ICSID Review, Vol. 33, No. 1 (2018), pp. 81–87
doi:10.1093/icsidreview/six035 Published Advance Access February 2, 2018
CASE COMMENT
CEAC v Montenegro1
When does an investor have a ‘seat’ in its home state?
Philip Devenish2
and Odysseas G. Repousis3
I. INTRODUCTION
In an Award dated 26 July 2016, a majority of the Tribunal in CEAC Holdings
Limited v Montenegro declined jurisdiction on grounds that CEAC did not have a
‘seat’ in Cyprus and therefore did not qualify as an ‘investor’ under the Cyprus–
Serbia and Montenegro BIT.4
The majority reached this decision without making a
final determination on the proper meaning of the term ‘seat’ in the BIT. The
majority’s approach was criticised by CEAC’s appointee, William W. Park, who
issued a Separate Opinion finding that CEAC’s registered office in Cyprus met the
nationality requirements under the BIT. CEAC has instituted annulment
proceedings against the Award that remain pending at the time of writing.
This Case Comment reviews the background to the dispute (Section II),
addresses the findings in the Award (Section III) and the Separate Opinion (Section
IV), and provides comment on the usefulness vel non of the Award as a guiding
precedent for future cases (Section V).
II. BACKGROUND TO THE DISPUTE
The case concerned an aluminium plant in Montenegro, Kombinat Aluminijuma
Podgorica, A.D. (KAP) that was owned and managed by CEAC, a company
established under the laws of Cyprus.5
CEAC alleged that its investment failed as a
result of state efforts to regain control of KAP, in alleged breach of the protections
in the BIT.6
1
CEAC Holdings Limited v Montenegro, ICSID Case No ARB/14/8, Award, 26 July 2016 [hereinafter CEAC v
Montenegro]. The Tribunal comprised Bernard Hanotiau (President), William W. Park (Claimant’s nominee) and
Brigitte Stern (Respondent’s nominee). CEAC was represented by King & Spalding; Montenegro was represented by
Scho¨nherr Rechtsanwa¨lte. CEAC has filed an ICSID annulment proceeding that was registered in November 2016.
2
Senior Associate, Quinn Emanuel Urquhart and Sullivan, LLP, London, United Kingdom. Email:
philipdevenish@quinnemanuel.com.
3
Associate, Quinn Emanuel Urquhart and Sullivan, LLP London, United Kingdom. Email:
odysseasrepousis@quinnemanuel.com.
4
Agreement between Serbia and Montenegro and the Republic of Cyprus on Reciprocal Promotion and Protection
of Investments (signed on 21 July 2005, entered into force on 23 December 2005) [hereinafter the BIT].
5
CEAC v Montenegro (n 1) at para 29.
6
ibid at paras 29–38.
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The Tribunal bifurcated the proceedings to consider the jurisdictional question of
whether the Claimant had a ‘seat’ in Cyprus in accordance with Article 1(3)(b) of
the BIT.7
That provision states in relevant part:
The term ‘investor’ shall mean: . . .
a legal entity incorporated, constituted or otherwise duly organized in accordance with the
laws and regulations of one Contracting Party, having its seat in the territory of that
Contracting Party and making investments in the territory of the other Contracting Party.8
CEAC submitted that it had established a seat in Cyprus within the meaning of
Article 1(3)(b) and was therefore an ‘investor’ under the BIT.9
According to CEAC,
since the BIT does not define the term ‘seat’ and no uniformly accepted definition
of the term exists under international law, the meaning of ‘seat’ under Article
1(3)(b) of the BIT must be determined by a renvoi to the municipal law of
Cyprus.10
CEAC submitted through its expert witness, the former Attorney-General of
Cyprus, that under Cypriot law, a corporate seat requires only a registered office
and not a ‘real seat’.11
According to CEAC, this interpretation is supported by the
treaty practice of Cyprus and Montenegro, which States have used the terms
‘registered office’ and ‘seat’ interchangeably.12
At all relevant times, CEAC had
maintained its registered office in Cyprus, as evidenced by several certificates of
registered office issued by the competent authorities.13
CEAC therefore argued that
it satisfied the ‘seat’ requirement in the BIT.14
Montenegro countered that the Tribunal should interpret the term ‘seat’
autonomously in light of international law.15
Because the interpretative rules of
the Vienna Convention on the Law of Treaties (the ‘Vienna Convention’) do not
contain any reference to national law, the term ‘seat’ must be interpreted
autonomously under the BIT, without a renvoi to municipal law.16
Moreover, the overarching purpose of reciprocity would be defeated if the
Contracting Parties applied their domestic laws in order to define the term ‘seat’.17
The ‘seat’ test must fulfil its function in an even manner with respect to both
Contracting Parties, such that it must be conducted on the basis of ‘reciprocal and
identical criteria’.18
Otherwise, the circle of protected Montenegrin investors would
be different from the circle of protected Cypriot investors.19
Montenegro submitted that the term ‘seat’ requires something more than
incorporation and a ‘registered office’ under both international law and Cypriot
7
ibid at para 10.
