Swiss Federal Supreme Court rules on Dual Nationality under Spain-Venezuela BIT

In a decision earlier this year (4A_466/2023), the Swiss Federal Supreme Court (Schweizerisches Bundesgericht) ruled on the issue of a claimant's dual nationality in an investor-state arbitration under the 1995 Bilateral Investment Treaty between Spain and Venezuela (Spain-Venezuela BIT or BIT). The decision is one of the few where domestic courts have scrutinised awards in cases where claimants in investment arbitrations hold nationalities of the home state and host state. This article discusses the key findings of the judicial bodies involved. 

Background: The Investor-State Arbitration

Claims and jurisdictional issue

The Swiss Court's ruling follows a claimant's appeal of a 2023 award on jurisdiction rendered in Santamarta v. Venezuela (PCA Case No. 2020-56), an investor-state arbitration initiated by Juan José Santamarta under the Spain-Venezuela BIT and the UNCITRAL Arbitration Rules, administered by the Permanent Court of Arbitration with its seat of arbitration in Geneva. Santamarta claimed USD 200 million in compensation, alleging, inter alia, that his investment in the construction and development of a hotel and resort project in Venezuela had been unlawfully expropriated in breach of the BIT's investment protections.

The jurisdictional issue in the case was whether Santamarta could pursue arbitration under the BIT, given his dual nationality – Spanish and Venezuelan. A key prerequisite for bringing a claim under investment treaties is that the investor claimant holds the nationality of the home state or, in the case of a company, is incorporated in that jurisdiction (e.g. Spain under the BIT). The requirement of jurisdiction ratione personae becomes relevant in cases of dual nationality where the investor also holds the nationality of the host state, such as Venezuela under the BIT. Investment treaties are typically designed to protect foreign investors, not domestic investors, subject to exceptions, such as foreign control of a domestic company.

Tribunal decision on jurisdiction

The tribunal bifurcated the proceedings and, on 26 July 2023, rendered a comprehensive decision on jurisdiction, determining that the claimant's Venezuelan nationality barred his claim.

Investment treaties typically do not provide explicit rules on dual nationality, and the same applies to the Spain-Venezuela BIT. Therefore, the tribunal relied on Article 31 et seq. of the Vienna Convention on the Law of Treaties (VCLT) for treaty interpretation. Santamarta argued that the BIT's definition of "investor" only requires "the nationality of one of the [BIT's] Contracting Parties". As he is Spanish, this requirement would be met. By contrast, Venezuela argued that this language clarifies that treaty protection is denied if the claimant holds nationalities of both Contracting Parties. The tribunal rejected this argument, noting that the treaty language referring to "one" must be read in conjunction with the rest of the text, which requires the "making [of an investment] in the other Contracting Party".

The Tribunal noted, however, that it cannot be concluded from the BIT's language that the Contracting Parties intended to extend protection to investors with nationalities from both parties at the time of the treaty's conclusion. It further observed that dual nationals have, in fact, been subject to different treatment under international law, including within the context of the ICSID Convention and diplomatic protection. The tribunal disagreed with other investment tribunals that accepted jurisdiction over dual nationals in the absence of an express treaty clause excluding such coverage, citing the limitations of these tribunals in treaty interpretation.

Illustrating the potential for diverging outcomes, the tribunal went on to consider the jurisdictional decision in Serafin Garcia Armas v. Venezuela, an investment arbitration conducted under the same BIT. The tribunal in that case held that dual nationals are protected, but the Paris Court of Appeal annulled the decision. Based on its earlier analysis, the tribunal disagreed with the Serafin tribunal's decision, which held that the treaty's language was sufficiently clear, and that textual interpretation prevails over other aspects, such as the ordinary meaning of treaty terms, the treaty's context, and its object and purpose.

Considering the context of the BIT, the Santamarta tribunal examined the preamble and other treaty provisions and found that they did not provide assistance, including the BIT's dispute resolution clause. The tribunal noted that the clause provides for arbitration under either the ICSID Convention or UNCITRAL Rules, at the investor's choice without prioritising ICSID arbitration, which would otherwise prevent dual nationality claims under the ICSID Rules. Distinguishing the BIT from other treaties, this was in response to Venezuela's argument that any dispute submitted under the UNCITRAL Rules must be one capable of settlement under the ICSID Rules.

