“The functional interpretation of the territory for the application of a BIT: the case

of on-orbit activities”

Abstract

Based on a fundamental contradiction between international space law principles and BITs
requirements, it appeared impossible to consider the protection of an investment located in outer
space. Compliance with the principle of non-appropriation and the localisation of the investment
in the territory of the host State seem incompatible.

Nevertheless, some argued that the contradiction could be overcome by adopting a functional
interpretation of territory. This being justified by the specific nature of investments in outer space
and the objectives and purposes of BITs. The proposals are to be distinguished according to the
nature of the possible economic operation.

On the one hand, since, as intangible assets, outer space assets are not located in the physical
territory of States, it is proposed to transpose the substitution criteria used in these specific cases.
However, only intangible assets located in outer space, and not physical assets, seem to
eventually benefit from this functional interpretation.

On the other hand, for these physical assets, it is proposed to interpret the territory as being the
area over which the State exercises its control and jurisdiction. This can be established by the
State's registration of spacecraft or by recourse to the rules of private international law. However,
such a proposal seems to be open to numerous criticisms: it risks compromising the consent of
States.

Thus, considering these residual difficulties, the legal regime does not seem satisfactory
regarding the insurance required by economic operators in the space sector. These difficulties
could possibly be resolved if the States explicitly agreed that, in such cases, the functional
interpretation could be adopted regarding paragraph 2 of article 31 of the Vienna Convention on
the Law of Treaties.
Introduction

I. Transposing the functional interpretation used for intangible assets to

investments in outer space

I-1. Review of arbitral tribunals’ positions

i. A required functional interpretation of the territory
ii. The various criteria put forward
iii. Criticism of these criteria

I-2. Analysis of the possibility to transpose these criteria to on-orbit investments

i. The mechanism of analogy
ii. The application of the mechanism
Application to frequency rights and orbital slot allocations
Non-application to physical assets

II. Interpreting territory as the area in which the State exercises its control
and jurisdiction.

II-1. Hypothesis of state’s control and jurisdiction

i. According to the article VIII of the OST
ii. By recourse to the rules of private international law

II-2. The link between the territory and the State’s control and jurisdiction
i. The specific nature of on-orbit investments
ii. The State’s consent

II-3. Critics towards the link

i. The exercise of control and jurisdiction: only a sufficient condition for the localisation
in the territory of the State
ii. An inadequate interpretation?
 Introduction

Contextual elements

16 Psyche is an asteroid orbiting the Sun between Mars and Jupiter at 235 million to 309
million miles from the Sun. According to NASA, which is planning a space mission to reach this
celestial object, Psyche could be the partial core of an exploded planetesimal. It would be
densely composed of gold, nickel, and iron, with an estimated value of 10,000 quintillion dollars,
or 70,000 times the world's economy1. Its exploitation would require gigantic investments.

Investment in the space sector has evolved considerably over the last few decades. They
have already multiplied, and the trend seems to be accelerating. Indeed, according to Morgan
Stanley's Space Team: the roughly $350 billion global space industry could surge to over $1
trillion by 20402. This phenomenon is rooted in what has been described as New Space: the
emergence of a private initiative space industry since the 1990s, after it had been a state
monopoly.

Scope of the analysis

As Ben Love and Sagar Gupta have highlighted in their summary of existing national and
international legal instruments, space law is characterized by its fragmentation and its constant
change3. While considering this legal foundation, this paper will focus on the application of
international investment law to space activities. More specifically, among the many existing legal
issues, we have chosen to focus our analysis on the meeting of conditions specific to the
territorial scope of application of a classic bilateral investment treaty (BIT) model for an
investment taking place in outer space, i.e., during an on-orbit phase – as opposed to the pre-
launch and the launching phase. Although it is related to the territorial nexus issue, we will not
evoke the hypothesis of multiple host states eventually liable for a single investment.

1NASA, “Asteroid Psyche” (11 August 2022), <https://solarsystem.nasa.gov/asteroids-comets-and-meteors/

asteroids/16-psyche/in-depth/> accessed 18 June 2023
2Morgan Stanley, “The Space Economy’s Next Giant Leap”, < https://www.morganstanley.com/Themes/
global-space-economy#> accessed 18 June 2023
3B. Love, S. Gupta, “Applicable Law in Investor-State Space Arbitration”, (Space ArbitrationAssociation’s
website), < https://space-arbitration.com/applicable-law-in-investor-state-space-arbitration/> accessed 18
June 2023
 Interest of the analysis

This issue is of interest, firstly, because of the vital importance of meeting the conditions
specific to the territorial scope of application of a BIT: this is a condition of the arbitral tribunal's
jurisdiction to rule on the basis of a BIT. Professor De Nanteuil points out that: "it should be
considered without great difficulty (that this requirement) is imposed even without being
expressly recalled by the applicable treaty: by definition, a treaty between two States can only
cover operations concerning these two States. In the case of an investment transaction, territorial
connection is therefore a basic condition for the applicability of treaty norms. The general and
absolute nature of this condition no doubt explains why it is rarely expressly mentioned in
treaties"4. In writing this, we shall set aside certain treaties which detail the meaning given to the
term territory, mentioning for instancethe Exclusive Economic Zone (EEZ).