8
BIT (n 4), art 1(3)(b) (emphasis added).
9
CEAC v Montenegro (n 1) at para 50.
10
ibid at paras 51–70 (submitting that ‘where no accepted definition of a term exists under international law or is
given in an investment treaty, international law requires that tribunals refer to municipal law to obtain the precise
meaning of a legal concept’).
11
ibid at paras 71–88.
12
ibid at paras 85–88.
13
ibid at para 89 (submitting certificates for the years 2005–2008 and 2010–2013).
14
ibid at para 89.
15
ibid at paras 99–109.
16
ibid at para 98.
17
ibid at para 101.
18
ibid.
19
ibid.
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law.20
The term ‘seat’ is best interpreted as the place where the investor is
‘effectively managed and financially controlled and where it carries out its business
activities’.21
According to Montenegro, regardless of the Tribunal’s interpretation of the term
‘seat’ in Article 1(3)(b) of the BIT, CEAC did not have a seat in Cyprus. The
address provided by CEAC for its alleged office did not qualify as a ‘registered
office’ within the meaning of Cypriot law.22
The certificates of registered office were
not conclusive evidence, since they were issued without any independent investiga-
tion.23
The Tribunal had the power to make its own nationality determination, even
if its ‘ultimate conclusions contradict official documents issued on the basis of
municipal law’.24
Further, the building where CEAC allegedly had its seat had ‘no
street number and no brass plate for CEAC’.25
An attempt to courier a package to
CEAC’s address in Cyprus failed three times because CEAC was not known at that
address.26
III. THE MAJORITY DECISION
The majority of the Tribunal did not consider it necessary to determine the precise
meaning of the term ‘seat’, as employed in the BIT, because the evidence in the
record purportedly did not support a finding (i) that CEAC had a registered office
in Cyprus at the relevant time, nor (ii) that it was managed and controlled from
Cyprus.27
Therefore, even on CEAC’s interpretation, CEAC did not have a ‘seat’ in
Cyprus within the meaning of the BIT. Consequently, CEAC was not an ‘investor’
within the meaning of the BIT, and the Tribunal lacked jurisdiction to hear the
case.28
In reaching this conclusion, the majority of the Tribunal addressed CEAC’s
submission that the existence of its registered office in Cyprus was ‘conclusively’
proven by the certificates of registered office in the record. The majority observed
that:
The question of jurisdiction is a matter for international, and not domestic, law. The
Tribunal therefore has to determine the probative value in the international legal order of
certificates of registered office issued by Cypriot (i.e., domestic) authorities.29
The majority then stated that under international law, certificates of registration
issued by a domestic authority only constitute prima facie evidence of the facts they
attest to.30
According to the majority:
An international tribunal is therefore not bound by the nationality determinations and the
certificates issued by domestic authorities, but must make its own determination under
20
ibid at paras 110–18, 120 (submitting that the term ‘seat’ is ‘a practical concept, which requires a subject and an
activity’ and cannot ‘represent something which is an inseparable consequence of incorporation’).
21
ibid at paras 119–29.
22
ibid at para 130.
23
ibid at para 131.
24
ibid at para 132 (citing Hussein Nuaman Soufraki v United Arab Emirates, ICSID Case No ARB/02/7, Decision of
the ad hoc Committee on the Application for Annulment of Mr Soufraki (5 June 2007) para 78).
