THE AUTHORS:
Yuliya Atamanova, Head of the Cross-Border Dispute Resolution Department at JSC CB PrivatBank
Polina Bitiuk, Senior Associate at LCF Law Group
Assignment is a widely spread legal tool for transferring a right to claim a debt from one person (the assignor) to another person (the assignee). Among other purposes, assignment is used by creditors who lack the financial resources to obtain funds to continue business or compensate for their losses when they cannot protect their rights in litigation or arbitration.
Since monetary claims usually are not closely tied to the personality of the debtor, in principle, they are free to be assigned. However, due to the high cost of investment arbitration, the possibility of assigning investment treaty claims can be a crucial point in seeking remedies for investors whose rights have been violated by the state.
Remarkably, international investment conventions and treaties are silent on the possibility of transferring the rights of investment treaty claims to the state. At the same time, one can argue that investment treaty claims are rare examples of the specific types of relations that limit the freedom of assignment.
This article aims to explore these “silent” limits on the assignment of investment treaty claims and to examine whether the parties involved may face any jurisdictional issues because of the assignment. Despite some academic works on the subject, it appears that legal practitioners have rarely directly addressed the issue. The authors, therefore, aimed to scrutinize relevant arbitration practices and to provide the readers with a basic overview of the risks of assignment of investment treaty claims and some advice on how to mitigate them.
Who Exactly Was the Investor?
In several cases, tribunals concluded that the transfer of rights to claim cannot turn national investments into international investments in order to obtain protection under a relevant bilateral investment treaty (“BIT”). Thus, the key point here is whether the assignor was indeed an investor with an investment protected under a relevant BIT.
Another aspect of this issue is the nature of the right to claim that is to be transferred: whether it is a right in rem, which is severable from the underlying investment, or whether, on the contrary, it is a right attached to the investment, and its disposal may only occur with the disposal of the investment it stems from.
There are two main concepts of foreign investors’ rights: the theory of direct rights and the theory of derivative rights (See, The Assignment of Investment Treaty Claims: Doctrinal and Policy Perspectives, The Journal of World Investment & Trade, 20 January 2023). The first theory resolves around the idea that investors have substantive rights directly from international treaties without any obligations to their own state, which arose prior to the moment of investments. Therefore, there is no restriction on the transfer of rights by the investors entitled to dispose of such rights to any third party. This conclusion was supported in Daimler v. Argentina, Award, 22 August 2012, para. 144.
On the contrary, the second theory purports that investment treaties do not grant any substantive rights to investors, and investors only have those substantive rights that their own state conferred on them. However, investors benefit from the investment treaties in the sense of having the procedural right to have recourse to arbitration on behalf of their home state in case of violation of substantial rights by the recipient state. From this perspective, it seems logical that under the theory of derivative rights, investors from one state can assign their right of investment treaty claim only to the nationals from the same state because their home state has not conferred any rights to the nationals of any third country. Otherwise, this may result in the tribunal’s conclusion on lack of jurisdiction.
So, generally, there are arguments in favor of the severability of treaty claim rights. However, in order to protect the assignment from jurisdictional challenges, it can be advised to have the assignment parties from the same country, of the same nationality. This is certainly not an absolute restriction, as different arbitrators can have different views on the nature of the right to claim under BIT. However, if there is an opportunity to find an investor and an assignee in/from the same country, it should be taken.
What Exactly Was Assigned?
Another important point is the scope of rights the investor assigns to another party. In case of assignment of just “bare” rights of investment treaty claims, there is a risk that the tribunal does not accept its jurisdiction on the reason that the claimant (the assignee) did not make an investment under a BIT, while the assignor (who is the initial investor) meets the requirement of making a qualified investments under the BIT, which were interfered or expropriated by a respondent state. In several cases, the tribunal found that transferring the rights of investment treaty claims only for commencing litigation is an abuse of process.
Whether the claimant suffered any losses from the breach of a BIT as a result of certain measures adopted by the host state is usually assessed by the tribunal at the moment of bringing the claim. In Westmoreland Mining v. Canada, Final Award, 31 January 2022, the tribunal formulated two requirements for the claimant to meet in order to be able to bring a claim:
- it must show that the Challenged Measures applied to it; and,
- that it itself suffered loss as a result of those Challenged Measures.
Thus, in order to eliminate this risk, it is advisable to transfer treaty claim rights together with all rights related to the investments via transfer of shares and/or at a later moment.
