International investment arbitration and Italian investors

13 February 2019 | Applicable law: Italy

Italian investors may face political risks stemming from actions and measures taken by the countries where they invest. These may take different forms, such as direct and indirect expropriation, changes in the host countries regulatory framework, denial of incentives, revocation of licenses and permits. 

In this short article Hussein Haeri, Eleni Polycarpou and Camilla Gambarini will make you better aware of the system of international investment arbitration for the protection of your foreign investments.

How international investment law may benefit Italian investors?

Foreign investments play a significant role in the global economy. In 2017, Global foreign direct investment ("FDI") amounted to an estimated US$ 1.52 trillion. In 2016, Italian outward FDI flows were worth EUR 16.048 billion, and were directed to a number of developed and developing countries.

When investing in foreign countries, particularly emerging markets, Italian investors may face political risks stemming from actions and measures taken by States recipient of the investments (so-called "host States"). Such actions may take different forms, such as, but not limited to, direct and indirect expropriation, changes in the host State's regulatory framework, denial of incentives, revocation of licenses and permits, bogus criminal or fiscal proceedings and denial of justice.

States have the sovereign power to adopt their own policies and regulations. Nevertheless the exercise of State sovereignty is not without consequences. The International Convention on Settlement of Investment Disputes ("ICSID") and bilateral investment treaties (or "BITs") constitute an effective set of rules binding on States with respect to the treatment of foreign investors and providing remedies for foreign investors against host States, often including the procedural right of international arbitration for compensation of losses suffered.

What are BITs and how does investor-State arbitration work?

BITs are treaties entered into by two States for the reciprocal promotion and protection of investments to encourage the flow of private capital between those States. To date, around 3000 BITs exist worldwide. Italy is a party to more than 70 BITs. BITs tend to set out in general terms some substantive rights or standards of treatment that each contracting State undertakes to grant investors of the other contracting State with respect to their investment. These include:

  • national standard of treatment (non-discrimination of investors from the host State);
  • most-favored-nation treatment (non-discrimination of investors from a third State);
  • fair and equitable treatment; and
  • prohibition against expropriation, unless certain conditions are met, including the payment of compensation.

Significantly, the majority of BITs include dispute resolution provisions allowing foreign investors to bring international arbitration proceedings directly against the host State and seek damages or other reliefs for breaches of the provisions under the relevant BIT. This means that if there is a BIT between Italy and the host State in which an Italian investor has invested, that investor can bring proceedings against that host State without there being a specific contract between them (because the BIT establishes the investor's substantive and dispute resolution rights). Those proceedings can be additional to any private proceedings brought against the counter party to the Italian investor's contracts.

Italian investors have been notable users and beneficiaries of investment treaties to manage political risk. For example, the Italian oil and gas company Saipem won an ICSID arbitration against Bangladesh for the expropriation of its investment in Bangladesh concerning a gas pipeline through the actions of the Bangladeshi courts. Another significant case is that of Waguih Elie Geirge Siag and Clorinda Vecchi against Egypt. In that case, an investment treaty arbitral tribunal found that Egypt was responsible for expropriating an investment in a property and holiday resort owned by two Italian dual nationals. Damages of over $75 million were awarded to the Italian investors.

An advantage of using arbitration to resolve such investment disputes is that arbitral tribunals provide a neutral ground to settle investment disputes and generally adjudicate disputes applying the relevant BIT and international law norms. ICSID arbitration is the most commonly used dispute resolution mechanism for investor-State disputes. It offers some advantages including:

  • the "delocalisation" of the arbitration proceedings (meaning that local courts should not interfere with the arbitration);
  • the finality of ICSID awards; and
  • the binding nature of ICSID awards in more than 150 States around the world.

Definition of "investment" and "investor" under international investment law

The concepts of "investment" and "investor" are key concepts to determine the scope of BITs' protection and the jurisdiction of arbitral tribunals.

Whilst the definition of "investment" varies in accordance with the wording of the applicable BIT, it often encompasses every kind of asset owned or controlled, directly or indirectly, by the investor, including movable and immovable property, shares, debentures, bonds, IP rights, and economic rights conferred by law or contract or by virtue of licenses and permits. One of the most important (albeit contested) cases on the definition of 'investment' relates to an Italian construction company Salini and its project to construct a highway in Morocco. In that case, the arbitral tribunal held that for an investment to qualify for protection in ICSID arbitration, it needs to meet certain objective criteria, namely a contribution, an element of risk participation, a certain duration of a project and a contribution to the development of the host State.

The second key concept is that of "investor". Investors can be either individuals or corporations (or other legal entities). BITs protection is accorded to investors of each contracting State holding a protected investment in the other contracting State. Investors can potentially join together in investment treaty arbitrations, as Italian bondholders did in an ICSID arbitration case against Argentina – for example in the case of Abaclat v Argentina (ICSID Case No. ARB/07/5).

Structuring investment to benefit from BIT protection

Italian investors should factor in BIT protection when structuring their investments abroad. For example, an investor may carry out its investment through a corporate vehicle located in the country that has entered into a favorable BIT with the host State.

Structuring investments considering the protection of BITs will protect investors. Investment structuring, however, requires careful consideration. Investors are precluded from resorting to nationality planning after a dispute has arisen or was reasonably forseable and for the sole purpose of commencing proceedings against the host State.


Italian businesses and individuals that have made, or are planning to make, an investment abroad should be aware of the international system for the protection of foreign investments. BIT planning and investor-State arbitration may prove to be extremely effective ways to offset political risks and recover losses.

Withers has a leading specialist practice in international investment law. Withers' team has particular experience in advising investors on how to structure their investments in order to benefit from BIT protection as well as representing individuals and companies in investor-State arbitration proceedings. Withers has been assisting Italian clients for more than twenty years with international arbitration proceedings. Our team is fluent in numerous languages, including Italian, French, Greek, Arabic, Russian, Spanish and Turkish and members are qualified in both common and civil law jurisdictions. We have advised well-known Italian brands in fashion, retail, art, sport, construction and industry. We have more than 30 fluent Italian speaking lawyers across all areas and have offices in Milan and Padova. These key factors contribute to the strength of our international arbitration practice and place us as trusted advisors to Italian entrepreneurs and companies involved in cross-border disputes, including investor-State arbitration.

For further information please contact:

Hussein Haeri, Eleni Polycarpou and Camilla Gambarini

To read this article in Italian please click here.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


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