25
CEAC v Montenegro at para 133.
26
ibid.
27
ibid at para 148.
28
ibid.
29
ibid at para 154.
30
ibid at para 155. See also paras 156–57.
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international law. This finding does not in any way diminish the probative value of such
certificates under domestic law.31
The majority found that ‘under Cypriot law, certificates of registered office are not
conclusive evidence that a registered office exists’.32
This is because the Cypriot
authorities do not carry out any official and independent verification as to whether
company declarations concerning their registered offices correspond with reality.33
A certificate of registered office merely confirms that a notification of a registered
office has been made by a company to the registrar of companies.34
A certification
of registration, with nothing more, therefore was not sufficient to establish that
CEAC possessed Cypriot nationality under Cypriot law.35
The majority proceeded to examine the available evidence and concluded that it
did not support a finding that CEAC had an office at its registered address in
Cyprus at the time it filed the request for arbitration in March 2014.36
The
registered office was not accessible to the public and appeared to show no sign of
CEAC’s presence or of any activity.37
CEAC had failed to offer any plausible
explanation for the state of the building (which appeared unoccupied), for the lack
of any outside indication that it was being used for business purposes by CEAC, nor
for why, on nine different occasions during the previous two years, the building had
been inaccessible for courier delivery or for purposes of inspecting CEAC’s
registers.38
Since no other office in Cyprus had been claimed, CEAC lacked
Cypriot nationality for the purpose of the Tribunal’s personal jurisdiction.39
The
majority also noted ‘out of an abundance of caution’ that CEAC did not appear to
have been managed and controlled from Cyprus in March 2014.40
IV. THE SEPARATE OPINION
Park signed the Award subject to a Separate Opinion that dissented on the central
issue of the seat.41
Park was critical of the majority having concluded that CEAC had no seat in
Cyprus in circumstances where the majority had declined to determine the meaning
of the term ‘seat’.42
Park also disagreed with the majority’s finding that a ‘seat’ requires more than a
‘registered office’.43
He stressed that CEAC’s local law expert had served for eight
years as the Attorney General of Cyprus and was a particularly-experienced expert
in Cypriot company law; no reason therefore existed to discredit his expert
testimony.44
CEAC’s local law expert had not endorsed the more elaborate test that
31
ibid at para 155. See also paras 156–57.
32
ibid at para 160.
33
ibid at para 166.
34
ibid at para 164.
35
ibid at paras 168–69.
36
ibid at paras 173–99.
37
ibid at para 177.
38
ibid at para 191.
39
ibid at para 200.
40
ibid at para 202–08.
41
CEAC v Montenegro (n 1), Separate Opinion of William W Park.
42
ibid at para 1.
43
ibid at para 9.
44
ibid at para 8.
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was advanced by Montenegro’s local law expert and embraced by the majority of
the Tribunal.45
According to Park, international law ‘as it currently stands provides no uniformly
accepted ‘ordinary meaning’ of corporate seat’, which remains ‘essentially a
municipal law concept derived from Continental systems, whereas Claimant’s
incorporation occurred in a common law country lacking such notions’.46
Although
the notion of ‘seat’ is alien to the English legal tradition from which Cyprus derives
its company law, ‘analogues can be found in the [Brussels] Regulation, providing
that for Cyprus a statutory seat means, alternatively, registered office, place of
incorporation or the place under the law of which the company formation took
place’.47
Moreover, Park opined that while the term ‘seat’ is sometimes married with a
qualifier such as ‘real seat’, the BIT in question did not do so, and it would be ‘bold
indeed to add adjectives’ when the ‘Treaty drafters introduced no such additional
requirements’.48
Adding criteria to the BIT’s definition of ‘seat’, so as to demand
‘real’ or other presence would require the arbitrators to assume a policy-making
mission in excess of their authority.49
According to Park:
[A]n arbitral tribunal bears a duty of fidelity to the treaty text as drafted, and cannot
rewrite the contracting states’ bargain. If the negotiators of this Treaty had wished to
require investors to prove ‘management and control’ they could have done so by adding
those three words.50
Park concluded that the test that ‘best matches the meaning of ‘‘seat’’ in Cyprus’51
is ‘an office that is registered’.52
Applying this standard, Park found that CEAC had a registered office, and
therefore a ‘seat’, in Cyprus, thus precluding the dismissal of the arbitration on this
ground alone.53
The evidence in the record showed that notices, including 16
communications from Montenegro, were delivered on multiple occasions to CEAC’s
registered address in Cyprus.54
Park observed that ‘no evidence supports the position
that constant accessibility constitutes a precondition to a registered office, or that
inability to remain open triggers disregard of the office by the Register’.55
45
ibid at paras 9–10.
