International Investment Treaty Protection of Not-for-Profit Organizations

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International Investment Treaty  Protection  of
Not‐for ‐Profit Organizations

Working  Paper
Regional  NGO  Law  Rapid‐ Response  Mechanism,  Supported  by  USAID
May  2008  update

This paper is made possible by the generous support of the American people through the United
States Agency for International Development (USAI D). The contents are the responsibility of the
authors and do not necessarily reflect the view s of USAID or the United States Government.

1

I. Introduction

One of the defining features of the current ph
ase of globalization has been the astonishing
proliferation of non-governmenta fluence and reach of such
actors on the global stage. At the ime as th ere has been a sustained boom in international
trade and investment activity, no t-for-profit activity has also enjoyed healthy growth on the
international stage. However, unlike commerc ial activity – which is governed by a dense
universe of purpose-built trade a nd investment agreements – not-for-profit activities have been
more neglected by the architects of global governance. At first glance, the international legal
e governing not-for-profit organizations is far more skeletal than the regimes governing
ommercial for-profit activities.
cases -profit organizations encounter turbulence in their foreign operations,
e li international legal recourse may be available. Not-for-profit organizations

rt it
However, the leading interna tional human rights regimes in

CN treaties expressly protect th e rights of foreigners to form not-for-profit
3 4
l organizations, and the increasing in
same t
regim
c

In where not-for
som mited forms of
might look to regional instruments such as th e European Convention on the Recognition of the
Legal Personality of International Non-Govern mental Organizations – an agreement which
obliges signatories to grant non- governmental organizations the e quivalent status and protection
afforded in their home territories. However, this Convention is poorly adhered to, with only 10
ratifications to date.

Not-for-profit organizations often turn to internat ional human rights law for recourse in cases of
interference or abuse at the hands of host governments. Indeed, in late 2006, the European Cou
of Human Rights issued the latest in a line of ringing endorsements for the right of not-for-prof
organizations to associate freely.
1
Europe and the Americas are limited in their ge ographical coverage, and, hence, in their capacity
to remedy wrongs suffered by not-for-profit organizations operating internationally. 2

Another alternative may lie in an earlier generation of “Friendship, Commerce and Navigation”
(“FCN”) treaties concluded by governments. Several FCN treaties contain non-economic
protections for foreigners, incl uding guarantees of freedom of conscience, freedom of worship,
and protection from extra-legal searches and harassm ent. Of particular interest for not-for-profit
organizations, some F
associations and engage in philanthropi c work without interference. Several FCN treaties
guarantee that the parties will treat not-for-profi ts from the other party no less favorably than

1 See Moscow Branch of the Salvation Army v Russia , Application No. 72881/01, 5 October 2006. 2 See discussion in Nick Gallus and Luke Eric Peterson, “International Investment Treaty Protection of NGOs,”
2(4) Arbitration International 527 (2006) at pages 531-2.
,
Pakistan Friendship and Commerce Treaty.
4 Article 1, Liberia-US Friendship, Commerce, Navigation Treaty; Article 1, US-Norway Friendship, Commerce
rticle 2(2) and
23 Article 6(7), US-Belgium Friendship, Establishment and Navigation Treaty; Article 8( 1), US-Denmark Friendship
Commerce and Navigation Treaty; Article 6(2), US-Ireland Friendship, Commerce and Navigation Treaty; Article
3(2), Italy Friendship, Commerce and Navigation Treaty; Article 6(4) US-Luxembourg Friendship, Establishment
and Navigation Treaty; Article 3(2), US-Italy Friendship, Commerce and Navigation Treaty; Article 8(2), US-
and Consular Rights Treaty; Article 3(2), US-Italy Friend ship, Commerce and Navigation Treaty; A
3(3), US-Taiwan Friendship, Commerce and Navigation Treaty; Article 2(2), US-Togo Amity and Economic
Relations Treaty.

2

they treat their own, 5 including in taxation, 6 and no less favorably than they treaty not-for-profits
from third countries.
ir behalf. e
aties for the protection of foreign investments, commonly
ferred to as bilateral investment treaties (“BI Ts”). An earlier article by the present authors has
slate

7

While these FCN agreements offer important prot ections, not-for-profits cannot claim in their
own right that a state failed to provide the pr otections but must convince their home government
to assert a claim on the

Another less explored avenue for not-for-profit or ganizations is the existing international regim
which has largely succeeded th ese earlier FCN agreements, sp ecifically the vast and still-
growing network of internationa l tre
re
highlighted how such agreements might provide jurisdiction for not-for-profit organizations to
arbitrate against a host government pursuant to international law. 8 These treaties provide a
of binding legal protections fo r those entities fitting undernea th the agreements’ protection
umbrella. These protections include compensa tion in case of expropriation of assets; non-
discriminatory treatment; the right to transfer fu nds into and out of a host country; due process;
physical protection (including ba sic police protection); and so-called “fair and equitable
treatment”.
The purpose of the present paper is two-fold: to profile the features of these international
investment treaties, and to offer a preliminary assessment of how – and to what extent – the
protections of these agreements might be relevant to not-for-profit organizations who have
suffered deprivations, interferences, and va rious forms of abuse at the hands of host
overnments. While these investment
g treaties were not conceived primarily as instruments for
protecting not-for-profit actors, many such agreements do afford potentially significant

5 Article 6(7), US-Belgium Friendship, Establishment and Navigation Treaty; Article 7( 1), US-Denmark Friendship,
Commerce and Navigation Treaty; Article 9(1), 12(1) and 13(1), US-Greece Friendship, Commerce and Navigation
Treaty; Article 6(4), US-Luxembourg Friendship, Establishment and Navigation Treaty; Article 1, US-Finland
Friendship, Commerce and Consular Ri ghts Treaty; Article 1(2), US-Italy Friendship, Commerce and Navigation
Treaty; Article 6, US-Ireland Friendship, Commerce and Navigation Treaty; Article 9(1), US-Israel Friendship,
Commerce and Navigation Treaty; Article 1(2), US-Italy Friendship, Commerce and Navigation Treaty; Article 1,
US-Liberia Friendship, Commerce and Navigation Treaty; Article 8(2), US-Pakistan Friendship and Commerce
Treaty; Article 2(2), 3(3) and 4(3), US-Taiwan Friendship, Commerce and Navigation Treaty.
6 Article 9(1), US-Belgium Friendship, Establishment and Navigation Treaty; Article 9( 1)(d), US-France Navigation
and Commerce Treaty; Article 9(1)(d), US-Madagascar Navigation and Commerce Treaty; Article 11(1) and 16(1),
US-Israel Friendship, Commerce and Navigation Treaty; Article 10(1), US-Luxembourg Friendship, Establishment
and Navigation Treaty; Article 11(1), US-Netherlands Friendship, Commerce and Navigation Treaty; Article 11(1),
US-Suriname Friendship, Co mmerce and Navigation Treaty; Article 7(1), US-Oman Amity, Economic Relations
and Consular Rights Treaty; Article 10(1), US-Taiwan Friendship, Commerce and Navigation Treaty.
7 Article 7(2), US-Denmark Friendship, Commerce and Navigation Treaty; Article 6(3), US-Ethiopia Amity and
Economic Relations Agreement; Article 1, US-Finland Fr iendship, Commerce and Consular Rights Treaty; Article
1, US-Liberia Friendship, Commerce and Navigation Treaty; Article 8(2), US-Pakistan Friendship and Commerce
Treaty.
8 Gallus and Peterson, supra n. 2. See also earlier work by Timothy Evered and Gregory W. MacKenzie, which had
raised the possibility of investment arbitration as a legal recourse for not-for-profit actors: Timothy Evered, “Foreign
Investment Issues for International Non-Governmental Organizations,” 3 Buffalo Journal of International Law 153
(Summer 1996) and Gregory W. Mackenzie, “ICSID Arbitration as a Strategy for Leveling the Playing Field
Between International Non-Governmental Organizations and Host States”, 19 Syracuse Journal of International
Law and Commerce 215 (Spring 1993).

3

international law protection to such actors. In so doing, they represent a useful supplement
patchy framework of international human right s law and international not-for-profit law.

II. Prob to the
lems faced by not-for-profit organizations in foreign countries
fits to , be
ever,
fit for civil
ied a
growing regulatory backlash against civil societ y organizations in many parts of the world.”
9
on in the Middle
ast, the former Soviet Union, Asia and Africa.
e countries place seve re limits on the creation of such organizations. Conversely, the
ght to establish a not-for-profit organization may be granted, but severely circumscribed in
estrictions on foreign funding of not-for-profit
rganizations. Such measures may ban foreign funding; require that all foreign funds be

to
nks, . A

The organizations which are the subject of this pa per are those which do not distribute pro
directors or other owners. Such not-for-profit organizations may pursue widely varying goals
they private or public benefit. Particular attentio n is given in the following discussions, how
to those not-for-profit organizati ons which pursue some form of public good or bene
society.

In recent years, there appears to have been an upsurge in harassment and obstruction of not-for-
profit organizations. The International Center fo r Not-for-Profit Law (“ICNL”) has identif

ICNL notes that restrictive laws, regulations and policies have been most comm 10 E

These restrictions come in a variety of forms.

Countries often take measures targeted at the ri ght of not-for-profit organizations to form. Some
repressiv
ri
practice. For instance, several c ountries have introduced onerous registration requirements which
oblige all organizations to register with th e government so that their activities may be
monitored.
11 At the same time, government agencies may exercise arbitrary sway over the
registration process, with applic ations delayed for long periods or rejected summarily without
explanation.

Another problem arises where c ountries apply r
o
channeled through or approved by government agen cies; or place onerous taxes or limits on any
foreign funding. 12 The professed intention of such measures is often to limit foreign “meddling
in domestic political affairs, however, such measures may grant governments wide discretion
hamper the activities of not-fo r-profit organizations. In Uzbeki stan, foreign funds intended for
local non-governmental organizations must be channeled through select government ba
which enjoy broad discretion whether and when to pass those funds onwards to local actors
local chapter of the Open Soci ety Institute was de-registered by the Uzbek Government in 2004

n
Ibid. , at pages 4-5. See also Article 9 of the Indian Foreign Contribution (Regulation) Bill , 2006, which empowers
the Indian government to “prohibit any person or organization … from accepting any foreign contribution” for a
il servants the power to interfere with civil society activity” (CIVICUS, “Indian Government Bill
s Civil Society,” 9 March 2007, available on- line at: https://www.civicus.org/csw/CIVICUS-press-release-
). 9 International Center for Not-for-Profit Law, Constraints on Civil Society, Draft of January 15, 2006, pages 1-2, o
file with authors.
10 Ibid. 11 Ibid., at pages 3-4. 12
broad range of reasons including the “public interest.” CI VICUS, the World Alliance for Citizen Participation, says
the Bill “gives civ
Threaten
IndiaFCRB-9.3.07.htm
4

and forced to cease its activities in that country. Prior to being de-registered, the Institute decried
the onerous new requirements to channel grants through state hands, lamenting that this had
effectively halted international s upport to many local grantees in areas such as health, education
legal reform and economic and small business support.
,
er
o carry out their work. For example,
ne not-for-profit organization was allegedly forced to abandon construction of a camp for
of

, a
eetings
elopment meetings. A particular concern has been
at reporting requirements are sometimes introd uced which would require that any program

Not-for-profit organizations are sometimes the victim of more generalized harassment. For
example, in a recent report on Zimbabwe, Huma n Rights Watch has chronicled a pattern of 13

A further tool which is often used to harass not-fo r-profit organizations is the threat of arbitrary
termination or dissolution. ICNL warns that laws introduced in Belarus and Egypt grant broad
discretion to shut down any organi zations for vague violations of national security, public ord
or morals.
14 In a related vein, authorities may seize the assets or offices of not-for-profit
organizations, making it difficult or impossible for them t
o
children in Africa, and the money incurred in constructing the camp, when the African
government arbitrarily halted construction. 15 Another problem may be the denial or revocation
permits which had been issued or promised.

