Introduction
Facts
Arbitral tribunal
District Court of the Hague
Dual nationality is becoming a hot topic in the context of international investment arbitration, with several cases addressing the question of whether dual nationals can claim treaty protection against a state whose nationality they hold. At least two such cases found their way into the Dutch courts through setting-aside proceedings.
Different arbitral tribunals (under different bilateral investment treaties (BITs)) have reached diverging conclusions. This makes a recent Dutch district court judgment on this topic particularly interesting.
In October 2021, the District Court of the Hague in the Netherlands dismissed Egypt's claim to set aside an arbitral award, conducted under the United Nations Commission on International Trade Law rules, that had been issued in favour of the Finnish investor Mohamed Abdel Raouf Bahgat. At the heart of the dispute were questions regarding Bahgat's effective nationality, which was an essential element to determine whether he would fall under the protection of the BIT signed between Egypt and Finland and consequently whether the matter could be litigated through arbitration.
Through the applicable Dutch procedural law, the Court decided that it was competent to substantively address the dual nationality matter and, mirroring the findings of the arbitral tribunal, concluded that, in the present case, the dual nationality of the investor did not prevent a successful invocation of the BIT.
Born and raised in Egypt, Bahgat became a Finnish citizen after emigrating to Finland in 1971, whereby he also officially renounced to his Egyptian nationality. His Egyptian citizenship was, however, restored in 1997, when Bahgat won a concession to develop and exploit a mining project in the Aswan region in southern Egypt. The parties had opposite views on the consequent implications for Bahgat's Finnish citizenship, but after lengthy administrative procedures, the highest Finnish authority concluded (while the arbitration proceedings were already ongoing) that Bahgat had retained his Finnish nationality alongside his Egyptian nationality.
In 2000, Bahgat was arrested by the Egyptian authorities and condemned to 15 years imprisonment and hard labour for an alleged illegitimate money transfer. He was, moreover, subject to several asset freezes and travel bans, which stayed in place for several years even after the Egyptian Supreme Court pronounced his acquittal. Bahgat therefore commenced arbitration proceedings against Egypt, invoking the obligation imposed by the 1980 and the 2004 BITs concluded between Finland and Egypt to grant investors a fair and equitable treatment.
In the arbitration proceedings, Egypt contested the applicability of the BITs, primarily relying on the defence that, at the relevant times, Bahgat had not possessed Finnish nationality and that he therefore had no standing under the BIT in question.
Following the decision taken by the Finnish Supreme Administrative Court, however, the arbitral tribunal upheld jurisdiction over Bahgat as a Finnish national. The tribunal subsequently prevented Egypt from bringing forward additional arguments with regard to the claimant's dual nationality, stating that the relevance of the issue could have been foreseeable for Egypt at an earlier stage of the proceedings, and that such an untimely introduction was not admissible.
The tribunal therefore did not consider Egypt's statements in finding whether Egyptian-Finnish nationals could bring a claim under the BITs and concluded on its own accord that this was indeed the case, based on international rules of treaty interpretation. The tribunal therefore declared itself competent and subsequently rendered an award in favour of the claimant.
Egypt instituted setting-aside proceedings in the District Court of the Hague. It claimed:
- a violation by the tribunal of the rules of due process for not having heard Egypt's defence on the issue of dual nationality;
- the absence of a valid arbitration agreement, since Bahgat could not qualify as a protected investor under the BIT, either:
- because of his dual nationality; or
- because his dominant nationality would, in any case, remain the Egyptian one.
After having dismissed the first ground, concluding that the tribunal had not violated due process by not allowing Egypt to put forward its arguments with regards to dual nationality, the Court decided to still substantively address the matter of dual nationality, as the matter also concerned a jurisdiction aspect, which the Dutch courts will have to review in full in setting-aside proceedings.
The Court concluded that the relevant clause in the BIT had to be interpreted in accordance with the international criteria provided by articles 31 and 32 of the Vienna Convention on the Law of Treaties – namely, entailing that the intention of the parties has to be recreated by taking into account in good faith the text, context and purpose of the clause.
The BIT contained the following definition of the term "investor":
the term "investor" means, for either Contracting Party, the following subjects who invest in the territory of the other Contracting Party . . . .
(a) any natural person who is a national of either Contracting party in accordance with its laws.
The Court reasoned that the broad formulation of the definitions in the BIT justified the inclusion of dual nationals within its scope.
Another element that the Court considered important was the fact that in BITs signed by Egypt with other states, dual nationals were expressly excluded from the classification as investors. In this light, the absence of an explicit exclusion in the BIT with Finland was therefore even more remarkable.
Furthermore, the Court dismissed Egypt's argument that the international literature and jurisprudence seem to agree that dual nationals do not fall within the protective scope of BITs, as it found that the counterparty had brought just as many relevant sources asserting the contrary.
All these elements, in short, led the Court to conclude that a reasonable interpretation of the BIT clause was not meant to exclude individuals with dual nationality, and that the arbitral tribunal had therefore ruled correctly on its own competence.
The Court did not express itself on the doctrine of dominant nationality, as it indicated that Bahgat's Finnish nationality was the dominant one in this case.
For further information on this topic please contact Jeroen van Hezewijk or Eleonora Di Pangrazio at Freshfields Bruckhaus Deringer LLP by telephone (+31 20 485 7000) or email ([email protected] or [email protected]). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.