The underlying dispute of the decision concerned the activities of the US-based cleaning products group Clorox International in Venezuela, where the company has been actively investing since 1990 through its Venezuelan subsidiary. Until 2011, the shares in the Venezuelan subsidiary were held by Clorox International. In the course of a restructuring, the Clorox group newly incorporated Clorox Spain. The shares in Clorox Spain were held by Clorox International. Clorox International then transferred the shares in its Venezuelan subsidiary to the newly created company Clorox Spain as a contribution in kind, thus making Clorox Spain the owner of the shares in the Venezuelan subsidiary.

In 2015, Clorox Spain initiated arbitration proceedings against Venezuela under the Spain-Venezuela BIT arguing that its rights as investor were violated by Venezuela and that it consequently suffered damages in an amount of USD 185 Mio. A three-member arbitral tribunal was constituted under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) under the auspices of the Permanent Court of Arbitration (PCA) which has its seat in Geneva.

Upon a jurisdictional objection raised by Venezuela, the arbitral tribunal unanimously declined its jurisdiction ratione materiae arguing that Clorox Spain’s’ holding of the shares in its Venezuelan subsidiary did not qualify as an investment protected under the Spain-Venezuela BIT. The arbitral tribunal in essence reasoned that the Spain-Venezuela BIT required that an asset must have been invested by a legal or natural person of a contracting state in the territory of the other contracting state,whereby the holder of the asset must be an actively investing subject. According to the tribunal, such "active" act of investing requires that the acquisition of the asset by the investor is the result of a “transfer of value”. Because in the dispute before the arbitral tribunal Clorox Spain had obtained the shares in its Venezuelan subsidiary by way of a contribution in kind and no transfer of value had taken place, the arbitral tribunal decided that the holding of the shares did not qualify as an "active" act of investing protected under the Spain-Venezuela BIT.

Following the tribunal’s decision, Clorox Spain filed an action to set aside the award with the Swiss Federal Tribunal invoking article 190(2)(b) of the Swiss Private International Law Act, arguing that the arbitral tribunal had wrongly declined jurisdiction. Clorox Spain requested that the Swiss Federal Tribunal annulled the award and determined that the arbitral tribunal has jurisdiction to hear the dispute in question.

According to the Swiss Federal Tribunal there is no unanimously accepted definition of the concept of "investment" in international bilateral or multilateral treaties. Hence, a pragmatic approach must be taken when interpreting the notion of "investment".

Art. 1(2) of the Spain-Venezuela BIT defines the term of a protected investment as follows:

"The term ‘investments’ means any kind of assets invested by investors of one Contracting Party in the territory of the other Contracting Party and in particular, although not exclusively, the following assets: a) Shares, securities, bonds and any other form of participation in companies […]"

The Swiss Federal Tribunal adopted a wide interpretation arguing that the interpretation of the arbitral tribunal requiring an "active investment that would necessarily have to be carried out by the investor himself in exchange for consideration" has no textual basis in Art. 1(2) of the Spain-Venezuela BIT. It further argued that the formalistic interpretation of the definition of Art. 1(2) of the Spain-Venezuela BIT requiring an "active" investment act by the investor would deprive Clorox Spain of the protection under the BIT, insinuating that the US-based Clorox International only transferred the shares of its investment in its Venezuelan subsidiary to Clorox Spain to benefit from the protection under the Spain-Venezuela BIT as Venezuela has not entered into an investment treaty with the USA (so-called “treaty shopping”). According to the Swiss Federal Tribunal the parties to the Spain-Venezuela BIT had specifically refrained from including a provision that would prevent (abusive) treaty shopping, notwithstanding the fact that such provisions are fairly common in international investment treaties. Therefore, according to the Swiss Federal Tribunal, by requiring an "active investment that would necessarily have to be carried out by the investor himself in exchange for consideration", the arbitral tribunal had imposed a requirement for protection for which there was no basis in the Spain-Venezuela BIT. As a consequence, the Swiss Federal Tribunal set aside the award.

The dispute, however, is far from over: The Swiss Federal Tribunal decided that as a next step the arbitral tribunal has to decide on the additional jurisdictional objections raised by Venezuela, which include the lack of jurisdiction ratione temporis or by reason of treaty abuse. Especially under the latter objection the arbitral tribunal will have to carefully draw a line between legitimate "nationality planning" and illegitimate treaty abuse. In recent years, investment arbitral tribunals have become increasingly faced with questions whether investment claims based on treaty shopping through corporate nationality planning should be upheld or not. There are no “one-size-fits-all”-solutions and arbitral tribunals need to navigate between the legitimate goal of liberalizing investment law and the potentially negative consequences for host states. In that context, when deciding on this issue, recent awards have shown a trend towards adopting a foreseeability criteria (see Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections dated 1 June 2012; Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility dated 17 December 2015). Under such foreseeability criteria the tribunals have to determine whether at the time the acquisition of nationality the dispute at issue was foreseeable or not – and in the first instance deny jurisdiction.

For now, the Swiss Federal Tribunal was able to pass the ball back to the arbitral tribunal to walk this tightrope walk and to decide on this aspect in the context of Venezuela’s jurisdictional objection by reason of treaty abuse.