Assignment of all rights related to the investment to a third party can still affect the jurisdictional issue because the existence of the original investor raises doubts as to who the investor was and who meets the BIT protection requirements. To eliminate the risk, it may be advisable to make the assignment through buying shares in the initial investor in order for it to remain de-jure the claimant in the case. However, even this way of obtaining the investor’s treaty claim rights does not guarantee overcoming the objections to the tribunal’s jurisdiction.
In order to improve the chances of confirming the right to claim investment arbitration after buying the shares, it is advisable to illustrate that the whole transaction and further actions of the parties show that the assignee (the buyer) was willing to gain the investor’s business and to continue its operation as his own instead of wishing to obtain the right to claim investment arbitration against the respondent state.
In Westmoreland Mining v. Canada, Final Award, 31 January 2022, paras 126, 217, the tribunal expressed an opinion that corporate restructuring or internal reorganization is not in and of itself fatal to establishing the jurisdiction; the mere fact of a change in corporate identity post a treaty breach would not in itself be a bar to treaty protection. But while assessing the right of the claimant to bring a claim, the tribunal posed two questions:
- whether the claimant, pursuant to the process by which it became the owner of the initial investor, was its legal successor; and
- whether it was possible for the claimant to be the legal successor of the initial investor given they both are in existence?
In Daimler v. Argentina, Award, 22 August 2012, para. 145, the tribunal came to a further significant conclusion that without special stipulations, the transfer of shares in the investment does not necessarily and automatically transfer the treaty claim along with the shares by operation of law and, therefore, found that the treaty claim was not included among the assigned rights.
Buying shares in an investor only for his rescue from financial losses and bankruptcy caused by the measures of the host state is not enough for the certainty that jurisdictional challenge will not occur or will be successfully overcome.
The second way to eliminate jurisdictional risks may lie with making the assignment at the post-award stage with participation in the arbitration phase only through funding. However, even while this approach overcomes the jurisdictional issues at the arbitration stage, it does not fully eliminate the risk that can emerge during the recognition and enforcement proceedings depending on the national law approaches. Thus, it is vital to consider beforehand the country/countries where the enforcement of the award will be sought.
What Are the Takeaways?
The possibility of assigning investment treaty claims is actually limited, despite the absence of specific prohibitions in the texts of BITs or the doctrine of international law. In order to protect an assignment from jurisdictional risks, many of the nuances described above must be considered.
Specific alternative options to mitigating such risks may be an actual assignment in the form of a sale of business as an ongoing concern or the acquisition of shares in an old creditor by a new one for the same purpose, depending on the national laws. However, in this case, it is desirable to demonstrate that the business was acquired not for the specific purpose of filing a claim against the host state, but rather for the further operation of the whole business in order to avoid the accusation of the abuse of rights or process.
However, none of the above options are suitable for group investment treaty claims. For instance, bondholders are specific types of investors, and investments in bonds are usually only one particular dimension of their activity; it is impractical to transfer shares in bondholders and obtain, as a result, their whole business. Moreover, an assignment of numerous same substantive claims that belong to many investors from different jurisdictions to one third party cannot be considered a proper and effective means because of the high level of uncertainty of the outcome of the jurisdictional issue. As a result, this type of investor is advised to build a case strategy on the classical tool of third-party funding in investor-state disputes rather than to consider an assignment of investment treaty claims as an option.
Finally, it is also worth noting that, considering the consequences of an assignment of an investment treaty claim, one should not forget that, since buying a monetary claim itself can be interpreted as an investment in accordance with relevant BITs, it is always necessary to assess whether there are grounds for the new creditor for its investment treaty claims that arise out from its own investment, i.e. the assignment itself.
ABOUT THE AUTHORS:
Yuliya Atamanova was appointed Head of the Cross-Border Dispute Resolution Department.at JSC CB PrivatBank in 2024, and oversees international arbitration and cross-border litigation of the bank. Prior to that, Yuliya was a Partner at LCF Law Group (Ukraine) and headed international arbitration, where she successfully represented multinational companies in international and domestic commercial arbitration, as well as litigation on the enforcement of arbitral awards. Yuliya is also on the list of arbitrators at ICAC at the Ukrainian Chamber of Commerce and Industry, the Court of Arbitration at the Polish Chamber of Commerce, and the London Court of International Arbitration. She is also Attorney-At-Law. In 2009 Yuliya obtained her Doctor of Law academic degree from Yaroslav Mudryi National Law Academy (Ukraine). Yuliya completed work on this article while employed as Partner at LCF Law Group.
Polina Bitiuk is a Senior Associate and Attorney-At-Law at LCF Law Group (Ukraine), where she specializes in international arbitration. She also handles cross-border litigation. She holds a Master of Laws degree from Taras Shevchenko National University of Kyiv (Ukraine).
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
