Turkey: Effective Nationality In International Investment Arbitration

Effective nationality doctrine is confined to situations where an individual possesses lawfully two or more nationalities and where it is necessary to choose which of them is effective for given purposes.¹ In international law, the issue of "effective nationality" was famously considered by the International Court of Justice in the Nottebohm case. The Court considered whether Liechtenstein could espouse the case of Mr. Nottebohm, a national of both Liechtenstein and Germany, against Guatemala. Mr. Nottebohm had a long-standing and close connection with Guatemala, where he had lived for most of the previous thirty years, but only a minor connection with Liechtenstein. Accordingly, the Court held that Mr. Nottebohm's case could not be espoused by Liechtenstein because he did not have sufficient connection with that country. In this case, with emphasizing on effective nationality, it was decided that the existence of a genuine link between a person and a state is required in order to get diplomatic protection.

The principle developed in the Nottebohm case has been used by various international tribunals. It was famously applied by the Iran-United States Claims Tribunal to determine if dual nationals of both US and Iranian could claim against Iran. The Tribunal stated that, with the Nottebohm case, the acceptance and the approval by the International Court of Justice of the search for the real and effective nationality based on facts of a case, instead of an approach relying on more formalistic criteria.

In literature, it is argued that an international tribunal is not bound by the national law in all circumstances. Nationality provisions of national law may be disregarded by tribunals in cases of ineffective nationality when there is a lack of a genuine link between the state and the individual. However, there is no agreement whether the nationality principles developed in the field of "diplomatic protection" can be automatically applicable in investor-state arbitration. On contrary, legal doctrine and case law have emphasized some important differences between the two.

In Saba Fakes vs Turkey case², the Tribunal stated that, according to Article 25 of the Convention, natural persons holding the nationality of both contracting-states are excluded from the jurisdiction of the ICSID; Tribunal also noted that treaties for the promotion and protection of investments, as well as the ICSID Convention, establish a separate mechanism of direct recourse to international arbitration against the host state, so there was no need for an effective citizenship research.

In another ICSID case, Champion Trading Company v. Arab Republic of Egypt³, the Tribunal held that the Nottebohm and Iran-United States Claims Tribunal's (A/18) decisions find no application in investment arbitration because the Convention in Article 25(2)(a) contains a clear and specific rule regarding dual nationals; the principle of effective nationality has no role in cases interpreting Article 25(2) of the ICSID Convention. Although this point is stated, the Tribunal also expressed that "It might for instance be questionable if the third or fourth foreign born generation, which has no ties whatsoever with the country of its forefathers, could still be considered to have, for the purpose of the Convention, the nationality of this State."; in this context, the Tribunal thus determined that the investigation of effective nationality in investment arbitration is not entirely out of practice.

Finally, in Siag and Vecchi v. Arab Republic of Egypt case⁴, the Tribunal noted that the provisions of Article 25 were clear and the Champion Trading case left no room for a discussion of "dominant" or "effective" nationality. Additionally, during the ICSID Convention's preparatory work, dual nationality was debated by the Drafting Working Group, but the convention's final version did not contain the provision on effective nationality, so the drafting history can be an assistance in this manner.⁵

Although the ICSID Convention contains clear and specific rules regarding the exclusion of nationals of both states from the jurisdiction of the ICSID, other treaties regulate the position of dual nationals as to include effective nationality research.⁶ For example, Article 10.28 of the CAFTA-DR⁷ defines investor of a party as follows: "a Party or State enterprise thereof, or a national or an enterprise of a party, that attempts to make, is making, or has made an investment in the territory of another Party; provided, however, that a natural person who is a dual national shall be deemed to be exclusively a national of the State of his or her dominant and effective nationality." According to the CAFTA-DR, jurisdiction ratione personae is dependent upon the investor's dominant and effective nationality, a dual national should be deemed to be exclusively a national of the state of his or her dominant and effective nationality.

In this context, defining what the dominant and effective nationality is the critical legal issue determining jurisdiction ratione personae. The Ballantines v. Dominican Republic case⁸, which was decided by a PCA Tribunal under the CAFTA-DR, set a legal standard to determine the dominant and effective nationality of the claimants.

The Ballantines were American-Dominican dual nationals who accused the Dominican Republic of violating its obligations under the CAFTA-DR by giving them less favorable treatment than its nationals and failing to give fair and equitable treatment. After analyzing the juridical objection, the Tribunal pointed out that it is necessary to give effect to the customary rules of international law.

The Tribunal also stated that customary international law cases are instructive, as such, the Tribunal referenced the ICJ decision of Nottebohm case and identified four elements to determine the effective and dominant nationality: (i) the state of habitual residence; (ii) the circumstances in which the second nationality was acquired; (iii) the individual's personal attachment to a particular country; (iv) the center of the person's economic, social and family life.

The Tribunal decided that, although Ballantines maintained connections to the U.S., from 2006 to the moment the claim was submitted, the Ballantines had moved or relocated their economic and family center to the Dominican Republic. Even though they often visited the U.S., their children continued their education in the U.S. and they kept social relations in the U.S., the Tribunal pointed out that the Ballantines both established their "main" business and reorganized their way of living in the Dominican Republic for several years around the investment. In consequence, the Tribunal concluded that the Dominican Republic was the center of their economic, family and social life, despite maintaining ties with the U.S.⁹

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