First annulment of investment arbitration award by Supreme Court

International Law Office | 2 July 2020

First annulment of investment arbitration award by Supreme Court

In a recently published decision, the Supreme Court – for the first time – partially annulled an arbitral award issued in an investment arbitration. A Geneva-based arbitral tribunal, which was constituted under the United Nations Commission on International Trade Law Arbitration Rules, had wrongly declined jurisdiction to decide an investment treaty claim brought by Clorox España SL against Venezuela.(1)


On 15 April 2011 Clorox was incorporated by a representative of its US parent company through a contribution in kind of 100% of the shares in Clorox de Venezuela SA. On 18 May 2015 Clorox started arbitration proceedings against Venezuela based on the bilateral investment treaty (BIT) entered into between Spain and Venezuela, seeking damages for Venezuela’s violation of Clorox’s rights as investor. By award of 20 May 2019, the arbitral tribunal declined jurisdiction to decide Clorox’s claim. According to the arbitral tribunal, Clorox’s shares in Clorox de Venezuela SA did not qualify as an investment under the BIT, as the latter required an "active" act of investing made "in exchange for consideration". Clorox challenged this award before the Supreme Court, seeking its annulment and a finding that the arbitral tribunal had jurisdiction to decide the dispute.


As in previous decisions regarding investment arbitration, the Supreme Court interpreted the meaning of ’investor’ and ’investment’ in accordance with the Vienna Convention on the Law of Treaties (even though Venezuela had not ratified this convention) following a pragmatic approach based on the wording of the BIT.(2) The definition of ’investment’ in the BIT contained no limitation or requirement regarding the kind of protected investment and, to the contrary, it appeared that the contracting parties had agreed to provide for a broad definition thereof. In their agreement, there were no additional requirements for an asset held by an investor to be considered as an investment, although, at the time of the BIT’s conclusion, it was already common to provide for such additional requirements in order to hedge against the so-called ’treaty shopping’ practice.(3)

It was thus not established that the contracting parties had intended to exclude from the scope of the BIT the kind of investment at hand (ie, an investment which was initially made by a company located in a non-contracting state and which was only later transferred to a company located in a contracting state – namely, Clorox). In the BIT, there was no requirement going beyond the holding by an investor of a contracting party of assets in the territory of the other contracting party. The arbitral tribunal’s conclusions that were based on supplementary requirements which it considered were not met could thus not be followed.(4)

However, the absence of such supplementary requirements does not mean that practices designed to abuse the protection of a BIT should be tolerated by the contracting parties.(5) It is necessary to delimit legitimate planning for the acquisition of nationality and abuse of treaty. In this respect, the timing of the acquisition of nationality – for example, through the incorporation of a company in the territory of a contracting state and the transfer of the investment to such company – may be relevant:

  • On the one hand, if an acquisition takes place after a dispute between an investor and one of the contracting parties has arisen, the question of a potential abuse of rights appears irrelevant because the arbitral tribunal would have to decline jurisdiction ratione temporis.
  • On the other hand, if an acquisition takes place in view of a foreseeable specific dispute, the protection afforded by a bilateral investment treaty must be denied.(6)

The Supreme Court admitted Clorox’s challenge in that it sought the annulment of the award. However, since Venezuela had also raised other jurisdictional objections (as well as an abuse of rights objection) which the arbitral tribunal had not addressed in the challenged award, the Supreme Court found that it could not issue a decision on jurisdiction and thus remanded the case back to the arbitral tribunal.(7)


The Supreme Court has been increasingly dealing with investment arbitration cases in recent years, but it has never annulled an investment arbitration award until now. This decision is unsurprising, as the Supreme Court interpreted the BIT in accordance with its well-established practice. However, it will be interesting to see how the arbitral tribunal deals with Venezuela’s remaining jurisdictional and abuse of rights objections – in particular, whether it finds that Clorox’s acquisition of 100% of the shares in Clorox de Venezuela SA through a contribution in kind of its US parent company constitutes an abuse of treaty.


(1) Supreme Court, 4A_306/2019, 25 March 2020 (in French).

(2) Grounds 3.4.1 and The Supreme Court referred to an earlier decision in which it had found that, to date, there was no abstract, final or unanimously accepted definition of ’investment’ (Supreme Court, 4A_65/2018, 11 December 2018).

(3) Grounds and

(4) Ground

(5) The prohibition of abuse of rights is a generally recognised principle and is part of Swiss substantive public policy.

(6) Ground

(7) Ground 4.