OPIL Switzerland BIT

16 Switzerland
Michael Schmid
From: Commentaries on Selected Model Investment Treaties

Edited By: Chester Brown
Content type: Book content

Product: Oxford Scholarly Authorities on International Law [OSAIL]
Series: Oxford Commentaries on International Law
Published in print: 17 January 2013
ISBN: 9780199645190
(p. 651) 16. Switzerland

I. Introduction
The first part of the chapter introduces Swiss policy on foreign investment and makes a
historical overview of the treaty practice related thereto. The second and main part of the
chapter is dedicated to recurrent provisions in bilateral treaties on the promotion and
reciprocal protection of investments (‘BITs’) concluded by Switzerland, which are
commented on, where applicable, in light of the case law generated thereupon.1
II. Investment Policy of Switzerland

Few national economies are integrated into the global economy to the same extent as
Switzerland. The high quality of life, skilled labour force, social peace, reliable
infrastructure, as well as low level of taxation and political stability make Switzerland an
attractive location for foreign direct investment in Europe2 and one of the most
competitive3 economies in the world. Due to a comparatively small home market, foreign
direct investment (‘FDI’) is necessary for exporting the comparative advantages of Swiss
companies abroad. With a stock of outward FDI of CHF 866 billion and of CHF 1,109 billion
in portfolio investments in 2009,4 Switzerland was globally the sixth largest capital
exporter.5 2.629 million people, which is roughly equivalent to half the working population
of Switzerland, work for Swiss subsidiaries abroad.6 At the same time, Switzerland is a
destination for a great deal of FDI, with a capital stock of inward FDI of CHF 513 billion
and of portfolio investments of CHF 705 billion (in 2009).7
The EU has been by far the largest source of inward FDI (CHF 439 billion, 84 per cent in
2009). The Netherlands (23 per cent), followed by Luxembourg (21 per cent) (p. 652) and
the United States (14 per cent) were the biggest sources of FDI into Switzerland.8 When
measured by the ultimate beneficial owner of an investment, the EU’s share in the inward
stock of FDI falls to 50 per cent, while the share of the United States rises to 33 per cent.9
The same criterion of measurement also significantly increases the capital stock of FDI in
From: Oxford Public International Law (http://opil.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved.
Subscriber: Jessup Moot; date: 24 April 2021
Switzerland from Central and South America (9 per cent), while FDI from Asia remains at
relatively low levels (4 per cent).10 FDI in Switzerland is concentrated in the services
sectors and accounts for 84 per cent of total incoming FDI.11 The 6,852 foreign affiliates
located in Switzerland generate about 10 per cent of total Swiss GDP.12
While the bulk of outward FDI stock is still held in developed economies (72 per cent), this
share has decreased by 8 per cent since 2000.13 The EU has been the major recipient of
Swiss outward FDI (44 per cent in 2009), followed by North America (23 per cent).14 In
2009, the United States continued to be the largest single recipient of FDI from Switzerland
(CHF 165 billion, 19 per cent), followed by Central and South American offshore financial
centres (12 per cent),15 the United Kingdom (9 per cent), Luxembourg (7.6 per cent), and
Germany (6.5 per cent). Africa accounts for 1.4 per cent, and Asia and Oceania for 8.7 per
cent of outward FDI stock. In a distribution by area of economic activity, in 2009
manufacturing amounted to 46.9 per cent and services for 53.1 per cent of the employment
abroad and respectively 37.9 per cent and 62.1 per cent in terms of capital stock.
The Swiss National Bank defines FDI for statistical purposes according to the IMF and
OECD guidelines as situations where an investor owns at least 10 per cent of the voting
stock of a company abroad or sets up a subsidiary or branch abroad.16 International
portfolio investments are capital participations abroad which are not FDI (nor currency
reserves), in particular because they are made without expecting to control or influence the
management of the assets underlying these investments.
There is no law specifically governing foreign investment. There is also no screening
mechanism for foreign investment at the time of entry. There are only a few areas of the
Swiss economy where foreign investment is subject to restrictions. In the non-services (p.
653) sectors of the economy, restrictions relate primarily to energy production (nuclear
energy, oil and gas pipelines, oil prospection and exploration, hydroelectric power
generation) or ownership of related infrastructure (high voltage electricity transmission)17
and are motivated by public service considerations and national security. The restrictions
are mostly domicile requirements codified either in the federal18 or cantonal19 legislation.
In the services sectors of the Swiss economy restrictions, motivated by cultural policy
considerations, can be found in the broadcasting,20 film distribution and exhibition sector.21
Investment restrictions continue to apply to services which are considered public utilities,
such as certain rail transport services,22 some postal services,23 and in
telecommunication.24 A cross-sectoral restriction for foreign investors exists for the
acquisition of real estate for non-business purposes, where authorization by the competent
cantonal authority is needed. No authorization is required to buy commercial or industrial
real estate, for example.25
There is no definition of portfolio investment for legal purposes, and consequently there is
no specific legislation related to it. However, securities legislation provides for disclosure
requirements for investments (including foreign) depending on certain thresholds26 of
equity participation in a company quoted at the Swiss stock exchange. The holder of more
than 33⅓ per cent of voting rights in a public company must submit a compulsory (p. 654)
purchase offer to the other shareholders of the target company.27 Public companies may
limit in their articles of incorporation the number of registered shares that can be held by
one shareholder to a percentage of the issued registered stock.28 In addition, sectoral
prudential legislation may apply according to certain thresholds of equity participation. In
particular, the acquisition or divestment of an equity package representing more than 10
per cent of voting rights in a bank organized under Swiss law is subject to prior information
requirements to and examination by the Swiss Financial Market Supervisory Authority
(‘FINMA’). FINMA assesses the likelihood that the bank’s management might be influenced
in such a way as to endanger an irreproachable business activity.29
Under Article 101 of the Federal Constitution, the Confederation is responsible for
protecting the interests of the Swiss economy abroad, and is authorized, in exceptional
circumstances, to take measures to protect the economy, and to deviate from the
constitutional principle of economic freedom.30 The Constitution grants the Federal Council
the authority to issue time-limited ordinances or adopt decisions, to safeguard the country’s
fundamental interests.31 On this basis the federal government could forbid a foreign or
domestic investment if the country’s security or international relations so requires. To the
knowledge of the author such a measure has never been taken with respect to a foreign
investment.32 The sectoral legislation may provide for the competence of the prudential
authorities to sanction market participants in a way that may lead to a disinvestment. For
example, in the financial sector in case of a loss of the capacity of an irreproachable
business activity, FINMA may revoke the licence as a financial service provider. FINMA has
used such powers in the past.
The Swiss Federal Constitution guarantees the right of property and full compensation for
the case of expropriation and any restrictions on property equivalent to expropriation (ie
indirect expropriation).33 The conditions and consequences of direct expropriation are
regulated by federal law if projects that are in the interest of the whole country or a
substantial part of it are concerned.34 As a consequence, the cantonal legislation on
expropriation is applicable to public projects of regional importance.35
Both direct and indirect expropriation must satisfy the principle of proportionality. The
principle of proportionality is one of five fundamental principles of administrative (p. 655)
activity.36 This principle is composed of three sub-elements, which also apply in the context
of expropriation: the expropriation must be suitable to achieve the public purpose,37 the
public purpose must be more important than the interest of those adversely affected by the
expropriation, and the State measure must be the least intrusive measure into the rights of
the affected person to achieve the public purpose.38
As already mentioned, Swiss law provides for full compensation in the case of direct and
indirect expropriation.39 ‘Full’ means that the affected person should not be economically
disadvantaged by the expropriation. The person suffering loss from the expropriation may
choose to be compensated according to objective (eg market value)40 or ‘subjective’
criteria. ‘Subjective’ in this context means that the party whose property is being
expropriated may choose to be compensated for the prospective earnings of the
expropriated property.41 Federal law allows for compensation by restitution in kind, even
against the wish of the affected person, if its interests are sufficiently safeguarded.42
Whether there is an actual right to restitution in kind is disputed.43 Restitution in kind is
seen as the preferable way of compensation from the perspective of the principle of
proportionality.44 In practice, however, monetary compensation is the rule.
The right to expropriate, the extent of expropriation and the amount of compensation are all
subject to appeal. If the parties disagree on the amount of compensation, the latter is
determined by an evaluation commission,45 which is an independent administrative
tribunal. The conditions of an expropriation and the amount of compensation constitute civil
rights in the sense of Article 6(1) of the European Convention on Human Rights. Therefore
on a federal and cantonal level the compensation must be reviewed by an independent
tribunal with comprehensive jurisdiction.46 At the federal level, decisions on compensation
can be brought before the Federal Administrative Court and ultimately the Federal
Supreme Court. On the cantonal level, an appeal against the decision on the amount of
compensation by the evaluation commission can be made to the cantonal Supreme Court,
and subsequently, but only on grounds of an alleged breach of federal administrative law, to
the Federal Supreme Court.
(p. 656) In the case of indirect expropriation—and contrary to direct expropriation—the
duty to compensate is not the precondition but the consequence of expropriation. An
indirect expropriation exists if the owner’s enjoyment of a property is limited to such an
extent that he is deprived of essential rights deriving from possession of said property.47 In
practice, however, the jurisprudence has been rather reluctant to acknowledge indirect
expropriation48 and the distinction between non-compensable indirect expropriation and
compensable restriction of the use of property ‘causes great trouble’.49 Prohibitions against
building as a consequence of changes in the regional planning and in some cases the
suppression of neighbour law’s defence rights with respect to noise emissions from airports
are two examples of excessive intrusion into owner’s rights.50 Indirect expropriation has
also been acknowledged for cases where the owner is not deprived of an essential right
deriving from property, but is affected to such a disproportionate way that from the
perspective of legal equality not paying compensation would not be justifiable.51 In
practice, however, such cases are rare. With the enactment of the Federal Act on Regional
Planning,52 the notion of ‘indirect expropriation’ entered into federal law and has thereby
been harmonized. There is a ten-year limit of forfeiture for compensation stemming from
the entry into force of the restrictive effects on the property. Interests must be paid from
the moment the claim for compensation is asserted. If the duty to compensate or the
amount is contested, the same legal procedures for compensation must be followed as in
the case of direct expropriation.
III. Swiss Investment Treaty Practice—A Short Historical

Overview
With 130 BITs concluded and 116 in force,53 Switzerland has today the world’s third largest
network of BITs after Germany (135 in force) and China (125 in force).54 Switzerland
started to negotiate investment disciplines of international law in the form of ‘treaties on
commerce, investment protection and technical cooperation’ in the early 1960s. Treaty
partners were mainly newly independent African countries. Twelve of these agreements are
still in force.55 These contain rudimentary disciplines on the (p. 657) treatment and
protection of investment, such as expropriation and free transfer of payments in relation to
an investment.
As Switzerland is a founding member of the OECD, the OECD Draft Convention on the
Protection of Foreign Property (1967)56 has served as a ‘model’ for Switzerland for what
could be considered ‘classical’ BITs, in the sense that these were exclusively dedicated to
investment protection. However, the first 12 BITs concluded after the Draft Convention’s
publication do not include an investor-State dispute settlement mechanism, in contrast with
the OECD Draft Convention.57 Switzerland started actively to negotiate ‘modern’ BITs only
in the late 1980s: the first treaty with an investor-State dispute settlement mechanism
which also provides for prior consent to international arbitration was the BIT with
Panama,58 followed by the one with the People’s Republic of China (1986), which has
recently been revised and updated.59 A very active phase of negotiations followed,
increasing the number of Swiss BITs to over 100 in just a few years’ time.60 In 1995
Switzerland also joined the Energy Charter Treaty.61
Besides the Free Trade Agreement (‘FTA’) with the European Union62 and the EFTA
Convention,63 Switzerland has concluded mostly in the context of EFTA,64 22 FTAs with 31
partners.65 Over the last ten years, investment disciplines have also been included in some
of these (seven). These FTAs differ from classical BITs in that they include disciplines on the
liberalization of investments, some with and others without investment protection
disciplines. The latter category—without protection disciplines—consists of (p. 658) the
FTAs with Chile,66 Colombia,67 and Peru.68 The former category—with protection
disciplines—includes the FTA with Singapore69 and Japan, as well as the Investment
Agreement with South Korea.70 Liberalization commitments in the investment chapters of
the aforementioned FTAs are only made for investments in non-services sectors, since
investments in services sectors are liberalized in the chapter on trade in services of the
respective FTA. The two categories of investment agreements also differ in their concept of
‘investment’. The FTAs concluded with the Latin American partner countries are based on
the more restrictive concept of ‘investment’ borrowed from the General Agreement on
Trade in Services (‘GATS’), ie ‘commercial presence’.71 The investment disciplines with
Asian partner countries (Singapore, South Korea, and Japan), are built on the broader,
asset-based concept of ‘investment’ familiar from classical BITs. In 2010, EFTA and the
Ukraine concluded an FTA.72 It contains a new type of FTA investment chapter, in the sense
that some provisions cover the entire life cycle of an investment (in non-services sectors73)
but do not include classical BIT disciplines such as protection from expropriation, or an
investor-State dispute settlement mechanism. Switzerland and Ukraine maintained their
pre-existing BIT, giving it precedence in case of conflict with the FTA.74 Indeed, with most
FTA partners Switzerland has chosen to maintain its BIT.75 Despite the appearance of FTAs
with disciplines on investment liberalization, Switzerland has continued to expand its BIT-
network by negotiating classical BITs.
Although some publications suggest otherwise, Switzerland has never had a ‘Model BIT’ if
this term implies a publicly available ‘one-size-fits-all’ text which is formally endorsed by
the government.
IV. Internal Government Issues

Under the Federal Constitution, the Swiss Confederation is a federal State, consisting of 26
cantons. The political structure comprises three levels: the Swiss Confederation, the
cantons, and the local authorities (communes). Article 54 of the Federal Constitution gives
the Confederation comprehensive authority in the area of foreign affairs and provides the
basis for conventional foreign economic law. The Federal Council, the executive branch,
plays a predominant role in external economic relations. It is competent to initiate,
negotiate and sign treaties.76 The main function of the Federal (p. 659) Parliament is to
approve these treaties,77 except for executive agreements concluded by the Federal Council
within its own powers. Until 2004, BITs were concluded and ratified by the Federal Council
on the basis of a ten-year delegation of powers. Due to the increased importance of foreign
investment and the developments in BITs (notably investor-State dispute settlement) the
Federal Council decided to submit BITs concluded after 2004 to the Federal Parliament for
approval.78 Within the federal government, the Ministry of Economy’s79 State Secretariat
for Economic Affairs (‘SECO’) oversees foreign trade and investment policy, including the
negotiation of treaties related thereto. In BIT negotiations SECO is regularly assisted by the
Ministry of Foreign Affairs.80
No formal decision by the government to start negotiations on a BIT is necessary. Once the
negotiations are concluded with an initialled text, an inter-agency procedure for the Federal
Council’s approval for the signature of the agreement is conducted. The signed agreement
is then submitted by the Federal Council to the Federal Parliament together with publicly
available explanations for approval and ratification.81 For the Swiss side, the average time
needed for signature and ratification of a BIT is approximately one year from the date of
initialling. BITs are publicly accessible in three official languages (German, French, and
Italian) once they are submitted to the Federal Parliament for approval.82 Since 2008,
copies of the BITs in force are transmitted to the UN Treaty Section.83
V. Commentary on Typical Clauses in Swiss BITs
As already stated, Switzerland does not have (and never had) a ‘Model BIT’, if that term
implies a publicly available ‘one-size-fits-all’ text which is formally endorsed by the (p. 660)
government. For this reason and in consideration of the large number of Swiss BITs, what
follows can only be a tracing of recurrent clauses in Swiss BITs and comments thereto, in
light of the case law generated thereupon.
Preamble: Switzerland–China BIT

Desiring to intensify economic cooperation to the mutual benefit of both
States, Intending to create and maintain favourable conditions for
investments by investors of one Contracting Party in the territory of the
other Contracting Party, Recognizing the need to promote and protect
foreign investments with the aim to foster the economic prosperity of both
States …
Some recent treaties recall in their preamble that their conclusion is integrated in the
totality of tasks and objectives of the States, reason why the objectives of a BIT should be
achieved without relaxing health, safety, and environmental standards.84 This idea is
sometimes also expressed in a separate article on not lowering standards, where the
contracting States recognize that lowering health, safety, or environmental standards for
the purposes of attracting foreign investment is inappropriate.85
The preamble has been invoked in several BIT-based arbitrations of Swiss investors. In SGS
Société Générale de Surveillance S.A. v Republic of the Philippines, the arbitral tribunal
held that the intention expressed in the preamble to create and maintain favourable
conditions for investments and investors of the Contracting Parties entitled it to resolve
uncertainties in the interpretation of the BIT so as to favour the protection of covered
investments.86 In the Decision on Jurisdiction in a dispute opposing the Swiss-incorporated
Alps Finance & Trade AG to the Slovak Republic,87 the arbitral tribunal took comfort in the
preamble for its decision to refuse to an assignment contract the quality of ‘investment’ in
the sense of the BIT. It held that the treaty must be interpreted according to the ordinary
meaning, taking account of the general context, the object and the purpose of the treaty as
reflected in the preamble.88 An assignment contract could not be assumed to promote the
economic prosperity of the Contracting States, proclaimed as an aim by the preamble. By
contrast, the arbitral tribunal in Romak S.A. v Uzbekistan held that, contrary to
Uzbekistan’s position, the preamble’s reference to the aim to foster economic prosperity of
both States shed little light on the question whether claims arising out of a wheat supply
contract were an ‘investment’ in the sense of the BIT.89
(p. 661) Article 1 —Definitions: Switzerland–China BIT,

