Agreements of state-entity and state liability in international investment arbitration

Abstract

Most often in an investment agreement between a State entity and a foreign investor the arbitral tribunal is faced with the question of the liability of the State for the conduct of its entities. To make it precise the crucial findings of this research is whether or to what extend the States hall be liable for the commercial conduct of its entities? State affiliates in general includes, ‘state organ, ‘state agency’, ‘instrumentality’, ‘state-owned entity’, ‘state-owned company’, ‘publicly owned corporation’, ‘government business enterprise’, ‘public sector undertaking’ and ‘parastatal entity’. ‘State entities’ with separate legal personality do not include the ‘state organ’, ‘agency’ and ‘political subdivision’ for which a State is responsible under the principle of customary international law. The main highlights of this research is whether the State shall be liable for the commercial, non-governmental activities of ‘State entities’ with separate legal personality having substantial structural and functional government control over them while they enter into investment agreements with foreign investors.

This leads to the critical arguments to establish in the first place whether the State is a party to the investment agreements of its separate legal entities with foreign investors. To respond this, findings of this research leads to the point that has been highlighted in relation to the true separation of these State entities from the government. It is that the significance of structural and functional control by the governmental over the habitual affairs of these entities. For this purposes two significant reasons are taken into consideration. First, whether the government officials or members of the cabinet preside as the head of the corporations or entities? Second, whether they administer the daily affairs of the entities such as participating in the negotiation and decision making process while entering into the agreement with foreign investors. If that is satisfied then the requirement for a State to be a party to the investment agreement of its entities is considered fulfilled.

The most striking point of this research is then whether the State and its entities are entitled to immunity both from jurisdiction and execution. However, following the greater participation of State through State entities in the international trade and foreign investment the restrictive approach of immunity has seen a resultant raise in relation to the jurisdiction of arbitral tribunal. As regard to immunity from the enforcement measure the final stumbling block is the process of identification of public assets which are held by the State to perform its sovereign non-commercial functions often mixed with the assets allocated for commercial purpose against which enforcement can be done, is continued to be an issue at large. The emphasis of this research has been extended to have a closer look at the State immunity laws internationally in relation to the limitations of various conventions and codifications and judicial precedent that address the issue of enforcement in investment arbitration.

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