Even where arbitrary termination or dissoluti on is not employed, governments may enjoy wide
latitude to monitor and interfer e in the activities of not-for-pro fit organizations. For example
recently enacted law in Russia provides government officials with a right to attend any m
and events of a not-for-profit or ganization, raising the specter of state-meddling in internal staff
meetings, strategy sessions, and program dev
16
th
activities (an undefined and potentially open-ended term) be reported to government officials on
an ongoing basis. ICNL reports that, in some instances, government officials may harass not-
for-profit organizations to such an extent that their ability to carry out program activities is
compromised.
17 Recently, a group of major internationa l not-for-profit organizations, including
Amnesty International, Human Rights Watch and Transparency International, wrote to Russian
President Vladimir Putin to warn that the repo rting requirements of his government have the
potential “to present serious obs tacles to the functioning of these organizations, including
through burdensome and unreasonable demands and arbitrary decisions by officials.”
18

13 Open Society Institute, “Uzbek government forces closure of local Soros Foundation”, Open Society Institute
Press Release, April 18, 2004, available on-line at: https://www.soros.org/newsroom/news/uzbekistan_20040418.
14 ICNL, supra n. 6 at page 6.

aw on Non-commercial Organi zations: “Supervision over the observance of laws by
ver the compliance of their activities
e in
lobal-civil-society-letter-to-Pres identPutin-february-2007.pdf. 15 Confidential information provided to one of the authors on 2 February 2006 by a Canadian-based not-for-profit
organization undertaking charitable activities in various developing countries.
16 Article 38, Russian Federal L
public associations shall be exercised by the Procurator’s Office of the Russian Federation. A body rendering
decisions on the state registration of public associations shall exercise control o
with their statutory goals. The said body shall have the right to exercise the following: 1) summon documents
containing resolutions by a public association’s governing bo dies; 2) send over its representatives to participat
events held by public associations.”
17 ICNL, supra n. 6 at page 7. 18 Letter to President Vladimir Putin, January 2007, at page 2, available on-line at:
https://www.civicus.org/new/media/G
5

“sustained harassment and intimidation of human rights activists.” 19 The report notes that human
rights organizations are a partic ular target of the government which has accused them of
supporting the political opposition and of using We stern funds to “destabilize the country.”
Human Rights Watch notes that repression and intimid ation are used to such an extent that
inhibit the course of the daily wo rk by human rights organizations:
they

ithout of ,

In addi
commit
activiti
which t
govern s
and foo
foreign ; whether the organization itself will pay Value-Added
duties on goods brought into the country; and what sort of contributions the host
n
his section addresses each of these requirements.
. Jurisdiction

These threats take many forms including att acks in the state media by state officials,
public statements by ministers, and threat ening phone calls involving death threats by
unknown persons purporting to speak on behalf of the gove rnment. Some human rights
organizations report that their offices are so metimes subjected to random checks w
warrant by police under the pretext of looking fo r incriminating material or evidence
criminal activities. Other activists report that police and intelligence officers often follow
harass and intimidate them.
20

tion to harassing not-for-profit orga nizations, governments have also reneged on
ments. Some private foundations or orga nizations engaged in development or relief
es may conclude legal agr eements with their host countries so as to clarify the terms upon
hey may enter and operate. For example, CARE International has entered into host
ment agreements with Tunisia and Mozambique in relation to water improvement project
d relief activities, respectively.
21 Such agreements might clar ify whether personnel of the
organization will pay income taxes
Taxes or import
state may make (for example, provision of fr ee or subsidized office space or utilities). 22
Governments reneging on commitments to not-fo r-profit organizations after they are relied o
could cause severe fi nancial difficulties.
23

III. BIT protection of not -for-profit organizations

Not-for-profit organizations seeking to claim that some of the actions described above breach an
investment treaty must be able to establish, fi rst, that an arbitration tribunal convened has
jurisdiction to hear the claim and, second, that the treatment is inconsistent with treaty
obligations.

T

A
19 Human Rights Watch, “You Will be Thoroughly Beaten: The Brutal Suppression of Dissent in Zimbabwe,”
18(10A) Human Rights Watch Country Reports (November 2006).
20 Ibid. at page 25. 21 Mackenzie, supra n. 5. See also the reference to ICRC Ho st Government Agreement with Russia in Protecting
Eurasia’s Dispossessed: a Practical Guide , Open Society Institute, Forced Migration Project, 1996, Chapter 2,
available on-line at: https://www2.soros.org/fmp2/html/chapter_2_ngo.html.
22 See the extensive discussion in Evered, supra n. 5. 23 Evered, supra n. 5 at page 165.

6

A not-for-profit organization claiming a breach of a BIT faces two main jurisdictional hurdles:
first, to establish that it qualifies as an “investor” or “compa ny” under a particular treaty, a
second, to establish that it has made “invest ments” which fall under the same treaty.

nd,
i. Is the not-for-prof it organization a protected “investor” or “company”?
vestment treaties differ as to whether they expressly include not-for-profit entities as
” protected under the agreem ent. Some treaties, such as the US treaties
ith Kazakhstan and Kyrgyzstan expressly define companies so as to include organizations that
le
owev som their
rotections to not-for-profit en tities. For example, United Ki ngdom treaties with Azerbaijan,

ii. Does the not-for-profit organi zation have a protected investment?
set
y has
indi cates that “‘investment’ means every kind of

In
“investors” or “companies
w
may not be “organized for pecuniary gain.” 24 Indeed, the letters of transmittal submitted by the
White House to the US Senate make clear that th ese treaties are drafted so as to cover “charitab
and non-profit entities.”
25

H er, e investment agreements leave ope n the question as to whether they extend
p
Kyrgyzstan, Turkmenistan, Kazakhstan, and Uzbekistan all define companies simply as
“corporations, firms and associations incorporated or constituted under the law in force in any
part of the United Kingdom.”
26 In the absence of any express re quirement for such companies to
be profit-seeking, it might be argued that a not- for-profit association constituted according to UK
law falls within the cover of the treaty.
27

Assuming that a not-for-profit entity falls within the definition of “investor” or “company” as
out in a relevant investment treat y, it still remains to be determined whether such an entit
made an “investment” as defined under that same treaty.

Every treaty defines what qualifies as an “investment” – even if some do so in the circular
fashion of the US-Kyrgyzstan treaty which
24 US-Kyrgyz Bilateral Investment Treat y, Article 1(b); US-Kazakh Bilateral In vestment Treaty, Article 1(b). See
also Article 1(3)(a) of the 2005 German model BIT: “the term ‘investor’ means … any juridical person as well as
any commercial or other company or association with or w ithout legal personality having its seat in the territory of
the Federal Republic of Germany, irrespective of wh ether or not its activities are directed at profit.”
25 Letters of Transmittal available on-line at the US State Department website:
https://www.state.gov/documents/organization/43566.pdf and
https://www.state.gov/documents/organization/43567.pdf . 26 See Article 1(d) of the relevant treaties. Treaty texts available on-line at the UK Foreign Office website:
https://www.fco.gov.uk/servlet/Front?pagename=Open Market/Xcelerate/ShowPage&c=Page&cid=1045739996216 . 27 It is worth noting that UK treaties do not impose any nationality requirement beyond mere incorporation in the
designated home country (see, for example Article 1(d) of the UK-Turkmenistan investment treaty, available on-line
at: https://www.fco.gov.uk/Files/ kfile/CM6021IPPATurkmenistan.pdf). By contrast, US treaties set a higher standard
insofar as they require that US “companies” must have substantial business activities in the US. This requirement
ensures that mere shell companies incorporated in the US (and used to make onward investments) would not enjoy
the coverage of the treaty. Conversely, because the UK’s treaties impose no similar requirement, they might easily
be used by non-nationals of the United Kingdom merely by virtue of incorporation of a legal entity in the UK.
Indeed, arbitration tribunals have confirmed that certain investment treaties operate as “portals” – through which
investments emanating from a multitude of different countries might transfer while en route to a final destination in
some third country (see Luke Eric Peterson, “Tribunal Sp lit in Bechtel-Bolivia case over corporate nationality of
investor,” Investment Treaty News, Dec.20, 2005, ava ilable at: https://www.iisd.org/pdf/2005/itn_dec20_2005.pdf).

7

investment … .” 28 It might be inferred from such an open-ended definition that assets not

investments” covered by the US-K yrgyzstan treaty. In other cases, this may be made explicit,

nition ave
ators
jective
addition to meeting the defini tion of investment set out in a given investment treaty, claimants
les of the World Bank’s International Centre for Settlement of Investment
Disputes (“ICSID”), if both parties to the BIT have signed the ICSID’s
as
vestors choosing the UNCITRAL rules or the ICSID’s “Additional Facility” Rules need not
satisfy def
resolve their di tion of
investment wit

intended to be used for commercial or prof it-seeking purposes might still constitute

as, for example, in the North American Free Trade Agreement (“NAFTA”), whose definition of
investment includes “enterprises,” which are elsewh ere defined as entities constituted either for
profit or not-for-profit.
29

The plain-face of the treaty text does not provide the final word on the matter. Where a defi
does not expressly encompass assets deployed for non-profit-seeking ends, arbitral tribunals h
taken different approaches in defi ning what constitutes an investment. In some cases, arbitr
have gone beyond the text of the relevant treat y, in arguing for certain inherent or ob
characteristics of “investments.”
30 In at least two instances, arbitrators have read-in a
requirement for investments to be commercially oriented or intended to generate an economic
return or profit.
31

In
may also need to satisfy a further definiti on of investment, depending on the means through
which the investor chooses to resolve the dispute. Typically, when an investor has a dispute with
a host state, that investor can choose from one of several differe nt sets of arbitration rules
identified in the dispute settlement provisions of a given investment treaty. Investors can,
typically, choose between:
a. the ru
foundational Washington (o r ICSID) Convention;
b. the ICSID’s “Additional Facility” Rules, if only one of the parties to the BIT h
signed the ICSID Convention; and
c. the rules of the United Nations Co mmission on International Trade Law
(UNCITRAL).

In
any inition of inve stment beyond that in the BIT. 32 Conversely, investors choosing to
spute under the IC SID rules might also need to sa tisfy an implicit defini
hin the ICSID Convention.