Art 1
For the purposes of this Agreement:
The term ‘investment’ shall include every kind of asset, and in particular:
(a ) movable and immovable property as well as any other rights in

rem, such as servitudes, mortgages, liens, pledges and usufructs;
(b ) shares, parts or any other kind of participation in companies;
(c ) claims to money or to any performance having an economic value;
(d ) copyrights, industrial property rights (such as patents, utility
models, industrial designs or models, trade or service marks, trade
names, indications of origin), know-how and goodwill;
(e ) business concessions under public law, including concessions to
search for, extract or exploit natural resources as well as all other
rights given by law, by contract or by decision of the authority in
accordance with the law.
1. Investment
Swiss BITs follow the tradition of broad, asset-based definitions of investment. The
definitions cover portfolio investments and direct investments.90 Regarding ‘claims to
money or to any performance having an economic value’ the BIT with some countries
includes language specifically excluding certain types of short-term investment and
transactions, which do not have a sufficient connection with the territory of the BIT
Contracting States.91
What constitutes an ‘investment’ for the purposes of a BIT has been at the heart of
numerous investor-State disputes over the last years and remains controversial.92 Arbitral
tribunals based on Swiss BITs have produced some interesting awards on the territoriality
of an investment (see Article 2) and on the methods to determine the existence of an
‘investment’ for the purposes of a BIT.
The main question in Romak v Uzbekistan93 was whether a claim for payment of a wheat
supply contract or an arbitral award confirming such claim constituted an investment in the
sense of the BIT, which Uzbekistan contested relying on the Salini-test.94 Romak advocated
a literal interpretation of the definition of ‘investments’ by claiming that its contractual
claims against Uzbekistan are ‘claims to money or to any performance having an economic
value’95 in the non-exhaustive list of forms of investment spelled out (p. 662) in the BIT.96
The tribunal, however, did not uphold Romak’s argument. It held that Romak’s argument
based on the ‘ordinary meaning of the terms’ ignored the need to interpret the treaty in
light of its object and purpose according to the customary rules of treaty interpretation,
thereby leading to a result that was manifestly absurd or unreasonable in the sense of
Article 32 lit. b of the Vienna Convention on the Law of Treaties (‘VCLT’).97 The tribunal
affirmed that the term ‘investment’ had an inherent meaning and that it was therefore not
sufficient to fall into a category of ‘investment’ on the non-exhaustive list in the ‘Definitions’
article of the BIT. The tribunal added that an ‘investment’ must entail a contribution that
extends over a certain period of time and that involves some risk.98 It noted that applying
different conditions for the acceptance of an investment depending on the investor’s choice
of dispute resolution rules (ICSID or UNCITRAL) would widen or narrow the protection
granted to an investment, which would be an unreasonable result. It also held that a
mechanical interpretation of the forms of investment listed in the article on definitions
would render meaningless the distinction between investments, on the one hand, and
purely commercial transactions, on the other. Second, interpreting the text in this manner
would create, de facto, a new instance of review of State court decisions concerning the
enforcement of arbitral awards. Third, every contract between a Swiss national and an
Uzbek State entity or award in favour of a Swiss person would be an investment within the
meaning of the BIT. In the tribunal’s view, these consequences could not have been the
intention of the BIT Contracting States. The tribunal found in particular that the ‘mere
transfer of title over goods in exchange for full payment’ could not be considered as
contributions typical of an investment.99 On the element of ‘risk’, the tribunal noted that the
non-performance of a contract is a typical business risk, which did not correspond to the
‘investment risk’ for the purposes of determining whether there was an ‘investment’ in the
sense of the BIT.100 Therefore, the tribunal held that Romak did not own an investment
within the meaning of the BIT and consequently it was not competent to hear the claim on
the merits.
In Alps Finance v Slovakia, the company claimed that the investment consisted of the
acquisition of certain receivables from a private Slovak company. At the time of the
assignment of the receivables to the Swiss-incorporated company the Slovak debtor
company had already been declared bankrupt.101 The tribunal referred to ‘international
customary law’ and ICSID case law (despite the fact that it was not an ICSID arbitration) to
find that ‘every kind of asset’ meant that where the assets derived from a contract, the
contract itself must qualify as an investment. It added—consistently with the reasoning of
the Romak tribunal—that the characteristics of an investment included a capital
contribution, a significant duration of the investment project, and risk. A literal application
of ‘claims and rights to any performance having an economic value’ would lead to
manifestly absurd and unreasonable results in the sense of the VCLT. Basing itself on the
case law, the tribunal concluded that there (p. 663) was a ‘general consensus’ that a mere
one-off cross-border sale transaction such as the one at hand was not a covered
investment.102
A comparison of the Romak v Uzbekistan and Alps Finance v Slovakia decisions on
jurisdiction with the other decisions based on Swiss BITs, SGS Société Générale de
Surveillance S.A. v Pakistan103 and SGS v Philippines (see Article 2 hereafter) highlights
methodological differences in determining whether an investment in the sense of the BIT
exists, despite the largely identical definitions of ‘investment’ in the respective BITs.104 The
SGS tribunals were satisfied with the fact that the economic transaction under examination
fitted one of the examples of the non-exhaustive list of assets that constituted an
investment. The Romak and Alps Finance tribunals decided that this was not sufficient for
purposes of establishing jurisdiction, since the term ‘investment’ had an inherent meaning,
the elements of which were a contribution that extends over a certain period of time and
that involves some risk.105 According to the Romak tribunal, the wording of the treaty ‘must
leave no room for doubt that the intention of the contracting States was to accord to the
term “investment” an extraordinary and counterintuitive meaning’.106 The decisions are
good examples of the ‘objective’ and ‘subjective’ conceptual approaches to the term
‘investment’.107 While the ‘objective’ approach seeks to define general characteristics of an
investment (Romak v Uzbekistan, Alps Finance v Slovakia), according to which the
enumerated forms of investments have to be interpreted, for the ‘subjective’ approach the
starting point is the definition of investment as reflected in the list of forms of investment of
the respective BIT (SGS v Pakistan, SGS v Philippines).
2. Investor
The term ‘investor’ refers with regard to either Contracting Party to:
(a ) natural persons who, according to the law of that Contracting

Party, are considered to be its nationals;
(b ) legal entities, including companies, corporations, business
associations and other organisations, which are constituted or
otherwise duly organised under the law of that Contracting Party and
have their seat, together with real economic activities, in the territory
of the same Contracting Party;
(c ) legal entities established under the law of a non-Party but
effectively controlled by natural persons as defined in (a) above or by
legal entities as defined in (b) above.
The definition of ‘investor’ includes natural persons, who are nationals of the contracting
States according to the respective legislation. Some BITs contain conflict rules for natural
persons, which are nationals of both contracting States.108 On the other hand, some (p.
664) more recent agreements also include permanent residents (ie persons who have the
right of permanent residence and actually reside in the contracting State).109 This may have
to do with the desire not to exclude potential investors who are among the 22 per cent of
Switzerland’s non-Swiss population.110
The most widespread form of company in Switzerland is the joint-stock company. The
requirement that a majority of board members need to be Swiss nationals domiciled in
Switzerland was eliminated in 2008. Currently, one person domiciled in Switzerland must
be able to represent the legal entity and it does not have to be a member of its governing
body.111
The large majority of BITs requires the constitution/organization of a legal entity under the
law of one contracting State, together with its seat112 and ‘real’ or ‘substantive’ economic
activities in order to be an investor covered under the BIT. Some BITs require the
constitution/organization and one of the other two criteria mentioned. The more recent BITs
require ‘real economic activities’113 and less frequently ‘substantive business operations’114
in the country of constitution of the legal entity. The intention behind such wording is to
exclude legal entities with no genuine link to the economies of the BIT contracting States
from coverage by the agreement (ie ‘letter box’ companies) and therefore prevent ‘treaty
shopping’. In Alps Finance v Slovakia the tribunal held that tax liability per se is not a proof
of ‘real economic activities’.115
Alternatively to the aforementioned rules of origin, the criterion of effective control by a
Swiss investor brings into the definition of ‘investor’ also legal entities constituted in non-
party States to the BIT. Historically this position derives from the Swiss policy on diplomatic
protection of property. Decisive for the granting of diplomatic protection was (or is)
whether a foreign legal entity was effectively controlled by a Swiss national.116 The
underlying policy stance for purposes of investment protection is that it should not matter
how an investor structures the investment as long as the investment he controls is located
in the territory of the other BIT partner country. This also corresponds to the need of
globally active companies which increasingly integrate their production systems
internationally and where subsidiaries are often controlled via regional headquarters. Swiss
BITs are consistent with respect to the inclusion of the principle of control but the (p. 665)
approach is not uniform. In recent times, the element of control—direct or indirect—is
linked to the investment (in the scope article) instead of the investor (in the article on
definitions).117 An extension of the principle of control can be found in Swiss BITs which
assimilate subsidiaries of the investor established in the host country of the investment to
‘investors’ of the other contracting State, if owned or controlled by said investor.118 What
constitutes ‘control’ or even ‘indirect control’ is specified only in a handful of BITs,119
largely borrowing from the respective GATS-terminology.120 Some BITs require the investor
to prove his control of an investment in order to be recognized as an investor in the sense of
the BIT.121 Despite the fact that only control, but not ownership, of non-party legal entities
is explicitly mentioned in the definition, it is obvious that ownership of non-party legal
entities also qualifies for being an investor under the BIT because ownership implies an
absolute majority of shares whereas the control of a company requires at least a relative
majority of shares.122
Starting with the BIT with Egypt (in force since 1974)123 Swiss BITs mention ‘shares, stocks
or any other kind of equity participation in a company’ as forms of ‘investment’. In the
meantime, ICSID jurisprudence has confirmed the right of shareholders to claim for loss of
shareholder value under BITs.124 The same was recognized for indirect shareholding, ie
shareholdings through intermediate companies, even if those are incorporated in a third
State.125 Since it seems accepted that shareholding in a company is a form of investment
that enjoys protection under a BIT,126 the question of the ‘nationality’ of a legal entity has
lost some of its relevance.
Swiss BITs do not distinguish private and State-owned entities for purposes of eligibility. A
handful of BITs explicitly admit governments as investors.127 In a legal (p. 666) opinion the
Foreign Ministry found that with the exception of some clearly delimited cases of sovereign
immunity, there are no legal reasons to treat State-owned investors differently from private
ones for purposes of investment protection.128
3. Returns
The term ‘returns’ means the amounts yielded by an investment and

includes in particular, profits, interest, capital gains, dividends, royalties
and fees.
An investment abroad is made in the hope of generating returns, and under the assumption,
that such returns can easily be repatriated. The BIT offers increased legal security also with
respect to returns, by placing them within the scope of BIT disciplines, notably the
disciplines on non-discrimination and free transfer of funds. The definition of ‘returns’ is
non-exhaustive and occasionally explicitly includes returns in kind.129
4. Territory
Switzerland–Armenia BIT, Art 1(4)

The term ‘territory’ refers to the territory of the State concerned over which
that State may exercise sovereign rights or jurisdiction according to
international law.
The ‘territory’ is most commonly defined by linking the exercise of sovereign rights or
jurisdiction to international law. In some BITs there are separate definitions of ‘territory’
taking into account the treaty practice of the negotiating partners.130
Article 2 —Scope of Application: Switzerland–China BIT,

Art 2
The present Agreement shall apply to investments in the territory of one
Contracting Party made in accordance with its laws and regulations by
investors of the other Contracting Party, whether prior or after the entry
into force of the Agreement. It shall however not be applicable to claims or
disputes arising out of events which occurred prior to its entry into force.
The article defines the territorial and temporal application of the BIT. Swiss BITs apply to
investments that are already established or acquired and therefore do not grant positive
rights of entry and establishment to investors from the other Contracting State. The
Contracting States are free to apply any admission or screening procedure they deem fit. In
the past, the requirement that an investment needs to be made ‘in accordance with the laws
and regulations’ has led to diverging jurisprudence.131 As far as Swiss BITs are concerned,
the requirement did not, however, play a prominent role. In SGS v Pakistan, Pakistan
reserved the right to raise the argument as a bar to the jurisdiction of the tribunal, if in the
then ongoing investigations it was found that SGS procured the contract through bribery
and corruption.132
(p. 667) About half of the Swiss BITs specify the scope of application of the BIT by adding
that disputes relating to facts which occurred prior to the entry into force were not covered
by the BIT.133 The BIT with the Philippines, however, does not contain such language.
Nonetheless, the SGS v Philippines tribunal recalled the principle of non-retroactivity of an
international treaty to justify why it cannot apply the treaty to acts or facts which occurred
or situations which have ceased to exist before the entry into force of the treaty.134
However, in this case the Philippines were accused of failing to pay what was owed under
the PSI contract. Such behaviour had started before the entry into force of the BIT and
continued thereafter, which is why the tribunal applied the exception to the non-
retroactivity principle based on the continuing nature of the wrongful act.135
The BITs with Thailand and Iran are notable in the sense that the approval of the
investment is a prerequisite to the right of submission of a claim to investor-State dispute
settlement.136 That may have to do with the fact that the investment laws of the partner
countries only cover approved investments. Non-approved foreign investments nevertheless
have a status under international law, hence why they are addressed in these BITs.
A key question addressed in three arbitrations under Swiss BITs (SGS v Pakistan, SGS v
Philippines, and Romak v Uzbekistan) was the territoriality requirement for an investment.
The two SGS Decisions on Jurisdiction are similar with respect to how the territoriality
requirement was handled.137 Both Pakistan and the Philippines objected to jurisdiction inter
alia by claiming that SGS had not made an investment ‘in the territory of the other
Contracting Party’138 because most of the acts required under the ‘pre-shipment inspection
agreements’ from SGS were performed outside the respective countries.139 The activity of
SGS was very similar: SGS had to verify that the importer’s declarations complied with
classifications and import regulations in force and deliver pre-shipment certificates
authorizing the entry of goods into the country. These services were complemented by the
establishment of liaison offices in Pakistan and in the Philippines. Despite the fact that the
expenditures made by SGS in Pakistan and the Philippines were relatively small in
comparison to the sums claimed by SGS,140 the tribunals held that they did involve an
‘injection of funds’ into the two countries sufficient for purposes of (p. 668) establishing its
jurisdiction.141 The tribunal’s ‘injection of funds’-argument was, however, criticized for its
vagueness.142 The SGS v Pakistan tribunal emphasized the fact that SGS has been
entrusted by Pakistan with public functions and therefore did not perform a simple
commercial activity.143 The two SGS tribunals admitted the existence of an investment in
the sense of the BIT,144 without seeking to analyse the transactions on the basis of the
‘Salini-test’. This is interesting because both arbitrations were conducted under the
auspices of ICSID and the ‘Salini-test’ was developed in the context of ICSID arbitrations.
In Romak v Uzbekistan, the respondent also contested the jurisdiction of the arbitral
tribunal on the grounds that there was no investment in the sense of the BIT located within
the territory of Uzbekistan, since the wheat was delivered in Kazakhstan.145 Contrary to the
other BITs concluded by Switzerland, the BIT with Uzbekistan did not include a scope
article which limits the application of the BIT to investments ‘made in the territory of the
other Contracting Party’. The tribunal disagreed with Uzbekistan and found that the
Contracting States had not made ‘territoriality’ an express prerequisite for coverage under
the BIT and therefore references to ‘territory’ in the preamble and other articles were not
sufficient to establish a requirement regarding the territoriality of the investment.146 The
Alps Finance v Slovakia tribunal refused to accept its jurisdiction also on the ground that
the acquisition of receivables in a one-off sale transaction did not require investing in
Slovakia ‘in the proper technical meaning’.147
Article 3 —Promotion and Admission: Switzerland–China
BIT, Art 3
Each Contracting Party shall in its territory promote as far as possible
investments by investors of the other Contracting Party and admit such
investments in accordance with its laws and regulations.
When a Contracting Party shall have admitted an investment on its
territory, it shall provide, in accordance with its laws and regulations, all
necessary permits or authorisations in connection with such investment
including permits for the carrying out of licensing agreements and
contracts for technical or administrative assistance as well as
authorisations required for personnel of the investor's choice.
This provision gives the important political message that admitting the (financial) means
does not make much sense if the investor is not provided with the different authorizations
necessary for the actual operation of the investment on the territory of the other
Contracting State. However, despite the repeated use of the word ‘shall’, the reference to
the domestic legislation makes this provision aspirational in its effects.
(p. 669) Article 4 —Protection and Treatment:

Switzerland–China BIT, Art 4
Investments and returns of investors of the other Contracting Party shall at
all times be accorded fair and equitable treatment and full protection and
security in the territory of the other Contracting Party. Neither Contracting
Party shall in any way impair by unreasonable or discriminatory measures
the management, maintenance, use, enjoyment, extension, or disposal of
such investments.
Each Contracting Party shall in its territory accord to investments and
returns of investors of the other Contracting Party treatment not less
favourable than that which it accords to investments or returns of its own
investors (national treatment) or to investments or returns of investors of
any third State (MFN treatment), whichever is more favourable to the
investor concerned.
Each Contracting Party shall in its territory accord to investors of the other
Contracting Party, as regards the management, maintenance, use,
enjoyment or disposal of their investments treatment not less favourable
than that which it accords to its own investors (national treatment) or to
investors of any third State (MFN treatment), whichever is more favourable
to the investor concerned.
If a Contracting Party accords special advantages to investors of any third
State by virtue of an agreement establishing a free trade area, a customs
union or a common market or by virtue of an agreement on the avoidance of
double taxation, it shall not be obliged to accord such advantages to
investors of the other Contracting Party.
1. Fair and Equitable Treatment

In the OECD Draft Convention on the Protection of Foreign Property (1967), which inspired
the Swiss BIT practice, the obligations of fair and equitable treatment (‘FET’), full
protection and security, and non-impairment by unreasonable and discriminatory measures
with respect to foreign property were part of the same basic principle—that a State is
bound to respect and protect property of nationals of other States—but were included as
separate obligations.148 Most Swiss BITs combine in one article these obligations, which are
absolute standards of treatment, with the standards of national treatment (‘NT’) and most-
favoured-nation treatment (‘MFN’)—both of which are relative standards.
The FET standard lacks a precise meaning,149 which however is not an obstacle to its
extensive practical application, as jurisprudence (though not on the basis of Swiss BITs)
shows. As all other BIT obligations, it is a standard of international law and is therefore not
to be understood as referring to national legislation.150
There is considerable debate as to whether the FET standard reflects the international
minimum standard, as prescribed in customary international law,151 or whether it offers an
autonomous standard in addition to it. The mere existence of a minimum standard (p. 670)
under customary international law in the field of foreign investment is contested by a large
part of the world,152 and the normative content of the standard for those countries that
accept its existence is far from clear.153 In the case of Swiss BITs the following
considerations suggest that it is an autonomous standard of international law:
(a ) if the treaty drafters had intended the standard to merely reflect customary
international law, there would be no reason to include the phrase ‘fair and equitable
treatment’. 154 Indeed, no reference to ‘customary international law’ can be found in
any Swiss BIT;
(b ) a large number of Swiss BITs provide that the FET standard should ‘in no case be
less favourable than’ the relative standards of NT and MFN. 155 This combination of
relative and absolute standards intends to achieve the best possible treatment in
absolute and relative terms, 156 and thereby expresses that there is no intention to
limit the FET standard to an absolute minimum standard 157 or to make it dependent
on the NT or MFN standards;
(c ) Most BITs contain a clause that clarifies that any more favourable treatment
provided to the investment by way of an investment contract, national or international
law shall to the extent that it is more favourable prevail over the BIT; 158
(d ) only three BITs explicitly relate FET to ‘international law’. 159 Customary
international law is obviously narrower than international law, because it is only one
of its sources according to Article 38 of the Statute of the International Court of
Justice.
In the government’s first request to Parliament to delegate the power to conclude and ratify
BITs (1963), the FET standard was presented as an overarching principle of investment
protection, which also applies to the transfer of returns stemming from an investment as
well as to the investor’s position in case of direct or indirect expropriations. (p. 671) Such
treatment could not be less favourable than NT or MFN. At the same time, BITs were
described as mere codifications of ‘recognized principles of international law’ which is
another source of international law than customary international law.160 It has been argued
that emphasizing a minimum standard in relation to FET but attributing elements to it, that
clearly go beyond what could be customary international law (such as transfer
disciplines),161 may have been motivated by the desire of the government to obtain from
Parliament the delegation of powers for concluding and ratifying BITs.162 The later requests
to renew the delegation of power to the government confirmed that FET was a standard of
international law and that in that respect at least the standard of NT and MFN should be
achieved.163 In 2004, the government’s first message to Parliament for the approval of BITs
after 40 years of delegated power to conclude and ratify BITs explained that the FET
standard was ‘based on’ customary international law. In view of the reasons given above
which suggest the existence of an autonomous standard, the reference to customary
international law in the message should be understood as a reference to the historical roots
of the FET standard and not as the indication of some sort of ‘ceiling’ of the treatment of
foreign investment.164
Several recent publications165 refer to a legal opinion of the Swiss Foreign Ministry from
1978 in a way that could suggest that Switzerland equates the FET standard to customary
international law:
(p. 672) Reference is made to a classical principal of international law according to

