The key points are: - Investment treaties and contracts generally guarantee protection and security for foreign investments, requiring host states to protect investments from violence, including by private or rebel forces. - The standard of protection varies but typically includes compensation for damages caused directly or indirectly by the state, its organs or third parties. - Treaties often include clauses specifically addressing losses due to war, armed conflict, national emergency etc, requiring treatment no less favorable than that given to domestic or other foreign investors. - Tribunals have interpreted these clauses as potentially engaging state responsibility even for losses due to war, depending on the circumstances, unless the state can invoke defenses like necessity. So in summary, while foreign investors' rights

1. Local Companies and Foreign
Shareholders’ rights
University of Dundee, CEPMLP
June 15, 2012
Dr. Sébastien Manciaux
University of Bourgogne / CREDIMI
Research Center on Investment and International Trade Law

2. Foreign investments are often made through the
creation of local companies because foreign
investors :
-are legally compelled to create a joint venture with local
partners;
-are legally compelled to create a local company for the
implementation of a successful tender;
-may choose this solution as the best one for the legal
organization of their activities.

3. In International law, at least since the Barcelona
Traction case (ICJ, 1970), the difference between
a company and its shareholders is a real issue.

4. Plan
I) Evolution of the legal context since the
Barcelona Traction case
II) Is a foreign investor entitled to act against a
State because of an injury allegedly caused to
the company in which he/she holds an interest?

5. I) Evolution of the legal context since the
Barcelona Traction case
A) Barcelona Traction and Elsi cases
B) Application of Article 25(2) (b) in fine of the ICSID
Convention
C) Development of International Investment Treaties (BITs)

6. Barcelona Traction
Belgium’s submission (Case concerning the Barcelona Traction, Light
and Power Company, Ltd (Belgium v. Spain), February 5, 1970, ICJ, at § 45) :
“ a company represents purely a means of achieving
the economic purpose of its members, namely the
shareholders, while they themselves constitute the
reality behind it… there exists between a company
and its shareholders a relationship describable as a
community of destiny ».

7. Barcelona Traction
ICJ decision (judgment at § 88) :
“Where it is a question of an unlawful act committed
against a company representing foreign capital,
the general rule of international law authorizes the
national State of the company alone to make a claim”.

8. Barcelona Traction
However, the Court suggested that international
law may provide for exceptions in which the
shareholders’ national State claims may be
brought, especially :
-where the rights of shareholders are directly affected ;
-where the State of incorporation of the company is
also the State which has caused the injury.

9. Elettronica Sicula S.p.A.
A decision that :
-fits into one of the exception enunciated in Barcelona
Traction (because the State of incorporation, Italy, was
also the State allegedly liable for the injury) ?
-or superseded the Barcelona Traction ruling
by acknowledging the “Community of destiny”
between a company and its foreign shareholders ?

10. Article 25 (2)(b) in fine of the ICSID Convention
B) Application of Article 25(2) (b) in fine of the
ICSID Convention
Article 25 (2)(b)in fine of the ICSID Convention
considers as National of another Contracting State
“any juridical person which had the nationality of the
Contracting State party to the dispute … which, because
of foreign control, the parties have agreed should be
treated as a national of another Contracting State for
the purpose of this Convention”.

11. Article 25 (2)(b) in fine of the ICSID Convention
In Amco Asia v. Indonesia, Soabi v. Senegal, Vacuum Salt v. Ghana or Aucoven
v. Venezuela, two issues were principally at stake:
-does foreign control within the meaning of Article
25(2)(b) in fine require or imply any particular
percentage of share ownership ?
-must the agreement with the host State to treat the
local company as a national of another contracting
State be express, or can it be tacit or implied?

12. International Investment Treaties
C) International Investment Treaties and the possibility
given to shareholders to have a direct recourse against
the State in which they made their investment

13. International Investment Treaties
« ARTICLE 1 Definitions
For the purposes of this Agreement:
1.”Investment” means, … , any kind of asset invested or
reinvested by an individual or a legal entity of one Contracting
Party in the territory of the other Party, in conformity with the
laws and regulations of the latter.
Within this general framework, it includes, in particular though
not exclusively:
---
b) shares of stock, interests or any other form of participation,
including minority or indirect interest, in a company established
in the territory of each Contracting Party».