BIT, Article 1(a). 28 US-Kyrgyzstan
Article 201(1) of the NAFTA reads: “enterprise means any entity constituted or organized under applicable law,
whether or not for profit …”
30 Gallus and Peterson, supra n. 2 at pages 537-8. 31 CME Czech Republic BV (The Netherlands) v. Czech Republic , Ian Brownlie’s separate opinion, Final Award, 14
eyer v. Russian Federation , Award, July 7, 1998 at page 65.
isputes) and are accordingly i ndifferent as to what constitutes an investment. Article 2
he Secretar iat of the Centre is hereby authorized to administer
29
March 2003 at para. 34; Franz Sedelm32 The UNCITRAL rules are more commonly used for arbitration of non-investment disputes (for example
commercial contract or trade d
of the ICSID Additional Facility Rules provides: “T
… arbitration proceedings for the settlement of legal disput es which are not within the jurisdiction of the Centre
because they do not arise direc tly out of an investment …”

8

The ICSID Convention does not offer any explicit definition of the types of investments which
are eligible for arbitration. Some arbitrators ha ve inferred from this that parties enjoy broad
discretion to determine what constitutes a foreig n investment – for example through definition
a given investment treaty – and th at arbitra
33
in
tion under th e ICSID rules should be open to all such
vestments. Conversely, some arbitrators have taken the view that arbitr ation under the ICSID
tate.
A small number of tribunals have cited a fifth characteristic – the ex pectation of profit or
return.
3

One pr l i eal of uncertainty
s to how this jurisdictional question will be handled by tribunals. Potential claimants will need e
plications for the prospects of their cl aim against a host state. Where arbitrators take a
ach – arguing that investments must meet four criteria to fall within the ICSID
Convention – it will be necessary to examine wh ether commitments of capital for non-profit ends
eet
in
rules may impose more stringent hurdles than a given investment treaty. Specifically, some
arbitrators have taken the view that there is an implicit or objective definition of investment
under the ICSID Convention, consisting of four chief characteristics:
a. contribution of resources;
b. a certain duration of performance;
c. risk; and
d. contribution to the economic development of the host s
34

5
actica mport of this diverg ence of approaches is that there is a great d
a
to take specific legal advice so as to understa nd how the selection of arbitrators might hav
pivotal im
restrictive appro
satisfy these characteristics. Clearly, many activit ies of not-for-profit organizations should m
the first two criteria: contri bution of resources and durati on of performance. Non-profit
organizations often establish offi ces or other facilities and devote significant financial resources

33 See, for example, Tokios Tokeles v. Ukraine, Decision on Jurisdiction, 29 April 2004 at para. 73; Fedax N.V. v.
Republic of Venezuela , ICSID Case No. ARB/96/3, Decision on Objections to Jurisdiction, July 11, 1997 at para. 31;
M.E. Cement Shipping & Handling Co., SA v. Arab Republic of Egypt , ICSID Case No. ARB/99/6, Award, 12 April
2002 at para 136 (and the discussion of those cases in Gallus and Peterson, supra n. 2 at pages 539-40); MCI Power
Group LC and New Turbine, Inc v Ecuador , ICSID Case No. ARB/03/6, Award, 31 July 2007 at para. 165;
Parkerings-Compagniet AS v Lithuania , ICSID Case No. ARB/05/8, Award, 11 September 2007 at paras. 249-255.
34 See, for example, Salini Costrutorri S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco , ICSID Case No.
ARB/00/4, Decision on Jurisdiction, 16 July 2001 at para. 52; AES v. Argentina, ICSID Case No. ARB/02/17,
Decision on Jurisdiction, 26 April 2005 at para. 88; Jan de Nul and Dredging International v. Egypt, ICSID Case
No. ARB/04/13, Decision on Jurisdiction, 16 June 2006 at para. 91, discussed in Gallus and Peterson, supra n. 2 at
pages 540-1. See also Malaysian Historical Salvors SDN, BHD v. Malaysia , ICSID Case No. ARB/05/10, Award on
Jurisdiction, May 17, 2007 at para. 123, requiring a “significant” contribution to the economic development of the
host state, but note that at the time of writing the claimant was seeking to annul this decision.
35 See, for example, Fedax NV v. Republic of Venezuela , ICSID Case No. ARB/96/3, Decision on Objections to
Jurisdiction, July 11, 1997 at para. 43; Joy Mining Machinery Limited v. Arab Republic of Egypt , ICSID Case No.
ARB/03/11, Award on Jurisdiction at para. 53, discussed in Gallus and Peterson, supra n. 2 at page 542. In the view
of the authors, reading in a requirement of paying out a profit to directors or shareholders is incoherent when one
considers that this profit criterion might preclude otherwise identical types of private sector activity (for example,
provision of water services or administration of health c linics) from being considered “investments” for purpose of
the given treaty. Indeed, given that contribution to the economic development of the host state has been identified as
another important criterion by some tribunals, it seems incoherent to include only those investments which are
profit-distributive (and indeed likely to take some funds out of the host country, rather than leaving more in the host
country).
9

to programs. Likewise, many of these organizations are engaged in long-term projects or
undertakings in their host state.

Not-for-profit organizations should also be able to satisfy the third criteria. A recent tribunal
identified this criteria as “an ec onomic risk entailed, in the sense of an uncertainty regarding its
successful outcome”.
36 Another tribunal enumerated various risks assumed by a foreign investor,
including the possibility that the state might cancel its contract; pot ential increases in the cost of
labour and inputs during the life of the investme nt; and any unforeseeable incidents whic
affect the investment.
h might
ood to
e, so-called so cial enterprises routinely commit capital to so-
alled “earned income strategies” which are design ed to generate revenue (but not profits or

ot-for-profit organizations seeking to claim und er a BIT must not only demonstrate that an
that the
37 It seems inarguable that non-prof it organizations engaged in program
activity or even the production of goods or se rvices on a non-profit basis might be underst
take on similar risks. For exampl
c
dividends). 38 There is an ongoing debate as to whether such activities are a recipe for success
suggesting that non-profit organiza tions take on sizable risks in pursuing such “earned income
strategies”.
39 Likewise, even where non-profit actors are not engaged in income or revenue
generating activities, their programmatic activi ties might engage numerous risks due to the
challenges and uncertainty of operating in alien and sometimes hostile climates. Indeed, some
observers have remarked upon the close similariti es between certain activities of not-for-profit
and for-profit investors in foreign environmen ts. For example, Timothy Evered noted that
“[b]oth types of investors confr ont common infrastructural or logi stical problems, similar cost
and administrative concerns, and the potential for host country discrimination against foreign
investors.”
40

The ability of not-for-profit or ganizations to meet the final criterion of a contribution to
economic development in the host state will depend on the particular organization. Many
organizations should meet the criterion; indeed, in contrast with many for-profit investments, a
contribution to local economic de velopment is very often the raison d’etre for non-profit
activities.
41

B. BIT Protections

N
arbitration tribunal convened has ju risdiction to hear the claim but also must demonstrate
treatment is inconsistent with a treaty obligation.

i. Description of protections

36 Gallus and Peterson, supra n. 2 at page 542; Patrick Mitchell v. The Democratic Republic of Congo , ICSID Case
No. ARB/99/1, Decision on Annulment, 1 November 2006 at para. 27.
37 Salini v. Morocco , ICSID supra n. 29 at para 55. 38 Gabriel Berger, “NGOs and Socially Inclusive Businesses: Within the Market, for the Mission,” Revista: The
Harvard Review of Latin America Magazine (Fall 2006) at pages 47-48.
39 William Foster and Jeffrey Bradach, “Should Nonprofits Seek Profits,” 83(2) Harvard Business Review (February
2005).
40 Evered, supra n. 5 at page 158. 41 See Berger, supra n. 37 for a discussion of non-profit activities contributing to local economic development.

10

Most BITs contain eight provi sions representing the core investment protections. These are the
rovisions on:
c. arbitrary impairment;
d. tiona
e. expropriation;
sfers; and
h. establishing investments.

Thi ight provisions.

Bef visions, it is important to note three general point s. First, while many
BITs contain these core provision s, they are not included in every BIT. Furthermore, the precise
wording of the core provisions often differs. Di fferently worded provisions could create different
pro ed in this section.
econd, many provisions only impose obligations on the state in regard to investments.
fit organiza tion but if it does not interfere
ith a protected investment then th e state may not breach the treaty.
oc trine of precedent which would oblige them to
ew to an interpretation adopted in an earlier case. Moreover, there is no appellate body to

BITs offer foreign
vestors. As a consequence, both would-be claimants and respondents may be faced with
andard tries

p
a. fair and equitable treatment;
b. full protection and security;
na l treatment;
f. observance of obligations;
g. free tran
s section broadly explains these e
ore examining these pro
tections to those desc rib
S
Consequently, a state may interfer e with a not-for-pro
w

Finally, it is important to note that even tribunals considering exactly the same provision do not
always agree on its meaning. Diffe rent arbitrators hear different BIT disputes and often take
advantage of the fact that there is no binding d
h
ensure consistency of reasoning in investment treaty awards. While consensus sometimes
emerges after a few decisions addressing the meani ng of a particular provision, the area of law is
new and consensus is yet to emerge over all as pects of the protections
in
uncertainty when it comes to the concrete mean ing of investment treaty commitments and the
implications flowing from these obligations.
a. Fair and equitable treatment

Almost every BIT requires the host state to provide “fair and equitable treatment.”
42 The precise
scope of this standard of treatm ent is unclear. At least two tribuna ls have interpreted the st
literally, simply deciding whether the st ate’s conduct was “fair and equitable.”
43 Some coun

of t e Kazakhstan-US BIT, for example, 42
an
Article II(2)(a) h provides: “Investment shall at all times be accorded fair
d equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than
that required by international law.”
43 Azurix Corp. v Argentina , ICSID Case No. ARB/01/12, Award, 14 July 2006 at para 360; Siemens A.G. v
Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007 at para. 290.
11

have rejected this standard as too high. 44 Furthermore, it is unclear whether the standard is
uniform across countries or depends on the country’s level of development. 45

While the precise scope of the standard is uncle ar, it is possible to identify elements of the
standard on which many tribunals have agreed. All tribunals agree that the fai
r and equitable
eatment standard protects against “denial of justice.” A state denying a foreign investor access
s
expectations. Tribunals have found that states failed to protect the investor’s
gitimate expectations and, ther efore, failed to provide fair and equitable treatment by:
• issuing an investment permit for an urban rene wal project that was inconsistent with local
• a commitment to se ll shares to an investor;
50 and

Am ard requires the state to
protect hat, precisely,
vestors ought legitimately expect. Some tribunal s have said that foreign investors expect a
ple, w
tr
to the justice system or administering that justice system unfairly can commit a denial of
justice. 46

Some tribunals agree that the fair and equitabl e treatment obligation protects the investor’
legitimate
47
le

• failing to fulfill representations to the investor that an investment permit would be
renewed;
48
planning laws; 49
reneging on
• drafting a law to minimize an i nvestor’s sugar production quota. 51
ong those tribunals that agree the fair and equ itable treatment stand
the investor’s legitimate expectations, there is little consensus on w
in
stable legal and business environment. 52 These same tribunals have found that by failing to
provide that environment, the stat e failed to provide fair and equitable treatment. For exam
one tribunal found that Argentina breached the standard by reneging on a commitment to allo

ission Note of Interpretation, July 31, 2001.
dards
opportunity to remedy their unfair Case
of Chile , ICSID Case No. ARB/01/7, Award, 25 May
8/2004, Partial Award, 27 March 2007 at para. 335.
ntine Republic , ICSID Case No. ARB/01/8, Award, 25 April 2005

Decision on Liability, 3 October 2006, at para. 124; Occidental Exploration and Production
orporation v Mexico , Award, 30
44 The three parties to the NAFTA have said that the “f air and equitable treatment” obligation within the NAFTA
refers only to the lower customary international law standard of treatment that has evolved over the past hundred or
so years: NAFTA Free Trade Comm
45 Nick Gallus, “The influence of the host state’s level of development on international investment treaty stan
of protection,” 6(5) Journal of World Investment and Trade 711 (October, 2005).
46 The leading text on the issue says “denial of justice occurs when the instrumentalities of a state purport to
administer justice to aliens in a fund amentally unfair manner:” Jan Paulsson, Denial of Justice (Cambridge
University Press, 2005) at page 62. Note that an investor must give local courts an
treatment before the investor can successfully claim for a denial of justice (Jan Paulsson, Denial of Justice at pages
100-130). This is known as ‘exhausting local remedies’.
47 Azurix v Argentina , supra n. 42 at para 372, Técnicas Medioambientales, TECMED S.A. v. Mexico , ICSID
No. ARB(AF)/00/2, Award, 29 May 2003 at para .154; Eastern Sugar BV v Czech Republic, SCC Case No.
088/2004, Partial Award, 27 March 2007 at para. 207.
48 Tecmed v Mexico, ibid. at para. 154 and 174. 49 MTD Equity Sdn. Bhd. And MTD Chile S.A. v. Republic
2004 at para. 188. 50 Eureko B.V. v Republic of Poland , Partial Award, 19 August 2005 at para. 233. 51 Eastern Sugar BV v Czech Republic , SCC Case No. 0852 See CMS Gas Transmission Company v. Arge
at para. 274; LG&E Energy Corp, LG&E Capital Corp and LG&E International Inc v. Argentine Republic , ICSID
Case No. ARB/02/1,
Company v The Republic of Ecuador , Award, 1 July 2004 at para. 183; Metalclad C
August 2000 at para. 99.

