November 20, 2014

Treat your investment to some Treaty protection

Given the volatile times we live in, clients are increasingly keen to ensure that their overseas investments benefit from the protection of Bilateral Investment Treaties (“BITs”).

BIT planning is a cost effective mechanism for mitigating your investment risk, and structuring an investment in order to obtain treaty protection may also reduce your premium for political risk insurance.

The press is full of tales of woe of investors who have had assets nationalised, or suffered from discriminatory regulatory, legislative or judicial acts by a host state that undermine the value of their investments.

Those investors who cannot invoke a BIT are liable to end up arguing their case under local law before the host states’ domestic courts. However, for those able to rely on a BIT, the picture is thankfully very different. They can take their dispute with the host state directly to an impartial arbitral tribunal, subject it to international law standards, and enforce it with relative ease. BITs have therefore become an essential tool in the armoury of companies investing overseas.

BIT planning is important wherever in the World an investment is being made (and not just in countries perceived to be unstable or particularly ‘risky’) . It is noteworthy that in 2013, approximately half of known investor-state cases were filed against developed states, mostly Member States of the EU.

Investors should also keep their plans under review in light of the changing BIT landscape; in particular as regards BITs between the EU and third states (as well as intra-EU BITs). The recently ratified Treaty between the EU and Canada has arguably set the standard going forward.

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