Regarding the object and purpose of the BIT, which is to promote and protect mutual investments, the tribunal noted that these goals are not incompatible with dual nationality.

Turning to general international law and principles such as diplomatic protection, the tribunal held that this source could be considered for treaty interpretation. This is because the BIT does not establish a self-contained regime and does not address dual nationality, meaning lex specialis issues could not arise. Citing the Nottebohm case of the International Court of Justice, the tribunal based its decision on the principle of dominant and effective nationality, a legal concept in international law used to determine which nationality a person should be considered to hold. This principle considers the nationality with the strongest connection in terms of political, economic, or social ties, as well as the nationality most relevant in terms of legal rights and obligations, taking into account factors such as an individual's residence or business activities (i.e. the nationality most actively exercised in practice).

On the facts, the tribunal found that Santamarta's Venezuelan nationality took precedence, excluding him from invoking the BIT. This was due to his more significant ties to Venezuela, including his economic activities and professional connections in the country, and because he was neither a resident of Venezuela nor Spain, but resided in the US.

Swiss Federal Supreme Court Decision

The Swiss Court upheld the investment tribunal's decision on jurisdiction, determining that the claimant's Venezuelan nationality barred him from claiming under the BIT.  The assessment was based on Article 190(2)(b) of the Federal Act on Private International Law (Bundesgesetz über das Internationale Privatrecht), which allows the review of arbitral awards on limited grounds, including issues of jurisdiction.

As evidenced by the decision, the claimant reiterated many of his previous arguments. He also argued that the principle of dominant and effective nationality does not constitute customary international law, does not apply to international investment law disputes, and was not intended to extend beyond matters of diplomatic protection. Additionally, Santamarta sought to establish that his dominant and effective nationality was Spanish. He argued that all his children are Spanish nationals, his father was originally Spanish, his mother was naturalised, he has voted in Spain since 1999, and he identifies as Spanish in public documents. He also owned property, paid taxes, and regularly travels to Spain.

The Court began its assessment by noting the controversy surrounding the legal issue, which has sparked significant discussion in international arbitration and legal literature, leading to diverging outcomes in arbitral awards. It was emphasised that the court does not intend to settle the issue definitively, but only in relation to the dispute at hand. This was followed by a clear affirmation of the applicable legal standard for treaty interpretation under the VCLT.

The Court agreed with the tribunal's textual interpretation of the BIT's investor definition, noting that "one" does not serve a "numerical function" that would exclude dual nationality. It also rejected the claimant's argument that the BIT's Contracting Parties deliberately omitted dual nationality, believing it would not preclude a treaty claim. The Court upheld the tribunal's contextual interpretation, which included rejecting the claimant's assertions regarding the dispute resolution clause and the alleged priority of the ICSID system, as well as the object and purpose of the BIT, which were found to offer little assistance.

This led the Court to the tribunal's findings on general international law regarding diplomatic protection and the application of the dominant and effective nationality test. In summarising the tribunal's approach, the Court concluded that the assessment withstands scrutiny on both legal and factual grounds. In particular, it agreed that while investment treaties have strengthened the protection previously provided to foreign investors through diplomatic protection, this does not mean that the fundamental principles underlying diplomatic protection have lost their relevance, unless explicitly stated otherwise in an investment treaty. The Court noted that the principle of dominant and effective nationality constitutes customary international law. Notably, however, it stated that the principle must be carefully considered in investment arbitration, given that investors may acquire multiple passports and engage in "treaty shopping". Finally, the Court upheld the tribunal's factual findings in the award, concluding that the claimant's dominant and effective nationality is Venezuelan.

Comment

The Swiss Court's ruling reflects a careful and thorough consideration of the tribunal's comprehensive analysis, which it found convincing. By assessing relevant arbitral awards and legal literature, and acknowledging the diverging outcomes in previous decisions, the Court appeared mindful of both its role and the opportunity to provide clarity on this contentious issue, including by drawing on international law. In doing so, it seemed motivated to issue a ruling that not only upholds the tribunal's findings but also contributes to fostering consistency in the case-law on dual nationality in investment arbitration, potentially offering future guidance on this complex matter.

For more information on the investment arbitration and the Swiss Federal Supreme Court's decision, contact your CMS client partner or this CMS expert.