12

US investors to charge local Argentine customers in US dollars for the transport and distribu
of gas. tion
on to protect the i nvestor’s legitimate expectations , tribunals have found the state
g
ansfer;
• imposing excessive and harassing admi nistrative burdens on the investor;
55 and

Trib a r and
equ b the
vestor’s license to operate a bank breached th e obligation, where the revocation was “contrary
many cases, BIT provisions requi ring fair and equitable treatment also make reference to the
obligation to p i ty.”
58 This obligation potentially provides
roader protection than provided by the non-binding standards found in international human

53

Where tribunals have not equated a state’s obligati on to provide fair and equitable treatment with
an obligati
breached its obligation by, for example:

• permitting money to be transferred from an investor’s bank account without consultin
the investor on the term s of that tr
54
• forcing the investor to accept an unfair se ttlement of its dispute with the state. 56
un ls have rejected several claims that states breached thei r obligation to provide fai
ita le treatment. For example, a tribunal reje cted a claim that Estonia’s revocation of
in
to generally accepted banking and regulatory prac tice” but “justified” having “regard to the
totality of the evidence.” 57
b. Full protection and security

In
rov de “ful l protection and securi
b
rights agreements, such as the United Nati ons Declaration on Human Rights Defenders. 59
53 CMS v Argentina, supra n. 51 at paras. 275-281. 54 Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Award, 13 November 2000, at para.
al
harassment by its own regulatory authorities.” o. ARB/05/17, Award, 6 February 2008 at para. 179. t
. 364 and 371. For a general discussion of the obligation to provide fair and equitable treatment, see Christoph 005)
fair and
es to ensure the protection by
vidually and in association with others, against any violence, threats,
see Helge Elisabeth Zeitler, “The Guarantee of ‘Full Protection
83. 55 Pope & Talbot Inc v. Canada , Award on the Merits of Phase 2, 10 April 2001 at para. 181. See also Saluka
Investments BV v Czech Republic , Partial Award, 17 March 2006 at para. 308, noting that “it transpires from arbitr
practice that, according to the ‘fair an d equitable treatment’ standard, the host State … must grant the investor
freedom from coercion or
56 Desert Line Projects LLC v Yemen , ICSID Case N57 Alex Genin, Eastern Credit Limited, Inc and A.S. Baltoil v The Republic of Estonia , ICSID Case No. ARB/99/2 a
para
Schreuer, “Fair and Equitable Treat ment in Arbitral Practice,” 6 Journal of World Investment and Trade 357 (2
and Stephan Schill, “Fair and Equitable Treatment under Investment Treaties as an Embodiment of the Rule of
Law,” IILJ Working Paper 2006/6 (Global Administrative Law Series), available at
https://www.iilj.org/20066SchillGAL.htm.
58 Article II(2)(a) of the Kazak hstan-US BIT, for example, says: “Investmen t shall at all times be accorded
equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than that
required by international law [emphasis added].”
59 Article 12.2 of the United Nations Declaration on the Right and Responsibility of Individuals, Groups and Organs
of Society to Promote and Protect Universally Recognized Human Rights and Fundamental Freedoms
(A/RES/53/144, March 8, 1999) provides : “The State shall take all necessary measur
the competent authorities of everyone, indi
retaliation, de facto or de jure adverse discrimination, pressure or any other arbitrary action as a consequence of his
or her legitimate exercise of the rights referred to in the present Declaration.” For a general discussion of the
obligation to provide full protection an d security,

13

At a minimum, the obligation to provide “full protection and security” requires the state to

rotect the investment’s physical security. For example, a tribunal found Sri Lanka failed to
art of d to
owever, the state’s obligation to provide full pr otection and security is even broader, requiring
xample,
d security
rovision by applying the provision to protect the investment’s legal security, as well as its
ation to provide
ll protection and security. The International Cour t of Justice, for example, found that failing to
c. Arbitrary impairment

p
provide full protection and security when its army destroyed the investor’s shrimp farm as p
a military operation against Tamil Tiger rebels. 60 Similarly, another tribunal found Zaire faile
provide full protection and security when its army looted the investor’s battery factory. 61

Both these cases concerned states that injured an investment through their own actions.
H
the state to protect investment against injury by private parties. An ICSID Tribunal, for e
found Egypt failed to provide full protection and secu rity when it failed to prevent private parties
taking over the investor’s hot el and failed to subsequently prosecute those parties.
62

Some tribunals have endorsed an even broader interpretation of the full protection an
p
physical security. 63 One tribunal, for example, found that Argentina failed to provide full
protection and security by failing to provide a secure investment framework. 64

Not all investors have succeeded in their claims that states breached their oblig
fu
prevent local workers from occupying a factory was not sufficient to amount to a failure to
provide full protection and securi ty, where there was no evidence the workers damaged the plant
and some level of production was maintained.
65 A BIT tribunal later partly relied on the
International Court of Justice’s decision in rejecting a claim that Romania’s reaction to labor
unrest breached the State’s obligation to provide full protection and security.
66

Limited v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, Award, June 27, 1990.
for example, CME Czech Republic B.V. (The Netherlands) v. The Czech Republic , Partial Award, September
c
. 408. Italy), 20 July 1989, ICJ Reports [1989] 15 at para. 108.
and Security’ in Investment Treaties Regarding Harm Caused by Private Actors,” 3 Stockholm International
Arbitration Review 1 (2005).
60 Asian Agricultural Products61 American Manufacturing & Trading v. Republic of Zaire , ICSID Case No. ARB/93/1, Award, 21 February 1997. 62 Wena Hotels Limited v. Arab Republic of Egypt , ICSID Case No. ARB/98/4, Award, 8 December 2000 at paras
84-95. 63 See,
13, 2001 at para. 613: “The host State is obligated to ensure that neither by amendment of its laws nor by actions of
its administrative bodies is the agreed and approved security and protection of the foreign investor’s investment
withdrawn or devalued.” See also Azurix v. Argentine Republic supra n. 42 at para. 408: “The cases referred to
above show that full protection and security was understood to go beyond protection and security ensured by the
police. It is not only a matter of physical security; the stability afforded by a secure investment environment is as
important from an investor’s point of view;” and Occidental Exploration and Production Company v. The Republi
of Ecuador , supra n. 51 at para. 187, finding that Ecuador’s amendment of its tax laws breached Ecuador’s
obligation to provide full protection and security.
64 Azurix v. Argentine Republic , supra n. 42 at para65 Case concerning Elettronica Sicula S.p.A. (ELSI) (US v66 Noble Ventures v. Romania , ICSID Case No. ARB/01/11, Award of October 12, 2005, at paras 164-166.

14

A state’s earlier-discussed obligation to provide fair and equ itable treatment may also oblige t
state not to treat the invest or in an arbitrary fashion. he
s include a
parate explicit provisio n protecting investors agai nst arbitrary impairment of their operations.
68
Tribunals have sai t is “founded on prejudice or preference rather than
n reason or fact”
69 or is a “willful disregard of due process of law, an act which shocks, or at
• penalizing the investor and then denying th e investor access to the documents on the

Con r uct
merely nistrative confusion.
72

y”
circumstances.” The precise scope of the
rovision is unclear. Indeed, a recent survey of investment treaty disputes cautions that the
national treatm reted by arbitral tribunals, “remains open to further
finement.”
74 Tribunals chiefly disagree on the m eaning of the two key phrases, “less
It is

67 Nevertheless, several BIT
se
d a measure is arbitrary if i
o
least surprises, a sense of judicial propriety.” 70 A tribunal has applied this latter definition to find
that a government acted arbitrarily, in breach of its BIT obligations, by:

• interfering with the investor’s ability to collect payment from consumers for water
services;
• preventing the investor from increasing tariffs in accordance with the concession
agreement; and
basis of which it was penalized. 71
ve sely, another tribunal reje cted a claim of “arbitrary treatment” where a state’s cond
arose from admi
d. National treatment

The national treatment obligation prevents states from treating foreign investors “less favorabl
than local investors in “like situations” or “like 73
p
ent obligation, as interp
re
favorably” and “like situations (or circumstances).”

A state clearly treats a foreign investor “less favorably” than local investors when the state
intentionally discriminates against a foreign investor because of the investor’s nationality.
75
67 See, for example, Waste Management, Inc v Mexico , ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004 at
y
inatory measures the management, operation, maintenance, use, enjoyment, acquisition, expansion, or
n.
supra n. 42 at para. 393.
ample, reads: “Each Party shall permit and treat investment, and orable than that accorded in like situations to investment or
d
gust 2005
at para. 32 of Chapter C of Part II.
para. 98. 68 Article II(2)(b) of the Kazakhstan-US BIT, for example, reads: “Neither Party shall in any way impair by arbitrar
or discrim
disposal of investments.” 69 Lauder v. Czech Republic , Final Award, 3 September 2001 at paras. 221 and 232; Occidental v. Ecuador, supra
51 at paras. 162-163.
70 ELSI, supra n. 64 at para 128, quoted with approval in Azurix v. Argentine Republic, supra n. 42 at para. 392. 71 Azurix v. Argentina , 72 Occidental v. Ecuador , supra n. 51 at para. 163. 73 Article II(1) of the Kazakhstan-US BI T, for ex
activities associated therewith, on a basis no less fav
associated activities of its own nationals or companies. …” 74 UNCTAD, Investor State Disputes arising from Investment Treaties: a Review , (United Nations: New York an
Geneva, 2005) at page 34.
75 See, for example, Mexico’s submission to the Methanex Tribunal: Methanex Corporation v. United States of
America , Final Award, 3 Au

15

less clear whether a state breaches the provision by effectively treating a foreign investor les
favorably while pursuing a legitimate policy objective. s
mstances” with foreign investors is also
nclear. One NAFTA tribunal supported a narrow interpretation of “like,” comparing the
tment
g
o unclear whether the “situation” or “circumstances” includes the policy goals of the
pugned measure. One tribunal said the “assessment of ‘like circumstances’ must also take into
rs] y as
riation
Almost every BIT requires states to pay co mpensation when they expropriate foreign
vestments.
83 The precise protection provided by such provisions depends on the meaning of

76

Which local investors are in “like situation” or “ like circu
u
treatment of the foreign investor with the treatment of the local investor producing the same
product. 77 Another NAFTA tribunal supported a broade r interpretation, examining the trea
of all local investors operati ng in the same economic sector. 78 Another tribunal went even
further, comparing the foreign investor with a ll local investors that exported other types of
products. That tribunal found that Ecuador faile d to provide national treatment by refunding
value-added tax to a local flower exporting company and not to the foreign investor exportin
oil.
79

It is als
im
account circumstances that would justify governmental regulations that treat [foreign investo
differently in order to pr otect the public interest.” 80 Conversely, another tribunal conspicuously
did not consider the legitimate policy goals of the impugned measure when determining if the
foreign and local investors we re in like circumstances.
81 Nevertheless, that latter tribunal went
on to reject a claim that a Californian law pros cribing the use of an ingredient in a gasoline
additive breached the US’ obligation to provide national treatment because, regardless of the
law’s legitimate goals, US companies producing the ingredient were harmed in the same wa
the Canadian claimant.
82
e. Exprop

in
the two key words, “investment” and “expropriation.”