14. II) Is a foreign investor entitled to act against a
State because of an injury allegedly caused to
the company in which he/she holds an interest?

15. Impregilo v. Argentina (ICSID Case N° ARB/07/17)
Argentina’s submission (Award dated June 21, 2011, at § 112) :
« There is no doubt that a corporation is a legal entity
separate from its shareholders, with rights and liabilities
entirely distinct from theirs. Likewise, it is well established that
a shareholder does not have an individual cause of action
against third parties for wrongs or injuries to the corporation
in which he or she holds stock, even if he or she suffers harm
from the damage to the corporation, such as a reduction in
the value of his or her stock. The BIT does not modify the rule
that shareholders are not entitled to bring claims for damages
suffered by the company in which they have shares.»

16. Impregilo v. Argentina (ICSID Case N° ARB/07/17)
Decision of the arbitral tribunal :
« It follows from Article 1(1)(b) of the Argentina-Italy
BIT that Impregilo’s shares in AGBA were protected
under the BIT. If AGBA was subjected to expropriation
or unfair treatment with respect to its concession
– an issue to be determined on the merits of the case –
such action must also be considered to have affected
Impregilo’s rights as an investor, rights that were
protected under the BIT ». (award at § 138)

17. A) Shareholders rights are distinct from
company’s rights, both in municipal and
international law
B) Under some circumstances, the measure
taken by the host State against the local
company may also affect the rights of its
foreign shareholders

18. A) Shareholders rights are distinct from
company’s rights, both in municipal and
international law

19. Municipal Laws
United States, Model Business Corporation Act
Subject to the specific rights granted in corporation’s charter and
by-laws, shareholders generally enjoy the following types of
rights pertaining to their ownership:
- Voting rights on issues that affect the corporation as a whole ;
- Rights to sell their shares ;
- Rights to receive dividends as declared by the board of
directors of the corporation.

20. Municipal Laws
Under the US Model Business Corporation Act
shareholders are normally not entitled to bring a
suit on behalf of the company.
But there is one exception: shareholders may
bring suit as representatives of the corporation
in a derivative action.

21. Municipal Laws
The same rights and the same limits may be
found in :
-United Kingdom, in the Companies Act 2006 (c 2006);
-France, in the Civil code (Article 1832 and followings)
and in the Commercial Code (Article L. 210-1 and
followings);
-etc.

22. International Law
Barcelona Traction :
« Separated from the company by numerous
barriers, the shareholder cannot be identified with
it. The concept and structure of the company are
founded on and determined by a firm distinction
between the separate entity of the company and
that of the shareholder, each with a distinct set of
rights. » (Judgement of 5 February 1970, at § 41 )

23. International Law
Barcelona Traction :
«It is a basic characteristic of the corporate
structure that the company alone, through its
directors or management acting in its name, can
take action in respect of matters that are of a
corporate character. … . Ordinarily, no individual
shareholder can take legal steps, either in the name
of the company or in his own name. » (Judgement of 5
February 1970, at § 41 )

24. International Law
Elettronica Sicula :
the Elsi judgement does not deal with the
distinction between alleged infringements of
the companies’ rights and those concerning
the shareholders' rights.

25. International Law
Ahmadou Sadio Diallo, (Republic of Guinea v. DRC):
“Having reached the conclusion that Mr. Diallo was, both as
gérant and associé of the two companies, fully in charge
and in control of them, but that they nevertheless remained
legal entities distinct from him, the Court will now address
the various claims of Guinea pertaining to the direct rights
of Mr. Diallo as associé. In doing so, the Court will have to
assess whether, under DRC law, the claimed rights are
indeed direct rights of the associé, or whether they are
rather rights or obligations of the companies” (Judgement of
30 November 2010, at § 114 )

26. => both in domestic and in international law, a
company is distinguished from its shareholders
and rights and obligations of the company are
distinguished from the rights and obligations of
its shareholders

27. B) Under some circumstances, the measure
taken by the host State against the local
company may also affect the rights of its
foreign shareholders

28. -De jure infringement (law modifying companies
status)
-De facto infringement (measure making useless the
holding of shares)

29. « [it] is recognized in international law that measures
taken by a state can interfere with property rights to
such an extent that these rights are rendered so
useless that they must be deemed to have been
expropriated, even though the state does not purport
to have expropriated them and the legal title to the
property formally remains with the original owner».
(Starrett Housing Corporation v. Islamic Republic of Iran, Interim award,
December 19, 1983, 4 Iran-U.S. C.T.R. 122 at 154).