Primary contradiction

Whereas, under the BIT, the host state is the one that receives and protects a foreign
investment in its state territory, the principle of non-appropriation precludes a state from holding
territorial title in outer space.

In Professor Salmon's dictionary of public international law, it is stated that territory is:
"Constituent element of the State (which) designates the geographical space over which a State
exercises all its powers, to the exclusion of any other State”5. A distinction is made between
"land territory, which comprises the soil and subsoil, including the waters therein or flowing
therein, maritime territory, which is the sea area adjacent to the coasts over which the State
exercises all its exclusive powers, and air territory, formed by the atmospheric space overlying
the land and maritime territories”6. So, a priori, the territory of a State does not seem to extend
into outer space. A second conception of territory is set out in Professors Alland and Rials'
dictionary of legal culture: territory as an attribute, a quality of the state as a consequence of the
realization of the constituent elements of the state. In this respect, territorial sovereignty
designates the powers that the State deploys over its territory. Florence Pirate points out that: "The

4 A. De Nanteuil, International investment law, A. Pedone, 2020, p. 187

5 J, Salmon (dir.), Dictionary of international public law, Bruylant, 2001, p. 1076
6 ibid, p. 1077
 State also has full powers to govern the people in its territory, the situations arising there and to
use the territory as property as it sees fit”7, despite various obligations.
When a State uses its territorial space, it enjoys both exclusivity and plenitude. In other words,
"the right to exercise, to the exclusion of any other State, the functions of the State”8, and a
presumption of unconditional freedom of the territorial authorities in the use of all the material
means they deem necessary to organize their human community, fix the condition of the beings
belonging to it, promote or limit the uses of the territory, and regulate the conditions of entry and
residence.
Likewise, relying on the doctrinal definitions of Professors Rotter, Oppenheim and Pellet, as well
as on a 1910 ruling according to which "territory has the same limits as sovereignty”9, Professor
Nouvel seems to consider that the notion of sovereignty is very closely linked to the notion of
territory, the former being almost incorporated into the latter10.

In Professor Salmon's dictionary, outer space is defined as "that part of space which lies
beyond airspace and is no longer subject to the sovereignty of the underlying States"11. It is an
international space. Or, in the words of Professor Rivière, a space "which is free of all State
dominion and does not lend itself to the exercise of territorial jurisdiction. International space is
defined in terms of the criteria for recognizing a territory. To internationalize a space is therefore
to render it insusceptible of appropriation, by ruling out any means of constituting a territorial
title to it and sharing its use by means of an attachment other than spatial (personal or
functional)”12. The international character of a space has a negative dimension when it does not
belong to any State, and a positive dimension when it belongs to the community of States as a
whole. Consequently, outer space is governed by a principle of non-appropriation. This is
formulated in Article 2 of the Outer Space Treaty (OST): "Outer space, including the moon and
other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means
of use or occupation, or by any other means”13.

Thus, Professor Delbez considers that: "Outer space is indisputably an international space, as
opposed to the national space that is territory. Articles I and II of the 1967 Treaty establish this

7 Florence Pirate, “Territoire”, in D. Alland, S. Rials, Dictionary of Legal culture, PUF, 2003
8 CPA April 4, 192, Ile de Palmas, RSA II, p. 281
9 “Fisheries case, Judgment of December 18th, I95I : I.C.J. Reports 1951, p.116
10 Y, Nouvel, International Investment Law Course, Pantheon Assas, 2022-2023
11 J, Salmon (dir), op.cit, p. 445
12 R, Riviere, International public law, PUF, 2017
13Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space,
including the Moon and Other Celestial Bodies, Article 2, (1966, entry into force of the treaty : 1967)
 status, which has two consequences. (...) It excludes the exercise of any territorial jurisdiction
(...) This principle protects outer space from any territorial ambitions on the part of States, since
it prohibits States from making it their territory”14.

Thus, it would appear incoherent and inconsistent with international law to assert that a
state can have a territory in outer space. The two propositions appear contradictory and are
therefore impossible to be supported at the same time. This implies prima facie that a foreign
investor could not argue that the protection of his investment in outer space falls under the
responsibility of any State according to a BIT.

Proposals to overcome the primary contradiction

However, some professors and lawyers are in favor of reconciling the two principles. In
this respect, we should mention the work of some of these authors who put forward two
perspectives for overcoming the contradiction.

These perspectives seem to be rooted in a more general dynamic of de-territorialization of

international law, as described by Professors Costamagna and Kleiner: “Deterritorialization, i.e.,
the progressive demise of the role of territoriality as an organizing category on the international
stage, has been considered one of the defining features of the globalization process.
Distinguished scholars, such as Fischer-Lescano and Teubner, argue that functionality has
superseded territoriality as the distinguishing characteristic of the global order. According to
this narrative, authority is mainly exercised by bodies or entities working toward a specific
goal, be it the liberalization of trade or the protection of foreign investments, rather than
operating on a territorial basis. This would entail the inevitable demise of the territorial State
because of its inherent incapacity to deal with phenomena that are transnational in nature”15.