76 The S.D. Myers , Feldman and Pope & Talbot Tribunals said a state cannot br each the obligation if the measure
000
n v. Mexico at para. 170. For example, the
pter B. t para 38. IT provid es: “Investments shall not be expropriated or
asures tantamount to expropriation or nationalization
natory manner; upon payment of prompt, adequate t
pursues a legitimate public policy objective in certain circumstances: S.D. Myers, Partial Award, 12 November 2
at para. 250; Pope & Talbot , Award on Merits Phase 2 at para. 79; Feldma
S.D. Myers Tribunal found Canada breached the obligation by preventing US waste processing companies from
exporting waste to the US to process. The Tribunal acknowledged that Canada’s go al of ensuring the strength of the
Canadian waste processing industry was laudable but found Canada overlooked other, less restrictive means of
doing so: S.D. Myers , Partial Award, 12 November 2000 at para. 255.
77 Methanex v US , supra n. 74 at para 19 of Chapter B of Part IV. 78 S.D. Myers , supra n. 75 at para. 250. 79 Occidental v Ecuador, supra n. 51 at para. 179. 80 S.D. Myers v. Canada , supra n. 75 at para. 250. 81 Methanex v US, supra n. 74, Part IV, Cha82 Methanex v US , supra n. 74, Part IV, Chapter B a83 For example, Article III(1) of th e Kazakhstan-US B
nationalized either directly or indirectly through me
(“expropriation”) except for: public purpose; in a non-discrimi
and effective compensation; and in acc ordance with due process of law and the general principles of treatmen
provided for in Article II(2).”
16

Every BIT includes a definition of investment. This definition will invariably include tangible addition to defining investments so as to include tangible property, almost every BIT also
by
he protection provided by expropria tion provisions is also, not surprisingly, largely determined

ost BIT expropriation provision s expressly protect against indirect expropriations or measures
e).
an
hile there is no agreement on a test, some tri bunals have identified what types of measures
re
t
expropriation if the measure is disproportiona te to the purpose the state hopes to achieve.

property, such as land and build ings, thereby protecting such property against expropriations.

In
defines investment to include intangible propert y, such as contractual rights and intellectual
property. BIT tribunals have found states breached BITs by failing to pay compensation for
expropriating intangible property rights. Egypt, for example, breached the Greece-Egypt BIT
expropriating the investor’s license right to import cement;
84 Egypt had passed legislation
proscribing cement imports three years before the investor’s license was due to expire.

T
by the meaning of the term “expropriation.” Th e term expropriation typically covers both direct
and indirect expropriations. Stat es can directly take tangible property rights. One tribunal, for
example, found that Russia expropriated a Germ an investor’s property through a Presidential
Decree confiscating the property.
85 States can also directly take intangible property rights; in a
2006 case, another tribunal found Hungary had direc tly taken the investor’s contractual right to
manage an airport by passing le gislation extinguishing the right.
86

M
tantamount to expropriation. 87 These are measures which do not overtly expropriate property but
have the same effect. There is no test for what amounts to an indirect expropriation. There is not
even consensus as to whether tr ibunals hearing a claim for an indirect expropriation should only
focus on the effect of the measures on the investment or whether they should also look at the
legitimacy of the purpose behind the measures (for ex ample, a legitimate public health purpos
While some tribunals focus on the effect of the measures on the investment,
88 one NAFTA
tribunal found that a Californian law proscribing the use of an ingredient in gasoline was not
indirect expropriation because th e law pursued a legitimate purpose.
89

W
they might deem to be an indirect expropriation. A NAFTA tribunal said that a measure is mo
likely to be an indirect expropriation if the measure is inconsistent with specific commitments
given to the foreign investor.
90 Another tribunal found a measure is more likely to be an indirec 91
84 Middle East Cement Shipping and Handling Co. S.A. v The Arab Republic of Egypt , supra n. 32 at para. 107. 85 Franz Sedelmayer v The Russian Federation, supra n. 30 at page 73.
nerally, see Andrew Newcombe, “The Boundaries of Regulatory Expropriation,” 20
March 2006 at paras 254-5; and Fireman’s Fund Insurance
para. 7. See also Fireman’s Fund Insurance Company v
E Energy 86 ADC Affiliate Limited and ADC & ADC Manag ement Limited v. Republic of Hungary, ICSID Case No.
ARB/03/16, Award, 2 October 2006 at para. 476.
87 On indirect expropriation ge
ICSID Review-Foreign Investment Law Journal 1 (2005). 88 See, for example, Azurix v Argentina , supra n. 42 at para 310. 89 Methanex v US , supra n. 74, Part IV, Chapter D, Page 4, para. 15. See also Saluka Investments BV (The
Netherlands) v. Czech Republic , Partial Award, 17
Company v Mexico, ICSID Case No. ARB(AF)/02/01, Awar d, 17 July 2006 at para. 176(j). 90 Methanex v US , supra n. 74, Part IV, Chapter D, Page 4,
Mexico, supra n. 88 at para. 176(k). 91 See Azurix v. Argentina, supra n. 42 at paras. 311-312; Tecmed v. Mexico, supra n. 46 at para. 122; LG&
Corp, LG&E Capital Corp and LG&E International Inc v. Argentine Republic, supra n. 51 at para. 175; and
Fireman’s Fund Insurance Company v Mexico , supra n. 88 at para. 176(j).

17

Suffice to say that there is a lack of certainty as to how to draw the line between legitimate
non-
ompensable exercises of government regula tion and those actions which amount to an
written
,
ns
Most BITs con n e” its “obligations.”
94 Tribunals have
arply disagreed at times over the scope of this provision. In particular, tribunals disagree over
ovision also appears to protect contractual obligations. Indeed, the provision is
ften called an “umbrella provision” because it a ppears to bring contractual obligations within
ll
serted
laws affecting a particular foreign investor is an example of such a protection.
c
expropriation for which compensation must be pai d. While debate continues to rage as to what
amounts to an expropriation, 92 some governments have moved to provide more detailed
guidance in more recent treaties. For example, the United States now provides that “[e]xcept in
rare circumstances, nondiscriminatory regulatory ac tions by a Party that are designed and applied
to protect legitimate public welfar e objectives, such as public health, safety and the environment
do not constitute indirect expropriation.”
93
f. Observance of Obligatio

tai a provision requiring th e state to “observ
sh
the precise obligations a state must observe . One tribunal found Argentina breached the
provision when it failed to fulfill a specific legi slative commitment to maintain gas distribution
tariffs in US dollars.
95 At the same time, other tribuna ls expressed doubt as to whether
“observance of obligations” provisions elevate breach es of domestic legislation to the level of a
treaty-breach.
96

On its face, the pr
o
the BIT’s protective umbrella. Prec isely which contractual obligations fall within the umbrella is
unclear. Some tribunals say the provision protects all contractual obligations. 97 Other tribunals
view such provisions as protecti ng only those obligations that a state makes in its sovereign
capacity.
98 For example, one tribunal said that this provision “will not extend the Treaty
protection to breaches of an ordinary commercia l contract entered into by the State … but wi
cover additional investment protect ions contractually agreed by the State as a sovereign in
in an investment agreement.”
99 An agreement to refrain from changing certain regulations or
92 See, for example, the discussion in Newcombe, supra n. 86. 93 US-Chile FTA, Chapter 10, Annex 10-D, Article 4 (b). 94 Article II(2)(c) of the Kazakhstan-US BIT, for example, reads: “Each Part y shall observe any obligation it may
BITs, for example, contain such provisions but the
do not.
énérale de Surveillance S.A. v. Pakistan ,
anuary ision
e debt on a promissory note and Eureko v. Poland, supra n. 49 at para.
public , ICSID case No.
so v.
have entered into with regard to investments.” Most US and UK
BITs of other capital exporting countries, such as Canada, 95 LG&E v. Argentina , supra n. 51 at para. 175. 96 El Paso Energy International Company v. Argentine Republic , ICSID Case No. ARB/03/15, Decision on
Jurisdiction, 27 April 2006 at paras. 71-88. See also SGS Société G
Decision on Jurisdiction, at paras. 166-168. 97 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, 29 J
2004 at para. 128. See also Fedax NV v. Republic of Venezuela, supra n. 32 at para. 112, holding that the prov
protected the contractual obligation to pay th
260, holding that the provision protected the contractual obligation to issue shares. 98 El Paso Energy International Company v. Argentine Republic , ICSID Case No. ARB/03/15, Decision on
Jurisdiction, 27 April 2006 at para. 81.
99 Pan American Energy LLC and BP Argentina Exploration Company v. Argentine Re
ARB/03/13, Decision on Preliminary Objections, July 27, 2006, at para 109. See also the discussion in El Pa
Argentina, ibid. at paras 71-88.

18

The obligations protected is not the only aspect of the provision that is unclear. Which breache
of contract breach the provision is also unclear . Some tribunals say the provisio
100
s
n protects all
reaches. Other tribunals arguably say only bre aches through sovereign act breach the
t is
where the investor’s contract contains a
lause choosing domestic cour ts to resolve the dispute.
103 The parties entitled to the protection of

any BITs contain a provision requ iring the host state to allow investors to freely transfer
money into and out of the country.
106 We are unaware of any arbitral decision considering the
eaning of such a treaty provision. While the mean ing of the provision appears plain on its face,
he above provisions all protect investments once th ey are established in the host state; they do
not confer righ eed, a 1998 UN study notes that BITs “do not
sually confer on investors of one contracting party the right to establish investments in the
b
provision. 101 A state implementing legislation extin guishing a contractual obligation is an
example of a breach thr ough such a sovereign act. 102

Further aspects of the application of the provision to contractual disputes are also unclear. I
still unclear whether investors can rely on the provision
c
the provision also remain unsettled. Some tri bunals have suggested that the provision only
protects contracts to which the foreign inve stor and the state, themselves, are parties. 104 Other
tribunals have arguably extended the provision’s protection to contracts to which the foreign
investor’s local subsidiary and sub-state entities are parties.
105 On this approach, a foreign
investor might claim that the state breached th e BIT by failing to fulfil a contractual obligation
notwithstanding the fact that the foreign investor is not personally a party to the contract in
question.
g. Free transfers

M
m
future tribunals may read in restrictions.
h. Establishing investments

T
ts to establish investments. Ind
u
territory of the other contracting party.” 107