which the States must provide the foreigners present on their territory and their
property with a minimum standard of personal, procedural and economic rights.166
However, this overstates the content and effect of the legal opinion. Said opinion has to be
read in its (also historical) context, when there were only a few BITs and very scarce
jurisprudence on BITs. The phrase is an obiter dictum in an opinion on an issue other than
FET (namely, MFN). An article published shortly after the publication of said legal opinion
by government officials shows that FET was seen as referring to more than customary
international law although the normative content attributed to FET remained vague.167
Investors have claimed in all known Swiss BIT-based arbitrations the breach of the FET
standard. Only the SGS v Philippines tribunal dealt with it, but only very summarily and it
postponed the question of applicability of the standard to the merits phase (which never
took place). It mentioned that an unjustified refusal to pay sums admittedly payable under
an award or a contract at least raised arguable issues under the FET standard.168 Other
tribunals, however, have only accepted the outright repudiation of a contract brought about
by the use of sovereign prerogatives to have this effect.169
2. Full Protection and Security
Recent official statements by Swiss authorities suggest that the obligation to grant ‘full
protection and security’ is a separate standard from the FET standard.170 It is hard to
imagine why treaty drafters would include such a term alongside with the FET standard if
the term did not have a meaning of its own. An overview of the jurisprudence shows that
the FET and ‘full protection and security’ are distinguishable: FET requires the host State
to desist from behaviour that appears unfair and inequitable. By contrast, full protection
and security requires the State to actively provide a framework that protects the investment
from adverse interference.171 The arbitral tribunal established under the Swiss BIT with
South Africa held that ‘full protection and security’ imposed a duty of due diligence or
reasonable care by State authorities and that such duty was breached vis-à-vis the Swiss
investor by the fact of not having offered a sufficient level of police protection in the area
where the investment was located in order to prevent incursions, thefts, and vandalism
perpetrated by residents of a nearby settlement. The tribunal (p. 673) refuted South Africa’s
argument that it is a developing nation and that some latitude ought to be accorded when
applying this standard. In the tribunal’s estimation such reasoning would undermine the
minimum requirements as outlined by international law with respect to foreign investment
protection.172
3. Non-impairment by Unreasonable or Discriminatory Measures
The fact that the obligation not to impair ‘by unreasonable or discriminatory measures’
different activities related to an investment is included along with the FET standard could
suggest that it is a separate standard.173 It is, however, never mentioned in the messages of
government to Parliament in relation to BITs, which would rather suggest that it is a
specification of the FET standard.174 The wording indicates an overlap with the FET
standard and the MFN and NT standards.175 The arbitral practice (not on Swiss BITs)
oscillates between combining the non-impairment and FET obligations on the one hand and
treating them separately on the other.176
4. National Treatment and Most-Favoured-Nation Treatment
MFN and NT are both relative standards and impose a duty of non-discrimination. The
purpose of the provision is to prevent discrimination against investments and investors on
the basis of nationality.177 The two standards cover both lawful and de facto discriminatory
treatment.178 The duty of non-discrimination in Swiss BITs relates to investments and
returns thereof as well as to the activities as regards the investment. The investment
activities covered all relate to the post-establishment phase of an investment, whereas the
obligations with respect to the investment are not explicitly limited to the (p. 674) post-
establishment phase. However, in view of the scope article, which limits the scope of a BIT
to investments already made (ie established or acquired) in the territory of the other State,
the MFN and NT commitments with respect to the investment cannot extend to the pre-
establishment phase.179 Drawing on a considerable number of BITs that place FET in
relation to NT and MFN, the two relative standards provide a ‘floor’ for the quality of
treatment under the FET standard, because the latter may not fall below the two relative
standards.
With two exceptions,180 Swiss BITs do not explicitly require that the investors and their
investments need to be in ‘like situations’ in order to be comparable. This must be seen as
an expression of the view that a comparative element is inherent to the standards of non-
discrimination in international economic law.181 Consequently, the investor has to establish
the existence of a competitive relationship between him and a domestic investor who is
receiving more favourable treatment. The BITs with Russia and Vietnam provide examples
of discriminatory measures: unjustified restrictions and other obstacles regarding the
access to means of production or as regards the acquisition, transport, marketing, and sale
of goods and services.182
The Swiss BITs provide that MFN does not apply to special advantages accorded under an
agreement on the avoidance of double taxation. A handful of BITs are more explicit on
whether taxation measures are covered under the two standards, either by confirming that
NT and MFN do apply to taxation measures183 ‘subject to the deviations that are necessary
for the equitable and effective imposition and collection of direct taxes’184 or by carving
taxation measures out either from one185 or both obligations of non-discrimination.186
The BIT with China provides for a unilateral ‘grandfathering’ clause in favour of China with
respect to measures that are in breach of NT and the continuation or amendment of such
measures. China has committed to endeavour to progressively (p. 675) remove these
discriminations. This limitation of the scope of a BIT is a recurrent feature of China’s
BITs.187 With a handful of smaller and less developed countries Switzerland also accepted
derogations from NT with respect to stimulation measures for micro-enterprises/‘cottage
industries’, provided that such incentives do not significantly affect the investment or
activities related thereto.188
The BITs include an exception for regional economic integration organizations (so-called
REIO-exception), which excludes MFN treatment for ‘special advantages to investors of any
third State’ by virtue of an agreement establishing a free trade area, a customs union, or a
common market. The exceptions do not distinguish between existing and future agreements
of the type. In the BITs/FTAs which in addition to investment protection also include
liberalization disciplines, the REIO-exception is combined with a commitment to afford
adequate opportunity to negotiate the benefits granted in aforementioned agreements with
third States.189
The arbitral tribunal’s decision in Maffezini v Spain (which was brought on the basis of the
BIT between Argentina and Spain) and the following (and sometimes inconsistent190) case
law has given broadly worded MFN clauses a ‘treaty shopping’ effect.191 It is questionable
whether and to what extent this effect is appropriate and was intended especially in BITs
signed before Maffezini.192 Not least because a widening of MFN to any standard193 and
even subject matter jurisdiction194 would appear to potentially allow arbitral tribunals to
rewrite a BIT and thereby make BIT negotiations largely redundant. As what seems to be a
reaction to the Maffezini decision, Switzerland now includes an ‘anti-Maffezini’-clause in its
BITs, which carves out dispute settlement from MFN (p. 676) treatment.195 The choice of ‘it
is understood’-language suggests that it would be premature to assume that in BITs
concluded before Maffezini dispute settlement is included in the MFN treatment.
A limiting factor of MFN is the ejusdem generis principle, according to which MFN can only
attract matters belonging to the ‘same subject matter’ or the ‘same category of subject’ to
which the clause relates.196 The Swiss Foreign Ministry held on the basis of the ejusdem
generis principle that the MFN obligation of a BIT did not apply to obligations deriving from
international conventions on the protection of intellectual property, despite the fact the
intellectual property was also listed as a form of protected investment in a BIT.197
Article 5 —Expropriation, Compensation: Switzerland–

China BIT, Art 6
Neither of the Contracting Parties shall take, either directly or indirectly,
measures of expropriation or nationalization or any other measures having
the same nature or the same effect against investments of investors of the
other Contracting Party, unless the measures are taken in the public
interest, on a non-discriminatory basis and under due process of law, and
provided that provision be made for prompt, effective and adequate
compensation. Such compensation shall amount to the market value of the
investment expropriated immediately before the expropriatory action was
taken or became public knowledge, whichever is earlier. The amount of
compensation shall include interest at a normal commercial rate from the
date of dispossession until the date of payment, be settled in a freely
convertible currency, be paid without delay and be freely transferable. The
investor affected shall have the right of review, under the law of the Party
making the expropriation, by a judicial or other independent authority of
that Party, of his case and of the valuation of his investment in accordance
with the principles set out in this paragraph.
The aim of the disciplines on expropriation are to protect established investments from
direct or—what today is more of a reality—indirect expropriation. The reference to
‘measures having the same nature or the same effect’ is a ‘double reference’ to indirect
expropriation. It clarifies that the nature and effect of a State measure on the value of the
investment is the primary criterion for assessing the existence of an indirect expropriation.
It therefore dispenses with defining ‘expropriation’ or ‘nationalisation’. Giving the criterion
of the effect of the measure does not, in the author’s view, preclude other criteria to be
taken into account when assessing the existence of an indirect expropriation and its
consequences.198
(p. 677) For an expropriation to be lawful, the taking must be made in the public interest,199
on a non-discriminatory basis, under due process of law, and provision must be made for
prompt, effective and adequate compensation. As a capital exporting country, it is not
surprising that Switzerland prefers and has consistently used the formula ‘prompt,
adequate and effective’ (‘the Hull formula’)200 which requires compensation at full market
value. That is also in line with domestic legislation. A part of the doctrine argues that this is
not appropriate for indirect expropriations, because the lack of compensation makes them
‘unlawful’ from the outset. According to the general rules on State responsibility the
situation that would have existed without the legal act should be restored (restitutio in
integrum).201 This may lead to very different results in terms of compensation. It is hard to
see how the text of the article on expropriation as found in Swiss BITs would allow a
distinction between direct and indirect expropriation with respect to compensation. This
would also be a discrepancy to the Swiss domestic legislation on expropriation, which
provides for the same standard of compensation.
Only very few BITs give indications on the method of valuation of the market value of an
expropriated investment. Even where they do,202 the guidance given has limited impact on
the arbitral tribunal’s discretion as to what method(s) to use. In any event, the guidance on
valuation with respect to cases of expropriation does not necessarily apply to breaches of
other BIT provisions.203
The fine line between non-compensable regulatory activities of the State and compensable
measures of expropriation has been, and continues to be, the subject of active debate.204
The Declaration adopted by the OECD Council of Ministers on 28 April 1998, held that ‘the
MAI would establish mutually beneficial international rules which would not inhibit the
normal non-discriminatory exercise of regulatory powers by governments and such exercise
of regulatory powers would not amount to expropriation’.205 The article on expropriation in
the MAI was largely (p. 678) identical206 to the standard provision found in Swiss BITs.
What ‘normal exercise of regulatory powers’ means remains vague and can only be decided
on a case-by-case basis. On the other hand, if any regulatory measure pursuing a public
purpose would per se be exempt from the disciplines of the BIT, the BIT would to a large
extent lose its raison d’être.207
The promise of the right to independent review, under the law of the host State of the
investment, of the investor’s case and valuation ‘in accordance with the principles set out in
this Article’ expresses that guarantees of international law are given. These guarantees of a
substantive nature are enforced under the mechanisms foreseen by the legislation of the
host State (while a breach thereof in a domestic procedure would be subject to dispute
settlement under the BIT). This provision specifies the obligation not to deny justice, which
is normally associated with the FET standard.
The existence of expropriation has been claimed in all known arbitrations under Swiss BITs.
However, only the SGS v Philippines tribunal addressed the issue, albeit not in great depth.
It held that there has not been a law or decree enacted by the Philippines attempting to
expropriate or annul the debt owed to SGS under the CISS contract, nor any action
tantamount to an expropriation. A mere refusal to pay a debt was not an expropriation of
property, at least where remedies exist in respect of such a refusal. A fortiori a refusal to
pay was not an expropriation where there is an unresolved dispute as to the amount
payable.208
Article 6 —Compensation for Losses: Switzerland–China

BIT, Art 7
The investors of one Contracting Party whose investments have suffered
losses due to war or to any other armed conflict, revolution, state of
emergency, rebellion, civil disturbance, or any other similar event in the
territory of the other Contracting Party shall benefit, on the part of this
latter, from a treatment in accordance with Article [Protection and
Treatment] of this Agreement as regards restitution, indemnification,
compensation or other settlement.
With respect to situations of war or armed conflict, etc, according to customary

international law, the host State is not obliged to pay compensation in relation to a foreign
investor for losses suffered. The main purpose of this article is to ensure non-discriminatory
treatment if the host State nevertheless decides to pay compensation to its own nationals or
foreign investors of a third State. Where the reference is made to the entire Article on
Protection and Treatment, the obligation to provide for FET in emergency situations is also
included.
Article 7 —Transfers: Switzerland–China BIT, Art 5

Each Contracting Party in whose territory investments have been made by
investors of the other Contracting Party shall grant those investors the
transfer of the amounts relating to such investments, in particular of:
(p. 679)
a ) Returns;
b ) Payments relating to loans incurred, or other contractual
obligations undertaken, for the investment; 209
c ) Amounts assigned to cover expenses relating to the management of
the investment;
d ) Royalties and other payments deriving form rights enumerated in
Article 1, paragraph (1), letters (c), (d) and (e) 210 of this Agreement;
e ) Earnings and other remuneration of personnel engaged from
abroad in connection with the investment;
f ) The initial capital and additional amounts to maintain or increase
the investment;
g ) The proceeds of the partial or total sale or liquidation of the
investment, including possible increment values.
The transfer mentioned above shall be made without delay in a freely
convertible currency and at the prevailing market rate of exchange
applicable within the Contracting Party accepting the investments and
on the date of transfer. In the event that the market rate of exchange
does not exist, the rate of exchange shall correspond to the cross rate
obtained from those rates which would be applied by the International
Monetary Fund on the date of payment for conversions of the
currencies concerned into Special Drawing Rights. 211
Without guarantees with respect to the timeliness, currencies, and methods for determining
exchange rates for cross-border transfers of capital and current payments, the political risk
of investing abroad increases substantially. The need for legal certainty for an investor is in
tension with the BIT Contracting States’ objectives to keep sufficient flexibility to properly
administer their monetary and financial policies. The Swiss BITs cover all transfers that are
covered under the OECD Code of Liberalisation of Capital Movements and the Code of
Liberalisation of Current Invisible Operations, ie all capital and income derived from an
international investment.212 Since the Swiss BITs only cover the post-establishment phase
of an investment, the obligations of free transfer relate in the first place to the repatriation
of funds from the host State.213 The list of transfers covered by the obligations is non-
exhaustive.214 Some BITs also explicitly protect, within certain parameters, the transfer in
kind.215
At face value, the obligation of free transfer in most Swiss BITs is not subjected to the
national law of the host country,216 because such an approach would significantly reduce (p.
680) (or even void) the level of protection. More recent BITs seem to be less articulate in
this respect, since it is ‘understood’—or expressed ‘for the avoidance of doubt’217—that the
right to free transfer of funds out of a country shall not prejudice the equitable, non-
discriminatory, and good faith application of laws relating to the protection of creditors,
securities issuing and trading, criminal prosecution or the satisfaction of judgments in
adjudicatory proceedings. Such clarifications are known from the Draft MAI and the Energy
Charter Treaty, though with the subtle difference that the protection of creditors and
application of certain legislation are enumerated there in an exhaustive manner and
phrased as real exceptions from the free transfer obligation (‘notwithstanding’).218 Quite a
number of Swiss BITs clarify the term ‘without delay’ as the time normally required for the
completion of transfer formalities and cap that period at a maximum period of two or three
months.219
The term ‘freely convertible currency’ refers to currencies which the IMF determines, from
time to time, as freely usable currencies in accordance with the Articles of Agreement.220
As the applicable exchange rate may be determined by the market or set officially, the BITs
often envisage both situations. Common to both situations is that the rate of exchange on
the date of the transfer shall apply.
An exception to the freedom of transfer relates to balance-of-payments crises. Only a
handful of Swiss BITs addresses balance-of-payments problems. The most recent ones
among these (FTA with Japan or BIT with South Korea) include disciplines on investment
liberalization. Whether the omission in many BITs of specific language regarding economic
emergency situations is an expression of the intention to provide for an unconditional
guarantee of capital repatriation or constitutes a ‘gap’ that could be filled with customary
international law on necessity or emergency, is not entirely clear.221 It seems however
reasonable to assume that the drafters of a BIT were aware of the different economic and
financial crises of the more recent past and the function of a BIT as a treaty intended to
provide for legal ‘shelter’ particularly in crisis situations. That is what the years of signing
of the rare BITs that exceptionally provide for flexibility with respect to the repatriation of
funds (1978,222 1990,223 1991,224 and 1996225) would suggest. For purposes of
interpretation it may be relevant that in most cases both BIT partners are (and were at the
time of conclusion of the BIT) also members of the IMF,226 the WTO (p. 681) (GATS), and
sometimes the OECD,227 which all provide for flexibility in cases of ‘serious balance-of-
payments and external financial difficulties or threat thereof’.228 The Draft MAI, which
provided for temporary exceptions to the free transfer obligation for balance-of-payments
reasons, can be seen as recognition that temporary measures do not necessarily derogate
from the aim of investment protection and may be relevant also for developed countries.229
The BIT with Chile expresses that the obligation to grant free transfer may potentially
favour foreign investors with respect to domestic ones, when specifying that nationals of
one Contracting Party, which reside on the territory of the other Party, may ‘only claim such
treatment as is granted to nationals, unless their investment constituted a capital inflow
from outside the respective countries’.230 In one case the transfer disciplines are excluded
for transfers from and to legal entities that are established in a third State but are owned or
controlled by investors of a BIT Contracting State.231
Article 8 —Principle of Subrogation: Switzerland–Saudi
Arabia BIT, Art 8
Where one Contracting Party has granted any guarantee against non-
commercial risks in regard to an investment by one of its investors in the
territory of the other Contracting Party, the latter shall recognize the rights
of the first Contracting Party by virtue of the principle of subrogation to the
rights of the investor when payment has been made under this guarantee by
the first Contracting Party.
In order to enable insurers of non-commercial risks to recover sums paid to investors under
insurance contracts via dispute settlement under the treaty, Swiss BITs include a provision
on subrogation, which makes the Contracting States recognize the subrogation to the
insurer of any rights that the investor may have against the host State as a result of a
breach of the BIT, provided that the former has paid compensation for the loss under an
insurance contract. The provision leaves open the question as to whether the transfer of
rights is made ipso iure or presupposes the assignment.232 In order to be sure that the
recognition of an assignment of rights also extends to the dispute settlement procedure, the
Swiss BITs also provide, in the investor-State dispute settlement clause, that the respondent
State shall not assert as a defence the fact that the investor has received a compensation
covering the whole or part of the incurred damage.233 The effect of this clause is limited by
the fact that the investor’s home State or a subordinate entity thereof (p. 682) are not
entitled to use ICSID arbitration to recover the sums paid to the investor because they do
not satisfy the term of a ‘National of another Contracting State’ of Article 25 of the ICSID
Convention.234 In 2007, the Swiss State-owned investment risk insurance ceased its
activities.235 That is the reason why the most recent BITs only make a generic reference to
insurers, allowing private insurers of non-commercial risks to also benefit from the
subrogation clause.236
Article 9 —More Favourable Provisions: Switzerland–