On the one hand, it is proposed to overcome the contradiction by applying to the above-
mentioned investments the functional interpretation of territory adopted in certain awards related
to intangible assets.

Professor Robert-Cuendet states that: "It would even seem that investment litigation offers a

14Carme, Nadège, “12 - Extraterritoriality and outer space: the extraterritorial jurisdiction approach”, in:The
Centre for Studies and Research in International Law and International Relations, p. 585. Consulted online
on 18 June 2023 <http://dx.doi.org/10.1163/1875-8096_pplcdu_A9789004522534_12>
15F, Costamagna, C, Kleiner, “Territoriality in investment arbitration: the case of nancial instruments”,
(Archivio Istituzionale Open Access dell'Universit di Torino), < https://iris.unito.it/bitstream/
2318/1672023/4/Costamagna Kleiner Territoriality Investments DEFDEF- 1.pdf>, accessed 18 June 2023
à
fi
 relatively simple solution to the absence of a physical link between the investment and the host
state. Indeed, the courts have already been confronted with this issue in relation to financial
products. (...) However, the courts considered that what mattered was not the physical presence of
the investment in the territory of the host state, but the fact that the latter derived a benefit from
the operation it had authorized. This case law could probably be transposed to operations in outer
space”16.

Similarly, four Professors state that:” Any interpretation related to the meaning of 'in the
territory' should therefore also consider the type and nature of the investment. (...) Concerning "
frequency rights and orbital slots allocations, which are necessary for the satellite's operation
and may be granted by States that are different from the State of registry. (...) Arbitral practice
seems to agree that the lack of physical presence is not per se fatal to meeting the territoriality
requirement”17.

On the other hand, it is also proposed to establish the existence of a territorial link through
the registration of space objects.
Professor Robert-Cuendet states that: "Any object launched into space must be registered by a
State, and Article VIII of the 1967 Space Treaty specifies that the State of registration retains
jurisdiction and control over the said object, as long as it is in outer space or on a celestial body.
But the nature of the connecting link between the State of registration and the object is unclear.
Some speak of a quasi-territorial link while others prefer to speak of a personal link. If we
accept that the notion of territory can be freed from all formalism, it is possible to overlook this
difficulty: the State of registration could be considered as a State of "functional territoriality”"18.

Similarly, the four Professors consider that: "the evaluation of the territorial nexus with respect
to the satellite itself should consider that satellites are per se not meant to be located within the
territory of the host State, but in outer space. Therefore, it seems reasonable to interpret 'in the
territory' in the sense that the host State must exercise exclusive jurisdiction over the satellite
(...). International space law confers on States the jurisdiction and control over space objects that
appear on their national registry (Art. VIII OST). Consequently, satellites owned by a foreign

16S, Robert-Cuendet, “International investment law and space”, in C, Bories, L, Rapp (dir), Toulouse
Symposium - Outer space and international law, A. Pedone, 2021, p. 300
17S, Hobe, R, Popova, H, El Bajjati, J, Scheu, “The Protection of Satellite Telecommunications Activities
Under Bilateral Investment Treaties”, in Journal of World Investment and Trade, Vol. 19 (2018), pp
1024-1058, < https://www.researchgate.net/publication/
329665155_The_Protection_of_Satellite_Telecommunications_
Activities_Under_Bilateral_Investment_Treaties_in_Journal_of_World_Investment_and_Trade_Vol_19_
2018>, accessed 18 June 2023, p. 1042
18 S, Robert-Cuendet, op.cit, p.300
 investor meet the territoriality requirement regardless of being physically located in outer space
because exclusive jurisdiction is exercised by the State of registry (Art. I(c) Registration
Convention)”19.

Such views were also expressed by the research associate Rada Popova during a Space
Arbitration Association’s conference20.

Purpose of the analysis

This article will therefore examine these two propositions in more detail. We will attempt
to determine whether, and to what extent, they can overcome the contradiction mentioned
between the BITs requirements and those of international space law, and thus make it possible to
establish a territorial nexus for an investment located in outer space.

In the first part, the possibility and relevance of transposing the rules specific to
intangible assets will be considered (I). The analysis will then focus on the possible role of the
criterion of State control and jurisdiction over the investment in establishing the territorial nexus
(II).

19 S, Hobe, R, Popova, H, El Bajjati, J, Scheu, op.cit, p. 1043

20Space Arbitration Association, “Is there room for private parties in international space law?”, consulted
22/06/2023, in < https://space-arbitration.com/private-parties-in-space-law/>
 I. Transposing the functional interpretation used for intangible
assets to investments in outer space

To determine whether the rules used in the case of intangible assets should be transposed
to activities located in outer space, the analysis must be broken down into several stages. First, it
is necessary to be relatively clear about the rules implemented in arbitral awards for intangible
assets, and to determine their rationale (I-1). We will then detail the logical mechanisms that
would govern their transposition, in law. Before looking more specifically at the activities in
outer space that might be concerned by such a transposition (I-2).