100 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines supra n. 96 at para. 128. 101 Joy Mining Machinery Limite d v. Arab Republic of Egypt , supra n. 30 at para. 72 and 81.
ed the
t. Note that Argentina
. ARB/03/3, Decision on Jurisdiction, 22 April 2005 at para. 223. an
y into and out of its territory. …” 102 See CMS v. Argentine Republic supra n. 51 at para 303, where the trib unal found Argentina breach
provision by passing legislation extinguishing Argentina’s contractual obligation to pay its deb
has applied to annul this Award and a decision on that annulment application is still pending. 103 Compare SGS v Philippines, supra n. 96 at para. 155 with, for example, Eureko v Poland, supra n. 49 at para.
112.
104 Azurix v. Argentine Republic , supra n. 42 at para. 384; Impregilio S.p.A. v. Islamic Republic of Pakistan, ICSID
Case No
105 CMS v. Argentine Republic , supra n. 51 at paras 302-303; SGS v. Pakistan, supra n. 95 at para. 166; Noble
Ventures v. Romania, supra n. 65 at para. 86.
106 Article IV(1) of the Kazakhstan-US BIT, for example, re ads: “Each Party shall permit all transfers related to
investment to be made freely and without dela
107 UNCTAD, Bilateral Investment Treaties in the Mid-1990s (United Nations, New York and Geneva 1998) at
page 46.
19

However, a small but growing subset of these treaties do extend certain qualified rights of en
to foreign investors. For example, some BIT
108
try
s oblige states to “admit” investments in certain
ircumstances. Other BITs oblige the hos t state to provide national and Most Favoured Nation

everal of the state actions ag ainst not-for-profit-organizations , described in Section II above,
could b ch th h actions might breach which
bligations, it is important to note three general points. First, some of the state actions could be
e
before
nds that they are necessary to protect such interests as national security
r public order. We described above how such purposes can be considered within some
es from
ption.
.
he
vestor to challenge the amount of compensa tion awarded in the event of an acknowledged
es
promise of MFN treatment includes a promise to provide access to more favorable disputes
ent provisions in other tr eaties, including provisions enabling the investor to claim for

c
(“MFN”) treatment regarding “permitting” investments. 109 This seems to mean that if a host state
permits its own domestic investors to establish or acquire an investment in its territory – or
permits the investors of a favoured third-country to do the same – then, as a matter of treaty
obligation, that host state accords the same prerogativ es to investors hailing from the other treaty
party provided that the investor s being compared are deemed to be “in like situations.”

ii. Application of BIT protections to problems

S
rea ese BIT obligations. Before explaining whic
o
mandated by domestic law existing before the not- for-profit-organization begins operating in th
country. At least one tribunal ha s said that government actions mandated by laws existing
an investment will not breach BIT obligations. The tribunal said that BIT tribunals can only
evaluate new laws and how existing laws are applied to specific investors.
110 Any not-for-profit-
organization impugning laws existing before the or ganization entered the country will need to
confront this decision.

The second general point is that states someti mes justify those actions that interfere with
investments on the grou
o
individual BIT obligations. 111 Some BITs also contain provisions exempting such measur
the scope of the treaty. 112 Any not-for-profit-organization clai ming that a state breaches its BIT
obligations may need to respond to arguments th at the measure falls within such an exce
Tribunals may be asked to review a wide range of circumstances where a state invokes a national
security, public morals or other similar defence. It may fall to tribunals, in the absence of
detailed treaty language, to deve lop tests which pass judgment on th e legitimacy of such actions

Third, treaty dispute settlement mechanisms vary. While most investment treaties enable t
investor to claim for failure to provide any of th e treaty protections, some treaties only allow the
in
expropriation. Investors have attempted to detour around these na rrowly-cast arbitration claus
via the treaty Most Favored Nation (“MFN”) clause. Investors ha ve argued that the treaty’s
settlem

108 For example, Article II(2) of the Canada-Russia BIT provides: “Subject to its laws, regulations and published
policies, each Contracting Party shall admit investments of investors of the other Contracting Party.”
109 See Article 2(1) of the US-Kyrgyzstan BIT. 110 GAMI Investments, Inc v. Mexico , Final Award, 15 November 2004 at para. 93. 111 See sections III(B)(i)(d) and (e) above. 112 Article X(1) of the Kazakhstan-US BI T, for example, reads: “This Treaty shall not preclude the application by
either Party of measures nece ssary for the maintenance of public order, the fulfillment of its obligations with respect
to the maintenance or restoration of in ternational peace or security, or the protection of its own essential security
interests.”
20

failure to provide any of the treaty protections. In recent cases against Russia, one tribunal ha
accepted this argument while another has rejected it. s
or-profit organizations ot-
aties, such as
e Canada-Russia BIT, will oblige states to provide national treatment regarding the
establishment it-organization
om establishing a presence in its territory, it will be relevant to determine whether nationals of
eaty. tion
n Human Rights obligations by refusing to re-register its Russian branch might also provide the

legal

aty obligation to permit free investment-related tr ansfers both into and out of the territory. In
some treaties, t al contributions to capital for the
aintenance or development of an investment.”
113

With these general points in mind, we will now identify which state actions against not-for-
profit-organizations, described in Section II above, could breach BIT obligations.
a. Interfering with the formation of not-f

As a general matter, host governments have the discretion to admit inve stments (including n
for-profit ones). However, as was discussed above, 114 some small proportion of tre
th
of investments. Thus, if a host state we re to prevent a not-for-prof
fr
that host state have, in similar situations, been granted the right to establish not-for-profit
activities. Where similarly-situ ated locals receive more favour able treatment there may be
grounds that the foreign entity has been denied national treatment as required by the tr

Where a host state has gone so far as to repres ent that it would allow a foreign organization to
establish a presence in its territory, that state could breach its obligation to provide fair and
equitable treatment if the state were to renege on those representations.
115 Indeed, the facts
supporting the Salvation Army’s successful claim that Russia breached its European Conven
o
basis for a potential BIT claim – without speculating as to whether such a claim could be borne
out on the merits. It is notable that the European Court found th at Russia’s conduct had “no
or factual basis;”
116 tribunals have said that states breach their BIT obligation not to act
arbitrarily through actions “founded on prejudice or preference rather than on reason or fact.” 117

b. Denying and restricting foreign funding

A state prohibiting foreign funding of a foreign-owned not-for-profi t-organization for no
legitimate reason could breach various investment treaty obligations. First, a state may breach its
tre
his obligation specifically protects “addition 118 m

Second, the state may run afoul of its obligation to not arbitrarily impair the organization’s
operation.
119 If the not-for-profit organization is depe ndent upon foreign funding to survive, and
that foreign funding is choked off, then the deni al could amount to an indirect expropriation. 120
113 See RosInvestCo UK v Russia, SCC Case V079/2005, Award on Jurisdiction, October 2007 at para. 132 and
. Chile, supra n. 48 discussed in section III(B)(i)(a) above.
v. Ecuador, supra n. 51 at paras. 162-
e US-Kyrgyzstan BIT, Article IV(1).
Vladimir and Moise Berschader v Russia, SCC Case 080/2004, Award, 21 April 2006 at para. 181. 114 See section III(B)(i)(h). 115 See, for example, MTD v116 Moscow Branch of the Salvation Army v Russia , supra n. 1 at para 97. 117 Lauder v. Czech Republic , supra n. 68 at paras. 221 and 232; Occidental
163. 118 Se119 See section III(B)(i)(c) above.

21

Fourth, a state denying foreign funding to a particular foreign-owned not-for-profit organiza
could breach its obligation to provide national treat ment if other local organizations remain able
to draw upon foreign funding or if the denial of foreign funding effectively disadvantaged
121
tion
reign owned not-for-profit-organizations compared to their local counterparts. A not-for-
n ot
on
cal

e
eration of the or ganization or breach its
bligation to provide fair and equitable treatment through its failure to protect the organization’s

on could directly expropr iate the organization’s intangible right to the
oney. In such cases, the duration of such an interference may be cr itical to proving an

ity. The Open Society Institute has
omplained of restrictions introduced in Uzbekistan, whereby a government committee would al

fo
profit-organization that can establish it is treated less favorably than a local investor will still
need to establish that the investor is in “like situation” or “like circumstances.” The organization
should have little difficulty if si milarly-situated local not-for-profit-organizations can obtai
foreign funding. The organization may have prob lems if there are no local not-for-profit-
organizations with which it can be compared or if those not-for-profit-organizations can also n
obtain foreign funding. Tribunals ad opting a narrow interpretation of “like situation” or “like
circumstances” could deny the claim on this gr ound. Tribunals adopting a broader interpretati
might compare the treatment of the foreign owned not-for-profit-organization with any lo
organization, regardless of wh ether it is not-for-profit.
122

Even if the state is not denying foreign funding, the state may stil l breach BIT obligations merely
through restricting such funding. If there are no legitimate reasons for the restrictions, the stat
could breach its obligation not to arbitrarily impa ir the op
o
legitimate expectations. 123

The state could also breach BIT obligations through banks interfering with not-for-profit-
organizations’ foreign funding. For example, forei gn banks confiscating foreign funding before it
reaches the local organizati
124 m
expropriation; brief delays in receiving foreign-originating funds will be viewed much
differently than prolonged or indefinite delays. Indeed, there may be no need to argue that an
expropriation has taken place, if the relevant in vestment treaty also obliges host governments to
permit investment-related transfers without delay.
125

While the above scenarios involve would-be recipients of foreign-funding, another scenario
arises where foreign funders establish branch offices in a give n host country with the intention of
funding local development through grant-making activ
c
review all financial grant-making activity. 126 By preventing foreign funders from funding loc
actors, Uzbekistan might face BIT claims, including in relation to the obligation to provide fair
and equitable treatment.

120 See section III(B)(i)(e) above. Case No. ARB(AF)/00/1, Award, 9 January 2003 at para. 157.
claim impugning such an action of a foreign bank would also need to establish butable to the foreign state.
Soros Foundation”, Press Release, April 18,
ews/uzbekistan_20040418. 121 See ADF Group Inc v USA , ICSID122 See section III(B)(i)(d) above. 123 See sections III(B)(i)(a) and (e) above. 124 See section III(B)(i)(c) above. A
that the actions of the foreign bank are attri125 See US-Kyrgyzstan BIT, Art IV (1). 126 Open Society Institute, “Uzbek Government Forces Clos ure of Local
2004, https://www.soros.org/newsroom/n

22

It bears reminding, however, that because of the architecture of investment protection treaties,
such agreements provide no recourse for domestic not-for-profit organizati ons (that is, those not
established or owned by a

foreign entity) in ca ses where their own governments deny or delay
e access of such groups to foreign funding. In this respect, it warrants repeating that investment

g in the
ountry may, in some circumstances, breach BIT obligations. A state denying a not-for-profit-
organization a le treatment if the
ate represented that it would renew the license. A tribunal could also view the state’s
by the
tion whose license is not.
breach
bligation not to arbitrarily impa ir the operation of investments. Arguably, even states which
on
, a
aty

th
protection treaties are no substitute for more broadly-cast human rights treaties, which squarely
address the treatment of domestic actors at the hands of their own government. 127

c. Dissolving not-for-profit-organizations and seizing assets

States failing to renew the licenses of not-fo r-profit-organizations already operatin
c
license could breach its obligation to provide fair and equitab 128 st
conduct as an expropriation of the investment. 129 For example, if Egypt reneges on a
representation to grant a license in accordance with its law on not-for-profit-organizations, it
might face potential claims for br each of Egypt’s BIT obligations.
130

