Thanks to the globalisation, construction projects emerge as cross border in nature especially in the complex infrastructure projects arena. The complexity of the projects means that they run for many months or years. Over that period, the projects will be exposed to many risks.
One area of risk that is potentially of concern to international players in the construction sector is the risk that projects will be affected by actions taken by the state. Construction projects, by their nature, cannot be relocated elsewhere if the local environment becomes unfriendly.
Contractors and investors in such cases can feel particularly exposed to the risk that the state will favour its own interests and those of its nationals over those of foreign parties. Parties in the construction sector should bear in mind few factors when entering into international projects or make investments in foreign projects.
Investment treaties:
๐Investment treaties are, broadly speaking, agreements made between states relating to each signatory stateโs treatment of investments made by individuals or companies that are nationals of the other signatory state or states. Their intention is to promote cross-border investment by providing protections for international investments and reassurance against political risk.
๐They come in two forms: bilateral investment treaties, entered into between two states (BITs), and multilateral investment treaties, negotiated and agreed between more than two states (MITs).
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๐The majority of existing MITs and BITs also provide for any disputes between Member States and investors to be resolved through investorโstate dispute settlement mechanisms (referred to as โISDSโ), frequently requiring some period of negotiation followed by inter- national arbitration.
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Who can be an investor?
An investment treaty offers protections to โinvestors. To determine who is an investor, the text of the relevant MIT or BIT has to be considered. Typically, however, the test has two requirements: that the individual or entity be a national of one of the state parties, and that it has made an investment into the other state party. If the treaty provides for disputes to be resolved through ICSIDย arbitration, the requirements of Article 25 of the ICSID Convention must also be satisfied. The person or entity claiming to be an investor bears the burden of proving their entitlement.
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Investment – If an investor meets the nationality requirement, the next question is whether they have made a qualifying investment in the host state.
The main criteria for this assessment will be found in the relevant MIT or BIT. Investment treaties typically contain lists of the types of investments that will be protected by the host state. Such lists tend to be broadly drawn, and investments can be either tangible or intangible property.
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