30. Investment Protection for Oil
Companies During Ongoing
Armed Conflicts
Julian Cardenas-Garcia
Doctoral Fellow
University of Bourgogne - CREDIMI
Research Center on Investment and International Trade Law
Dijon, France
Julian.cardenas@u-bourgogne.fr
Presented at the H2Oil Seminar Sessions for the EI Source Book. Dundee, June 15th, 2012

31. Overview
Introduction
I. Foreign Investor’s Rights of Protection and Security
A. Investment Treaty Provisions
B. Contractual Protection Provisions
II. Foreign Investor’s Compliance during Armed Conflicts
A. Risk of Violation to National and International Law
B. Compliance with Oil Industry Best Practices
Conclusion

32. Introduction
Sudanese soldiers celebrate their victory at the Heglig oil
field in Sudan, July 2011. Source: www.ekantipur.com

33. Introduction
Armed Conflicts
Source: Data Aviation Week 2012
Oil Reserves
Source: Wikipedia updated until 2011

34. Introduction
Effect of giant oil field discovery on
oil production, oil export, and internal armed conflicts
“…discovering giant
oilfields increases the
incidence of internal
armed conflict by about
5-8 percentage points.
This increase is driven
predominantly by
countries with recent
histories of political
violence – those that
experienced coups or
armed conflicts during
the decade prior to
discovery“
Source: Do Giant Oilfield
Discoveries Fuel Internal
Armed Conflicts? LEI and
MICHAELS, LSE, 2011.

35. I. Foreign Investor’s Rights of
Protection and Security
Libyan rebels defend an oil refinery at Ras Lanuf. Source: Reuters

36. I. Foreign Investor’s Rights of Protection and Security
A. Investment Treaty Provisions
• Most Investment Treaties guarantee full protection and security.
This standard involves an obligation by the host State to spare the
investment from violent actions. It also requires a measure of
protection against violent interference by private parties, and rebel
forces.
• The standard of protection will vary depending the scope of the
clause, but generally it includes a rule for compensation in case of
destruction caused by acts and omissions of the State, its organs
and agencies, or even damages caused by third parties.

37. I. Foreign Investor’s Rights of Protection and Security
A. Investment Treaty Provisions
• Bilateral Investment Treaty (BIT) Protection and Security Clause
BIT Libya – Austria BIT Libyan – Luxemburg
General Clause Type Exception Clause
ARTICLE 3 ARTICLE 3
Treatment of Investments Protection of investments
1. Each Contracting Party shall accord to 2. Except for measures required to
investments by investors of the other maintain public order, such investments
Contracting Party fair and equitable shall enjoy continuous protection and
treatment and full and constant protection security, i.e. excluding any unjustified or
and security. discriminatory measure which could hinder,
either in law or in practice, the
management, maintenance, use, possession
or liquidation thereof.

38. I. Foreign Investor’s Rights of Protection and Security
A. Investment Treaty Provisions
• War Destruction Clause / National Treatment/ Compensation
BIT Libya - Belgium
ARTICLE 7. Deprivation and limitation of ownership
(4) Investors of one Contracting Party whose investments suffer losses
owing to war or other armed conflict, revolution, a state of national
emergency or revolt in the territory of the other Contracting Party shall be
granted by the latter Contracting Party a treatment, as regards restitution,
indemnification, compensation or other settlement, at least equal to that
which the latter Contracting Party grants to the investors of the most
favoured nation.