In bringing such a claim, the not-for-profit organization’s prec ise investment protected
treaty is important. A not-fo r-profit organization, whose license to operate is a protected
investment, is more likely to succeed in such a claim than an organiza

In addition to potentially breaching their BIT obligations by interfering with a not-for-profit
organization’s license, states dissolving not-for-p rofit-organizations without reason could
their obligations, including the obligation to provide fair and equitable treatment or the
131 o
dissolve not-for-profit organizations with reason may breach BIT obligations if the organizati
has a license allowing it to operate for a certa in period of time. Tribunals could view the
dissolution as inconsistent with the organizatio n’s legitimate expectations and, therefore
breach of the obligation to provide fair and equita ble treatment or even as an expropriation of the
intangible rights inherent within the license.
132 However, tribunals might consider the legitimacy
of the policy objectives being pursued by the hos t government in weighing a potential tre
breach.

ni zation intends to operate. Recent BIT
it .
, Tecmed v Mexico, supra n. 46, discussed in section III(B)(i)(e) above.
gypt, supra n. 32 discussed in section
127 Note that not-for-profit-organizations may be able to overcome this problem in some instances by incorporating
in a foreign state with a favorable BI T with the country in which the orga
decisions indicate that foreign companies can claim against a state even if the corporation is controlled by entities
within that state and pursues all its activ ities there. However, this practice is not without its critics, particularly as
may be used by nationals of a given state to detour around national courts, and to bring disputes to international fora
See, generally, Tokios Tokelès v Ukraine , supra n. 32 and Markus Burgstaller, “Nationality of Corporate Investors
and International Claims Against the Investor’s Own State”, 7(6) Journal of World Investment and Trade 857
(December 2006).
128 See, for example, Tecmed v Mexico, supra n. 46, discussed in section III(B)(i)(a) above. 129 See, for example130 Article 54, Associations and Non-G overnmental Institutions Law (2002). 131 See sections III(B)(i)(a) and (c) above. 132 See section III(B)(i)(a) and, for example, Middle East Cement Shipping v E
III(B)(i)(e) above.

23

Even states imposing particularly onerous reporting requirements could breach BIT obligations.
Such states could breach the stat e’s obligation not to arbitrarily impair investments or to treat
investme
133
nts fairly and equitably. The application of the admi nistrative requirements in
ussia’s new not-for-profit-organi zation law, which some allege make it “impossible” for
lating ue
is unclear whether a law forcing a not-for-profi t-organization to allow state officials to attend
meetings, of its uch
interference go the state’s
bligation to provide fair and equitable treatment . The authors are unaware of any decisions or
uld
hat the
vide
terfere with an investment. One tribunal commented that a “deliberate campaign”
“punish” an investor for supporting an opposit ion party or to “expose [the investor] as an
ar
country to claims for breach both of these obligati ons. States could even face claims for failing to
prevent private parties from harassi ng not-for-profit organizations.
142

R
organizations to operate, 134 might give rise to potential BIT claims by not-for-profit
organizations. Indeed, it is eas y to conceive that organizations whose activities are hobbled
might bring claims for indirect expropriation of their investment in Russia – without specu
as to the merits of such claims.
135 At the same time, not-for-pro fit organizations might purs
claims for direct expropriation if the state seizes their assets. 136

d. State officials attending and moni toring meetings of not-for-profit
organizations and other forms of harassment or intimidation

It
elf, breaches any BIT obligati ons. The organization could argue that s
es beyond its legi timate expectations and, therefore, breaches
o
literature addressing these sorts of expectations and such a claim would, therefore, need to
overcome the hurdle of not having any real author ity from which to draw. Such a claim wo
also need to confront the author ity of an International Court of Justice decision finding t
state did not breach its obligation to provide full protection and security by failing to prevent
workers from occupying the investor’s factory.
137 However, if state officials caused some
physical damage or impeded the meeting, then th eir conduct could rise to the level of a BIT
breach.
138

More generalized harassment or intimidation might breach the host state’s obligation to pro
for the physical protection and security of not-fo r-profit organizations or the obligation not to
arbitrarily in
139
to
example to others who might be tempted to do the same … must surely be the clearest
infringement one could find of the provisions … of the Treaty.” 140 (On the facts of the particul
dispute, the tribunal ultimately found that there was insufficien t evidence of such a deliberate
campaign.)
141

Consequently, Zimbabwe’s reported harassment of not-for-profit organizations could expose that

d, “Russia silences human rights group,” Daily Telegraph (London), 22 December 2005.
d in section III(B)(i)(b) above. ARB/02/18, Award , 26 July 2007 at para. 123.
133 See section III(B)(i)(c) above and Pope & Talbot v Canada, supra n. 54, discussed in section III(B)(i)(a) above 134 Adrian Blomfiel135 See section III(B)(i)(e) above. 136 See Sedelmayer v Russia , supra n. 30, discussed in section III(B)(i)(e) above. 137 See ELSI , supra n. 64, discusse138 See sections III(B)(i)(a), (b) and (e) above. 139 See section III(B)(i)(c) above. 140 Tokios Tokeles v. Ukraine , ICSID Case No. 141 Ibid. at para. 137. 142 See section III(B)(i)(b) above.

24

e. Failing to fulfill obligations itten agreement, the
rganization could also mount a claim for breach of investment treaty obligations which prohibit
arbitrary impai equitable treatment (and, thus, may protect the
vestor’s legitimate expectations). States breaching contracts or other legal agreements and
r
in a
to
ot-for-p rofit organizations. For example, a
ot-for-profit organization could have a claim if that country reneged on its commitment to
ns can, generally, order the state to:
b. perform a certain act in order to fulfill its BIT obligations;
149 or

States breaching contracts or other agreements w ith not-for-profit-organizations could be liable
for breach of BIT provisions requiring st ates to “observe” their obligations. 143 Even if the not-
for-profit-organization is not protected by a contract or some other wr
o
rment or which require fair and 144 in
effectively preventing the not-for-profit-organiza tion from claiming in the contractually chosen
forum could also expropriate the organization’s contractual rights. 145 Indeed, a Croatian investo
is currently claiming that the Czech Republic expr opriated the investor’s contractual rights
long-term rental agreement for non-residential space.
146 The precise details of the claim are not
public and, depending upon the formulation of th e treaty in question, other claims might be
alleged, including that the host st ate has failed to observe contractual obligations as required
under the terms of the relevant investment treaty.

Even if the not-for-profit organi zation does not have a contract or agreement with the state, the
state may breach a BIT by failing to fulfill obliga tions contained in legislation. A not-for-profit
organization would have a potential claim that a given country breached its BIT obligations
observe its obligations and provide fair and equita ble treatment if that country failed to fulfill
specific obligations in the state law app licable to n
147
n
exempt organizations from paying certain taxes. 148

C. BIT remedies for not-for-profit organizations

i. Remedies

A tribunal finding a state breached its BIT oblig atio

a. stop breaching its obligations;

)(f) above.
bove.
ement v. Mexico , supra n. 66 at paras. 175-177.
nvest ment treaty to challenge Czech eviction notice,” October,1
ussed in sections III(B)(i)(a) and (f) above. ssociations and Non-Governmental Institutions aty. In some 143 See section III(B)(i144 See sections III(B)(i)(a) and (c) a145 See, for example, Waste Manag146 See Luke Eric Peterson, “Croatian firm invokes i
2004, INVEST-SD News Bulletin , available on-line at:
https://www.iisd.org/pdf/2004/investment_investsd_oct1_2004.pdf. 147 See, for example, LG&E v Argentina , supra n. 51, disc148 Egypt, for example, offers such exemptions in Article 13 of its A
Law (2002). As always, such a claim’s lik elihood of success depends on the wording of a particular tre
cases, governments move to limit the applicability of treaty protections in cases where taxation is at issue. See for
example, how Article 19 of Japan’s investment treaty w ith Vietnam limits the reach of the treaty where taxation
measures are involved:
https://www.mofa.go.jp/region/asia-paci/vietnam/agree0311.pdf . 149 Some treaties limit re medies to monetary damages. Se e, for example, Article 10.15 of the US-Chile and US-
Model BIT, which restrict compensation to
Singapore Free Trade Agreements and Article 34 of th e 2004 US

25

c. com foreign investor for any monetary damages suffered by the
investor as a result of the breach.
laimants overwhelmingly claim only monetary damages. Damages awards vary. One NAFTA
tribuna r ex S$450,000, a small fraction of its original claim.
150
Conver , an ase where the
state in ered
ot-for-profit organizations claiming monetary compensation through a BIT need to demonstrate
e value of the assets;
b. physically harming assets causes dama ges to the extent of the harm; and
entifying the damages of a not-for-profit orga nization arising simply from the inability to
continu op ount
it has in ted tribunals
sometim
profit organiza tion
ould claim the loss of future profits of an ar m earning profits to fund the organization’s other
d,

pensate the

C
l, fo ample, awarded the claimant U
sely other tribunal awarded the claimant almost US$300 million in a c
terf with the control of a large broadcasting enterprise. 151
N
they have suffered quantifiable damages. In some instances, this will be straightforward. For
example, a state:

a. seizing assets causes damages amounti ng at least to th
c. reneging on a commitment to apply a fa vorable taxation rate to the organization
will damage the organization to the extent of the new tax that it imposes.

Id
e to erate is not so straight forward. The organization could likely claim for the am
ves in the country minus the proceeds from the sale of any assets. While BIT
es award future profits to foreign investor s crippled by state interference, most not-for-
tions will, by definition, not earn any future profits. However, an organiza
c
activities. Such a claim would need to demons trate that future profits are not speculative. 152

A recent decision demonstrates that not-for-profits may be able to claim non-monetary damages.
The tribunal in the Desert Line Projects v. Yemen case awarded so-called “moral damages” of
US$1 million to a company whose executives “suffered the stress and anxiety of being harasse
threatened and detained by (Yemen securi ty forces) as well as by armed tribes”.
153

mages

of t
ges Award, 31 May 2002 at para. 91. d Konya Ilgin Eletrik Uretim ve Ticaret Limited Serketi v Turkey , ICSID
ard, 6 February 2008 at para. 286. monetary damages and restitution of property, while giving the respondent state the ability to pay monetary da
instead of restitution. On BIT tribunals’ ability to order performance or injunction, see, for example, Enron Corp.
and Ponderosa Assets, LP v. Argentine Republic , ICSID Case No. ARB/01/3, Decision on Jurisdiction, 14 January
2004 at para 79: “An examination of th e powers of international courts and tribunals to order measures concerning
performance or injunction and of the ample practice that is available in this respect, leaves this Tribunal in no doubt
about the fact that these powers are indeed available;” Antoine Goetz v. Burundi, Award, 10 February 1999, (2000)
15 ICSID Rev-FILJ 457 at page 516 and Siemens v. Argentina, supra n. 42 at para. 387. Although see LG&E Energy
Corp and others v Argentina , ICSID Case No. ARB/02/1, Damages Award, 25 July 2007 at para. 87, limiting
tribunals’ ability to order performance: “The judicial re stitution required in this case would imply modification
the current legal situation by annulling or enacting legislat ive and administrative measures that make over the effec
of the legislation in breach. The Tribunal cannot compel Argentina to do so without a sentiment of undue
interference with its sovereignty.”
150 Pope & Talbot v. Canada , Dama151 CME v. Czech Republic , supra n. 62. 152 See, for example, PSEG Global Inc. an
Case No. ARB/02/5, Award of 19 January 2007, at paras. 310-315. 153 Desert Line Projects LLC v Yemen , ICSID Case No. ARB/05/17, Aw

