Advice to Tracer Limited

Introduction

There are various state laws that protect the rights of international investor. In this case, Tracer Ltd can be benefited by these laws. Ensuring legal protection for its investment is a principal concern for any investor considering an investment in a foreign or “host" state. The investor will be keen to avoid a scenario where it makes a substantial investment of capital, for example, by building a power station, only to find that a change in government or political priorities renders its investment worthless. Host states are equally concerned that investors should not be discouraged from investing in their economies. As states compete for investment capital with other states, a number of mechanisms to protect investors have been developed.

Investment Legislation

A coordinated effort in this case will bring subsequent changes in the prevailing condition. By applying them, the company can convince the state authorities to follow the same level of monetary liability. A state enacts investment legislation ensuring certain treatment for investors. Such legislation might guarantee exemption from taxation regimes or provide a specific fiscal regime for investors in a particular industry sector. However, investors may be concerned that any protections contained in legislation may be subject to revocation by a subsequent government. An investor may enter into an investment contract with a host state. Examples of such contracts in the extractive industries are concession agreements and production sharing contracts, under which investors receive certain protections so that they can invest in the exploitation of a state's natural resources. The investment contract may protect investors from changes in law or regulation which adversely affects their interests. However, the effectiveness of these clauses in the face of government action can be variable. One of the most striking features of the explosion in foreign direct investment has been the increase in investment treaties entered into by host states. Investment treaties can take the form of bilateral investment treaties or multilateral investment treaties ("BITs" and "MITs"). These treaties, which are devised to encourage foreign investment, commonly include provisions which establish specific protections for investors from the respective states. MITs, as the name suggests, enable a number of states, often on a regional basis, to offer these protections. Importantly, both BITs and MITs cover arrangements entered into between investors and private parties in the host state, as well as arrangements directly between investors and host states. Investors may have the benefit of one of the above instruments or a combination of instruments. For example, an investor who enters into an investment contract with a host state might also fall within the protections provided for in a BIT.

Investor

The question of who constitutes an investor has also arisen in many disputes. In order to enjoy the protection of an investment treaty, an investor will need to show that he falls within the categories of investors defined in the relevant treaty. Often the key issue will be whether the investor has the necessary nationality such that he is entitled to protection. This is particularly ...