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Structuring foreign investments: who qualifies as an "investor" under a bilateral investment treaty?

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The decision in Gold Reserve Inc v Bolivarian Republic of Venezuela [2016] EWHC 153 (Comm) interprets the public international law concept of “investor” and is particularly relevant to those seeking to structure foreign investments in a manner that affords maximum protection under investment-protection treaties. While the initial indirect, passive acquisition of mining concessions did not make the claimant an “investor”, the subsequent expenditure on developing the project did. As the claimant qualified as an “investor” under the Canada/Venezuela Bilateral Investment Treaty, Venezuela had thereby waived its state immunity by entering into an arbitration agreement (by virtue of the dispute resolution provisions in the BIT). The English court refused to set aside the ex parte enforcement order against Venezuela for amounts due under an ICSID arbitration award. 

Mining concessions – that came to nothing

The underlying dispute involved two mining concessions that had been granted to Brisas Company, a Venezuelan entity, in 1988 (Brisas) and 1998 (Unicornio). The concessions related to the same geographical area, with the first granting rights to extract near-surface resources and the second to mine from the underlying hard rock. GRI became an indirect shareholder of the Brisas Company through a corporate restructuring in 1999, and accordingly had an indirect interest in the concessions. In 2007, following a long period of exploration, GRI obtained an initial construction permit for the project. However, the Bolivarian Republic of Venezuela (Venezuela) refused to issue the further authorisations necessary to commence construction and, in 2008, revoked the initial permit to commence construction of the mine. In October 2009, Venezuela seized GRI’s assets and occupied the site of the project. By that time, Venezuela had already terminated the Brisas concession and in June 2010 it also terminated the Unicornio concession. During the period when the Company had indirect rights under the concessions, GRI spent almost USD 300 million on exploration and exploitation activities to develop the project.

In October 2009, GRI commenced an ICSID arbitration against Venezuela under the 1998 bilateral investment treaty between Canada and Venezuela (the BIT). The tribunal found that Venezuela’s actions had breached the BIT and ordered it to pay USD 713 million plus costs and interest in compensation to GRI, who then sought to enforce the award. GRI brought proceedings in the United Kingdom, France, Luxembourg and the U.S. and before the English courts. GRI made a without notice application seeking to enforce the award as if it were a judgment. The order was granted, without notice, and without a hearing, in May 2015. Venezuela applied to have it set aside.

Who is an “investor”?

It was common ground between the parties that Venezuela would be entitled to state immunity under s1 of the State Immunity Act 1978 (SIA) unless it had agreed in writing to submit a dispute to arbitration, in which case it would be deprived of immunity under s9 SIA. This turned on whether GRI satisfied the definition of “investor” under the BIT: “an enterprise [which] makes the investment in the territory of Venezuela” (Article 1(g)). Venezuela submitted that a passive acquisition of an asset (such as when GRI became the indirect owner of Bridas and Unicornio via a corporate restructuring) does not amount to “making” that investment as required by the treaty. GRI argued that the ordinary meaning of making an investment must necessarily entail an acquisition, including a passive one.

Teare J analysed the ordinary meaning of the language used in the BIT and found that, in the treaty’s context and in light of its object and purpose: “a person can only be one who “makes the investment” if there is some action on his part. Passive holding of an asset by itself would not amount to making the investment”. In his analysis, the judge emphasised that according to the evidence before him, the only consideration for the restructuring transaction came from GRI’s shareholders (in the form of a share swap), and not from GRI itself. The judgment suggests that had GRI paid for the transaction, the conclusion on whether the acquisition was “passive” or “active” might well have been different.

In any event, while the initial indirect acquisition of the concessions did not make GRI an “investor”, the subsequent expenditure on developing the project did satisfy the definition. The judge explained that as long as an asset falls within the broad definition of “investment” in the BIT, and even if that asset is not protected by the BIT due to a lack of an “active” acquisition (as was the case here), the act of making expenditure to develop or improve that asset will be an “investment” in its own right. Thus, on the facts of the case, s9 SIA was engaged and Venezuela was not entitled to invoke state immunity.

Failure to give full and frank disclosure on state immunity issues 

A party making an application without notice owes a duty to make full and frank disclosure to the court of all relevant matters. Venezuela argued that GRI failed to disclose that the BIT arbitration agreement was still being disputed by Venezuela in proceedings in Paris and Luxembourg. Teare J agreed and stressed that because the court is required by s1(2) SIA to give effect to state immunity even if the state does not appear, it is crucial for an applicant to draw the court’s attention to those matters which would suggest that the state was likely to claim state immunity. Had GRI made the disclosures, the enforcement application would have been dealt with at an inter partes hearing. The failure also prevented the court from protecting Venezuela’s position against involuntarily submitting to the jurisdiction (eg by contesting the order on grounds other than state immunity). The judge described the failings as serious and giving rise to a “powerful case for setting aside the order”. However, because state immunity was not available to Venezuela, the only consequence of setting the order aside would be additional expense and further delay. In these “rare” circumstances, it was appropriate for the enforcement order to stand but GRI was directed to pay Venezuela’s costs (on an indemnity basis) on the issue of full and frank disclosure.  


This case serves as a powerful illustration of the issues that an investor ought to consider when planning or restructuring an investment with a view to taking advantage of the protections afforded by investor-state treaties. Whether an investment can be made passively, and the degree of control that the investor must exercise over the assets, are issues on which views are divided among the practitioners of investor-state arbitration. While the language of the treaty ultimately determines the answer to those questions, various judicial and arbitral fora have interpreted similar language in different ways. Indeed, in this case Teare J’s conclusion on the definition of “investor” differed from that reached by the tribunal. The latter was satisfied that a passive acquisition by way of a corporate restructuring satisfied the definition. In light of these differing views, it is prudent to consider very carefully how internal reorganisations are structured, including in particular the nature of any consideration, and how that consideration is to be paid and accounted for.

The case is also a stark reminder of the very considerable weight that the English courts attach to matters of state immunity at the enforcement stage, particularly as regards disclosure obligations. Any immunities available to the counterparty should ideally be considered at the contracting stage or before commencing legal proceedings. What will be of importance are the types of immunity available under the law of the forum, but also in any jurisdictions where enforcement would be likely. Contractual arrangements can, of course, have a significant impact on questions of state immunity and must also be taken into account, as well as any circumstances that might amount to a waiver. The practical impact of determining the question of state immunity is illustrated by the fact that in the aftermath of Teare J’s decision, GRI and Venezuela negotiated a comprehensive settlement of their differences.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  For more information please contact Sarah Garvey, or tel +44 20 3088 3710.​