46
ibid at para 18. See also ibid at para 12 (citing International Law Commission, ‘Draft Articles on Diplomatic
Protection with commentaries’ UN Doc A/61/10, ILC YB, vol II/2, art 9, cmt 3: ‘international law has no rules of its
own for the creation, management and dissolution of a corporation or for the rights of shareholders and their
relationship with the corporation, and must consequently turn to municipal law for guidance on this subject’). See also
Tenaris SA and Talta - Trading e Marketing Sociedade Unipessoal Lda v Bolivarian Republic of Venezuela, ICSID Case No
ARB/11/26, Award, 29 January 2016, para 144 (finding that international law and practice do not contain a consistent
definition of ‘seat’ for the purposes of determining jurisdiction ratione personae).
47
ibid at para 14 (citing Dicey, Morris and Collins, Conflicts of Law (15th edn, Sweet & Maxwell 2012), para 11-079:
‘a company has a seat in the UK if either (i) incorporated under UK law with registered office or some other official UK
address or (ii) possessing central management and control exercised in the UK’).
48
ibid at para 16.
49
ibid at para 21.
50
ibid at para 20.
51
ibid at para 22.
52
ibid at para 19.
53
ibid at para 22.
54
ibid at para 5.
55
ibid at para 9. See also para 10 (‘Defective compliance with corporate obligations (such as name plate, ledgers and
accessibility) may result in fines, but does not make the office disappear’).
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IV. COMMENTS
Irrespective of the outcome of the pending annulment proceedings in CEAC v
Montenegro, the utility of the Award as a guiding precedent for future cases will be
impaired by deficiencies in the majority’s reasoning.
It is regrettable that the majority of the Tribunal did not deem it necessary to
determine the precise meaning of the term ‘seat’ as employed in Article 1(3)(b) of
the BIT.56
It is well-settled that the question of the existence of jurisdiction based
on consent must be examined by an arbitral tribunal proprio motu, including through
the examination of jurisdictional requirements, sua sponte, if necessary.57
It was not
possible for the majority to render a final legal judgement on the place of CEAC’s
‘seat’ without first deciding on the applicable legal test for determining the existence
of a ‘seat’ within the meaning of Article 1(3)(b) the BIT. Contrary to the majority’s
reasoning, the need for such a definition certainly did arise.
Moreover, the Award does not answer the question of whether a renvoi to
municipal law is appropriate to obtain the precise meaning of a legal concept when
no accepted definition of such a concept exists under international law. Rather than
address head-on CEAC’s submission that the meaning of the term ‘seat’ should be
determined by a renvoi,58
the majority noted only that ‘the question of [the
Tribunal’s] jurisdiction is a matter for international, and not domestic, law’.59
The International Court of Justice (the ‘Court’) has long held that where legal
issues arise concerning matters that are not covered by international law, reference
shall be made to the relevant principles of municipal law.
In the seminal decision in Barcelona Traction, the Court found it necessary to
identify the rights of shareholders that formed the object of a diplomatic protection
claim and to determine whether or not those rights attracted the protection of
international law.60
The Court held that since international law was silent as to the
rights of the shareholders, the Court was compelled to revert to municipal law to
construct a rule relating to shareholder claims:
whenever legal issues arise concerning the rights of States with regard to the treatment of
companies and shareholders, as to which rights international law has not established its
own rules, it has to refer to the relevant rules of municipal law.61
The Court clarified the rationale for its renvoi to municipal law as follows:
If the Court were to decide the case in disregard of the relevant institutions of municipal
law it would, without justification, invite serious legal difficulties. It would lose touch with
reality, for there are no corresponding institutions of international law to which the Court
56
CEAC v Montenegro (n 1) at para 148.