Kuwait BIT, Art 13
If the legislation of either Contracting State or obligations under
international law existing at present or established hereafter between the
Contracting States, in addition to this Agreement, contain rules, whether
general or specific, entitling investments by investors of the other
Contracting State to a treatment more favourable than is provided for by
this Agreement, such rules shall to the extent that they are more favourable
to the investor prevail over this Agreement.
The purpose of this clause is to avoid interpretations of the BIT as constituting the ‘ceiling’
of the treatment accorded to an investor covered under the BIT. It can also be found as a
stand-alone clause which is differently named,237 but it most commonly forms part of one
single provision entitled ‘Other Commitments’, together with the obligation to observe
commitments entered into by State authorities (see Article 10 hereafter). The frequent
wording found in this article refers to more favourable treatment based on ‘rules of
international law’. This could at face value be understood as some sort of ‘hidden’ and
unlimited MFN-obligation. That can hardly have been the intention of the Swiss BIT
drafters, since MFN has its own provision and own limitations, nor the reading of the SGS v
Philippines tribunal, which also held that ‘prevail over’ does not appear to mean the
intention of the Contracting States to incorporate other obligations into the BIT.238
Article 10 —Other Commitments: Switzerland–Kuwait BIT,
Art 13
Each Contracting Party shall observe any obligation it may specifically have
entered into with regard to investments in its territory by investors of the
other Contracting Party.
This article is commonly known as umbrella clause. While the clause is not a Swiss
speciality,239 it was the jurisprudence generated by the two BIT-based arbitrations of the
Swiss investor SGS against Pakistan and the Philippines which brought it into the spotlight
of the larger international investment law community. The two Decisions on Jurisdiction
generated two lines of jurisprudence with respect to the effect and the (p. 683) conditions
of application of the umbrella clause. However, even if adopting very different approaches
on the umbrella clause, the outcome of the two cases was very similar.240
A problem of a foreign investor is his rapid decline in bargaining power after he has placed
his investment under the sovereignty of the host State.241 The purpose of the umbrella
clause is to provide protection under international law for commitments assumed by the
host State which were conducive to the investment and on which the investor could rely in
good faith.242 Umbrella clauses aim at protecting the investor against opportunistic host
State behaviour once the investment has been made,243 such as the risk of the State
terminating a concession agreement because a competitor of the investor promises a higher
rent to the State.
While international law explicitly recognizes the pacta sunt servanda principle among
States,244 and the principle of good faith upon which it is based, it is less clear whether and
how the pacta sunt servanda principle applies to the relationship of a State to a foreigner,
including a (foreign) investor.245 In jurisprudence and academic writing, the protection of
the investor’s ‘legitimate expectations’ with respect to contractual rights has also been
associated with FET.246 Whether the breach of FET with respect to contracts requires the
exercise of sovereign authority is unclear.247 So far a breach of an umbrella (p. 684) clause
has been found where also the FET standard was breached.248 However, the OECD Draft
Convention on the Protection of Foreign Property, which served as Switzerland’s source of
inspiration for its earlier BITs, separates FET249 from the obligation to observe
undertakings,250 as does the Energy Charter Treaty.251 Therefore, a protection gap
potentially exists for non-sovereign breaches of State’s specific commitments with respect
to investments.
The umbrella clause creates an exception to the general principle of the separation of
States’ commitments under domestic law and under international law. As the tribunal in
SGS v Philippines put it, the umbrella clause ‘makes it a breach of the BIT for the host State
to fail to observe binding commitments, including contractual commitments, which it has
assumed with regard to specific investments’.252 An umbrella clause does not change the
content of an obligation or the law applicable to it.253 It has the effect of making contractual
commitments in relation to an investment enforceable under the BIT. That is what the SGS v
Philippines tribunal accepted254 and what the SGS v Pakistan tribunal refused to do255 and
why the latter was criticized by the Swiss authorities.256
The first Swiss BIT containing an umbrella clause was the one negotiated and concluded in
1985/86 with the People’s Republic of China.257 That was not an accident. The first
important industrial joint-venture between a Western and a Chinese State-owned company
had been concluded a few years earlier with a Swiss partner. The respective joint-venture
contract contained practically all the investment conditions that were crucial for the
workability of the investment as a production site and as an ultimately profitable
company.258 Given the role of the State in the Chinese economy it was considered important
that not only the already existing but also future Swiss investments in China should benefit
from the host country with respect to the good (p. 685) faith fulfilment of its commitments
entered into vis-à-vis specific investors. Such considerations would certainly also have been
relevant to previous Swiss BIT negotiations, but unlike those negotiations they clearly stood
out at the case at hand. China, probably not least because of its manifestly great interest in
attracting foreign investments, agreed to the umbrella clause in full knowledge of its
content (also in the updated BIT). From that point on, umbrella clauses have been
systematically included in Swiss BITs.
The most frequent wording of umbrella clauses found in Swiss BITs reads as follows: ‘Each
Contracting Party shall observe any obligation it has assumed with regard to investments in
its territory by investors of the other Contracting Party.’259 Less frequently, in an article
entitled ‘Observance of Commitments’, the Parties agree that they ‘shall constantly
guarantee the observance of the commitments it has entered into with respect to the
investments’.260 Some authors261 and arbitral tribunals262 have hesitated to consider the
latter wording a ‘real’ umbrella clause in terms of its scope and effect. The SGS v Pakistan
tribunal, probably the first international tribunal to examine the effects of such a clause, did
not share this view. It feared that a textual interpretation was susceptible to almost
indefinite expansion,263 which is why it denied any effect to the clause. Since the SGS
decisions, the wording of the umbrella clauses in Swiss BITs has evolved. The more recent
umbrella clauses, such as the ones found in the investment chapter of the FTA with Japan,
or the BIT with South Korea, clarify previous formulations by stressing the specific
character of the commitment and including an additional qualitative condition for the
commitment to be covered under the umbrella clause: ‘Each Party shall observe any written
obligation it may have entered into with regard to a specific investment by an investor of
the other Party, which the investor could have relied on at the time of establishment,
acquisition or expansion of such investment.’264 This is in line with the official reaction by
the Swiss authorities to the Secretary General of ICSID on the decision of the SGS v
Pakistan tribunal:
With regard to the meaning behind provisions such as Article 11 the following can
be said: they are intended to cover commitments that a host State has entered into
with regard to specific investments of an investor or investment of a specific
investor, which played a significant role in the (p. 686) investor’s decision to invest
or to substantially change an existing investment, ie commitments which were of
such a nature that the investor could rely on them.265
It appears from this statement that the difference in wording of the umbrella clause
(‘provisions such as’) between the Pakistan BIT and other Swiss BITs should not be given
excessive importance. Whenever clauses are identical or nearly identical, they should be
given similar meanings.266 In order to qualify for umbrella clause protection the
commitment must be of such a nature that the investor could rely on it. Besides this
‘objective’ test, there is also a ‘subjective’ one, since the State’s commitment must have
played a significant or even decisive role in the investor’s decision to invest or to
substantially change an existing investment.
The umbrella clause leaves the exact nature of the commitments open. Whereas the SGS v
Pakistan tribunal did not think that contractual commitments of a State were covered,267
the SGS v Philippines tribunal thought they were.268 Examples of commitments covered by
the umbrella clause given in the message to the Swiss Parliament relate to tax treatment,
energy supply, or the possibilities to transport products produced by the investor to
harbours.269 These examples do not necessarily imply or exclude the exercise of the State’s
sovereign powers (eg energy supply)270. That may be an expression of the fact that there is
no international consensus271 on what iure imperii conduct is and the practical difficulty of
‘clinically’ separating such conduct from the State’s purely commercial conduct (iure
gestionis).
As for the question, what law (domestic or international) determines whether a State
obligation exists that is potentially subject to the umbrella clause coverage, the SGS v
Philippines tribunal held that it will be a matter for determination under the applicable law,
normally the law of the host State.272 Among Swiss BITs only the investment chapter in the
FTA with Japan specifies that claims based on the umbrella clause, the ‘rules of law
specified in the pertinent investment contract’ apply over ‘rules of (p. 687) international law
as may be applicable; and … the law of the respondent, including its rules on the conflict of
laws’.273
The message to Parliament for the approval of five BITs and the SGS v Pakistan decision
suggests that the application of the umbrella clause is not restricted to contractual
commitments, but that unilateral acts (ie investment authorizations) are also covered by the
umbrella clause.274 The use of the phrases ‘entered into’ or ‘assumed’, as well as the
requirement of written form,275 suggest that there needs to be an element of specificity and
formality to the State’s commitment.
With respect to the scope ratione personae, a textual interpretation of the umbrella clauses
found in Swiss BITs suggests that only commitments assumed by the Contracting Party to
the BIT, ie the States as subjects of international law, fall under the umbrella clause (‘it has
assumed’). Such a reading would, however, lead to a result which is of little practical
relevance because domestic legal systems probably rarely recognize ‘the State’ as a subject
of law. If the rationale of the umbrella clause is to give extra protection against
opportunistic breaches of host State commitments, then the protection should, in the
absence of explicit language to the contrary,276 apply to all levels of government. That was
also the reading of the SGS v Pakistan tribunal.277 Both the PSI and CISS contracts of SGS
were apparently concluded with ‘the Government’278 and in the case of the Philippines also
approved by the President.279
Whether the umbrella clause requires the State to observe contractual obligations to which
under domestic law it is not a party has been object of divergent opinions in Romak v
Uzbekistan.280 The question did not need to be decided due to lack of an investment in the
sense of the BIT. The underlying question is whether—for purely contractual claims (ie
which do not amount to alleged breaches of a BIT)—the scope of jurisdiction under a BIT
ratione personae is really a question of attribution of governmental conduct (according to
the international law principles of attribution) or a question of interpretation of the
jurisdictional offer provided in the BIT.281
(p. 688) Article 11 —Disputes between a Contracting

Party and an Investor of the Other Contracting Party:
Switzerland–China BIT, Art 11.
(1 ) For the purpose of solving disputes with respect to investments
between a Contracting Party and an investor of the other Contracting
Party and without prejudice to Article [Disputes between the
Contracting States] of this Agreement, consultations will take place
between the parties concerned.
(2 ) If these consultations do not result in a solution within six months
from the date of the written request for consultations, the investor
may submit the dispute either to the courts or the administrative
tribunals of the Contracting Party in whose territory the investment
has been made or to international arbitration. In the latter event the
investor has the choice between either of the following:
( a ) the International Centre for Settlement of Disputes (ICSID)

provided for by the Convention on the Settlement of Investment
Disputes between States and Nationals of other States, opened
for signature at Washington, on March 18, 1965; or
( b ) an ad hoc-tribunal which, unless otherwise agreed upon by
the parties to the dispute, shall be established under the
arbitration rules of the United Nations Commission on the
International Trade Law (UNCITRAL).
(3 ) Each Contracting Party hereby consents to the submission of an

investment dispute to international arbitration.
(4 ) A dispute that has been submitted, in accordance with paragraph
(2), to a competent court of the Contracting Party concerned, may only
be submitted to international arbitration after the withdrawal by the
investor of the case from the domestic court.
(5 ) The Contracting Party which is party to the dispute shall at no
time whatsoever during the process assert as a defence its immunity
or the fact that the investor has received, by virtue of an insurance
contract, a compensation covering the whole or part of the incurred
damage.
(6 ) Neither Contracting Party shall pursue through diplomatic
channels a dispute submitted to international arbitration unless the
other Contracting Party does not abide by and comply with the arbitral
award.
(7 ) The arbitral award shall be final and binding for the parties to the
dispute and shall be executed without delay according to the law of the
Contracting Party concerned.
Investor-State dispute resolution clauses (which are sometimes referred to as ‘diagonal

clauses’) are a core element of BITs. They aim at ensuring that the obligations of the host
State under the BIT are effectively implemented and enforced and thereby increase legal
security for the investor. The provision remains relatively general and limits itself to what
are considered to be the key issues. Since its first inclusion in the BIT with Sri Lanka
(1982), only the BIT with Morocco282 does not provide for an investor-State dispute
resolution mechanism.283 Many Swiss BITs give explicit precedence to the State-State
dispute settlement mechanism. This may surprise, given that the rationale for introducing a
diagonal clause was to depoliticize investment disputes.284 It may be a recognition that
some investment disputes concern a concrete case but may affect broader interests, which
might explain why State-State dispute settlement could be the more appropriate way to
deal with certain disputes.
(p. 689) The disputes covered under the diagonal clause are disputes ‘with respect to
investments’ between an investor and the host State of such investment. This definition also
allows for disputes that are not based on allegations of BIT breaches—but based, eg, on
investor-State contracts—to be addressed under this provision.285 This is consistent with
the general language of Article 25(1) of the ICSID Convention. It also becomes evident by
the fact that contractual rights are also included in the non-exhaustive list of forms of
investment of the article on definitions as well as the inclusion of umbrella clauses, which
allow certain contractual claims to be brought before a BIT based tribunal.286 If the BIT
Contracting States wanted to limit the diagonal clause to claims concerning breaches of the
substantive standards contained in the BIT, they would indeed have to have used similar
language as for the horizontal clause. Nevertheless, among the more recent Swiss BITs,
several define the investment dispute as a dispute regarding the breach of an obligation
under the BIT and also require the existence of a loss or damage, caused by such breach.287
While it is undisputable that the same set of facts can give rise to different claims grounded
on differing legal systems, ie municipal and international law,288 the distinction between
contractual and treaty claims is ultimately not helpful because it is largely a matter of
characterization by the claimant,289 and has the undesirable effect of encouraging parallel
proceedings for the same matter,290 which increases money and time costs for all parties
involved in the dispute.
While the SGS v Pakistan and SGS v Philippines decisions are generally perceived as
inconsistent, neither tribunal hesitated to assert jurisdiction over claims based on the BIT,
regardless of the fact that those claims directly sprang from the underlying contracts.291
However, the SGS v Pakistan tribunal refused to accept its competence for purely
contractual claims (ie those which do not amount to a breach of the BIT), qualifying the
wording ‘a dispute with respect to investments’ as descriptive of the factual subject matter
of the disputes rather than relating to the legal basis of the claims.292 The SGS v Philippines
tribunal, after having considered the arguments of the SGS v Pakistan tribunal, came to the
opposite conclusion despite the identical relevant wording of the description of the dispute
to be settled under the diagonal clause. The SGS v Philippines tribunal held that it was
competent for purely contractual claims.293 Among the reasons given was the contrast of
the wording of the diagonal clause (‘disputes with respect to investments’) and the State-
State dispute settlement clause (‘disputes regarding the interpretation or application of the
provisions of this Agreement’).
(p. 690) However, in the end the SGS v Philippines tribunal decided to suspend the
proceedings in view of the exclusive dispute settlement clause in the underlying contract.
Since there was in the eyes of the tribunal no claim of a breach of BIT independent from
contractual claims, it held that SGS’s claims were premature and sent the disputing parties
to the domestic courts agreed upon in the contract.294 It qualified this decision, claiming it
was related to the admissibility of a claim and not to the question of jurisdiction.295 The
decision was criticized for having in effect reintroduced the requirement of exhaustion of
local remedies into the BIT,296 by wrongly assuming that the contractual dispute resolution
clause was lex specialis with respect to the BIT dispute resolution mechanism.297
Diagonal clauses systematically provide for consultations. The time limit is typically six
months, but can vary between three298 and twelve months.299 The legal starting date is the
moment of written request for consultations. The non-fulfilment of the time limit was not
accepted by the SGS v Pakistan tribunal as a bar to admissibility of the claim, let alone as a
bar to jurisdiction.300 SGS filed its request for arbitration only two days after notifying
Pakistan of the existence of the dispute. The tribunal held that the consultation requirement
was not mandatory and jurisdictional in nature, but rather directory and procedural,301 and
that the disputing parties did not show a particular inclination to enter into negotiations or
consultations with respect to the unfolding dispute.302 The Alps Finance v Slovakia tribunal
held that the question whether the waiting period was of a jurisdictional or procedural
nature was secondary. What mattered was whether a promising opportunity for the
disputing parties to find a settlement existed.303
If consultations do not result in an amicable solution, more recent BITs provide the investor
with the choice of bringing the dispute to the national courts of the host State of the
investment or to international arbitration. When the investor opts for arbitration, it (p. 691)
must typically choose between institutional conciliation or arbitration (ICSID and ICSID’s
Additional Facility Rules) and ad hoc arbitration with the UNCITRAL Arbitration Rules as a
fall-back alternative if the disputing parties cannot agree to other arbitration rules. There
are considerable differences with respect to the available forums for international
arbitration throughout the Swiss BIT negotiating history. Where the BIT partner was not a
member of the Washington Convention establishing ICSID304 at the conclusion of the
negotiations, a ‘tailor made’ diagonal clause305 and a ‘pre-ICSID’ clause was introduced.
The latter enabled the investor to submit his dispute to ICSID from the day the host State
became a member of the Washington Convention.306 Sometimes only ICSID307 or only other
arbitration forums308 are available to the investor. Where only ICSID is available, several
BITs stipulate that both parties can start the conciliation (Article 28 of the ICSID
Convention) or arbitration (Article 36 of the ICSID Convention) procedure, but that in case
of disagreement as to whether conciliation or arbitration should take place, the choice lies
with the investor.309 The BIT with Russia is notable in that both parties to the dispute may
initiate arbitration on alleged breaches of the obligations regarding transfer and
expropriation without consent of the other party.310 How this should work in a proceeding
with the investor as a respondent is not clear.
An arbitration agreement is necessary for the investor’s access to international arbitration
as a way of dispute settlement under the BIT. The prior consent of the BIT Contracting
States to conclude an arbitration agreement is found in the BIT.311 It constitutes an offer to
international arbitration which the investor accepts by filing its request for arbitration. In
most Swiss BITs such prior consent is explicit.312 In several older BITs, such consent is
implied.313 In a few BITs, the scope of the State’s prior (p. 692) consent is limited to specific
obligations under the BIT.314 Switzerland has not given prior consent to international
arbitration for investor-State disputes regarding the liberalization of investments.315
The relationship between the local remedies and international arbitration for the purpose of
solving an investment dispute has been addressed in Swiss BITs in different ways—or not
addressed at all. Most recent BITs include a ‘fork-in-the-road’ clause, which makes clear
that once the diagonal clause has been activated and no amicable solution to the dispute
has been reached, the investor’s choice to submit the dispute to national or international
jurisdiction is irreversible.316 The recently concluded BIT of Switzerland with China and the
FTA with Japan are notable in that they require the investor to waive all other remedies
before submitting a case to international arbitration instead of employing a ‘fork-in-the-
road’ clause. Two BITs concluded in the 1990s with Latin American countries contain a
local-court-first requirement, which obliges the investor to submit the claim to national
courts at least for a certain period of time before being allowed to turn to international
arbitration.317 It is, however, disputed whether a BIT may require local-courts-first, if the
State has no general local remedy reservation under the ICSID Convention.318
The BIT with Mexico is notable for its substantially more detailed regulation on investor-
State dispute settlement. Its 12 articles on dispute settlement provide inter alia for the
consolidation of claims,319 the Secretary-General of ICSID as appointing authority (p. 693)
independently of the chosen rules of arbitration320 or the definition of the tribunal’s
competence with respect to the award.321 In the BIT with South Korea, a separate dispute
settlement clause has been agreed for disputes regarding investments in financial
services.322
The arbitration rules foreseen at the investor’s choice in the BITs pay respect to party
autonomy also with respect to the applicable law.323 Only a handful of BITs specify the law
applicable to the dispute324 and most of those include the legislation of the host country
among the bodies of law that may be applied.325 However, since there is an established
principle of international law, that a State party may not invoke the provisions of its
domestic law to justify its failure to conform to a treaty,326 international law (in particular
the provisions of the BIT) takes precedence over domestic law as applicable law.327 So while
arbitral tribunals normally apply international law and host State law, in case of a conflict
international law prevails.328 National law was seen by the Alps Finance v Slovakia tribunal
as a ‘factual circumstance’ to be considered when ascertaining whether the host State
committed a breach of its international duties in the enforcement of its own law.329
The Swiss BITs extend the rule found in Article 27 of the ICSID Convention, which excludes
the home State from exercising diplomatic protection once an investor has submitted the
dispute to international arbitration, to all arbitration forums available to the investor. This
rule aims at depoliticizing the dispute once the disputing parties fail to reach an amicable
settlement.
A key concern of the investor given the costs and time of BIT arbitration is the finality of the
award; this being the reason why the finality needs to be specified in the BIT. While ICSID
awards are only subject to the ICSID annulment procedure,330 non-ICSID awards can be
challenged before local courts at the place of arbitration. As (p. 694) regards Switzerland,
the Federal Supreme Court has shown reluctance to interfere with decisions of BIT-based
arbitral tribunals and upheld all awards challenged.331
Article 12 —Disputes between the Contracting Parties:

Switzerland–China BIT, Art 12
(1 ) Disputes between the Contracting Parties regarding the
interpretation or application of the provisions of this Agreement shall
if possible be settled through diplomatic channels.
(2 ) If both Contracting Parties cannot reach an agreement within six
months after the beginning of the dispute between themselves, the
latter shall, upon request of either Contracting Party, be submitted to
an arbitral tribunal of three members. Each Contracting Party shall
appoint one arbitrator, and these two arbitrators shall nominate a
chairman who shall be national of a third State.
(3 ) If one of the Contracting Parties has not appointed its arbitrator
and has not followed the invitation of the other Contracting Party to
make that appointment within two months, the arbitrator shall be
appointed upon the request of that Contracting Party by the President
of the International Court of Justice.
(4 ) If both arbitrators cannot reach an agreement about the choice of
the chairman within two months after their appointment, the latter
shall be appointed upon the request of either Contracting Party by the
President of the International Court of Justice.
(5 ) If, in the cases specified under paragraphs (3) and (4) of this
Article, the President of the International Court of Justice is prevented
from carrying out the said function or is a national of either
Contracting Party, the appointment shall be made by the Vice-
President, and if the latter is prevented or is a national of either
Contracting Party, the appointment shall be made by the most senior
Judge of the Court who is a national of either Contracting Party.
(6 ) Subject to other provisions made by the Contracting Parties, the
tribunal shall determine its own procedure. Each Contracting Party
shall bear the cost of its own member of the tribunal and of its
representation in the arbitral proceedings. The cost of the Chairman
and the remaining costs shall be borne in equal parts by the
Contracting Parties, unless the arbitral tribunal decides otherwise.
(7 ) The decisions of the tribunal are final and binding of each
Contracting Party.
Swiss treaty practice regarding the State-State (‘horizontal’) dispute resolution clause has
basically remained unchanged. The horizontal clause applies to disputes regarding ‘the
interpretation or application’ of the treaty and is therefore broader than the diagonal
dispute resolution clause. In contrast to the diagonal clause, which includes an offer to
international arbitration of the host State to an unknown number of investors of the BIT
contracting State, the horizontal clause already includes the agreement to arbitration. The
horizontal clause provides for an ad hoc arbitration procedure if an amicable solution
cannot be reached within the time limit foreseen332 for consultations.333 The two States
each select an arbitrator, and the two appointed arbitrators are authorized to select the
chairman of the tribunal. If the necessary appointments of arbitrators are not made within
the designated time frame, the President of the International Court of Justice acts as
appointing authority. The decisions of the tribunal are final and binding. In opposition to the
diagonal clause, the horizontal clause regularly contains a rule on the (p. 695) distribution
of costs. Some BITs do specify the applicable law for State-State disputes (BIT and
applicable rules of international law).334
Article 13 —Final Provisions: Switzerland–China BIT,