I-1. Review of arbitral tribunals’ positions

The nature of certain assets makes it necessary to apply a functional interpretation of the
territory (i). Consequently, several criteria have been put forward to establish the existence of a
territorial nexus (ii). However, these have been criticized (iii).

i. A required functional interpretation of the territory

Some protected investments are intangible. In other words, they exist but have no physical
presence in the same way as tangible, material investments. Thus, there seems to be a gap
between the nature of these investments, which can be found listed as protected investments within
the meaning of a BIT, and the nature of State territory, when considered as the geographical
space over which a state exercises all its powers.
This discrepancy gives rise to difficulties in establishing the link between such investments and
the territory of a host state. Professor De Nanteuil, in a section entitled "The problem of
dematerialized operations", points out that: "such a requirement (territorial nexus) may,
however, give rise to major difficulties, particularly regarding certain operations which are
totally dematerialized and difficult as such to locate in space”21.

21 A, De Nanteuil, op.cit, p. 187

 This difficulty has given rise to a functional approach to the notion of territorial nexus. The
purpose of such a teleological interpretation is to compensate for the impossibility, or great
difficulty, to locate certain investments due to their nature, even though the aim and objective of a
BIT justify their protection.
These interpretations appear to comply with the principles laid down in Article 31 of the Vienna
Convention on the Law of Treaties, which requires the interpreter to consider four elements: the
principle of good faith, the context, the ordinary meaning and the object and purpose of the
treaty.

ii. The various criteria put forward

In the second part of his thesis, Soma Matsuura distinguishes between different types of
intangible assets and summarizes, for each of them, relevant extracts from arbitration awards that
have dealt with the territorial scope of a BIT22. Despite the absence of a physical presence of the
investments in the territory of the host State, arbitral tribunals have considered that they were
ceteris paribus territorially competent, by proposing a criterion of substitution. Let's take a brief
look at them.
For financial instruments, was considered "whether the funds made available are utilized by the
beneficiary of the credit (...), so as to finance its various governmental needs”23. And “where the
invested funds ultimately made available to the Host State and did they support the latter‘s
economic development”24.
Concerning activities of the investor performed outside of the host state, SGS v. Philippines
25and SGS v. Pakistan26 were analyzed. It has been considered that“according to the tribunal
it was unproblematic and not uncommon that at least certain parts of an investment were carried

22 S, Matsuura. (2017), Territorial Limitations of Investment - What are the relevant considerations involved
in setting out the territorial limitations to investment in investment treaties?, Uppsala Universitet,
Department of Law, <http://uu.diva-portal.org/smash/get/diva2:1104813/FULLTEXT01.pdf>accessed 18
June 2023

Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on
23

Objections to Jurisdiction, 11 July 1997, (“Fedax”), §41

Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and
24

Admissibility, 4 August 2011, (“Abaclat”), § 374

25SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6,
Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004, (“SGS v. Philippines”), § 99, 102,
111

SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13,
26

Decision of the Tribunal on Objections to Jurisdiction, 6 August 2003, (“SGS v. Pakistan”), §136
 out outside of the territory of the host State. As long as the activities at issue could be allocated
to the investment and were destined for the host country, this would suffice in order to meet the
territoriality requirement”27.
For contractual rights, an arbitral tribunal stated that: “it is the relationship, the legally significant
connection, with the State taking those measures that establishes the right to protection, not the
bare fact that the enterprise is affected by the measures”28.

iii. Criticism of these criteria

Moreover, it should simply be mentioned that these interpretations chosen by the arbitrators
have been sharply criticized. Both by dissenting opinions, by lawyers and professors.
Although the aim of this research is not to assess the relevance of the various criteria, we will
consider the proposed substitution criterion, namely recourse to the rules of private international
law to appreciate the eventual transposition to outer space’s investments.

I-2. Analysis of the possibility to transpose these criteria to on-orbit

investments

As mentioned above, Professor Robert Cuendet considers that, in particular, the benefit
test "could probably be transposed to operations in space". More specifically, the four professors
mentioned above consider that: "As financial transactions, such as the payment of a royalty, are
difficult to localize, an analogy with arbitration practice in the field of financial instruments can
be established". They also evoke frequency rights and orbital slot allocations.

We shall analyse the possibility of transposing the functional interpretation described

above to investments located in outer space, while respectively respecting and not distorting the
principle of non-appropriation and the concept of territory. The question is whether the
transposition of this functional interpretation can overcome the contradiction.
To do so, the logical rules of analogy must be detailed (i) before determining in which hypothesis
a transposition can be envisaged (ii).

27 S, Matsuura, op.cit, p.9

28Bayview Irrigation District et al. v. United Mexican States, ICSID Case No. ARB(AF)/05/1, Award, 19
January 2007, (“Bayview”): § 101
 i. The mechanism of analogy

According to Professor Cornu, analogy is “deduction after induction”29.