39. I. Foreign Investor’s Rights of Protection and Security
A. Investment Treaty Provisions
• WDC/NT/Compensation/State Armed Forces
BIT Libya - Austria
ARTICLE 5 Compensation for Losses
(1) An investor of a Contracting Party who has suffered a loss relating to its investment in the territory of
the other Contracting Party due to war or to other armed conflict, state of emergency, revolution,
insurrection, civil disturbance, or any other similar event, or acts of God or force majeure, in the territory
of the latter Contracting Party, shall be accorded by the latter Contracting Party, as regards restitution,
indemnification, compensation or any other settlement, treatment no less favourable than that which it
accords to its own investors or to investors of any third state, whichever is most favourable to the investor.
(2) An investor of a Contracting Party who in any of the events referred to in paragraph (1) suffers loss
resulting from: (a) requisitioning of its investment or part thereof by the forces or authorities of the other
Contracting Party, or (b) destruction of its investment or part thereof by the forces or authorities of the
other Contracting Party, restitution or compensation which in either case shall be prompt, adequate and
effective and, with respect to compensation, shall be in accordance with Article 4 (2) and (3).

40. I. Foreign Investor’s Rights of Protection and Security
A. Investment Treaty Provisions
• WDC/NT &MFN/Compensation/State Armed Forces/Necessity
Energy Charter Treaty
12. (1) Except where Article 13 applies, an Investor of any Contracting Party which suffers a loss with
respect to any Investment in the Area of another Contracting Party owing to war or other armed conflict,
state of national emergency, civil disturbance, or other similar event in that Area, shall be accorded by
the latter Contracting Party, as regards restitution, indemnification, compensation or other settlement,
treatment which is the most favourable of that which that Contracting Party accords to any other Investor,
whether its own Investor, the Investor of any other Contracting Party, or the Investor of any third state.
(2) Without prejudice to paragraph (1), an Investor of a Contracting Party which, in any of the situations
referred to in that paragraph, suffers a loss in the Area of another Contracting Party resulting from (a)
requisitioning of its Investment or part thereof by the latter’s forces or authorities; or (b) destruction of
its Investment or part thereof by the latter’s forces or authorities, which was not required by the
necessity of the situation, shall be accorded restitution or compensation which in either case shall be
prompt, adequate and effective.
24. (3) The provisions of this Treaty other than those referred to in paragraph (1) shall not be construed
to prevent any Contracting Party from taking any measure which it considers necessary: (a) for the
protection of its essential security interests including those(i) relating to the supply of Energy Materials
and Products to a military establishment; or (ii) taken in time of war, armed conflict or other emergency
in international relations;

41. I. Foreign Investor’s Rights of Protection and Security
A. Investment Treaty Provisions
• Interpretation of Protection and Security clauses by Arbitral Tribunals
1) State Responsibility for War Destruction in Investment Disputes
a) ICSID Case: Asian Agricultural Products Limited (AAPL) v. Democratic Socialist Republic of Sri
Lanka.
• Strict or absolute liability under Protection Clause : Negative
• Liability under duty to take reasonable measures of protection: Positive but depended on
the circumstances.
• Dissenting opinion: Failure to attribute harm to State forces.
b) ICSID Case: American Manufacturing & Trading, Inc. v. Republic of Zaire
• State liability / Reasonable measures/ Prevention of acts of violence: Positive.
• State liability for acts committed by riots.
Other Cases: Wena Hotels Limited v. Arab Republic of Egypt (ICSID), Amco Asia Corporation
and Others v The Republic of Indonesia (ICSID); Rumeli v Kazakhstan, 2008 and Democratic
Republic of Congo v. Uganda (I.C.J)

42. I. Foreign Investor’s Rights of Protection and Security
B. Contractual Protection Provisions
• Force Majeure Provisions:
Test: (i) the event is beyond the control of the parties; (ii) the event is unforeseeable; and (iii)
the event renders the performance of the contract impossible.
Libyan EPSA Model 2004
Article 22: “Force majeure shall include, without limitation: Acts of God ; insurrection ; riots ;
war” and “any unforeseen circumstances and acts beyond the control of such Party which
render the performance of its obligations impossible.”
Other Considerations:
• International Sanctions: Unilateral (U.S. Commercial Sanctions) and Multilateral (EU
Sanctions and UN Security Council Sanctions)
• Arbitral Jurisprudence: NOC v Libyan Sun Oil (ICC) Impossibility Test: Negative.
• Municipal rules on force majeure if applicable.
• UNIDROIT rules on force majeure and minimisation du dommage

43. I. Foreign Investor’s Rights of Protection and Security
B. Contractual Protection Provisions
• Political Insurance
AIPN JOA Model 2012
Article 4.7 Insurance Obtained by Operator
Operator shall procure and maintain for the Joint Account the types and amounts of
insurance required by the Contract or the Laws
Comment: Political risk insurance policies may provide coverage for loss which is (typically)
the direct and immediate result of acts of war or civil strife. The war and civil disturbance
clause of an insurance policy will often cover all losses, not only losses attributable to a state’s
forces or authorities. Nevertheless, the clause may be limited to acts undertaken with the
primary intent of achieving a political objective, and may require that the loss continue for a
particular period. It is necessary to examine the particular policy to determine whether there
is a war and civil disturbance clause and, if so, to determine the scope of its coverage.