Article 13
Both Governments shall notify each other through diplomatic channels that
they have complied with the legal requirements for the entry into force of
international agreements. The Agreement shall enter into force on the day
when the second notification is received, and shall remain binding for a
period of ten years. Unless written notice of termination is given six months
before the expiration of this period, the Agreement shall be considered as
renewed on the same terms for a period of two years, and so forth.
In case of official notice as to the termination of the present Agreement, the
provisions of Articles 1 to 12 shall continue to be effective for a further
period of ten years for investments made before the termination ….
Done in duplicate, at … on … in French, … and English language, each text
being equally authentic. In case of divergences the English text shall
prevail.
Unlike other international agreements concluded by Switzerland, its BITs specify that they
will remain in force for a fixed period, normally ten years, with a tacit renewal mechanism.
In case of termination of the BIT, the substantive protection standards and the dispute
settlement provisions remain in force for at least another ten or more335 years (so-called
‘sunset clause’). The reason for this approach is the intention to provide the investors with a
high predictability as to the international legal framework applicable to their investments
and thereby to stabilize the environment for the conduct of their business.336
The agreements are concluded in at least one Swiss official language as an authentic treaty
language (normally French), with the English text often prevailing in case of divergences of
interpretation. Sometimes no prevailing language is agreed upon.337
VI. Conclusion/Summary
The overview of Swiss BIT practice reveals the determination to afford comparatively high
standards of protection to the investor of both Contracting States. With respect to the
substantive standards of protection a high consistency of the provisions can be detected. It
may be that the country’s long tradition of BITs does not favour the inclusion of additional
treaty language, as this could provoke questions on how that particular aspect is dealt with
in earlier BITs. Emerging jurisprudence (albeit not so much on the basis of Swiss BITs) has,
however, led to some clarifications, in particular with respect to the State commitments
covered by the umbrella clause, the scope of MFN with respect to dispute settlement, and
the definition of an investment dispute. The jurisprudence generated on Swiss BITs also
suggests that some clarifications as to the preferable (subjective/objective) approach for
determining the existence of an investment in the sense of a BIT could be useful. There is
quite some heterogeneity on the subject of dispute settlement in Swiss treaty practice
regarding available avenues of arbitration (p. 696) but—except for the pre-1990 BITs still in
force—uniformity when it comes to providing the investor with the possibility of direct
access to an arbitral tribunal independent of the host State of the investment. Swiss BITs
will probably remain in the ‘European’338 tradition of lean and focussed treaties, which
leaves more room for arbitral discretion than, for example, North American BITs.
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Footnotes:
* This article represents exclusively the personal view of the author. He expresses his
profound gratitude to his wife Astrid and his daughters Sophie and Sarah for their support
and Jean-Marie Souche for his encouragement and advice.
1 Only decisions/awards based on Swiss BITs made before July 2011 and publicly available
have been considered.
2
WTO, Trade Policy Review of Switzerland and Liechtenstein, Report of the Secretariat,
WT/TPR/208/Rev. 1 (12 March 2009), p 13.
3
Switzerland tops the overall ranking in the World Economic Forum’s Global
Competitiveness Report 2010–2011 (World Economic Forum, 2010).
4
Swiss National Bank, Switzerland’s International Investment Position in 2009 (2010),
available at <www.snb.ch/en/iabout/stat/statpub/iip/id/statpub_iip_hist> (last accessed 27
December 2011).
5
UNCTAD, World Investment Report 2010: Investing in a Low Carbon Economy (2010), p
172, available at <www.unctad.org/en/docs/wir2010_en.pdf> (last accessed 27 December
2011).
6
Swiss National Bank, Direct Investment 2009 (2010), pp 13, 30 available at
<www.snb.ch/en/mmr/reference/Direktinvestitionen_2009/source> (last accessed 10
January 2012). The labour force is estimated at about 4.7 million people. Foreign nationals
account for about 26 per cent of the labour force.
7
Swiss National Bank, Switzerland’s International Investment Position in 2009, p 5.
8
Swiss National Bank, Direct Investment 2009, p 10. The fact that the Netherlands and
Luxembourg are the largest sources of FDI is new and has to do with the restructuring of
US groups.
9
Swiss National Bank, Direct Investment 2009, p 16.
10
Swiss National Bank, Direct Investment 2009, pp 15–16.
11
P Gugler and X Tinguely, ‘Swiss Inward FDI and its Policy Context’, in K Sauvant, T Jost,
K Davies, and A-M Povéda Garcès (eds), Inward and Outward FDI Profiles (Vale Columbia
Center for Sustainable International Investment, January 2011), p 198 available at
<www.vcc.columbia.edu/files/vale/content/Profile_ eBook_PDF_2_11.pdf> (last accessed 13
September 2012).
12
Sauvant, Jost, Davies, and Povéda Garcès (eds), Inward and Outward FDI Profiles, p 3,
referring to UNCTAD’s World Investment Report 2009, and M Naville and P Tischhauser,
‘Comment la Suisse Peut Gagner la Course Difficile aux Faveurs des Multinationales’,
(2008) 3 La Vie Economique 32–4.
13
P Gugler and X Tinguely, ‘Swiss Outward FDI and its Policy Context’, in K Sauvant, T
Jost, K Davies, and A-M Povéda Garcès (eds), Inward and Outward FDI Profiles (Vale
Columbia Centre for Sustainable International Investment, 29 April 2010), p 208 available
at <www.vcc.columbia.edu/files/vale/content/Profile_eBook_PDF_2_11.pdf> (last accessed
13 September 2012).
14
Swiss National Bank, Direct Investment 2009, pp A4–A5.
15
Namely, Anguilla, Bahamas, Barbados, Bermuda, British Virgin Islands, Jamaica,
Cayman Islands, Montserrat, the Netherlands Antilles, Panama, St Kitts and Nevis, US
Virgin Islands, Antigua and Barbuda, Belize, Dominica, Grenada, St Lucia, St Vincent and
the Grenadines, Turks and Caicos Islands: Swiss National Bank, Direct Investment 2009, p
22.
16
Swiss National Bank, Direct Investment 2009, p 18, with reference to IMF guidelines,
Balance of Payment Manual, 5th Edition, and OECD guidelines, Benchmark Definition of
Foreign Direct Investment, 3rd Edition.
17
Swissgrid owns and operates the national electricity transmission network. It has to be
owned by at least 50 per cent by the cantons and municipalities: see Federal Act on
Electricity Supply (SR 734.7). The ‘Systematische Rechtssammlung’ is the systematic
collection of Swiss federal laws and international treaties concluded by Switzerland and is
referred to as ‘SR’. It can be accessed in German, French, and Italian at <www.admin.ch>
(last accessed 27 December 2011); if available, unofficial English translations of laws can
be found at <www.admin.ch/ch/e/rs/rs.html> (last accessed 27 December 2011).
18
With respect to pipelines, for foreign-owned or controlled companies a registered office
and management presence in Switzerland is required; see Federal Act on Pipelines for
Liquid or Gaseous Fuels (SR 746.1). In the field of nuclear energy, a concession to construct
and operate nuclear facilities is granted only to a corporation, a cooperative, or a legal
person of public law. A foreign company must have a registered subsidiary in Switzerland.
The Federal Council may refuse the concession to a foreign company if its home State does
not grant reciprocity: see Federal Act on Atomic Energy (SR 732.1). For the generation of
hydroelectric power, the granting of concessions, cantons may take public interest
considerations into account (they may in particular require the concession-holder to have
its registered office in the relevant canton); see Federal Act on the Uses of Hydroelectric
Power (SR 721.80).
19
See the Inter-Cantonal Concordat of 24 September 1955 on Oil Prospecting and
Exploitation concluded among several cantons. Regarding the collection, purification, and
distribution of water the cantonal and municipal legislation may contain restrictions for
foreign and Swiss private investors.
20
According to the Federal Act on Radio and Television (SR 784.40) a licence may not be
granted to a legal entity under foreign control, to a Swiss legal entity with foreign capital
participation or to a natural person who does not have Swiss nationality if reciprocity is not
granted. Furthermore, there are local content requirements.
21
According to the Federal Act on the Production of Films and Film Culture (SR 443.1),
film projection can only be made by registered legal entities, whose members of the board
of directors are domiciled in Switzerland.
22
The Federal Railways (SBB/CFF/FFS) have a privileged position with respect to
passenger transport services via rail, and operating railroad infrastructure, see Federal Act
on Railways (SR 742.101). A State monopoly also exists for regular transport of passengers
on boats; see Federal Act on Inland Navigations (SR 747.201).
23
Swiss Post (‘Die Post’) has the exclusive right to supply services related to delivering
domestic and inbound letters up to 50g, see Federal Act on Postal Services (SR 783.0).
24
The major telecommunication company (Swisscom) is majority State-owned (SR 784.10).
25
Federal Act on the Acquisition of Real Estate by Persons Abroad (SR 211.412.41) and the
Federal Ordinance thereto (SR 211.412.411).
26
Federal Act on Stock Exchanges and Securities Trading (SR 954.1). The thresholds for
the duty to disclose starts with 5 per cent of the voting rights (Art 20).
27
Federal Act on Stock Exchanges and Securities Trading, Art 32.
28
Code of Obligations (SR 220, Art 685d). The company must justify the limitation in their
articles of incorporation with significant reasons relevant to the survival, conduct, and
purpose of their businesses or the prevention or hindering of a takeover by an outsider.
29
Federal Act on Banks and Depository Institutions (SR 952.0).
30
Federal Constitution (SR 101, Art 27) guarantees free access to and free exercise of an
economic activity.
31
Federal Constitution, Art 184.
32
Switzerland does not include a security exception in its BITs. For an exception to this
see, eg, Switzerland–India BIT (SR 0.975.242.3, Art 11(2)):
No provision of this Agreement shall preclude the host Contracting Party from
taking action for the protection, in exceptional circumstances, of its essential
security interests or in situations of extreme emergency in accordance with its laws
normally and reasonably applied on a non-discriminatory basis.
33
34
Federal Act on Expropriation (SR 711). Direct expropriation includes four elements: (1)
the transfer of rights to the State; (2) by virtue of an act of governmental authority
(exceptionally by contract); (3) for a purpose of public interest; and (4) against full
compensation. See U Häfelin, G Müller, and F Uhlmann, Allgemeines Verwaltungsrecht
(Schulthess Polygraphischer Verlag, Zurich, 2010) p 466.
35
Eg, for the canton of Zurich: Gesetz über die Abtretung von Privatrechten, Zürcher
Loseblattsammlung, No 781.
36
The five principles—included in the Federal Constitution—are the principle of legality
(Art 5(1)); the principle of proportionality (Art 5(2)); the principle of equality before the law
(Art 8); the protection against arbitrariness and observance in good faith (Art 5(3), and (9));
and the principle of public interest (Art 5(1)). For further information see Häfelin, Müller,
and Uhlmann, p 81.
37
Federal Supreme Court Decision, 114 Ia 114.
38
Häfelin, Müller, and Uhlmann, p 473. The last sub-element, also called proportionality
stricto sensu, involves a balancing between the effect of the State measure on the affected
rights and the importance of the government purpose.
39
40
In the Swiss terminology ‘Verkehrswert’. There is abundant jurisprudence by the
Federal Supreme Court on the methods of valuation (eg, Federal Supreme Court Decisions,
134 II 49, 131 II 458).
41
Häfelin, Müller, and Uhlmann, p 476.
42
Federal Act on Expropriation, Art 18.
43
The Federal Supreme Court left this question open in Decision 105 Ib 88. For the case of
noise emission arising from public works, the Federal Supreme Court has confirmed that
environmental legislation may impose to the affected the acceptance of noise mitigation
measures as part of the compensation (Federal Supreme Court Decision, 123 II 560, 122 II
337, 119 Ib 348).
44
T Jaag, Staats- und Verwaltungsrecht des Kantons Zürich (3rd edn, Schulthess
Polygraphischer Verlag, Zurich, 2005, No 2624).
45
German term is ‘Schätzungskommission’.
46
Federal Supreme Court Decision, 120 Ia 209.
47
Federal Supreme Court Decision, 123 II 481.
48
The Federal Supreme Court has, however, repeatedly stated that also a decrease in the
value of a real estate of 10 per cent can be considered a substantial loss for the purposes of
expropriation (Federal Supreme Court Decisions, 134 II 49, 102 Ib 271, 101 Ib 45).
49
Häfelin, Müller, and Uhlmann, p 491.
50
Federal Supreme Court Decision, 134 II 49, 134 II 164, 130 II 394, 129 II 72, 123 II 481.
The conditions for awarding compensation for the suppression of defensive rights based on
neighbouring law are the non-foreseeability of the emissions, the gravity of their impact,
and the fact of being particularly affected by them.
51
So-called ‘special sacrifice’, Federal Supreme Court Decisions, 117 Ib 262.
52
Federal Act on Regional Planning, SR 700.
53
As of October 2012. Any reference hereafter to ‘BITs’ refers for the ease of reference to
agreements which include investment protection disciplines and an investor-State dispute
settlement mechanism, including those agreements which contain investment liberalization
disciplines. It therefore excludes in particular the agreements mentioned in nn 55, 57, and
62 to 68.
54
UNCTAD, World Investment Report 2010, Annex 3, p 183.
55
See the ‘Agreements on Trade, Investment Protection and Technical
Cooperation’ (including their year of entry into force) with Burkina Faso (1969, SR
0.946.292.161), Ivory Coast (1962, SR 0.946.292.891), Guinea (1963, SR 0.946.292.811),
Cameroon (1964, SR 0.946.292.271), Congo Brazzaville (1964, SR 0.946.292.721), Liberia
(1964, SR 142.114.941), Madagascar (1964, SR 0.946.295.231, to be replaced by an
agreement signed in 2008), Niger (1962, SR 0.946.295.891), Rwanda (1963, Bundesblatt,
hereafter referred to as ‘BBl’, 1964 I 405), Togo (1966, SR 0.946.297.491), Chad (1967, SR
0.946.297.361), and Tunisia (SR 0.975.275.8).
56
OECD Draft Convention and Commentary thereto, available at <www.oecd.org/
dataoecd/35/4/39286571.pdf> (last accessed 27 December 2011). On the impact of the
OECD Draft Convention on Swiss treaty practice, see, eg, C Matthias Krafft, ‘Les Accords
Bilatéraux sur la Protection des Investissements Conclus par la Suisse’, in D Dicke (ed),
Foreign Investment in the Present and a New International Economic Order (University
Press Fribourg, 1987).
57
Such mechanism is foreseen in Art 7 of the Draft Convention; see the agreements still in
force: Switzerland–Egypt BIT (an updated agreement has been signed in 2010),
Switzerland–Benin BIT (1973, SR 0.946.291.746), Switzerland–Ecuador BIT (1969),
Switzerland–Indonesia BIT (1976), Switzerland–Congo BIT (1964), Switzerland–Kinshasa
BIT (1973), Switzerland–Malaysia BIT (1978), Switzerland–Mali BIT (1978), Switzerland–
Mauretania BIT (1978, SR 0.946.295.581), Switzerland–Singapore BIT; but see also the FTA
(SR 0.632.316.891.1), Switzerland–Sudan BIT (1974) (an updated agreement has been
signed in 2002), Switzerland–Uganda BIT (1972), Central African Republic (1973).
58
Switzerland–Panama BIT, Art 9 (concluded in 1983, entered into force in 1985).
59
Switzerland–China BIT (concluded in 2009 and entered into force in 2011).
60
Switzerland normally does not negotiate BITs with other OECD members. Exceptions
are the Investment Agreement with South Korea (Switzerland–South Korea BIT); the
investment chapter in the Switzerland–Japan FTA, the Switzerland–Turkey and Switzerland–
Mexico BITs concluded with newer EU Member States that are also OECD members (or
candidates) were concluded prior to their accession to the EU and OECD and have been
maintained: Switzerland–Slovenia BIT, Switzerland–Hungary BIT, Switzerland–Czech
Republic BIT, Switzerland–Slovakia BIT, Switzerland–Poland BIT, Switzerland–Estonia BIT.
61
Energy Charter Treaty (SR 0.730.0), was ratified in December 1995 by the Federal
Parliament and entered in force for Switzerland on 16 April 1998.
62
SR 0.632.401, which is limited to trade in agricultural products and complemented by an
agreement on processed agricultural products.
63
SR 0.632.31.
64
The European Free Trade Association (‘EFTA’) consists of Norway, Iceland,
Liechtenstein, and Switzerland. The FTA concluded by Switzerland on a bilateral basis are
the ones with Japan and the Faroe Islands.
65
The list of FTAs in force, concluded and under negotiation can be accessed at
<www.seco.admin.ch/themen/00513/00515/01330/index.html?lang=de> (last accessed 27
December 2011).
66
In force since 2004 (SR 0.632.312.451).
67
In force since 2011 (SR 0.632.312.631).
68
In force since 2011 (SR 0.632.316.411).
69
The investment chapter does not provide for prior consent to international arbitration
and the pre-existing BIT between Switzerland and Singapore (Switzerland–Singapore BIT)
has been maintained.
70
Referred to as ‘Switzerland–South Korea BIT’. This agreement has been negotiated and
concluded in parallel to the FTA between EFTA and South Korea and concluded by all EFTA
members except Norway.
71
Art XVIII lit. d of the GATS (SR 0.632.20, Annex 1B):
‘commercial presence’ means any type of business or professional establishment,

including through (i) the constitution, acquisition or maintenance of a juridical
person, or (ii) the creation or maintenance of a branch or a representative office,
within the territory of a Member for the purpose of supplying a service.
72
In force since 2012 (SR 0.632.317.671).
73
See the articles ‘National Treatment’, ‘Most Favoured Nation Treatment’, and ‘General
Treatment’.
74
In force since 1997 (SR 0.975.276.7).
75
Switzerland did also maintain the BITs with the FTA partners Chile, Singapore,
Colombia, and Peru.
76
See also the Foreign Trade Act (SR 946.201).
77
Federal Constitution (Art 166 and 184).
78
‘Message of the Federal Council to the Federal Parliament on the Treaties regarding the
Promotion and Reciprocal Protection of Investments with Serbia and Montenegro, Guyana,
Azerbaijan, Saudi-Arabia and Colombia’ and the treaty texts related thereto, 22 September
2006, BBl 2006, pp 8455, 8471 available at <www.admin.ch/ch/d/ff/2006/8455.pdf> (last
accessed 27 December 2011). There is criticism that the possibilities of the Federal
Parliament to influence the negotiation and conclusion of the international economical
treaties tends to continuously decrease: M Oesch, ‘Gewaltenteilung und Rechtschutz im
Schweizerischen Aussenwirtschaftsrecht’ (2004) 105 Schweizerisches Zentralblatt für
Staats- und Verwaltungsrecht, 285 et seq; quoted in: T Cottier and M Oesch, International
Trade Regulation—Law and Policy in the WTO, The European Union and Switzerland—
Cases, Materials, Comments (Staempfli Publishers/Cameron May, Berne/London 2005), p
291.
79
Federal Department of Economic Affairs.
80
Directorate of Public International Law of the Federal Department of Foreign Affairs.
81
Eg ‘Message of the Federal Council to the Federal Parliament on the Treaties regarding
the Promotion and Reciprocal Protection of Investments with Lesotho, China and
Tajikistan’, BBl 2009, p 2655; ‘Message of the Federal Council to the Federal Parliament on
the Treaties regarding the Promotion and Reciprocal Protection of Investments with
Turkmenistan and Madagascar’, BBl 2009, p 907. As a rule, the signed BITs are submitted
collectively for approval with the annual report of the Federal Council to Federal Parliament
on foreign economic policy. There have been exceptions to this in the past: see, eg,
Azerbaijan, Saudi-Arabia and Colombia’, 22 September 2006.
82
The official texts in German, French, and Italian of individual BITs concluded by
Switzerland can be viewed at the website of SECO at <www.seco.admin.ch/themen/
00513/00594/index.html?lang=de> (last accessed 27 December 2011). If texts in English
exist, they can be viewed at UNCTAD’s online compilation at <www.unctadxi.org/templates/
DocSearch____779.aspx> (last accessed 27 December 2011) or on SECO’s website.
83
Switzerland has been a member of the United Nations since 2002, which is why no
obligation to transmit to the UN Treaty Section international treaties concluded earlier
existed before that date.
84
Eg, the preamble, Switzerland–Serbia BIT.
85
Switzerland–South Korea BIT, Art 9(2):
The Parties recognize that it is inappropriate to encourage investment by relaxing