While "comparison consists in putting two terms in relation, in linking them together, analogy is
more complex, because it links two relationships"30. Professor Mathieu illustrates the logical
workings of reasoning by analogy with an image: "we need to build a bridge between two
disjointed areas of reality; to do this, we first need to construct a vertical link (induction), a kind
of ladder to rise above the two areas being compared, then establish the horizontal link (the
"bridge" itself) and complete the construction with a new vertical link (deductive this time), a
new ladder to be able to "come down" on the other side"31.
So, in the first two stages of this reasoning, it is necessary to "induce the principle that governs
the rule", starting from the initial particular case and "rising to the general in an inductive
movement". From then on, "the reason for the rule" can be identified, i.e., "what (explains) it,
(justifies) it". Then, in a horizontal movement, "the establishment of the bridge is possible as
soon as it is shown that the reason for the rule is common to the two cases concerned. There is
therefore a reason to apply the principle to the unsettled case as well"32.

ii. The application of the mechanism

By analyzing the above-mentioned arbitration awards, we can consider that the link
between the intangible and immaterial nature of the investment and the use of a functional
interpretation of the notion of territory constitutes a first "relation". Indeed, these two
specificities are linked: they are connected to each other. From this relationship, we can infer the
principle that governs the rule: it is the existence of the intangible character that triggers the
functional interpretation.

We shall distinguish various types of investments in outer space, and determine whether,
by analogy, the functional interpretation of the notion of territory could be logically applied.
Professor Robert-Cuendet broadly refers to an adaptation to in-space operations. However, to
establish whether an analogy is possible, the analysis must be carried out more precisely,

29 G. Cornu, « Le règne discret de l’analogie », in Mél. A. Colomer, Litec, 1993, p. 129

30 M-L, MATHIEU, Logic and legal reasoning, PUF, 2015, p.417
31 ibid
32 ibid
distinguishing between the different types of investment-related in-spaceoperations.
For example, while the aforementioned horizontal link (the "bridge" itself) can be established in
the case of frequency rights and orbital slot allocations, it cannot be established in the case of an
investment to mine resources on celestial bodies.

Application to frequency rights and orbital slot allocations

In the first hypothesis, frequency rights and orbital slot allocations are intangible investments.
Consequently, locating them is problematic. And the same need for a functional interpretation of
the notion of territory can be inferred. Thus, insofar as the reason for the rule is similar to the
first relation’s, there is therefore a reason to apply the principle to this specific case as well.
Notwithstanding the fact that it takes place during an on-orbit phase, for an investment located
within the outer space: neither the territorial nexus is absent, nor the non-appropriation principle
is violated; and the investment can be protected. However, the degree of difficulty required to
locate the investment should be clarified: must the location be impossible, very difficult,
difficult, etc.?

Non-application to physical assets

In the second hypothesis, tools operating on a celestial body to exploit its resources, for instance,
constitute a tangible, material investment. It is easy to determine that they are located in outer
space. No difficulty as to their location justifies recourse to such a functional interpretation of the
notion of territory. This situation therefore differs from the one described above: there is no
horizontal link. Thus, in this hypothesis, it does not seem possible to overcome the contradiction
by resorting to the substitution criteria proposed by the arbitrators in the above-mentioned
awards. Either the territorial nexus is non-existent, or the principle of non-appropriation is
violated by territorial title.

Thus, certain investments in outer space cannot be protected under a BIT thanks to a
transposition of the interpretation adopted for intangible assets. It is worth considering whether
they could be protected using a different approach (II).
 II. Interpreting territory as the area in which the State exercises
its control and jurisdiction.

Various hypothesis can be put forward to establish the conditions of a territorial nexus for
an investment in outer space. We shall first determine the hypothesis in which a State could
exercise control and jurisdiction over an on-orbit operation (II-1), then consider the idea that
such an exercise would imply the existence of a territorial nexus (II-2), and finally discuss the
possible limitations of such an analysis (II-3).
As a preliminary point, it should be noted that we will not discuss the nature of the link
established between the spacecraft and the State through Article VIII of the OST. While some
refer to a quasi-territorial nature, others consider that it is a jurisdiction relating to public
services. Professor Aloupi, on the other hand, criticizes these two considerations and describes
this connection as a personal link33.

II-1. Hypothesis of state’s control and jurisdiction

Even in outer space, states can have control and jurisdiction over operations. Such control
and jurisdiction would exist under Article VIII of the OST (i) and could be determined by
recourse to the rules of private international law (ii).

i. According to the article VIII of the OST

On the one hand, according to Article VIII of the OST: "State Party to the Treaty on whose
registry an object launched into outer space is carried shall retain jurisdiction and control over
such object, and over any personnel thereof, while in outer space or on a celestial body (...)".
Professor Aloupi concludes that: "Jurisdiction/control (...) is not only an international obligation
for the State of registry, but also a state prerogative, a manifestation of sovereignty. In space law,
Article VIII explicitly attributes to the State the right to exercise judicial, legislative, and executive
power over the space object and its crew when they are in outer space. In addition, the State has
the right to control the object, to ensure its technical direction and supervision and to prohibit

33 N, ALOUPI, The nationality of vehicles in public international law, A. Pedone, 2020, pp. 370-375
 any third State from interfering in these various operations”34.

ii. By recourse to the rules of private international law

On the other hand, Christopher Zheng establishes a link between the control and jurisdiction
exercised by the State and recourse to the rules of private international law: First, he proposes
various definitions: “territorial prescriptive and enforcement jurisdiction (….) are generally
accepted as the foundation of a state's regulatory authority in international law. In general,
prescriptive jurisdiction delineates the power of the host state to prescribe laws and to define their
scope of application, whether through legislation, executive decrees or judicial decisions.
Enforcement jurisdiction delineates the power of the host state to enforce its laws through police
or other executive action or judicial orders. The common denominator underlying the two types of
jurisdiction is that of territoriality - a state can generally only exercise its enforcement and
prescriptive jurisdiction over property, persons and events in its territory”35.