57
See eg Duke Energy Electroquil Partners and Electroquil SA v Republic of Ecuador, ICSID Case No ARB/04/19, Award
(18 August 2008) para 163; Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka, ICSID Case
No ARB/00/2, Award (15 March 2002) para 56; Ioan Micula, Viorel Micula and others v Romania, ICSID Case No ARB/
05/20, Decision on Jurisdiction and Admissibility (24 September 2008) para 65. The International Court of Justice has
also observed that it must always examine proprio motu the question of its own jurisdiction, even where one of the parties
does not appear or fails to adequately plead its case: see Aegean Sea Continental Shelf (Greece v. Turkey (Judgment)
[1978] ICJ Rep 3, para 15, page 116.
58
For a summary of CEAC’s submissions on this issue, see CEAC v Montenegro (n 1) at paras 51–61.
59
ibid at para 154. This statement was made in the context of the majority’s discussion of the probative value of
CEAC’s certificate of registered office.
60
Barcelona Traction, Light and Power Co., Ltd. (Belgium v Spain) (Judgment) [1970] ICJ Rep 3 [hereinafter Barcelona
Traction].
61
ibid at 33–34.
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could resort. Thus the Court has, as indicated, not only to take cognizance of municipal
law but also to refer to it. It is to rules generally accepted by municipal legal systems which
recognise the limited company whose capital is represented by shares, and not to the
municipal law of a particular state, that international law refers. In referring to such rules,
the Court cannot modify, still less deform them.62
Judge Fitzmaurice made the same point in his Separate Opinion:
Since the limited liability company with share capital is exclusively a creation of private
law, international law is obviously bound in principle to deal with companies as they are –
that is to say by recognizing and giving effect to their basic structure as it exists according
to the applicable private law conceptions. . . . These distinctions must obviously be
maintained at the international level: indeed to do otherwise would be completely to
travesty the notion of the company as a corporate entity.63
In Ahmadou Sadio Diallo,64
the Court confirmed the basic principles governing the
analytical approach applied in Barcelona Traction. In that case, the Republic of
Guinea had instituted legal proceedings against the Democratic Republic of the
Congo (the DRC), claiming by way of diplomatic protection that the latter had
violated various international rights of its national Ahmadou Sadio Diallo, a
businessman who had previously operated companies in the DRC. Addressing the
question of whether or not the companies in question had independent legal personality
for the purposes of founding a diplomatic protection claim under international
law, the Court held that in ‘determining whether a company possesses
independent and distinct legal personality, international law looks to the rules of the
relevant domestic law’.65
An investment treaty does not purport to create a new international legal concept
of ‘seat’ any more than general international law does. Since the BIT does not
define the term ‘seat’ and none of the sources of international law, listed in Article
38 of the Statute of the International Court of Justice, provides an ‘ordinary
meaning’ of that term for the purposes of Article 31 of the Vienna Convention, an
investment treaty tribunal is bound to make a renvoi to the applicable municipal law
and its provisions concerning the scope and content of such a concept. In the words
of one commentator, such ‘renvoi does not confuse the role of international law and
municipal law or affect international law’s supremacy in determining international
responsibility’, but rather preserves it by allowing ‘a renvoi to municipal law only if
international law does not provide a substantive discipline of rights subject to
investment treaties’.66
62
Barcelona Traction (n 60) at 37.
63
Separate Opinion of Judge Fitzmaurice, ibid at 71.
64
Ahmadou Sadio Diallo (Guinea v Congo) Preliminary Objections (Judgement) [2007] ICJ Reps, 582.
65
ibid at 605. See also Separate Opinion of Judge ad hoc Mampuya, ibid at 635 (‘Had it reasoned otherwise, the
Court would either have imperiously altered Congolese corporate law . . . or have chosen without reason to disregard the
municipal law of a party in an area and a case in which it is precisely this body of law alone which applies’).
66
Monique Sasson, Substantive law in investment treaty arbitration: The unsettled relationship between international and
municipal law (Kluwer Law International 2010) 207. The cited commentator provided expert testimony on behalf of the
claimant in the CEAC case [CEAC v Montenegro (n 1) at para 22].
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