domestic health, safety or environmental measures. Accordingly, a Party should not
waive or otherwise derogate from, or offer to waive or otherwise derogate from,
such measures as an encouragement for the establishment, acquisition, expansion
or retention in its territory of an investment of an investor of a Party or a non-Party.
If a Party considers that another Party has offered such an encouragement, it may
request consultations with that other Party and the Parties shall consult with a view
to avoiding any such encouragement.
86
SGS Société Générale de Surveillance S.A. v Republic of the Philippines (ICSID Case No
ARB/02/06, Decision on Jurisdiction of 29 January 2004), para 116 (‘SGS v Philippines’).
87
Alps Finance & Trade AG v Slovak Republic (Award on Jurisdiction of 5 March 2011),
para 236, (‘Alps Finance v Slovakia’) reported by Investment Arbitration Reporter, ‘In
Unpublished Ruling arbitrators find that Swiss Company’s ties to Switzerland are too
tenuous to deserve protections of investment treaty: One-Off Cross-Border purchase of
receivables in the Slovak Republic is not a protected investment’, available at
<www.iareporter.com/articles/20110414_2> (last accessed 27 December 2011).
88
Vienna Convention on the Law of Treaties, opened for signature 23 May 1969, 1155
UNTS 311 (entered into force 27 January 1980), Art 31(1) (‘VCLT’).
89
Romak S.A. v Uzbekistan (Award of 26 November 2009), para 189.
90
The view expressed that the concept of investment in Swiss BITs is based on direct
investments is neither supported by the text of the BITs nor by the message of the
government regarding the BIT with South Korea quoted for that purpose; see in that sense
L Burger, ‘Swiss Bilateral Investment Treaties: A Survey’ (2010) 27 Journal of International
Arbitration 473, 478.
91
The Switzerland–Colombia BIT excludes claims to money or to any performance having
an economic value if these arise solely from commercial contracts for the sale of goods or
services or from credits in connection with a commercial transaction, the maturity date of
which is less than three years (Art 1(1)(c)). It also excludes payment obligations from or
credits to a State or a State enterprise (Protocol, Ad Art 1(c)). See also Switzerland–Mexico
BIT, Art 1(3)(c) and (e).
92
Eg, S Manciaux, ‘The Notion of Investment: New Controversies’ (2008) 9 Journal of
World Investment and Trade 443, quoted also in Romak v Uzbekistan (Award of 26
November 2009), with further references in its fn 160.
93
Romak v Uzbekistan (Award of 26 November 2009), para 173 (‘Romak v Uzbekistan’).
94
According to this test, in order to be recognized as an investment (for purposes of ICSID
arbitration) an investment must normally exhibit a certain ‘regularity of profit and return’, a
certain ‘duration of the economic operation’, the existence of a ‘risk assumed by the
investor’, and a ‘contribution to the economic development of the host State’: see Salini
Costruttori SpA and Italstrade SpA v Morocco (ICSID Case No ARB/00/4, Decision on
Jurisdiction of 23 July 2001).
95
Salini Costruttori SpA and Italstrade SpA v Morocco, para 101.
96
Switzerland–Uzbekistan BIT, Art 1(2).
97
Romak v Uzbekistan, paras 180, 181, and 184.
98
Romak v Uzbekistan, para 207.
99
100
101
Alps Finance v Slovakia (Award on Jurisdiction of 5 March 2011), para 2 (‘Alps Finance
v Slovakia’).
102
Alps Finance v Slovakia, para 230–247.
103
SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan (ICSID Case
No ARB/01/13, Decision on Jurisdiction of 6 August 2003) (‘SGS v Pakistan’).
104
See Switzerland–Pakistan BIT, Art 1(2); Switzerland–Philippines BIT, Art 1(2);
Switzerland–Uzbekistan BIT, Art 1(2).
105
These characteristics are similar but not identical to the Salini test.
106
107
V Heiskanen, ‘Of Capital Import: The Definition of “Investment” in International
Investment Law’, (2010) 34 Protection of Foreign Investments through Modern Treaty
Arbitration—Diversity and Harmonisation, ASA (Swiss Arbitration Association) Special
Series, p 51.
108
See, eg, Protocol to the BIT with Argentina, Protocol to the BIT with Colombia (Ad Art
1(a)), Protocol to the BIT with Chile (Ad Art 1(2)(a), Art 2), Switzerland–Paraguay BIT, Art 2.
109
See Switzerland–Japan FTA, Art 85(g)(B); Switzerland–South Korea BIT, Art 1(3)(a).
110
It may also have to do with the fact the contracting partner does not have nationals:
see Switzerland–Hong Kong BIT, Art 1(2)(a)(i): ‘in respect of Hong Kong physical persons
who have the right of abode in its area’.
111
Code of Obligations (SR 220, Art 718(4)). Sectoral legislation may foresee nationality
requirements.
112
The requirement of the seat seems to be a Swiss specialty. It refers to the place of the
effective management of the legal person. According to the Alps Finance v Slovakia
Tribunal (para 215), elements of proof of such a seat are the location where the board and
shareholders meetings take place, the fact that a company has a certain number of
employees working there, the existence of own telephone and fax numbers for contacts with
third parties, and the existence of expenses and overhead costs for the maintenance of the
physical location of the seat and the services related to it.
113
Eg, the most recent BITs: Switzerland–China BIT, Switzerland–Colombia BIT,
Switzerland–Serbia BIT, Switzerland–Montenegro BIT, Switzerland–Guyana BIT.
114
Eg Switzerland–Turkmenistan BIT, Switzerland–South Korea BIT, or in the Switzerland–
Japan FTA.
115
The Alps Finance v Slovakia tribunal (at para 219) applied the same criteria for the
existence of a ‘seat’ that have been spelled out for ‘real economic activities’.
116
M P Notter, Völkerrechtlicher Investitionsschutz—Unter Berücksichtigung der
bilateralen Investitionsschutzverträge der Schweiz (University of Zurich, 1989), p 118; L
Caflisch, La Protection des Sociétés Commerciales et des Interets Indirects en Droit
International Public (Martinus Nijhoff Publishers, The Hague, 1969), p 125.
117
Eg Switzerland–Azerbaijan BIT, Art 2: ‘The present Agreement shall apply to
investments in the territory of on Contracting Party that are owned or controlled, directly or
indirectly, by investors of the other Contracting Party’ and explanation thereto in the
Azerbaijan, Saudi-Arabia and Colombia’, 22 September 2006, p 8468.
118
Eg, Switzerland–Hungary BIT, Art 10 para 4:
A company which has been incorporated or constituted according to the laws in

force in the territory of the Contracting Party and which, prior to the origin of the
dispute, was under the control of nationals or companies of the other Contracting
Party, is considered, in the sense of the Convention of Washington and according to
its Article 25 (2) (b) as a company of the latter.
The Washington (ICSID) Convention does not define the term ‘control’.
119
See Switzerland–Argentina BIT, Switzerland–Cambodia BIT, Switzerland–Costa Rica
BIT, Switzerland–Cuba BIT, Switzerland–Ethiopia BIT, Switzerland–India BIT, Switzerland–
Macedonia BIT, Switzerland–Poland BIT, Switzerland–Slovenia BIT, Switzerland–Thailand
BIT, and Switzerland–Turkmenistan BIT.
120
GATS (Art XXVIII lit. m and n (ii)): ‘A juridical person is “controlled” by persons of a
Member if such persons have the power to name a majority of its directors or otherwise to
legally direct its actions.’
121
Eg, Switzerland–Colombia BIT (Protocol, Ad Art 1(2)(c)) or Switzerland–Iran BIT
(Protocol, Ad Art 1(a)).
122
For an overview of the jurisprudence, see C Schreuer, Shareholder Protection in
International Investment Law, 2005, pp 11–15, available at <www.univie.ac.at/intlaw/pdf/
csunpublpaper_2.pdf> (last accessed 27 December 2011).
123
An updated BIT has been signed and approved by the Federal Parliament in February
2011.
124
CMS Gas Transmission Company v Argentina (ICSID Case No ARB/01/08, Decision on
Jurisdiction of 17 July 2003).
125
See R Dolzer and C Schreuer, Principles of International Investment Law (Oxford
University Press, 2008), p 4, fn 87 with further references.
126
Dolzer and Schreuer, Principles of International Investment Law, p 59.
127
Eg, Switzerland–Kuwait BIT (‘the Government of the State of Kuwait acting either
directly or indirectly through the Kuwait Investment Authority (KIA) or its offices abroad, as
well as development funds, agencies or other similar government institutions having their
seat in Kuwait’ (Art 1(2)(b) and (c)).
128
Legal opinion of the Directorate of Public International Law, 20 November 2007, (2008)
11 Verwaltungspraxis der Bundesbehörden (VPB).
129
Switzerland–Kuwait BIT, Art 8(2).
130
Eg Switzerland–Azerbaijan BIT, Art 1(4); Switzerland–Mauritius BIT, Art 1(4).
131
For an overview see A Joubin-Bret, Admission and Establishment in International
Investment Agreements, in Protection of Foreign Investments through Modern Treaty
Arbitration—Diversity and Harmonisation (ASA Special Series No 34, 2010), p 29 with
further references to the jurisprudence.
132
SGS v Pakistan, para 78.
133
Eg, Switzerland–Azerbaijan BIT, Art 2.
134
See also VCLT, Art 28.
135
SGS v Philippines, para 165–167. The exception for wrongful acts of a composite or
continuing nature is contained in Arts 14 and 15 of the Draft Articles on State
Responsibility for Internationally Wrongful Acts, adopted by the United Nations General
Assembly with Resolution 56/83 of 12 December 2001. See A Antonietti, ‘What is a Dispute’
in Protection of Foreign Investments through Modern Treaty Arbitration—Diversity and
Harmonisation (ASA Special Series No 34, 2010), p 81.
136
See Switzerland–Thailand BIT (Protocol, para 2) and Switzerland–Iran BIT (Protocol,
para 2). The view expressed that Swiss BITs adopt a ‘controlled entry’ approach, pursuant
to which the application of a BIT is made conditional on it being approved in accordance
with the laws and regulations of the host State is, with the exception of the two cases
mentioned, see in that sense erroneously Burger, Swiss Bilateral Investment Treaties: A
Survey, p 479.
137
The dispute between SGS and Pakistan emerged over alleged violations (termination of
contract and non-payment of fees by Pakistan) of the ‘pre-shipment inspection
agreement’ (‘PSI contract’). The ‘comprehensive import supervision service
agreement’ (‘CISS contract’) between SGS and the Philippines, which the Philippines did
not renew, was essentially another PSI contract.
138
SGS v Pakistan, para 75; SGS v Philippines, para 57.
139
SGS v Philippines, para 104.
140
In the SGS v Pakistan case the amount invested corresponded to less than 1 per cent of
the amount claimed by SGS for breach of the BIT. SGS v Philippines, paras 111 and 112.
141
SGS v Pakistan, para 136; SGS v Philippines, para 111, relied entirely on the SGS v
Pakistan decision.
142
F Yala, ‘The Notion of “Investment” in ICSID Case Law: A Drifting Jurisdictional
Requirement?’ (2005) 22 Journal of International Arbitration 105, 119.
143
144
The SGS v Philippines Tribunal did not seem to bother about what element on the non-
exhaustive list of ‘investments’ may fit the claims of SGS. It argued that the focal point of
the services provided by SGS were in the Philippines (para 101) and since it was a cost for
SGS to provide these, there was an investment in the meaning of the BIT, para 103.
145
146
147
Alps Finance v Slovakia, para 246.
148
See OECD Draft Convention on the Protection of Foreign Property with Commentary,
Art 1.
149
For an overview of the meanings given in treaty practice and jurisprudence see, eg,
OECD, ‘Fair and Equitable Treatment Standard in International Investment Law’ (2005)
International Investment Law, A Changing Landscape, p 73; or UNCTAD, Bilateral
Investment Treaties 1995–2006: Trends in Investment Rulemaking (UNCTAD, 2007), p 28.
150
The obligation to protect ‘sur son territoire les investissements effectués conformément
à sa législation’ contained in a ‘Swiss Model BIT’ does not refer to the level of protection
(national law) but instead to the legality of the making of the investment; See in that sense,
erroneously R Dolzer, ‘Indirect Expropriation of Alien Property’ (1986) 1 ICSID Review:
Foreign Investment Law Journal 41, 55.
151
The OECD Draft Convention of the Protection arguably saw the FET standard as an
expression of customary international law. See Art 1 of OECD, Draft Convention on the
Protection of Foreign Property and the official Commentary thereto, p 8.
152
See pro multis Dolzer and Schreuer, Principles of International Investment Law, p 14;
M Sornarajah, The International Law on Foreign Investment (Cambridge University Press,
2004), p 328.
153
See J Laviec, Protection et Promotion des Investissements, Etude de Droit International
Economique (Presses Universitaires de France, 1985), p 88. According to Laviec the phrase
in the Commentary on the OECD Draft Convention on the Protection of Foreign Property,
according to which ‘the standard required conforms in effect to the minimum standard
which forms part of customary international law’ has been the source of misunderstandings
as to the relationship between FET and customary international law. Laviec is an author
that government officials have referred to in earlier publications. See, eg, Krafft, ‘Les
Accords Bilatéraux sur la Protection des Investissements Conclus par la Suisse’, in D Dicke
(ed), Foreign Investment in the Present and a New International Economic Order, (1987).
154
See in this sense C Schreuer, ‘Fair and Equitable Treatment’ (2010) 34 Protection of
Foreign Investments through Modern Treaty Arbitration—Diversity and Harmonisation
(ASA Special Series), p 129.
155
Eg, Switzerland–Bolivia BIT, Switzerland–Colombia BIT, Switzerland–Chile BIT,
Switzerland–Czech Republic BIT, Switzerland–Iran BIT, Switzerland–Pakistan BIT,
Switzerland–Paraguay BIT, Switzerland–Saudi Arabia BIT, Switzerland–Uzbekistan BIT,
Switzerland–Uruguay BIT, Switzerland–Venezuela BIT, Switzerland–Zambia BIT.
156
See, eg, A Ziegler, ‘Most-Favoured-Nation (MFN) Treatment’, in A Reinisch (ed),
Standards of Investment Protection (Oxford University Press, 2008), p 60.
157
See also UNCTAD, Trends in Investment Rulemaking, p 30.
158
There are only a few Swiss BITs without such a clause, eg Switzerland–Thailand BIT. In
most cases not all three legal sources are quoted, but the idea seems to be always the same,
ie to express that the BIT does not constitute a ‘ceiling’ to the treatment of an investment.
159
Switzerland–Mexico BIT, Switzerland–Venezuela BIT, and Switzerland–Uganda BIT. See
from a Swiss perspective also R Preiswerk, La Protection des Investissements Privés dans
les Traités Bilatéraux (University of Zurich, 1979), p 211.
160
See ‘Message of the Federal Council to the Federal Parliament regarding the
Conclusion of Treaties on the Protection and Promotion of Capital Investments’, 24 May
1963, BBl 1963 8778, p 2:
[A]lso in the future only agreements shall be concluded which grant to investments
and property, rights and interests of Swiss nationals, foundations, associations or
corporations, on the territory of the other contracting party, fair and equitable
treatment, which shall at least correspond to the one granted to its own nationals or
to nationals, foundations, associations or corporations of the most favoured nation,
if such treatment is more favourable. This also relates to the transfer of returns
from work or commercial activity exercised on the territory of the contracting party,
to the transfer of interests, dividends and other returns as well as to the case where
the contracting party expropriates or nationalizes Swiss assets, rights or interests
or takes the property by any measure directly or indirectly … The agreements are
essentially a codification of principles of international law, which Switzerland has
recognized even before concluding such agreements. New obligations under
international law can only be seen in the arbitration clause (translation by the
author).
161
See, eg, in a Swiss context, H Gattiker, ‘Behandlung und Rolle von
Auslandsinvestitionen im Modernen Völkerrecht: Eine Standortbestimmung’ (1981) 37
Schweizerisches Jahrbuch für internationales Recht 25.
162
Laviec, p 94. See also N Huu-Tru, ‘Le Réseau Suisse D’accords Bilatéraux
D’encouragement et de Protection des Investissements (1988) Revue Générale de Droit
International Public 577, 605.
163
See ‘Message of the Federal Council to the Federal Parliament regarding the
Conclusion of Treaties on the Protection and Promotion of Capital Investments’, BBl 1973
11643, p 2; ‘Message of the Federal Council to the Federal Parliament regarding the
Conclusion of Treaties on the Protection and Promotion of Capital Investments’, BBl 1982
82076, p 4; ‘Message of the Federal Council to the Federal Parliament regarding the
Prolongation of the Decree regarding the Conclusion of Treaties on the Protection and
Promotion of Capital Investments’, BBl 1993 IV 254, p 257.
164
See ‘Message of the Federal Council to the Federal Parliament on the Treaties
regarding the Promotion and Reciprocal Protection of Investments with Serbia and
Montenegro, Guyana, Azerbaijan, Saudi-Arabia and Colombia’, 22 September 2006, p 8468.
It should be noted that messages to Parliament for the approval of an international treaty
are not supplementary means of interpretation in the sense of Art 32 of the VCLT. See also
the ‘Report of the Federal Council to the Federal Parliament on the Relationship between
International Law and National Law’, March 2010, BBl 2010 2263, p 2280.
165
See OECD, Fair and Equitable Treatment Standard in International Investment Law:
International Investment Law, A Changing Landscape (2005), p 84; Dolzer and Schreuer,
Principles of International Investment Law, p 124, fn 28; C Schreuer, ‘Fair and Equitable
Treatment (FET): Interaction with other Standards’, (2007) 5 Transnational Dispute
Management 12.
166
Translation by the author: ‘Legal opinion by the Directorate of Public International
Law’ (1979) 43 Verwaltungspraxis der Behörden VPB, IV 527; see also (1980) 178 Annuaire
Suisse de Droit International.
167
‘FET includes in addition to the customary international law on the protection of
foreigners a general duty to respect in good faith the other provisions of the BIT’: see H
Gattiker and P Lévy, ‘Behandlung und Schutz von Auslandinvestitionen—Konzepte im
Wandel’ (1980) I Aussenwirtschaft 61. In that sense see also Baldi, according to who the
function of FET in the BIT is to clarify and develop the customary law standard: M Baldi,
Völkerrechtlicher Schutz für internationale Direktinvestitionen in: recht, 1990, vol 1, pp 12–
14.
168
169
See, eg, Impregilo S.p.A. v Pakistan (ICSID Case No ARB/03/3, Decision on Jurisdiction
of 22 April 2005), para 162; Noble Ventures v Romania (ICSID Case No ARB/01/11 Award of
12 October 2005), para 182.
170
FET and full protection and security are referred to as two standards in the ‘Message
of the Federal Council to the Federal Parliament regarding the Switzerland–Lesotho BIT,
Switzerland–China BIT and Switzerland–Tajikistan BIT’, p 839 and ‘Message of the Federal
Council to the Federal Parliament regarding the Switzerland–Turkmenistan BIT and
Switzerland–Madagascar BIT’, p 910.
171
C Schreuer, ‘Full Protection and Security’ (2010) 1 Journal of International Dispute
Settlement 353.
172
See ‘Swiss Investor Prevailed in 2003 in Confidential BIT Arbitration over South Africa
Land Dispute’ (22 October 2008), reported by Investment Arbitration Reporter, available at
<www.iareporter.com/articles/20091001_2/print> (last accessed 27 December 2011). The
case was conducted under the UNCITRAL rules of arbitration. Interestingly the arbitrators
held that the investor had a reasonable responsibility to take steps to protect his own
property and to mitigate losses—even though the Switzerland–South Africa BIT does not
impose any express duties with respect to investor conduct. Accordingly the compensation
awarded was reduced by 25 per cent.
173
In this sense also, Schreuer, ‘Fair and Equitable Treatment (FET): Interaction with
other Standards’, p 7.
174
For the view that treaty practice has made the standard emancipate itself from
customary international law, see C Schreuer, ‘Protection against Arbitrary or Discriminatory
Measures’, in C A Rogers and R P Alford (eds), The Future of Investment Arbitration
(Oxford University Press, 2009), pp 183–98; Also according to Schreuer there may be a
considerable overlap with the FET standard: see Schreuer, ‘Fair and Equitable Treatment
(FET): Interaction with other Standards’, p 12; V Heiskanen, ‘Arbitrary and Unreasonable
Measures’, in Reinisch (ed), Standards of Investment Protection, p 99.
175
According to the official Commentary to the OECD Draft Convention on the Protection
of Foreign Property in many cases the breach of the FET standard would also be a breach of
the non-impairment obligation: p 11.
176
Schreuer, ‘Protection against Arbitrary or Discriminatory Measures’, with further
references to the jurisprudence.
177
Recent publications suggest that there is a great inconsistency in WTO law and
investment law as to the way to approach the respective NT obligations. See J Kurtz, ‘The
Merits and Limits of Comparativism: National Treatment in International Investment Law
and the WTO’, in S Schill (ed), International Investment Law and Comparative Public Law
(Oxford University Press, 2010), p 243; N Diebold, ‘Non-discrimination and the Pillars of
International Economic Law—Comparative Analysis and Building Coherency’ (2010) 24
Society of International Economic Law (Working Paper).
178
See also ‘Message of the Federal Council to the Federal Parliament regarding the BIT
with Serbia and Montenegro, Guyana, Azerbaijan, Saudi-Arabia and Colombia’, 22
September 2006.
179
Exceptions are the Switzerland–Korea BIT and the investment chapters in the FTAs
with Singapore and Japan where NT and MFN both apply to the pre-establishment phase of
an investment.
180
Switzerland–Singapore FTA, Art 10(1); Switzerland–Japan FTA, Art 87; Switzerland–
South Korea BIT is the only departure from the silence on what are ‘own’ investors in the
case where a BIT partner that has a federal system of government and where sub-national
jurisdictions may have some competences regarding foreign investment (Art 4(5)):
The standard of national treatment as provided for in paragraph 1, means, with