The link is then established:” Indeed, the very purpose of a "choice-of-law analysis [is to choose]
which state's prescriptive jurisdiction governs a dispute". It is highly suitable for establishing
whether an investment is subject to the host state' prescriptive jurisdiction. (…). A choice-of-law
analysis would involve examining the relevant connecting factors in each case. Connecting factors
are outstanding facts that establish a "natural connection between the factual situation., and a
particular system of law. (…) The relevant connecting factors vary according to the nature of the
property or other right inquestion”36.

This method could be applied to determine under which state’s control and jurisdiction an
operation in outer space is realized: for instance, the granting of licenses depends on the
applicable law and a competent judge, in particular for the performance of acts.

34 N, ALOUPI, op.cit,.p. 370-375

35C, Zheng, “The Territoriality Requirement in Investment Treaties: A Constraint on Jurisdictional
Expansionism”, Singapore Law Review, 2016, p. 145
36 C, Zheng, op.cit, p. 147
 II-2. The link between the territory and the State’s control and jurisdiction

In line with the contradiction mentioned in the introduction, Ben Love and Sagar Gupta
consider that a State could argue that an arbitral tribunal would not have jurisdiction on the basis
of a BIT on the grounds that: "If outer space is not the subject of sovereignty and territoriality
claims, (they) may consider that space activities are outside the territory of the host State (even if
these activities are under the control of the host State)". The investor, for its part, could argue
that: "the 'territory' for the purposes of the BIT would include any physical space under the
jurisdiction or control of the host State”37.
We shall try to clarify the argument that the investor might put forward and then look at its
eventual weaknesses.

i. The specific nature of on-orbit investments

Following the idea that the interpretation of the notion of “territory” must be adapted to
the nature of the investment, it has been argued that the location of an investment in outer space
constitutes such a specificity. Given that, by nature, investments in outer space cannot be
physically located in the territory of a State, a functional interpretation should be retained: “the
evaluation of the territorial nexus with respect to the satellite itself should take into account that
satellites are per se not meant to be located within the territory of the host State, but in outer
space. Therefore, it seems reasonable to interpret ‘in the territory’ in the sense that the host State
must exercise exclusive jurisdiction over the satellite (…) such an interpretation would
correspond to the rationale of international investment law, which aims at protecting investors
from abusive state power”38.

ii. The State’s consent

The specific proposed interpretation would be justified by the following considerations.

In his article, Zheng points out that public international law contains no rules on how the location
or situs of private assets may be determined. He deduces that "the arbitral tribunal must make

37B, Love, S, Gupta, “Investment Protection of Space Assets”, (Space Arbitration Association’s website), <
https://space-arbitration.com/investment-protection-of-space-assets/> accessed 18 June 202

38 S, Hobe, R, Popova, H, El Bajjati, J, Scheu, op.cit, p. 1044

 this determination by reference to the extent of the consent of the States Parties embodied
explicitly and implicitly in the relevant investment treaty"39.
Zheng refers to the "great bargain", "fundamental ingredient of consent underlying the
investment treaty regime", under which: "the host state consents to exercise, inter alia, its
territorial enforcement jurisdiction in accordance with the standards prescribed by the relevant
investment treaty in return for investment flows or reciprocal protection. (...) Conversely, the
protection of assets located outside the territory of the host State is not envisaged by the Grand
Bargain because the host State does not have jurisdiction to enforce laws on assets located
outside its territory"40.
Zheng echoes Douglas' analysis of the link between the territoriality requirement in investment
treaties and the host state's jurisdiction under international law: compliance with substantive
investment protection obligations presupposes that the state already has jurisdiction under
international law.
Zheng therefore states: "Since it is implicit in all investment treaties that the host State
undertakes to protect only those investments that are subject to its territorial jurisdiction of
prescription and enforcement, the correct approach to determining whether an investment is 'in
the territory' of the host State is to ascertain whether it is subject to the territorial jurisdiction of
prescription and enforcement of the host State”41.

As a result, it could be argued that both the BITs requirements and the principle of non-
appropriation are satisfied. To do so, in each case, a specific conception of the territory should be
considered. According to a functional conception, the investment could be located into the
territory of the host state. According to a classical conception, the state does not possess a
territory in outer space. However, such a duplicity might be problematic.

II-3. Critics towards the link

The above mentioned reasoning could be criticized by the defending state.

39 C, Zheng, op.cit, p. 148

40 ibid
41 ibid
 i. The exercise of control and jurisdiction: only a sufficient condition for the
localisation in the territory of the State

Although the exercise of control and jurisdiction by the State may constitute an indication
of the location of the investment on its territory, it does not appear to be the criterion.

The above analysis by Douglas makes the exercise of control and jurisdiction a necessary
condition for the location of the investment on the territory of the State within the meaning of the
BIT: if the investment is not under the regulatory authority of the State, there is no justification for
it to be protected.

