merriam Webster dictionary: “a geographic area belonging to or under the jurisdiction of a governmental authority”; Cambridge Dictionary: “(an area of) land, or sometimes sea, that is considered as belonging to or connected with a particular country or person” and “land that belongs to a particular country”; Black’s Law Dictionary: “A part of a country separated from the rest, and subject to a particular jurisdiction.”.

50 Douglas, p. 373; Zheng, p. 146; For instance is a state only capable of physically expropriating an investment on a territory it factually controls.

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jurisdiction. It might however still be the case that a tribunal will be reluctant to find that a BIT is not applicable if the respondent state itself does not make such a submission. This might also have been one of the reason that led the tribunals in Stabil LLC and others v. Russia to find that the Ukraine-Russia BIT was applicable.52

In conclusion, a state’s investment treaties therefore apply on all the territories it factually controls as long as a particular BIT does not explicitly state that it is only applicable within the borders of the state according to international law.53

E. Can quasi-states be host states of an investment?

I. Definition of quasi-states

Besides cases when a territory is controlled by a state while being legally a part of another state there are also cases in which a territory, while being legally a part of a state, is controlled by an entity that is not recognized as a state.54 After having concluded above that a state de facto

controlling a territory has to be considered a host state of the foreign investments on that territory, the question arises what the situation is when an entity other than an internationally recognized state controls the territory of the investment. Put differently: Can an entity that is not internationally recognized as a state be the host state of an investment on a territory that is

de facto controlled by that entity?

In order to de facto control a territory, any entity must fulfil to some extent the characteristics of a state. To control a territory requires an entity to exercise some governmental functions. The only thing that separates such an entity from actual states is the fact that it is not recognized internationally.55 Therefore, such entities will in the following be referred to as quasi-states.

It is important to note however, that the quasi-states that will be mentioned below are in very different situations regarding their quasi-statehood. While some of them are recognized as states by the majority of the international community and are considered by scholars and sometimes even international tribunals to have gained statehood, others are not recognized by any state or only by very few states. Some quasi-states actively conclude treaties and play an active role in international investment law by being parties to investment treaties and by being involved in disputes based on such treaties while others do not. While it may seem odd to mention for

52 As far as is known from publicly available information, Russia in these cases did not argue that the treaty was not applicable territorially.

53 Such as for example in the Stabil LLC and others v. Russia case.

54 For example: Abkhazia, South Ossetia, Transdniestria, Nagorno Karabakh, to some extent Kosovo and Palestine.

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example Palestine or Kosovo under the same term of quasi-state as South Ossetia and Kurdistan, this has the advantage of providing a broader base of state and treaty practice as well as case law.

II. Quasi-states as investment treaty parties in international law

In order to be a host state of a foreign investment under an investment treaty, a quasi-state in the same way as a state first and foremost has to be bound by an investment treaty. This in turn requires a quasi-state to be able to assume treaty obligations. The prevailing view among international scholars is that only states and entities, which are by states provided with the capacity to conclude treaties, can be parties to treaties.56

There are different theories of what the role of recognition is with regard to the statehood of an entity, with the declaratory theory being the prevailing one.57 According to this theory, an entity

becomes a State when it satisfies the objective criteria for statehood. These criteria are a permanent population, a defined territory, an effective government and the capacity to enter into relations with other states.58

In contrast, the other theory argues that an entity is a state if recognized as such by the international community. “Recognition” refers to the formal acknowledgement by other states that an entity is a state.59

For the question of whether a quasi-state can be the host state of a foreign investment, the discussion of which theory is to be followed, is irrelevant. This is because in order to be a host state under an investment treaty, a quasi-state needs to conclude an investment treaty. Such a treaty in turn can usually only be concluded between the quasi-state and a state which recognizes it as a state. Even if one was to follow the declaratory theory, as long as there is no other state recognizing the statehood, there also is no state to conclude an investment treaty with. To be a host state under an investment treaty, recognition by at least one other state is therefore required.60

This position is also argued by international scholars.61 Balouzieh for instance argues with

regards to the status of Palestine in international investment law:

56 Dupont, p. 24; Shaw, p. 93 et seqq. 57 Shaw, p. 447; Dupont, p. 8 set seq.

58 Balouziyeh, para. C.2; see also Brownlie, p. 70 et seqq. and p. 86 et seqq.; Shaw, p. 445 et seq. 59 Balouziyeh, para. C.3; see also Brownlie, p. 86 et seqq.

60 Which does not mean that a quasi-state cannot be a host state to investments made under different instruments. See below on investment agreements and foreign investment laws, part E.IV.

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“However, there is one important consequence that Resolution A/67/L.28 [Resolution of the General Assembly of the United Nations recognizing Palestine’s statehood] will have: some of the nations that voted for the Resolution will likely enter into diplomatic relations with Palestine. This means more than just recognizing Palestinian diplomatic missions; it likely means ratifying treaties with Palestine, setting up trade missions and, perhaps also, ratifying treaties establishing alternative dispute resolution mechanisms

to protect foreign investors in Palestine.[Emphasis added]”62

From this, it becomes clear, that a quasi-state becomes a host state under an investment treaty as another state concludes an investment treaty with that quasi-state and an investor makes a foreign investment that falls under that investment treaty.63

III. Investment treaty practice of quasi-states

Treaty practice shows that it is indeed not necessary for a quasi-state to be recognized by all or most or even a significant number of states as a state to be able to conclude investment treaties that allow it to be the host state of investments. There are a number of states that are not recognized by a substantial portion of the international community that have concluded investment treaties.