44. II. Foreign Investor’s Compliance
During Armed Conflicts
Soilders from the Revolutionary Armed Forces of
Colombia (FARC)

45. II. Foreign Investor’s Compliance During Armed Conflicts
Current Cases. Colombia: Internal Guerrilla
Issues:
Kidnaps
Attacks against
civil population
Attacks against
oil facilities
Attacks against
National Army

46. II. Foreign Investor’s Compliance During Armed Conflicts
Current Cases. Sudan and South Sudan War
Issues:
Boundary and
territory disputes
Attacks against
civil populations
Attacks against oil
facilities
War
South Sudan threads to cut main pipeline Conflict Zone. Source: BBC

47. II. Foreign Investor’s Compliance During Armed Conflicts
A. Risk of Violation to National and International Law
• Today, a vast majority of modern armed conflict are closely connected
with economic interests of the belligerent parties over the control of
extractive industries.
• Oil Companies operating in conflicts zones may contribute to increase of
tensions between parties of the conflict and their commercial relation
with partner groups or entities engaged in armed conflicts may become
indirectly involved in the commission of serious crimes, i.e. if foreign
investors know that their resources are also used to provide armed groups
with weapons subsequently used against civilians. The crimes committed
may amount to international crimes such as war crimes, crimes against
humanity or even genocide.
• Despite personal liability has been well-established under International
Criminal Law, Corporate Liability is still under discussion.

48. II. Foreign Investor’s Compliance During Armed Conflicts
A. Risk of Violation to National and International Law
• Legal Risk Environment to Operate in Armed Conflicts:
• Weak National Juridical Systems
• Weak National Rule of Law
• International Criminal Tribunals Case Law on Business Man
• International Humanitarian Law Rules for Armed Conflicts
• Human Rights NGOs and Multinational and Compliance on Human Rights Rules.
International Oil Companies Operations and Risk Complicity in
Violation of National or International Law:
• Hiring Private Security Forces or State Security Forces to Protect Oil Facilities
• Finance State Entities or State Security Forces engaged in violations of HR

49. II. Foreign Investor’s Compliance During Armed Conflicts
A. Risk of Violation to National and International Law
The Complicity Test:
• When it actively assists, directly or indirectly, in human rights violations
committed by others
• When it is in a joint venture (or similar formal partnership) with a government,
and could reasonably foresee (or subsequently obtains knowledge) that the
government is likely to commit abuses in carrying out its part of the agreement
• When it benefits from human rights violations, even if it does not positively assist
or cause the perpetrator to commit the violations
• When it is silent or inactive in the face of human rights violation
Source: International Council on Human Rights Policy, Executive Summary- Beyond Voluntarism: Human
rights and the developing international legal obligations of companies (Versoix, Switzerland: January 2002).

50. II. Foreign Investor’s Compliance During Armed Conflicts
A. Risk of Violation to National and International Law
• Case Law:
1) ATS Case U.S.A.: Presbyterian Church of Sudan v. Talisman Energy, Inc. (2001-2010)
2nd Circuit Court of Appeals: The court determined that Talisman could not be held liable for
aiding and abetting violations of international law committed by the Sudanese government
unless the plaintiffs could prove that Talisman purposefully aided the government's alleged
human rights violations.
2) Tadic Case, 1997. ICTY on Complicity Test:
1. Requirement of Intent, which involves awareness of the act of participation coupled
with a conscious decision to participate by planning, instigating ordering, committing, or
otherwise aiding and abetting in the commission of a crime.
2. It should be prove that the participation in the conduct of the accused contributed to
the commission of the illegal act.
3. The contribution, or assistance, needs “to have a substantial effect on the commission
of the crime.