However, if this statement is true, it does not imply that the converse is also true. This
first relationship of implication does not allow us, logically, to infer the following second one:
that the exercise of control and jurisdiction over an investment operation implies the location of
that operation in the territory of the State. The criterion of exercise of control and jurisdiction is
not a sufficient condition.
Thus, an investor can only rely on the exercise of control and jurisdiction by the State as an
indication to determine the localisation of the investment: it is not a necessary logical
relationship, which could not be otherwise.

In this respect, the declaration of the Permanent Court of Arbitration could possibly be criticized
in the context of the Oschadbank v. Russia case. Following Professor Shaw's considerations, the
Court considered that, in this case, the classical conception of territory in public international law
should not be retained. Rather, the Court held that: "As indicated above, the object and purpose
of the Treaty, as expressed in its provisions, supports the conclusion that the term 'territory'
means a geographical area over which a party exercises jurisdiction or control. This
interpretation would be justified, in particular, in the present case, by its proximity to the laws of
the State: "Professor Shaw drew the Tribunal's attention to the fact that the term 'territory' is
used 17 times in the Treaty. He argued that the context in which the term is used supports an
interpretation of "prescriptive or legislative jurisdiction" and "the exercise of control", rather
than sovereignty. Professor Shaw stated that territory is consistently used in conjunction with a
reference to the laws of a State:
ARTICLE 2
PROMOTION AND PROTECTION OF INVESTMENTS
1. Each Contracting Party shall encourage the investors of the other Contracting Party to make
investments in its territory and shall admit such investments subject to its laws.
2. Each Contracting Party shall guarantee in conformity with its laws the full and unconditional
 legal protection to investments of investors of the other Contracting Party.
ARTICLE 4
TRANSPARENCY AND ACCESSIBILITY OF LEGISLATION
Each Contracting Party shall with a view to facilitating the comprehension of its legislation,
pertaining to or affecting the investments made by investors of the other Contracting Party in its
territory, provide for maximum possible transparency and accessibility of the legislation.
ARTICLE 7
NATIONAL TREATMENT AND MOST FAVORED NATION TREATMENT
1. Each Contracting Party shall guarantee to the investors of the other Contracting Party after
they fulfill all tax obligations in conformity with the laws of either Contracting Party unimpeded
transfer abroad of payments associated with the investments …
2. Transfer of funds shall be effected … pursuant to the laws on currency regulation of the
Contracting Party, in whose territory the investments were made.”42.

The relevance of such a consideration may be questioned. There are certainly close links, in the
present case, between the concept of territory and the laws of the State. However, these links
appear to be classic: as highlighted above, the exercise of control and jurisdiction by the State
appears to be a necessary condition for the existence of a territory. This relationship seems
sufficient to explain why the concept of territory and the laws of the State are likely to be
mentioned together. To conclude that, within the meaning of the Treaty, territory must be
interpreted as being the geographical area over which a Party exercises jurisdiction or control
seems disproportionate.

ii. An inadequate interpretation?

One may wonder about the relevance of adopting such an interpretation. Does it remain
an interpretation or would it become an unfounded transformation of the meaning of the terms
agreed by the State?

Sir Christopher Greenwood asked: “Why is it that we are reluctant to apply investment
protection law to something within the 'jurisdiction' of a State, whereas we apply human rights
law to it without any difficulty whatsoever?”43.

42 Oschadbank v. Russian Federation, PCA Case No. 2016-14, §206-219

C, Greenwood, “Oceans and Space: Some new Frontiers For International Investment Law”, Journal of
43

world investment & trade (19), 2018

One answer might be to specify that the exercise of control and jurisdiction by the State and the
territory of the State remain two distinct notions describing distinct realities. Treaties may refer
to them separately. Jurisdiction clauses can be found in legal texts dealing with human rights.
The two notions may be linked by a disjunctive conjunction. For example, according to article
2(1) of the International Covenant on Civil and Political Rights: "Each State Party to the present
Covenant undertakes to respect and to ensure to all individuals within its territory and subject to
its jurisdiction the rights recognized (...)". Moreover, jurisdiction may replace territory in the
clause. For example, according to article 1 of the European Convention on Human Rights: "The
High Contracting Parties shall secure to everyone within their jurisdiction".

In the light of this clarification, we may question the appropriateness of such a functional
interpretation of the territorial nexus. It would have for consequence to remove the clarity of the
distinctions between a clause indicating only the exercise of jurisdiction, a clause indicating only
the territory, or a clause mentioning both. Indeed, as soon as it is sufficient to fall under the
State's exercise of control or jurisdiction to functionally fall within its territory, the clause
referring to both notions becomes tautological. Moreover, although Zheng justifies the functional
interpretation by its ability to establish concordance with the consent of the State regarding the
purpose and objective of the BIT, doubts may nevertheless be raised. Indeed, amongst the
different types of possible clauses, some of which explicitly refer to State control and
jurisdiction, the BIT’s contracting States have chosen the criterion of the localization in the
territory. From the point of view of State consent, adopting the functional interpretation would
mean substituting an implicitly rejected clause for the explicitly chosen one. This would run
counter to the respect due to the consent of States.