The State of Palestine is recognized as a state by currently 137 states64 and is considered to be

a state by some international scholars.65 There is however a significant portion of the

international community that does not recognize the State of Palestine.66 Palestine has to date

ratified three bilateral investment treaties with Egypt, Germany and Russia.67 In this regard it

is especially worth noting that one of these states, Germany has concluded a BIT with the State of Palestine without having recognized the State of Palestine.68

62 Balouzieh, para C. 4.

63 Dupont for instance takes this position with regards to Kosovo in case it was not to be considered as a state: Dupont, p. 24.

64 Permanent Mission of Palestine to the UN. 65 Quigley, p. 749 et seqq.

66 Tharoor.

67 Egypt-Palestine BIT; Germany-Palestine BIT; Russia-Palestine BIT; It has also signed but not ratified BITs with Jordanand Turkey: Investment Policy Hub.

68 Permanent Mission of Palestine to the UN /; see also Brownlie, p. 93 on the implied recognition of a state by conclusion of a bilateral treaty.

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The Republic of Kosovo is recognized by 114 states, meaning that a majority of the international community recognizes Kosovo as a state. 69 There is however also a significant

portion of the international community including the two UN Security Council veto powers China and Russia as well as for example India opposed to Kosovo’s statehood.70 This makes

Kosovo a typical example of a disputed territory. Kosovo currently has 8 BITs with other states in force.71 Moreover, Kososvo is also a party to the ICSID Convention.72

After having seen the example of Palestine and Kosovo, which are recognized as states by the majority of the international community and engage in diplomatic relations that make them at least factually a part of the international community, we now turn to a different group of quasi-states. These entities, while displaying all objective criteria of statehood, are recognized by only a very small number of states and in some cases can even be seen as puppet entities of another state.

Abkhazia and South Ossetia are self-proclaimed states that are considered to be a part of Georgia by the vast majority of the international community and the UN Security Council.73

Notwithstanding the fact that there is widespread consensus that these two entities are not states, these quasi-states have concluded BITs. Both South Osseria and Abkhazia have concluded a BIT with Russia.74 These BITs are drafted similiarly to other BITs of Russia and along with

substantial standards of treatment also contain a right of investors to bring claims against the host state to UNCITRAL or ICSID Arbitration.75

From the above mentioned treaties it becomes clear that a quasi-state does not need to be recognized as a state by a significant portion of the international community in order to be the host state to a foreign investment under an investment treaty. The only requirement is the existence of the investment treaty and of an investment that falls under it.

IV. Investment agreements and foreign investment laws of quasi-states

The most widespread indication that quasi-states can be host states of foreign investments are the numerous investment agreements and the foreign investment laws that such self-proclaimed

69 Ministry of Foreign Affairs of Kosovo. 70 BalkanInsight; Jose.

71 Kosovo-Albania BIT; Kosovo-Austria BIT; Kosovo-Belgium and Luxembourg BIT; Kosovo-Canada BIT; Kosovo-Macedonia BIT; Kosovo-Switzerland BIT; Kosovo-Turkey BIT; Kosovo-UAE BIT.

72 ICSID, state list.

73 TASS; UN SC Resolution 1808 (2008); On the dispute regarding Abkhazia see Hewitt. 74 Russia-Abkhazia BIT; Russia-South Ossetia BIT.

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but not recognized quasi-states have enacted. Apart from the investment agreements that will be mentioned below when discussing the case law of investors bringing claims against host states based on investment agreements, there are other instances of investment agreements concluded between foreign investors and a quasi-state.

South Sudan gained its independence and was recognized by virtually the whole international community in 2011.76 However already in 2008, when it from the standpoint of international

law was still a part of Sudan, it concluded at least two investment agreements providing for PCA arbitration in case of a dispute.77 Such a case was brought against South Sudan in 2012,

i.e. after South Sudan already had become a state and the investment was no longer located on a disputed territory.78 This shows that South Sudan at least to the investment covered by these

investment agreements had already in 2008 become the host state.

With regards to another quasi-state, Abkhazia, there is a list of foreign investments that have been made in agreement with the “State Investment Agency” of the Ministry of Economy of the Republic of Abkhazia on the website of this agency.79 This list contains six investment

projects that have been implemented by foreign investors of the territory of Abkhazia. This shows that investments based on an investment agreement with a quasi-state is not something unusual.

The government of Transdniestria, another self-proclaimed state located between Ukraine and Moldova, goes one step further. Apart from concluding investment agreements with foreign investors, the government of Transdniestria has also enacted a draft investment agreement to be used with potential investors.80 The agreement contains in its article 9 a dispute settlement

provision allowing the investor to bring claims against the host state, although the forum to which such claims can be brought is left blank in the draft.

Apart from this draft investment agreement, the parlament of Transdniestria has also enacted a “Law on the State Support of Foreign Investments”. 81 This law shows that Transdniestria

considers itself to be the host state of any foreign investment on its territory in the sense of international investment law. This is illustrated by the fact that the law contains amongst others provisions regarding expropriation, FET and free transfer of returns.82 Furthermore, Art. 24

76 BBC Article of 30 January 2011.

77 Active Partners Group v. South Sudan, Final Award, para. 5. 78 Active Partners Group v. South Sudan, Final Award, para. 7. 79 State Investment Agency of Abkhazia.

80 Order of the government of Transdniestria on the draft investment agreement. 81 Investment Promotion Law of Transdniestria.