Summary

The evolving jurisprudence reveals increasing sensitivity to issues of treaty abuse, nationality planning, jurisdictional engineering and use of shell or mailbox companies. At the same time, the absence of harmonized treaty language / unified legal standard leaves significant discretion in the hands of arbitral tribunals.

In this context, nationality – although conceptually simple – requires a case-specific analysis informed by treaty text, factual structure, and timing. It remains a contested and complex entry point into the system of investment arbitration.

At Bratschi we have experience and remain available to assist Parties in investment arbitration and related court proceedings.

Nationality of Natural Persons

For natural persons, nationality is typically assessed based on formal citizenship. Investment treaties and the ICSID Convention generally require that the investor be a national of a State party to the treaty and not a national of the host (i.e., respondent) State.

A central difficulty arises in the case of dual nationality. Article 25(2)(a) of the ICSID Convention excludes from its jurisdiction any natural person who possesses the nationality of the respondent State, regardless of whether the other nationality is dominant or effective.

Certain BITs and tribunals have accepted a more flexible approach, adopting the «dominant and effective nationality» test drawn from general international law and the Nottebohm case (ICJ, 1955). This test examines the individual’s real social and economic connection to a particular State. However, its application in investment arbitration remains limited and treaty-dependent.

Tribunals also generally presume the validity of a nationality granted by a State in accordance with its domestic law. The burden of proof rests initially on the claimant; if challenged, it shifts to the respondent to show that the nationality is invalid or insufficient under the treaty. Tribunals have gone as far as independently assessing nationality status when documentation is insufficient or inconsistent.

In sum, while a formalistic approach prevails, tribunals may adopt more nuanced analyses when dual or conflicting nationalities are involved.

Nationality of Legal Entities

Determining the nationality of legal entities presents greater complexity. Treaties and arbitral practice have developed several methods – sometimes cumulative, sometimes alternative – to identify whether a company qualifies as a foreign investor.

The most common criterion is the place of incorporation. A company is considered a national of the State under whose laws it is legally constituted or registered. This formalistic test is straightforward and widely adopted in BITs and under Article 25(2)(b) of the ICSID Convention.

However, incorporation is not always determinative. Some treaties and tribunals employ supplementary criteria, including:

• Effective seat: Emphasized in civil law jurisdictions, this test identifies the State where the company’s central administration or principal business operations are located.
• Ownership and control: Some BITs and tribunals pierce formal structures to determine the ultimate owners or controllers of the entity, often to verify whether it is truly foreign. This approach is particularly relevant in cases of treaty shopping.

Importantly, Article 25(2)(b) of the ICSID Convention permits even a company incorporated in the host State to qualify as a foreign investor, provided it is «controlled» by nationals of another Contracting State. This «foreign control» provision introduces additional layers of factual and legal complexity.

Tribunals diverge in how they define «control»: some rely on the first layer of ownership, others trace ultimate beneficial ownership through complex structures. Issues often arise when a company is legally incorporated abroad but is effectively managed and controlled from within the host State.

Therefore, while the incorporation test remains the default, arbitral tribunals look to the economic and managerial reality behind corporate structures when jurisdiction is contested.

Doctrinal and Jurisprudential Issues

Investor nationality raises significant doctrinal challenges and divergent jurisprudential approaches. A recurring issue is the tension between formalism and substance: whether tribunals should strictly apply legal definitions or assess the actual economic and managerial link between investor and State.

A related concern is nationality manipulation. Investors sometimes restructure their holdings shortly before initiating arbitration – a practice known as treaty shopping. While not inherently unlawful, such conduct may be viewed as an abuse of process.

The timing and good faith of nationality claims are also critical. Jurisdiction generally requires that the investor possess qualifying nationality both at the time of the alleged investment and at the time of the request for arbitration. Some tribunals examine whether changes in nationality or restructuring were done in good faith, or purely to manufacture jurisdiction.

Tribunals often apply what is referred to as the «double-barreled test»: nationality must satisfy both the procedural instrument (e.g., ICSID) and the definition provided in the applicable BIT.

Finally, the lack of uniformity across treaties complicates matters. Some define «investor» broadly, while others impose strict requirements, such as «substantial business activity» or «effective nationality.» As a result, jurisdictional outcomes vary widely depending on the treaty language and interpretive approach adopted.

Mabco Constructions SA prevails in ICSID investment arbitration against the Republic of Kosovo