|
Court |
Court of Appeal |
|
Issue |
Investment treaty interpretation |
|
Outcome |
The High Court’s decision to remit the matter back to the Tribunal for determination on the merits |
|
Key takeaway |
Litigation of investment treaty disputes can be long and arduous. The interpretation of jurisdiction provisions in a BIT should be an even-handed exercise |
The rule against reflective loss ordinarily prevents a shareholder from bringing a claim that merely reflects the diminution in the value of their shareholding, as this loss reflects the loss suffered by the company and any claim is one properly to be brought by the company. However, in the investment treaty context, whether a shareholder can bring a claim is likely one of treaty interpretation. In Republic of India v Ras Al Khaimah Investment Authority [2026] EWCA Civ 1358, the Court of Appeal held that, under the particular wording of the bilateral investment treaty between India and the UAE, executive action directed at the project undertaken by the locally incorporated company could be applied directly to the foreign investor’s shareholding, viewed as an investment rather than merely as an asset.
What happened?
On 14 February 2007, the Government of Andhra Pradesh (“GoAP”) entered into a memorandum of understanding with the Government of Ras Al Khaimah, by which the latter agreed to incorporate, through its investment authority (RAKIA), ANRAK Aluminium Limited (“ANRAK”). ANRAK would then construct and operate an alumina refinery, aluminium smelter and captive power plant in Andhra Pradesh. The MoU further provided that Andhra Pradesh Mineral Development Corporation (“APMDC”) would pursue applications to the Government of India and GoAP for environmental clearances to mine bauxite. This bauxite would then be supplied by APMDC to ANRAK.
RAKIA ultimately invested some US$42.5 million in the issued share capital of ANRAK. Between 2010 and 2013, ANRAK built the refinery and captive power plant. In 2015, the Government of India granted the last clearance for mining to commence and GoAP gave effect to the same. However, after widespread public protests, GoAP took steps to ensure that no bauxite mining took place and consequently RAKIA asserted that the refinery was left without its intended bauxite supply.
The bilateral investment treaty between India and the United Arab Emirates was signed at the end of 2013, but applies to all Investments made by Investors of one Contracting Party in the territory of the other Contracting Party, before or after that date. The definition of an “Investment” in Article 1 of the BIT includes shares and provides that “any change of the form in which assets are invested or reinvested does not affect their character as Investment.” Article 4 of the BIT provides that the Contracting Parties should not “impair by arbitrary or discriminatory Measures, the management, maintenance, use, enjoyment, or disposal of Investments.” The definition of “Measure” in Article 1 was “any form of binding action taken by a Contracting Party under any law, rule or regulation and applied directly to an Investment.”
Were the shares a qualifying “Investment”?
The Court of Appeal agreed with the Judge that, even though RAKIA’s investment was held in the form of its shareholding in ANRAK (and the pledge of those shares), on a proper interpretation of the provisions of the BIT, that shareholding was not merely an asset, but an investment. In particular, the Court of Appeal referred to provisions of the BIT which recognised that injections of capital would commonly be equity or credit interests and that Article 1 expressly (and “crucially”) provided that the form of an investment could change. Phillips LJ also accepted that rights arising from RAKIA’s pledge of its shares could constitute an Investment, although Males and Miles LJJ preferred to reserve their views on that issue because it was unnecessary to decide the appeal.
Had “direct” action been taken?
In light of the Court of Appeal’s findings that RAKIA’s shareholding in ANRAK retained the character of capital invested in the territorial project, it followed that the question of whether an action is applied directly to an Investment held through a shareholding had to be be determined on the basis that the asset in question was invested in the relevant territory in the project the company was set up to establish, develop and execute.
The Court of Appeal explained that this reading of the BIT made sense given its object and purpose, as expressed in the recitals, to give protection to Investments. In particular, the Court of Appeal considered that this object and effect would be substantially diminished if the BIT was limited to executive actions applied only to the structure through which the Investment was held. By way of example, during the hearing, India’s restrictive interpretation was tested by way of the scenario of an investor who transferred money to capitalise a company formed to establish a project in the territory of a Contracting Party and who received shares in return. India’s position was that, if the funds the investor transferred were immediately expropriated, wiping out the value of the investment, that would represent only an indirect effect on the Investment, viewed simply as the shares. This was inconsistent with an ordinary, good faith reading of the BIT.
What next?
The first instance judge, Knowles J, set aside the Tribunal’s jurisdictional award against RAKIA and remitted the dispute to the Tribunal for determination on the merits. The Court of Appeal’s ruling leaves that order in tact.
What are the takeaways from this judgment?
One important aspect of the judgment is Phillips LJ’s confirmation that investment treaty jurisdiction provisions are to be approached even-handedly, not presumptively in favour of either the investor or the state. However, Phillips LJ also accepted that, if a BIT has as its object or purpose the protection of foreign investment, then a holistic review exercise may well militate the interpretation of a clause in favour of the investor.
Finally, this is another example of how difficult it can be to pursue investment treaty disputes. RAKIA issued a Notice of Arbitration against the Republic of India on 8 December 2016. Almost 10 years later, the substantive merits of the dispute remain undetermined.
Frequently Asked Questions
Why does treaty wording matter in investment disputes?
Small differences in the language of a bilateral investment treaty can have a significant impact on whether an investor can bring a claim, the scope of protected investments, and the protections available against state action.
What can investors do to strengthen investment treaty protection?
Investors should consider investment treaty protections when structuring cross-border investments, including the jurisdiction through which an investment is made and the protections offered by any applicable treaties.
What issues commonly arise in investment treaty jurisdiction disputes
Jurisdictional disputes often focus on whether the claimant qualifies as an investor, whether the asset falls within the treaty’s definition of an investment, and whether the state’s conduct is covered by the treaty.
Disclaimer: This article is provided for general information only and is accurate as of 25 October 2026. It may not be updated to reflect subsequent legal or other developments. It does not constitute legal advice and should not be relied on as such. Specific legal advice should be obtained in relation to particular circumstances.