51. II. Foreign Investor’s Compliance During Armed Conflicts
B. Compliance with Oil Industry Best Practices
• International Oil Companies operating in zones of conflict has been
expanding and in an hyper-connected world they can no longer assume
that their business activities will not be scrutinized.
• Responsible companies have begun taking steps to protect themselves
against the risk of being found complicit, and international understanding
about the notion of complicity has grown.
• In some cases, international law (notably human rights and humanitarian
law) sanctions the worst abuses; but it is rarely able to replace the
function of sound domestic legislation. The weaknesses of both domestic
and international law explain the emergence of numerous ‘soft law’ and
the need of the petroleum industry to identify its own Best Industry
Practices, a sort rules to integrate the lex petrolea.

52. II. Foreign Investor’s Compliance During Armed Conflicts
B. Compliance with Oil Industry Best Practices
Operating in Armed Conflict Environments, International Oil
Companies Must:
• Engage on the need for human rights due diligence
In order to:
• Operate responsibly in high risk environments
Interest to Comply: Economic and Legal consequences, i.e. economic
losses and criminal prosecution. Further, Could a violation of Human
Rights committed by an Oil Company or its Executives be alleged by a
State as a defend argument in an Arbitration case?

53. II. Foreign Investor’s Compliance During Armed Conflicts
B. Compliance with Oil Industry Best Practices
Example of Guidelines:
OCDE Guidelines for Multinational Enterprises 2011
“40…in situations of armed conflict enterprises should respect the standards of
international humanitarian law, which can help enterprises avoid the risks of causing or
contributing to adverse impacts when operating in such difficult environments.”
UN Guiding Principles on Business and Human Rights 2011
“12. The responsibility of business enterprises to respect human rights refers to
internationally recognized human rights – understood, at a minimum, as those expressed in
the International Bill of Human Rights and the principles concerning fundamental rights set
out in the International labour Organization’s Declaration on Fundamental Principles and
Rights at Work.”

54. II. Foreign Investor’s Compliance During Armed Conflicts
B. Compliance with Oil Industry Best Practices
The three pillars of the Framework are:
• The state duty to protect against human rights abuses by third parties, including business,
through appropriate policies, regulation, and adjudication;
• The corporate responsibility to respect human rights, that is, to act with due diligence to
avoid infringing on the rights of others and address adverse impacts with which they are
involved; and
• The need for greater access by victims to effective remedy, both judicial and non-
judicial.

55. Conclusion
• Bilateral and Multilateral Investment Treaties offer a framework to Oil
Companies to seek compensation for the deprivation or destruction of their
facilities in cases of war, armed conflicts or even civil unrest, caused by state or
not state actors. The international obligation of the State of protection and
security over foreign investment has been already tested in different investment
arbitrations showing the enforcement of the protection and security standards.
• In a hyper-connected world, international oil companies operating in conflict
zones will be scrutinized in their performance by others members of the
petroleum industry and others international actors. Currently there is a higher
standard of compliance in respect of Human Rights by Oil Companies.
• Increase of the needs of due diligence by International Oil Companies to comply
with international human rights standards and oil industry best practices in case
or armed conflicts.
• In the coming years, more independent institutions, such as the EI Source Book,
will get involved in the identification of these standards.

56. REFERENCES
1. Yu-Hsiang Lei and Guy Michaels, Do Giant Oilfield Discoveries Fuel International
Armed Conflicts?. London School of Economics, 2011.
2. C.H. Schreuer, The Protection of Investments in Armed Conflicts. OGEL, June 2011.
3. Freya Baetens, When international rules interact: International investment law and the law
of armed conflict, Investment Treaty News, April 7, 2011
4. Sebastien Manciaux, Investissements Etrangers et Arbitrage entre Etats et Ressortissants
d’Autres Etats, CREDIMI, Litec 2004.
5. Salil Tripath, Business in Armed Conflicts Zones: How to avoid Complicity and Comply with
International Standards, IHRB, Politorbis, No. 50-3, 2010
6. Guiding Principles on Business and Human Rights. United Nations, Office of the High
Commissioner for Human Rights, 2011.
7. OCDE Guidelines for Multinational Enterprises, 2011.
7. Company Codes of Conduct and International Standards. Part II, Oil & Gas. World Bank,
2004.