Harry Hallgren.
 Bibliography

Literature

Books
- Boriel, L. Rapp (dir), Outer Space and International Law - toulouse symposium, in T.
Masson-Zwaan, The exploitation of space resources and international law, A Pedone,
2021

- G. Cornu, « Le règne discret de l’analogie », in Mél. A. Colomer, Litec, 1993

- De Nanteuil, International investment law, A. Pedone, 2020

- M-L, MATHIEU, Logic and legal reasoning, PUF, 2015

- F, Pirate, “Territoire”, in D. Alland, S. Rials, Dictionary of Legal culture, PUF, 2003

- R, Riviere, International public law, PUF, 2017

- S, Robert-Cuendet, “International investment law and space”, in C, Bories, L, Rapp (dir),

Toulouse Symposium - Outer space and international law, A. Pedone,2021

- J, Salmon (dir.), Dictionary of international public law, Bruylant, 2001

Periodicals

- F, Costamagna, C, Kleiner, “Territoriality in investment arbitration: the case of financial

instruments”, (Archivio Istituzionale Open Access dell'Università di Torino), < https://
iris.unito.it/bitstream/2318/1672023/4/Costamagna Kleiner Territoriality Investments
DEFDEF-1.pdf>, accessed 18 June 2023

- C, Greenwood, “Oceans and Space: Some new Frontiers For International Investment
Law”, Journal of world investment & trade (19), 2018
 - S, Hobe, R, Popova, H, El Bajjati, J, Scheu, “The Protection of Satellite
Telecommunications Activities Under Bilateral Investment Treaties”, in Journal of World
Investment and Trade, Vol. 19 (2018), pp 1024-1058, < https://www.researchgate.net/
publication/329665155_The_Protection_of_Satelli
te_Telecommunications_Activities_Under_Bilateral_Investment_Treaties_in_Jo
urnal_of_World_Investment_and_Trade_Vol_19_2018>, accessed 18 June 2023

- C, Nadège, “12 - Extraterritoriality and outer space: the extraterritorial jurisdiction

approach”, in: The Centre for Studies and Research in International Law and
International Relations, p. 585. Consulted online on 18 June 2023
<http://dx.doi.org/10.1163/1875-8096_pplcdu_A9789004522534_12>

- C, Zheng, “The Territoriality Requirement in Investment Treaties: A Constraint on

Jurisdictional Expansionism”, Singapore Law Review, 2016

Websites

- B, Love, S, Gupta, “Investment Protection of Space Assets”, (Space Arbitration

Association’s website), < https://space-arbitration.com/investment-protection-of- space-
assets/> accessed 18 June 2023

- B. Love, S. Gupta, “Applicable Law in Investor-State Space Arbitration”, (Space

Arbitration Association’s website), < https://space-arbitration.com/applicable- law-in-
investor-state-space-arbitration/> accessed 18 June 2023

- Morgan Stanley, “The Space Economy’s Next Giant Leap”, < https://
www.morganstanley.com/Themes/global-space-economy#> accessed 18June 2023

- NASA, “Asteroid Psyche” (11 August 2022),

<https://solarsystem.nasa.gov/asteroids-comets-and-meteors/asteroids/16- psyche/
in-depth/> accessed 18 June 2023

- Space Arbitration Association, “Is there room for private parties in international space
law?”, consulted 22/06/2023, in < https://space-arbitration.com/private- parties-in-space-
 law/>

Case Law

Cases Administered by ICSID

- Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the
Tribunal on Objections to Jurisdiction, 11 July 1997, (“Fedax”), §41

- Decision of the Tribunal on Objections to Jurisdiction, 6 August 2003, (“SGS v.

Pakistan”), §136

- SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSIDCase No.
ARB/01/13, 2003

- SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSIDCase No.
ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004,
(“SGS v. Philippines”), § 99, 102, 111

- Bayview Irrigation District et al. v. United Mexican States, ICSID Case No. ARB(AF)/
05/1, Award, 19 January 2007, (“Bayview”): § 101

- Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on
Jurisdiction and Admissibility, 4 August 2011, (“Abaclat”), § 374

Case Administered by PCA

- CPA April 4, 192, Ile de Palmas, RSA II, p. 281

- Oschadbank v. Russian Federation, PCA Case No. 2016-14

Case Administered by ICJ

- "Fisheries case, Judgment of December 18th, I95I : I.C.J. Reports 1951, p.116
Treaties

- Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer
Space, including the Moon and Other Celestial Bodies, Article 2, (1966,entry into force of
the treaty: 1967)

Conventions
- European Convention on Human Rights

- International Covenant on Civil and Political Rights

- Vienna Convention on the Law of Treaties

Thesis

- N, ALOUPI, The nationality of vehicles in public international law, A. Pedone, 2020, pp.
370-375

- S, Matsuura. (2017), Territorial Limitations of Investment - What are the relevant

considerations involved in setting out the territorial limitations to investment in
investment treaties?, Uppsala Universitet, Department of Law, <http://uu.diva- portal.org/
smash/get/diva2:1104813/FULLTEXT01.pdf> accessed 18 June 2023

Master’s course

- Y, Nouvel, International Investment Law Course, Pantheon Assas, 2022-2023