26

W hile several potential remedies – including pecuniary and moral damages – are available to not-
e
can amount
several million dollars. Losing claimants are sometimes ordered to pay the entire fees of the
ith its BIT
bligations. The authors are unaware of a BIT tribunal ordering a state to cease or undertake
action, let a e a ply with such an order and, therefore, we can only
speculate on the consequences of such a refusal. It is difficult to identify the recourse of a not-

a state y
n to
s not
D Conv ention, must rely on the New York Convention on the Recognition and
nforcement of Foreign Arbitral Awards . The New York Convention allows local courts to
for-profit-organizations, potential litigants should realize that BIT arbitration entails high costs.
Simply registering a claim at the ICSID will cost a claimant US$25,000, 154 and each of the thre
arbitration tribunal members will charge hundreds of dollars an hour for their time. 155 BIT
disputes often last several years, in which time, lawyer, arbitrator and institution fees
156 to
winning respondent state. 157 Even “victorious” claimants are not always awarded their legal
costs, 158 which may diminish the attraction of arbitration over smaller claims. 159

ii. Enforcement

Even if a not-for-profit organi zation successfully claims a stat e breached a BIT, a state may
refuse to provide the remedies ordered by the tr ibunal. The state may refuse to cease its act
breaching the treaty or may refuse to undertake the actions necessary to comply w
o
lon state refusing to com
for-profit-organization in those circumstances. However, there is a debate as to whether the
ICSID’s status as a World Bank agency might gi ve added weight to political and diplomatic
pressure on a recalcitrant state.
160

A state may refuse to pay the compensation ordered by the tribunal. It seem s unlikely that
would refuse to comply with a BIT in this way. Indeed, the authors are only aware of one
instance of a state refusing to pay compensati on ordered in a BIT award. Russia refused to pa
the compensation to the German investor, Fr anz Sedelmeyer, for breaches of the Germany-
Russia BIT.
161

If the state does refuse to pay then the claimant can seek to enforce the award. ICSID awards are
easier to enforce than others. The ICSID Conven tion requires states party to the Conventio
enforce ICSID awards as if they were “a fi nal judgment of a court in that State.”
162 By contrast,
investors seeking to enforce non-ICSID awards, or seeking to enforce ICSID awards in state
party to the ICSI
E
refuse to enforce arbitral awards on a number of grounds. 163
154 ICSID Schedule of Fees, 6 July 2005, paragraph 1.
s can
Turkey, supra n. 151 at para. 352.
; MTD v Chile, supra n. 48 at para. 252.
tive Compliance: Cost-Shifting in Investment 155 See, for example, paragraph 3 of the ICSID Schedule of Fees, 6 July 2005, which provides that arbitrator
charge US$3000 per day. 156 For example, the lawyer, arbitrator and ICSID fees in the recent PSEG v. Turkey dispute amounted to
US$20,851,636.62: PSEG v
157 See, for example, Methanex v United States , supra n. 74, Part VI. 158 See, for example, CMS v Argentina, supra n. 51 at para. 472159 On costs generally, see Stephan Schill, “Arbitration Risk and Effec
Treaty Arbitration,” 7 Journal of World Investment and Trade 653 (2006). 160 Edward Baldwin, Michael Nolan, and Mark Kantor, “Limits to Enforcement of ICSID Awards,” 23(1) Journal of
International Arbitration 22 (2006).
161 See Sedelmayer v Russia , supra n. 30, discussed in section III(B)(i)(e) above. 162 ICSID Convention, Article 54(1). 163 New York Convention, Article V.

27

Not-for-profit organizations may face additional obstacles because of the “commercial”
reservation to the New York Conve ntion. Article I.3 of the Convention entitles contracting state
to declare that they wi ll only apply the Convention to disput es arising from relationships whi
are “commercial” under the country’s domestic law.
s
ch
oximately a third of signatories to
e Convention have made this reservation.
e
have generally cons idered whether the dispute is
personal” rather than “commercial.” Nevertheless, with the exception of Tunisia, courts have
zations er the
last half century. While these instruments were often developed with
r-profit investment in mind, so me of these agreements expressly contemplate commitments of
r-profit ba sis. Furthermore, many other investment treaties are silent on
ch questions, and therefore susceptible to interpretations which would place not-for-profit
not-
onal test imposed by some ICSID
ibunals. Moreover, where potential claimants have the option of bringing a claim under the contend

164 Appr 165 th

Courts in these countries coul d find that an organization’s charitable purpose renders the
organization’s disputes non-commercial. It is difficult to precis ely identify the size of this
obstacle. The few courts addressing the meaning of the reservation have not considered a disput
involving a not-for-profit-organizatio n; courts
166 “
interpreted “commercial” disputes broadly, 167 which augurs well for not-for-profit-organi
claiming their dispute is commercia l. Some treaties specifically provide that all claims und
treaty are commercial, for the purposes of the Convention, and cl aimants under these treaties will
not face this problem.
168

IV. Conclusion

Not-for-profit organizations appear to enjoy protection under the some 2500 BITs which have
been concluded over the
fo
capital made on a not-fo
su
investments under the protect ive canopy of the treaty.

Claims under the ICSID dispute resolution system might encounter some tribunals
supplementing the definition of investment found in a given investment treaty with that believed
to be implicit in the ICSID Convention. Nevert heless, there are strong arguments for holding
for-profit investments to meet this heighten ed jurisdicti
tr
UNCITRAL or ICSID “Additional Facility” arbitration rules they would not need to
with the “objective” criteria sometimes imposed by tribunals operating under the ICSID rules.
164 See, generally, Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration (3 rd
edn, Sweet and Maxwell, 1999) at page 457.
165 Of the 120 signatories to the Convention, 49 have made this reservation: see
www.sice.oas.org/DISPUTE/comarb/uncitral/nysig_e.asp.
166 See, for example, the decision of the Tunisian Court de Cassation, 10 November 1993, finding that the
relationship between a company and an architect was person al rather than commercial (Reported in Albert Jan van
den Berg (ed.), Yearbook Commercial Arbitration (Vol. 28, 2003)).
167 See Albert Jan van den Berg, ibid. at 574: “In practice, the commercial reservation generally has not caused
problems as the courts tend to interpret the coverage of ‘commercial’ broadly. The only court that interprets the
commercial reservation narrowly at presen t is the Tunisian Supreme Court.”
168 See, for example, Article 26(5)(b) of the Energy Charter Treaty. See also Mexico v Metalclad [2001] BCSC 664
at paras. 40-49 finding that a NAFTA investment dispute was “commercial” for the purposes of Canadian arbitration
legislation.
28

Where claims can clear the jurisdictional hurdles set forth in the treaties and relevant arbitration
rules, the substantive protections of BITs may be relevant to a range of different scenarios
by not-for-profit organizations engaged in foreign activities. Perhaps most obvious, where not
for-profit organizations are subject to the outright seizure of their assets, they may bring a clai
for direct expropriation of their property. However, other treaty obligations such as those on the
faced
-m
e lack of clarity as to what constitutes an “indirect expropriation”. Investment
eaties give little guidance as to which exercises of gove rnment authority are legitimate non-
nt. of
e re it should be acknowledge d that not-for-profit
rganizations may have reasons to shy away from recourse to formal arbitration – particularly
ish
e a
o
investment ac tivity in the public interest. In some cases, this has led to
utright opposition to the negotiation of such agreements,
170 while in other instances it has
free transfer of capital, fair and equitable treatment, full prot ection and security and national
treatment could prove valuable where organizations encounter interferen ce with their right to
transfer funds into and out of the host state; where they are discriminated against when seeking
to establish a presence in a new territory; where they are denied re-registration on arbitrary
grounds or contrary to prior representations from state officials; or where organizations and their
principals suffer harassment, abuse or other form s of intimidation at the hands of state or non-
state actors.

At the same time, certain treaty protections are not always ideally suited to the problems
commonly faced by not-for-profit organizations. For example, provisions requiring the free
transfer of funds protect not-for-p rofit organizations bringing capital into and out of the host state
but do not protect the free dis bursement of funds within a targeted host country. Another
problem is th
tr
compensable measures, and which would trigger lia bility for expropriation of an investme
Further, the quantificatio n of damages may be vexing in some cases where certain activities
not-for-profit organizations are at issue.

Despite such problems, where not-for-profit orga nizations feel themselves to be victim of
mistreatment, they might have recourse to th eir potential treaty rights and protections in
discussions with their host st ates. Indeed, many disputes whic h might give rise to formal
arbitration may be susceptible to informal reso lution provided that state authorities are made
aware of the potential for a treaty claim. H
o
where the organizations are committed to the long-term development of the host state and w
to remain active in that territory – however, th e potential for such arbitration appears to b
genuine option.

In addition to qualms about fracturing a relatio nship with a host government, not-for-profit
organizations may harbour differing views as to the legitimacy of investment treaties as
instruments of global governance. Some policy-ba sed organizations have leveled criticism at
these treaties – incl uding the perceived failure to provide sufficient latitude for governments t
regulate foreign
169
o
169 See, for example, Oxfam International, The Emperor’s New Clothes: Why Rich Countries want a WTO
Investment Agreement, Briefing Paper No. 46, May 2003, at page 9.
170 See, for example, the various actions against bilatera l investment agreements (and trade agreements with
investment provisions) discussed on the activist website, Bilaterals.org, at:
https://www.bilaterals.org/rubrique.php3?id_rubrique=74

29

stimulated efforts to design new international agreements which strike a different balance
between investor protection and legitimate government regulation. 171

W hile the policy debate over investment treaties c ontinues, there are signs that certain not-for-
ithout t
een
ltimately, international investment treaties appear to protect not-for-profit actors and activities
g
profit organizations (for example those with extensive on-the-ground operations in developing
countries) may be experimenting with differe nt legal arrangements to protect their own
investments. Moreover, due to the fact that ar bitrations under some rules may proceed w
any public announcement or disclosure, it is pos sible that not-for-profit organizations have
already begun to invoke investment protection treaties in certain instances. Indeed, there is a
vigourous policy debate as to whet her investment treaty lawsuits ought to be arbitrable withou
any public disclosure – not least because such disputes often implicate important legal, policy
and financial matters – however in the absence of mandatory disclosure of such cases, an
unknown number of them will be pr oceeding without public notice.
172 In the course of
researching this paper, the co-authors have lear ned of at least one arbitration which has b
brought on behalf of an undisclosed European not -for-profit organization against a host state.
There may be other such cases proceeding without publicity.

U
in some circumstances, and may supplement the of ten meager international protections afforded
to development agencies, human rights organiza tions and the myriad other not-for-profit actors
with an international presence. While not tailo r-made for such actors and activities – and, as
such, prone to certain shortcomings and omissi ons – investment treaties may offer a surprisin
amount of recourse and redress in a range of different circumstances.
171 See, for example, the IISD Draft Model Investment Agreement for Sustainable Development, a template co-
drafted by one of the co-authors of this present pape r at: https://www.iisd.org/investment/model_agreement.asp.
172 On the case for more transparency see: Fiona Marsha ll and Howard Mann, “Good Governance and the Rule of
Law: Express Rules for Investor-State Arbitration Required,” International Institute for Sustainable Development
briefing paper, September 2006, available at:
https://www.iisd.org/pdf/2006/investment_uncitral_rules_revision.pdf .
On the case against more transparency see, Noah Rubins , “Opening the Investment Arbitration Process: At What
Cost for What Benefit?,” 3(3) Transnational Dispute Management (June 2006).

30