The new draft Dutch BIT: what does it mean for investor mailbox companies?

The Netherlands has released a new draft investment treaty for public comment (“Draft BIT“).  If adopted, the Draft BIT may raise questions about the Kingdom’s attractiveness for foreign investors who have long taken advantage of Dutch treaty protections by structuring their investment via companies in the Netherlands.  The Netherlands proposes to use the new model as a basis for renegotiating its existing BITs with non-EU states, and, as such, the new draft’s more restrictive provisions may be significant for existing investors with protection under existing BITs, as well as those considering future investments. Key features of the Draft BIT are considered below.

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Iran wins its first investor-state case

The Islamic Republic of Iran has won its first ever investor-state arbitration in a decision against Turkish mobile phone company, Turkcell. The tribunal concluded that Turkcell was not a qualified investor under the Iran-Turkey bilateral investment treaty (BIT) given that it had only participated in a tender process (which it won) and had not yet made an investment into the country. It followed, therefore, that Turkcell was not entitled to the protections of the BIT following a change in the law which meant that Turkcell could no longer operate the project it had tendered for.  

For the reasons explained below, the outcome of the arbitration itself was not particularly surprising. However, the fact that it involved, and resulted in a positive outcome for, Iran is significant and has drawn a spotlight on the 48 bilateral investment treaties which Iran has ratified. Assuming the Iranian economy becomes more open to foreign investment in the future, these protections will be an important consideration for those who consider investing.

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Dawn of a new era for investment protection in South Africa – draft investment law to replace protections offered under investment treaties published for public comment

On 1 November 2013, the South African Department of Trade and Industry (DTI) has released its new “Promotion and Protection of Investment” bill (PPI Bill) for public comment (for a copy of the PPI Bill, see here).

The PPI Bill follows South Africa’s publicised plans to review its bilateral investment treaties (BITs), in particular those entered into right after the end of the apartheid era. The majority of those BITs have been, or are in the process of being, terminated by the South African government. As part of the DTI review, the South African Government has already issued cancellation notices to various European countries, in respect of its BITs with, amongst others, Belgium, Luxembourg and Spain (to see our previous blog post on this, see here), and most recently, Germany and Switzerland. Existing investors are still entitled to rely on the protections found in those BITs that have been terminated and remain able to do so for a period between 10 to 20 years after the BITs termination, depending on the relevant BITs sunset clause.

The PPI Bill, when passed as law, is intended to regulate the protection of all investments in South Africa in place of BITs.

The following key provisions in the PPI Bill and their implications are discussed further below.

  • Definition of an “investment”.
  • Absence of a fair and equitable treatment (FET) provision.
  • Definition of “expropriation” and new principles of compensation for expropriation.
  • Dispute resolution mechanism.

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