respect to a sub-national entity, treatment no less favourable than the most
favourable treatment accorded by that entity to investors, and to investments of
investors, of the Party of which it forms a part.
181
N Diebold, Non-discrimination and the Pillars of International Economic Law—
Comparative Analysis and Building Coherency, p 9, with reference to OECD, The
Multilateral Agreement on Investment: Commentary to the Consolidated Text, Negotiating
Group on the Multilateral Agreement on Investment, DAFFE/MAI(98)8/REV1 (1998), at 11,
available at <www1.oecd.org/daf/mai/pdf/ng/ng988r1e.pdf> (last accessed 27 December
2011).
182
Switzerland–Russia BIT, Art 4(4); Switzerland–Vietnam BIT, Art 3(4). In the
Switzerland–Russia BIT, NT for investments and joint-ventures between investors of both
States are subjected to the domestic legislation of the host State.
183
Switzerland–Ghana BIT, Art 5; Switzerland–Japan BIT, Art 100. In the case of Japan,
only confiscatory taxation measures can be the object of investor-State dispute settlement.
184
Switzerland–South Korea BIT, Art 4(3). The qualification of NT is taken from the GATS
(Art XIV(d)).
185
Switzerland–Saudi Arabia BIT, Art 4(4).
186
Switzerland–India BIT, Art 4(3). The exclusion of taxation measures from the non-
discrimination disciplines of the BIT seems to be a recurrent feature of Indian BITs.
187
Switzerland–China BIT, Protocol (Ad Article 4(2) and (3)); see further, eg, China–
Netherlands BIT, China–United Kingdom BIT, China–Germany BIT.
188
See eg Switzerland–Guyana BIT, Art 4(4); Switzerland–Honduras BIT, Art 4 (4);
Switzerland–Kenya BIT, Art 4(5). Also the Switzerland–South Korea BIT excludes subsidies
based on social policy and economic policy from the NT obligation but in case of seriously
distortive effects on the investment opportunities of the other Party’s investors, the
contracting parties may request consultations (Art 4(4)).
189
See Switzerland–Japan FTA, Art 88, Switzerland–Singapore FTA, Art 40(1);
Switzerland–South Korea BIT, Art 4(2).
190
See, eg, UNCTAD, Most-Favoured Nation Treatment (UNCTAD, 2010), p 58.
191
Emilio Augustín Maffezini v Spain (ICSID Case No ARB/97/07, Decision on Jurisdiction
of 25 January 2000).
192
70 per cent of Swiss BITs are ‘pre-Maffezini’. It seems fair to assume that the original
purpose of MFN clauses was to ensure competitive equality as regards treatment afforded
by the host State under its national legislation, administrative decisions and actions. The
Maffezini interpretation of MFN came as a surprise to many negotiators and practitioners
of investment law. See UNCTAD, Most-Favoured Nation Treatment, p 100.
193
In several investment arbitrations attempts to import more favourable (or provisions
not existing in the basic treaty) from Swiss BITs were made. In Bayindir Insaat Turizm
Ticaret Ve Sanayi A.S. v Pakistan (ICSID Case No ARB/03/29, Decision on Jurisdiction of 15
November 2005), the Tribunal found for purposes of jurisdiction that Pakistan was bound,
via MFN, by the FET standard despite its lack in the Switzerland–Turkey BIT due to the
existence of FET standards in other of its BITs, such as the one with Switzerland. In
Impregilo S.p.A. v Pakistan, the Tribunal refused to import the umbrella clause from the
Switzerland–Pakistan BIT by arguing that the contractual claims (which via the umbrella
clause could become arbitrable under the BIT) were based on contracts with separate
entities and not with Pakistan. In Asian Agricultural Products Ltd (AAPL) v Sri Lanka (ICSID
Case No ARB/87/3, Award of 27 June 1990), the Tribunal refused to import liability
standards from the Switzerland–Sri Lanka BIT into the UK–Sri Lanka BIT because it was not
convinced that the provisions in the Switzerland–Sri Lanka BIT (actually the absence of
‘war clause’ and ‘civil disturbance clause’) were more favourable than the regime under the
UK–Sri Lanka BIT.
194
Although this has only occurred so far in one isolated case: RosInvest Co UK Ltd. v
Russia (Award on Jurisdiction of 28 October 2007).
195
Eg, Switzerland–Japan BIT, Art 88(2):
It is understood that the treatment referred to in paragraph 1 does not include

treatment accorded to investors of a non-Party and their investments by provisions
concerning the settlement of investment disputes between a Party and the non-
Party that are provided for in other international agreements.
See also Switzerland–Colombia BIT, Protocol (Ad Art 4(2)).

196
See Draft Articles on the Most Favoured Nation Clause (Arts 9 and 10), Report from the
International Law Commission on the work of its thirtieth session (Document A/733/10,
Yearbook of the International Law Commission (1978) vol II(2)), available at <http://
untreaty.un.org/ilc/documentation/english/A_33_10.pdf> (last accessed 27 December 2011).
The Directorate of Public International Law explicitly accepted the ejusdem generis
principle, as expressed in the ILC Draft Articles, as part of customary international law. See
VPB 43 (1979) IV, p 525.
197
See legal opinion by the Directorate of Public International Law (1979) 43
Verwaltungspraxis der Behörden VPB, IV 527; See also A Ziegler, ‘MFN Clauses and
Investor-State Dispute Settlement’, in Protection of Foreign Investments through Modern
Treaty Arbitration—Diversity and Harmonisation (ASA Special Series No 34, 2010), p 109.
198
For a survey of the jurisprudence, see OECD, ‘Indirect Expropriation and the Right to
Regulate in International Investment Law’, p 53. None of the surveyed decisions were made
on the basis of Swiss BITs.
Swiss domestic law includes under the proportionality requirement for all administrative
activity a balancing approach, eg between the effects of a state measure and the
importance of the government purpose, see Häfelin, Müller, and Uhlmann, Allgemeines
Verwaltungsrecht. It seems that Arbitral Tribunals are increasingly using said approach,
See B Kingsbury and S Schill, ‘Public Law Concepts to Balance Investor’s Rights with State
Regulatory Actions in the Public Interest—The Concept of Proportionality’, in S Schill (ed),
International Investment Law and Comparative Public Law (Oxford University Press, 2010),
p 75; A K Hoffmann, ‘Modern Forms of Expropriation’ (2010) 34 Protection of Foreign
Investments through Modern Treaty Arbitration—Diversity and Harmonisation (ASA Special
Series), p 143.
199
In the Switzerland–Colombia BIT the term is defined for the Colombian side (Protocol,
Ad Art 6(2)).
200
The ‘Hull doctrine’ has traditionally been opposed by many developing countries which
consider that they are only required to offer ‘appropriate’ compensation. See Gattiker,
Behandlung und Rolle von Auslandsinvestitionen im modernen Völkerrecht, p 36; ‘Adequate’
compensation is generally understood today to be equivalent to the market value of the
expropriated investment (Dolzer and Schreuer, Principles of International Investment Law,
p 91).
201
See I Marboe, ‘Compensation and Damages in International Law: The Limits of “Fair
Market Value”’ (2007) 6 Transnational Dispute Management; Dolzer and Schreuer,
Principles of International Investment Law, p 92.
202
Switzerland–Kuwait BIT, Art 7(2); Switzerland–Mexico BIT, Art 7(2).
203
See T Wälde and B Sabahi, ‘Compensation, Damages and Valuation in International
Investment Law’ (2007) 6 Transnational Dispute Management. According to Wälde and
Sabahi the Tribunals have gravitated towards analogy with either the expropriation
standard or the breach of contract standard (p 26); W Peter, ‘Compensation and Damages—
What is Different in Investment Arbitration?’ (2010) 34 Protection of Foreign Investments
through Modern Treaty Arbitration—Diversity and Harmonisation (ASA Special Series), p
189.
204
See the overview on the topic by Dolzer and Schreuer, Principles of International
Investment Law, p 94. This question cannot be considered as settled under Swiss law
either: see Häfelin, Müller, and Uhlmann, p 491.
205
OECD, ‘Indirect Expropriation and the Right to Regulate in International Investment
Law’, p 53 with reference to the OECD Ministerial Declaration (C/MIN(98)16/FINAL of 28
April 1998).
206
See p 56 of the OECD Draft Multilateral Agreement on Investment (MAI) Consolidated
Text (DAFFE/MAI//NM(98)2) available at <www1.oecd.org/daf/mai/pdf/ng/ng987r1e.pdf>
(last accessed 27 December 2011).
207
See eg ADC Affiliate Ltd v Hungary (ICSID Case No ARB/03/16, Award of 2 October
2006), para 423; Hoffmann, ‘Modern Forms of Expropriation’, p 143.
208
209
Protocol to the Switzerland–China BIT, Ad Art 5: ‘With respect to the People’s Republic
of China Article 5(1)(b) will apply provided that a loan agreement has been registered with
the relevant foreign exchange administration authority.’
210
Payments deriving from claims to money or to any performance having an economic
value, from intellectual property rights or from business concessions.
211
Protocol to the Switzerland–China BIT, Ad Art 5:
A transfer shall be deemed to have been made ‘without delay’ within the meaning of
Article [Transfers] if effected within such period as is normally required for the
completion of transfer formalities. The said period shall commence of the day on
which the relevant request has been submitted to the relevant foreign exchange
administration with full and authentic documentation and information and may on
no account exceed two months.
212
See in this sense also UNCTAD, Transfer of Funds (UNCTAD, 2000), p 18.
213
This is also expressed by the fact that often the freedom of transfer article is named
‘Repatriation of Funds’, eg, in the BIT with India (Art 7).
214
See however Switzerland–Jamaica BIT, Art 4, which has an exhaustive list of
transactions covered by the commitment on free transfer.
215
Energy Charter Treaty (Art 14(1) and (6)), Switzerland–Lithuania BIT, Art 4(2);
Switzerland–Kuwait BIT, Art 8(2)).
216
The Switzerland–China BIT Protocol (Ad Art 5(a)), provides that the repatriation of the
proceeds of a partial or total liquidation of the investment is subject to the formalities of the
Chinese exchange control legislation. There is however a ‘ratchet clause’ which provides
that if the related restrictions have disappeared in the Chinese legislation, the free transfer
applies without restriction. The Switzerland–Argentina BIT, Art 4(2), also makes a reference
to national law for the procedural aspects of a transfer, but clarifies that this should not
affect the nature and the exercise of the right to free transfer.
217
Eg, Switzerland–Colombia BIT, Art 5(4).
218
Energy Charter Treaty, Art 14(4); MAI Draft Consolidated Text, Art 4.6.
219
See, eg, Switzerland–China BIT or Switzerland–Chile BIT for two months and, eg,
Switzerland–Costa Rica BIT or Switzerland–Lebanon BIT for three months.
220
Switzerland–Kuwait BIT, Art 1(7).
221
See also A Kolo and T Wälde, ‘Capital Transfer Restrictions under Modern Investment
Treaties’, in A Reinisch (ed), Standards of Investment Protection (Oxford University Press,
2010), p 227.
222
Switzerland–Malaysia BIT, Art 4(2).
223
Switzerland–Jamaica BIT, Art 4(2).
224
Switzerland–Argentina BIT, Art 4(3).
225
Switzerland–Cambodia BIT, Art 5(2).
226
Article of Agreement VIII, Section 2(a), according to which members may not, absent
IMF approval, ‘impose restrictions on the making of payments and transfers for current
international transactions’.
227
OECD Capital Movements Code and the Current Invisibles Codes, Art 7(c): ‘If the
overall balance of payments of a Member develops adversely at a rate and in
circumstances, including the state of its monetary reserves, which it considers serious’.
Contrary to the IMF Articles, no prior approval by the relevant organ is required. In the BIT
with OECD member Mexico the transfer provision is applied ‘in accordance with relevant
instruments of the OECD as accepted by the Parties, including, in particular, provisions on
temporary derogations from the principle of free transfer’ (Protocol, Ad Art 6).
228
GATS, Art XII.
229
UNCTAD, Transfer of Funds, p 51.
230
Protocol to Switzerland–Chile BIT, Ad Arts 5 and 9.
231
Protocol to Switzerland–Iran BIT, Ad Art 1.
232
At least some BITs contain language that suggests the transfer ipso iure of rights. In
such a case the investor loses his right to act in an arbitration proceeding against the host
State. See Art 15(2) of the Switzerland–South Korea BIT or Art 8(2) of Switzerland–
Colombia BIT: ‘If a Party or its designated agency has made a payment to one of its
investors and thereby entered into the rights of the investor, the latter may not make a
claim based on these rights against the other Party without the consent of the first Party or
its designated agency’.
233
This provision also allows the investor to submit a claim even if he has been
compensated by the insurer, if the insurance contract requires him to do so.
234
States and State agencies that essentially discharge governmental functions have no
legal standing under the ICSID Convention. See C Schreuer, The ICSID Convention: A
Commentary (1st edn, Cambridge University Press, 2001), para 167 to Art 25, p 159, with
further references.
235
The remaining insurance portfolio was taken over by the Swiss Export Risk Insurance
(‘SERV’). For information on SERV see <www.serv-ch.com/en/about-us> (last accessed 27
December 2011).
236
Eg, Switzerland–Japan FTA, Art 93:
If an investor of a Party receives payment, pursuant to an insurance, guarantee or

