Cross-border business relations are becoming more and more common. In order to protect the interests of foreign investors, many countries have enacted laws and regulations providing investment concessions. Such concessions give foreign investors certain rights, benefits, and protections that are not available to domestic investors.
When an investor transfers its investment concessions to another entity, the question arises whether those concessions can be internationally assignable, and more importantly, whether the right to investor-state dispute resolution transfers to the assignee. In this blog post, we will explore this issue and provide an authoritative perspective on the subject. To learn more about Foreign Direct Investment, visit Foreign direct investment (FDI) | OECD iLibrary (oecd-ilibrary.org)
Nature of the Investment concession
The first thing to consider is the nature of the investment concession. In many cases, the concession itself may be an intangible asset that is capable of being assigned, such as a production license or a tax break. The ability to assign the concession will ultimately depend on the specific terms and conditions that are set forth in the concession agreement. If the agreement does not prohibit assignment, then the concession may be assigned, as long as the assignee meets the same eligibility criteria as the original investor.
Right to International Arbitration: Investor State Dispute
However, the transfer of an investment concession does not necessarily also entail the transfer of the right to investor-state dispute resolution. This right is often governed by a separate arbitration agreement between the investor and the host state. If the arbitration agreement does not provide for the assignability of the right, then the right cannot be transferred to the assignee.
In some cases, the right to investor-state dispute resolution may be expressly made assignable. For example, some arbitration agreements might provide that they will apply to any successor or assignee of the investor. However, such provisions are still relatively rare in practice.
Applicable Law of the Concession
Another issue to consider is the applicable law. While investment concessions may be assignable, the general rules of contract law in the host state or other relevant jurisdictions may impose limitations on the transferability of certain rights. Parties may allocate the risk of not obtaining the benefit of dispute resolution through an arbitration agreement by drafting clauses addressing the assignability of the same. It is important to consider how the concession holder will transfer its interest in the project if it becomes necessary.
Bilateral Investment Treaty
Lastly, when dealing with international assignability of investment concessions, parties should also consider the potential impact of bilateral investment treaties or other international agreements. These agreements might contain provisions related to the assignability of investment rights, including the right to investor-state dispute resolution, that supersede any contrary provisions in the concession agreement or arbitration clause.
In conclusion, the international assignability of investment concessions and the right to investor-state dispute resolution are complex issues that require careful consideration of the specific circumstances at hand. While the exercise of rights and obligations under such transaction agreements are seen through a contractual lens, the interplay of contract law, including issues affecting assignability, must also be considered through the applicable arbitration clause to understand how assignments of concessions can alter the availability of rights under treaties or other international agreements, giving rise to a need for careful due diligence on the part of the assignor and assignee.
Understanding the risks involves consulting with a legal practitioner so as to establish, through proactive contract management how an assignment of a concession, contract or other obligations will impact the assignability of Dispute Resolution options. By doing this, parties can avoid legal disputes and ensure that their interests are protected when entering into complex transactions involving investments.
Our team of attorneys are experience in international transaction and international dispute. To learn more about the practice, visit International Investment Disputes Lawyer – Transnational Matters