indemnity contract, from an insurer constituted or organised under the law of that
Party, the other Party shall recognise the assignment of any right or claim of the
investor to the insurer, and the right of the insurer to exercise such right or claim
by virtue of subrogation to the same extent as the predecessor in title.
237
‘Application of Other Rules’ (Switzerland–Kuwait BIT, Art 13).
238
239
About 40 per cent of the world’s BITs include umbrella clauses; UNCTAD, Trends in
Investment Rulemaking, p 73.
240
For a comparative review of the two SGS cases see J Gill, M Gearing, and G Birt,
‘Contractual Claims and Bilateral Investment Treaties—A Comparative Review of the SGS
Cases’ (2004) 21 Journal of International Arbitration 397.
241
J Salacuse, ‘Treatment of State Obligations (“The Umbrella Clause”)’, in The Law of
Investment Treaties (Oxford University Press, 2009), p 271.
242
See also M Schmid, ‘Swiss Investment Treaties and their Umbrella Clauses’ (2010) 34
Protection of Foreign Investment Through Modern Treaty Arbitration (ASA Special Series),
p 7 with reference to M Baldi, longstanding negotiator of Swiss BITs and the letter of SECO
to the Secretary General of ICSID of 1 October 2003.
243
S Schill, ‘Umbrella Clauses as Public Law Concepts in Comparative Perspective’, in S
Schill (ed), International Investment Law and Comparative Public Law (Oxford University
Press, 2010), p 331; see also: ‘Enabling Private Ordering—Function, Scope and Effect of
Umbrella Clauses in: International Investment Treaties (Institute for International Law and
Justice Working Paper 2008–9)’ (2010) 1 Transnational Dispute Management 35.
244
VCLT, Arts 26 and 27.
245
In favour of such extension in a Swiss context see U Ammann, Der Schutz
ausländischer Privatinvestitionen in Entwicklungsländern aus völkerrechtlicher,
volkswirtschaftlicher und betriebswirtschaftlicher Sicht (University of Zurich 1967), p 104.
It has been argued that there is a general principle of international law in the sense of Art
38(1) of the Statutes of the International Court of Justice pursuant to which an individual’s
‘legitimate expectations’ are protected from harm caused by a public authority resiling from
a previously publicly stated position; See C Brown, ‘The Protection of Legitimate
Expectations As a “General Principle of Law”: Some Preliminary Thoughts’ (2009) 5(2)
Transnational Dispute Management. Under Swiss law, the principle protection of good faith
also applies to publicly stated positions by public officials: see, eg, E Chiariello, Treu und
Glauben als Grundrecht nach Art 9 der schweizerischen Bundesverfassung (Staempfli
Verlag Berne, 2004), p 27.
246
K Yannaca-Small, ‘Fair and Equitable Treatment Standard: Recent Developments’, in A
Reinisch (ed), Standards of Investment Protection (Oxford University Press, 2010), p 122.
According to Yannaca-Small, the recent jurisprudence (outside NAFTA) admits the coverage
by the FET standard of the investor’s legitimate expectations when these are based on
specific commitments made by State authorities (p 126).
247
C Schreuer, ‘Fair and Equitable Treatment (FET): Interactions with other
Standards’ (2007) 4 Transnational Dispute Management 20. According to Dolzer and
Schreuer, the jurisprudence leaves open whether for the breach of FET with respect to
contracts some exercise of sovereign authority has to be involved (Principles of
International Investment Law, pp 140–2). For Wälde the non-payment of amounts due under
the contract with the investor belongs to the sphere of governmental conduct if the State
does not negate its duty to pay but does not pay for political reasons; see T Wälde, ‘Contract
Claims under the Energy Charter Treaty’s Umbrella Clause: Original Intentions versus
Emerging Jurisprudence’, in C Ribeiro (ed) Investment Arbitration and the Energy Charter
Treaty (Juris Publishing, New York, 2006), p 205.
248
Enron Corporation and Ponderosa Assets LP v Republic of Argentina (ICSID Case No
ARB 01/3, Award of 22 May 2007); Sempra Energy International v Argentina (ICSID Case
No ARB/02/16, Award of 28 September 2007); LG&E Energy Corp. et al. v Argentina
(Decision on Liability of 3 October 2006), para 174.
249
OECD Draft Convention on the Protection of Foreign Property, Treatment of Foreign
Property, Art 1.
250
OECD Draft Convention on the Protection of Foreign Property, Observance of
Undertakings, Art 2: ‘Each Party shall at all times ensure the observance of undertakings
given by it in relation to property of nationals of any other Party.’
251
Energy Charter Treaty, Art 10(1).
252
SGS v Philippines, para 126. See also ‘Message of the Federal Council to Federal
Parliament for the approval of the Energy Charter Treaty and the Protocol on Energy
Efficiency as well as Related Environmental Aspects’, BBl 1995 III, 937, p 26 or Energy
Charter Secretariat, The Energy Charter Treaty. A Reader’s Guide (June 2002), p 26,
available at <www.encharter.org/index.php?id=28> (last accessed 27 December 2011).
253
SGS v Philippines, para 126, see also CMS Gas Transmission Co. v Republic of
Argentina (ICSID Case No ARB/01/8, Decision on Annulment of 25 September 2007), para
95; Schill, ‘Umbrella Clauses as Public Law Concepts in Comparative Perspective’, in Schill
(ed), International Investment Law and Comparative Public Law, p 331.
254
255
256
Letter of the State Secretariat for Economic Affairs to the Secretary General of ICSID
of 1 October 2003, see eg OECD, ‘Interpretation of Umbrella Clauses in Investment
Agreements’, International Investment Law, Understanding Concepts and Tracking
Innovations, p 117; K. Yannaca-Small, ‘What about this “Umbrella Clause”?’, p 486, fn 32.
257
Old Switzerland–China BIT, Art 5: ‘Chacune des Parties Contractantes assure à tout
moment le respect des engagements assumés par elle à l’égard des investissements des
investisseurs de l’autre Partie Contractante.’ This has been replaced by the updated BIT
including an umbrella clause.
258
Schmid, ‘Swiss Investment Treaties and Their Umbrella Clauses’, p 13.
259
Eg, Switzerland–Armenia BIT, Switzerland–Bulgaria BIT, Switzerland–China BIT,
Switzerland–Dominican Republic BIT, Switzerland–Hong Kong BIT, Switzerland–India BIT,
Switzerland–Jamaica BIT, Switzerland–Kenya BIT, Switzerland–Mexico BIT, Switzerland–
Namibia BIT, Switzerland–Nigeria BIT, Switzerland–Romania BIT, Switzerland–Saudi Arabia
BIT, Switzerland–Slovenia BIT, Switzerland–South Africa BIT.
260
Eg, Switzerland–Argentina BIT, Switzerland–Bolivia BIT, Switzerland–Chile BIT,
Switzerland–Honduras BIT, Switzerland–Hungary BIT, Switzerland–Iran BIT, Switzerland–
Pakistan BIT, Switzerland–Paraguay BIT, Switzerland–Peru BIT, Switzerland–Russia BIT,
Switzerland–Turkey BIT, Switzerland–Ukraine BIT, Switzerland–Uruguay BIT, Switzerland–
Uzbekistan BIT. This wording seems inspired by the umbrella clause from the OECD Draft
Convention on the Protection of Foreign Property (1967).
261
J Crawford, ‘Treaty and Contract in Investment Arbitration’ (2008) 24 Arbitration
International 367; K Yannaca-Small, ‘What about this “Umbrella Clause”?’, in Arbitration
under International Investment Agreements—A Guide to Key Issues (Oxford University
Press, 2010), p 484; E Gaillard, ‘Investment Treaty Arbitration and Jurisdiction Over
Contract Claims—The SGS Cases Considered’, in T Weiler (ed) International Investment
Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and
Customary International Law (Cameron May, London, 2005), p 344.
262
Salini Costruttori and Italstrade v Jordan (ICSID Case No ARB/02/13, Decision on
Jurisdiction of 9 November 2004).
263
264
Switzerland–Korea BIT, Art 3(3), Switzerland–Japan FTA, Art 86(2); see also
Switzerland–Serbia BIT or Switzerland–Colombia BIT.
265
In its letter to the Secretary General of ICSID of 1 October 2003 (see n 256) SECO
stated to be ‘alarmed about the very narrow interpretation given’ to the umbrella clause.
The letter further stated that the interpretation given by the Tribunal ‘not only runs counter
to the intention of Switzerland when concluding the Treaty but is quite evidently neither
supported by the meaning of similar articles in BITs concluded by other countries nor by
academic comments on such provisions’.
266
While the SGS v Philippines Tribunal noted the differences in wording of the umbrella
clauses in the BITs with Pakistan and the Philippines (see paras 119 and 120), this
difference did not matter for the purpose of analysing the scope of the umbrella clause.
267
268
SGS v Philippines, paras 113–128.
269
See ‘Message of the Federal Council to Federal Parliament regarding the Agreements
on the Promotion and Reciprocal Protection of Investments with Serbia and Montenegro,
Guyana, Azerbaijan, Saudi Arabia and Colombia’, BBl 2006 pp 8455, 8471.
270
The conduct of energy monopolies has been held to engage the responsibility of the
State when they have responsibility for the maintenance of infrastructure and for the
security of supply: see Nykomb Synergetics Technology Holding AG v Latvia (11 ICSID
Reports 158, Award of 16 December 2003).
271
The jurisprudence on this question is divided. See the more recent decision in favour of
applying an umbrella clause even if no exercise of governmental authority is involved:
Burlington Resources v Ecuador (ICSID Case No ARB/08/5, Decision on Jurisdiction of 2
June 2010), para 190; Duke Energy Electroquil Partners & Electroquil S.A. v Ecuador
(ICSID Case No ARB/04/19, Award of 12 August 2008), para 317. Against such a reading, ie
requiring that commitments must have been assumed as a sovereign, eg, El Paso Energy
International v Argentina (ICSID Case No ARB/03/15, Decision on Jurisdiction of 27 April
2006); Impregilo S.p.A v Pakistan (ICSID Case No ARB/03/3, Decision on Jurisdiction of 22
April 2005), para 219.
272
273
Switzerland–Japan FTA, Art 94(8).
274
See ‘Message of the Federal Council to Federal Parliament regarding the Agreements
on the Promotion and Reciprocal Protection of Investments with Serbia and Montenegro,
Guyana, Azerbaijan, Saudi Arabia and Colombia’; SGS v Pakistan, paras 163–166. The SGS
v Philippines decision denies the applicability of the umbrella clause to unilateral acts, by
refuting the reading of the SGS v Pakistan Tribunal according to which ‘municipal
legislative or administrative or other unilateral measures of a Contracting Party’ would be
elevated to the international level by the umbrella clause; see para 121.
275
Eg, Switzerland–Colombia BIT, Art 10(2), or Switzerland–South Korea BIT, Art 3(2).
276
The Switzerland–Colombia BIT, Art 10(2), provides that ‘a written agreement concluded
between its central government or agencies thereof and an investor of the other Party’ are
covered by the umbrella clause.
277
See also SGS v Pakistan, para 166.
278
279
280
Romak asserted that Uzdon and Uzkhleboproduct were State organs controlled by the
Uzbek State within the meaning of Arts 4 and 8 of the ILC Articles on Responsibility of
States for Internationally Wrongful Acts (para 144) and that their acts breached the
obligation to observe investment-related commitments. Uzbekistan invoked, amongst other
arguments against the applicability of the umbrella clause on purely contractual claims,
that Romak cannot invoke Art 11, as it entered into contracts with three private companies
(Romak v Uzbekistan, para 155).
281
Crawford, ‘Treaty and Contract in Investment Arbitration’, p 373; S Alexandrov,
‘Breach of Treaty Claims and Breach of Contract Claims’, in K Yannaca-Small (ed),
Arbitration under International Investment Agreements—A Guide to Key Issues (Oxford
University Press, 2010), p 333 with further references. In favour of the application of the
international law rules of attribution is, eg, G Petrochilos, ‘Attribution’, K Yannaca-Small
(ed), Arbitration under International Investment Agreements—A Guide to Key Issues, p 318.
282
Concluded in 1985 and in force since 1991 (SR 0.975.254.9).
283
The Switzerland–Thailand BIT, concluded in 1997, in force since 1999, provides for
investor-State dispute resolution under the ICSID regime once Thailand will have become
member of ICSID.
284
See the answer of the Federal Council to a parliamentary intervention demanding the
exercise of diplomatic protection on the basis of a BIT in a particular case, 17 June 2005,
Interpellation 04.3628 ‘Diplomatic Protection for Swiss nationals. The Raccah Case’;
available at <www.parlament.ch/d/suche/seiten/geschaefte.aspx?gesch_id=20043628> (last
accessed 27 December 2011).
285
UNCTAD, Trends in Investment Rulemaking, p 102.
286
UNCTAD, Trends in Investment Rulemaking, p 104. That does however not mean that
any contractual rights are ‘investments’ in the sense of the BIT.
287
Eg, Switzerland–Colombia BIT, Switzerland–Japan BIT, Switzerland–South Korea BIT,
Switzerland–Singapore BIT, Switzerland–Mexico BIT.
288
289
J Crawford, ‘Treaty and Contract in Investment Arbitration’, p 373; Dolzer and
Schreuer, Principles of International Investment Law, p 160; J Shookman, ‘Too Many
Forums for Investment Disputes? ICSID Illustrations of Parallel Proceedings and
Analysis’ (2010) 27 Journal of International Arbitration 361, 373.
290
Shookman, ‘Too Many Forums?’, p 361.
291
SGS v Pakistan, para 150; SGS v Philippines, para 158. See also S Alexandrov, ‘Breach
of Treaty Claims and Breach of Contract Claims: Is it Still Unknown Territory?’, in K
Yannaca-Small (ed), Arbitration under International Investment Agreements—A Guide to
Key Issues (Oxford University Press, 2010), p 328.
292
293
294
295
296
The dissenting arbitrator of the SGS v Philippines Tribunal, Antonio Crivellaro, held
that the umbrella clause of the BIT, which had been unanimously admitted by the Tribunal
as basis of jurisdiction, would have allowed the Tribunal to deal with the contractual claims
also with respect to the merits, ie the quantum of payment: see SGS v Philippines,
Dissenting Opinion of Antonio Crivellaro, para 11.
297
C Schreuer, ‘Calvo’s Grandchildren: The Return of Local Remedies in Investment
Arbitration’ (2005) 1 The Law and Practice of International Tribunals 10.
The consent to arbitration contained in the BIT only represents a standing offer of
the BIT contracting States to international arbitration. The arbitration agreement,
which applies to the specific dispute, is only perfected when the arbitration
proceedings are instituted, whereas an earlier contractual dispute resolution clause
will normally apply to ‘any dispute arising from the contract’. The principle
generalia specialibus non derogant therefore acts against an exclusive contractual
dispute resolution clause.
See also the Dissenting Opinion of Antonio Crivellaro, para 12.

298
Switzerland–Cuba BIT, Art 10(1).
299
Switzerland–Uruguay BIT, Art 9(2).
300
301
SGS v Pakistan has recently been criticized on this point in the sense that the
compliance of the waiting period constitutes a fundamental requirement, the non-
compliance of which justifies the dismissal of the claims. Murphy Exploration Production
Company International v Republic of Ecuador (ICSID Case No ARB/08/4, Award on
Jurisdiction of 15 December 2010), para 148.
302
Due to the lack of a legal obligation for the respondent State to actually enter into
consultations with the investor, abandoning time limits for consultations has also been
proposed, see J-C. Liebeskind, ‘State-Investor Dispute Settlement Clauses in Swiss Bilateral
Investment Treaties’ (2002) ASA Bulletin 20, 27.
303
Alps Finance v Slovakia, para 204, with reference to C Schreuer, ‘Consent to
Arbitration’, in Principles of International Investment Law, p 46.
304
Switzerland joined the Washington (ICSID) Convention on 18 March 1965 (SR 0.975.2).
305
Eg, Switzerland–Albania BIT, Switzerland–Bolivia BIT, Switzerland–Czech Republic BIT,
Switzerland–Estonia BIT, Switzerland–North Korea BIT, Switzerland–Latvia BIT,
Switzerland–Lithuania BIT, Switzerland–Poland BIT, Switzerland–Slovak Republic BIT,
Switzerland–Thailand BIT.
306
Eg, Switzerland–Argentina BIT, Switzerland–Bolivia BIT, Switzerland–Czech Republic
BIT, Switzerland–Mexico BIT, Switzerland–Peru BIT, Switzerland–Thailand BIT, Switzerland–
Ukraine BIT, Switzerland–Uzbekistan BIT.
307
Eg, Switzerland–Bangladesh BIT, Switzerland–Croatia BIT, Switzerland–Kazakhstan BIT,
Switzerland–Pakistan BIT, Switzerland–Saudi Arabia BIT, Switzerland–Sri Lanka BIT (but
with no prior consent of the Contracting Parties to international arbitration), Switzerland–
Turkey BIT, Switzerland–Zimbabwe BIT.
308
Eg, Switzerland–Hong Kong BIT (UNCITRAL) or Switzerland–Vietnam BIT
(UNCITRAL).
309
Eg, Switzerland–Bangladesh BIT, Switzerland–Croatia BIT, Switzerland–Guyana BIT,
Switzerland–Pakistan BIT.
310
Switzerland–Russia BIT, Art 8(2)(a).
311
The Swiss Federal Supreme Court has adopted a private law perspective and qualified
the prior consent contained in BITs as a contract concluded in the interest of a third party
(Swiss Code of Obligations, Art 112). See A M Steingruber, ‘Bilateral Investment Treaties:
The Agreement to Arbitrate Between Investor and Host State in the Eyes of State
Courts’ (2011) Transnational Dispute Management with further references.
312
In the Switzerland–Colombia BIT, Art 11(3), the prior consent is specified as
‘unconditional and irrevocable’.
313
The most common expressions of implicit consent are that the investor may submit the
dispute ‘at his choice’ (BIT with Belarus) or ‘at the request of the investor’ (Switzerland–
Argentina BIT) or ‘shall at the request in writing of the investor concerned be
submitted’ (Switzerland–Cuba BIT) to international arbitration. See Switzerland–
Bangladesh BIT, Switzerland–Croatia BIT, Switzerland–Kazakhstan BIT, Switzerland–
Pakistan BIT, Switzerland–Saudi Arabia BIT, Switzerland–Sri Lanka BIT, Switzerland–Turkey
BIT, Switzerland–Zimbabwe BIT, as well as Switzerland–Czech BIT and Switzerland–Slovak
Republics BIT, Switzerland–Hong Kong BIT, Switzerland–India BIT, Switzerland–Iran BIT,
Switzerland–Peru BIT, Switzerland–Philippines BIT, Switzerland–Russia BIT, Switzerland–
Saudi Arabia BIT, Switzerland–Venezuela BIT, Switzerland–Vietnam BIT, Switzerland–
Zimbabwe BIT.
314
The Switzerland–Hungary BIT limits the prior consent to disputes regarding
expropriation (Art 10(2)(a)). The Switzerland–Poland BIT or Switzerland–Russia BIT limit
the prior consent to breaches of the obligations on transfer and expropriation (Art 9(2)(a),
Art 8(2)(a)). The Switzerland–Colombia BIT excludes prior consent for alleged breaches of
the ‘umbrella clause’, with the obligation to review the question of consent at a later stage
on request of a party (Protocol, Ad Art 11(3)).
315
See Switzerland–Japan FTA, Art 94(4) or Switzerland–South Korea BIT, Art 16(3):
Each Party hereby gives its prior consent to the submission to international
arbitration in accordance with paragraph 2 of a dispute relating to an investment
made by an investor of another Party, provided that the disputing investor has given
written notice of his intent to the disputing Party at least 60 days before the claim
to arbitration is submitted.
See also footnote 3 thereto: ‘For clarity, it is understood that the term “investment made”
refers to situations where an investment is not any more in the process of being established
or acquired.’
316
Eg, Switzerland–Colombia BIT, Art 11(4): ‘Once the investor has referred the dispute to
either a national tribunal or to international arbitration mechanisms provided for in
paragraph 2, the choice of the procedure shall be final.’ Exceptions to the finality of choice
exist if the local remedies would be obviously ineffective or futile or if the treatment by the
local courts is equivalent to a denial of justice; see J Paulsson, Denial of Justice in
International Law (Cambridge University Press, 2005), p 112.
317
The Switzerland–Argentina BIT, Art 9(3) and Switzerland–Uruguay BIT, Art 10(2)
require an 18 months passage of the investor before national courts. Passage to
international arbitration requires that no judgment of the final instance (Argentina) or no
judgment (Uruguay) has been passed. Also the recent Switzerland–Colombia BIT and
Switzerland–China BIT provide the compulsory passage before local administrative
authorities for a period of six months (Colombia, Protocol, Ad Article 11(3)) or three months
(China, Protocol, Ad Article 11(2)). Until the award in Wintershall AG v Argentina (ICSID
Case No ARB/04/14, Award of 8 December 2008), Arbitral Tribunals have held that
unfulfilled local-courts-first periods were not considered an obstacle to jurisdiction but
merely a procedural requirement.
318
A van Aaken, ‘Primary and Secondary Remedies in International Investment Law and
National State Liability: A Functional and Comparative Review’ (Law and Economics
Research Paper, St Gallen 2008), p 20, with reference to Wintershall v Argentina, para 114.
319
Switzerland–Mexico BIT, Art 6.
320
Switzerland–Mexico BIT Art 5.
321
Switzerland–Mexico BIT, Art 8. The Tribunal may award pecuniary damages or the
restitution of property. In the latter case the respondent State may pay pecuniary damages
in lieu of restitution. The Switzerland–Venezuela BIT, Art 9(4) explicitly limits the scope of
the award to ‘compensation for damages’.
322
Switzerland–South Korea BIT, Art 17. If the respondent State invokes in his defence the
prudential measures or BoP concerns, the Sub-Committee on Financial Services established
under the FTA between EFTA and South Korea (and negotiated in parallel with the BIT)
shall decide in a first step on the validity of the defence. Only if the defence is considered as
invalid, the investor may proceed to international arbitration.
323
Art 42(1) first sentence of the ICSID Convention; Art 33 of the UNCITRAL Arbitration
Rules; Art 17 of the ICC Arbitration Rules.
324
Eg Switzerland–Japan FTA and Switzerland–Argentina BIT, Switzerland–Chile BIT,
Switzerland–Kuwait BIT, Switzerland–Mexico BIT, Switzerland–Paraguay BIT, Switzerland–
Peru BIT.
325
Switzerland–Argentina BIT, Switzerland–Chile BIT, Switzerland–Peru BIT and
Switzerland–Paraguay BIT. See also Art 42(1) of the ICSID Convention. For an overview of
the debate, in the context of an ICSID arbitration, on the role of international law besides
the law of the host State law party to the dispute (corrective or complementary or
independently applicable as the proper law of the dispute?) see E Gaillard and Y Banifatemi,
‘The Meaning of “and” in Article 42(1), Second Sentence, of the Washington Convention:
The Role of International Law in the ICSID Choice of Law Process’ (2003) 18 ICSID Review
—Foreign Investment Law Journal 375.
326
See Art 27 VCLT.
327
Salacuse, The Law of Investment Treaties, p 383.
328
Dolzer and Schreuer, Principles of International Investment Law, pp 269–71. In that
sense also Alps Finance v Slovakia, para 199. The Tribunal also held that the notions of
investor and investments are exclusively governed by the BIT and—very surprisingly
—‘international customary rules implicitly or explicitly referred to in the BIT’, para 195.
329
Alps Finance v Slovakia, para 197.
330
Art 53(1) of the ICSID Convention.
331
M Scherer, V Heiskanen, and S Moss, ‘Domestic Review of Investment Treaty
Arbitration: The Swiss Experience’ (2009) 27 ASA Bulletin 256–79.
332
This time period may vary between six (eg Switzerland–Chile BIT) and twelve months
(eg Switzerland–China BIT).
333
The Switzerland–Mexico BIT, Art 12(1) is notable in that it obliges the Contracting
States to ‘accord the necessary consideration and opportunity for … consultations and
negotiations’. It also specifies that if the States agree on the controversial issue, a written
agreement shall be concluded between them.
334
Some specify the applicable law to the horizontal clause, but not the diagonal one
(Switzerland–Colombia BIT and Switzerland–Costa Rica BIT), others specify the applicable
law to the diagonal clause, but not the horizontal one (Switzerland–Chile BIT, Switzerland–
Peru BIT, and Switzerland–Paraguay BIT).
335
Eg, Switzerland–Russia BIT, Art 11(2).
336
See also UNCTAD, Trends in Investment Rulemaking, p 20.
337
Eg, Switzerland–Algeria BIT.
338
For a sketch of said approach see R Dolzer, ‘The European Approach to BITs’ (2009) 24
ICSID Review—Foreign Investment Law Journal 368.

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16 Switzerland

From: Commentaries on Selected Model Investment Treaties

Content type: Book content

(p. 651) 16. Switzerland

II. Investment Policy of Switzerland

III. Swiss Investment Treaty Practice—A Short Historical

IV. Internal Government Issues

V. Commentary on Typical Clauses in Swiss BITs

Preamble: Switzerland–China BIT

(p. 661) Article 1 —Definitions: Switzerland–China BIT,

(a ) movable and immovable property as well as any other rights in

(a ) natural persons who, according to the law of that Contracting

The term ‘returns’ means the amounts yielded by an investment and

Switzerland–Armenia BIT, Art 1(4)

Article 2 —Scope of Application: Switzerland–China BIT,

(p. 669) Article 4 —Protection and Treatment:

1. Fair and Equitable Treatment

(p. 672) Reference is made to a classical principal of international law according to

Article 5 —Expropriation, Compensation: Switzerland–

Article 6 —Compensation for Losses: Switzerland–China

With respect to situations of war or armed conflict, etc, according to customary

Article 7 —Transfers: Switzerland–China BIT, Art 5

Article 9 —More Favourable Provisions: Switzerland–

(p. 688) Article 11 —Disputes between a Contracting

( a ) the International Centre for Settlement of Disputes (ICSID)

(3 ) Each Contracting Party hereby consents to the submission of an

Investor-State dispute resolution clauses (which are sometimes referred to as ‘diagonal

Article 12 —Disputes between the Contracting Parties:

Article 13 —Final Provisions: Switzerland–China BIT,

‘commercial presence’ means any type of business or professional establishment,

The Parties recognize that it is inappropriate to encourage investment by relaxing

A company which has been incorporated or constituted according to the laws in

The standard of national treatment as provided for in paragraph 1, means, with

It is understood that the treatment referred to in paragraph 1 does not include

See also Switzerland–Colombia BIT, Protocol (Ad Art 4(2)).

If an investor of a Party receives payment, pursuant to an insurance, guarantee or

See also the Dissenting Opinion of Antonio Crivellaro, para 12.

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