09 Dec 2009

Protection of Foreign Investment

Doug Jones, head of the International Arbitration group at Clayton Utz, discusses the emerging field of foreign investment protection and the key issues and pointers that all organisations should be aware of when they are structuring their overseas investments.

Protection of Foreign Investment
Doug Jones AM, Partner, Major Projects

The protection of foreign investment is one of the key issues for those that invest outside their own jurisdiction. One of the major developing areas of legal practice is the protection of foreign investment by means of treaties entered into between countries designed to guarantee to investors protection for their investments.

You may well ask what has that got to do with private enterprise investors as opposed to lawyers. Well let me tell you some things that may be of interest to you and which we have set out in much more detail in the guide to protecting foreign investments which we have launched.

There has been in recent years a proliferation of bilateral investment treaties and free trade agreements between countries around the world. Those treaties deal with the sort of treatment which investors in countries can expect protection against. These treaties contain what has relatively been a unique development, that is, the right of investors who consider themselves badly treated so far as their investment is concerned to take direct arbitration action against the host country in order to recover damages for their alleged mistreatment.

There are now thousands of bilateral investment and free trade agreements entered into under which investors can use these provisions to protect their investment and, more importantly as part of the protection process, to get a seat at the table with central government where they feel they have been badly treated.

The issue is not necessarily what can be done once an investment goes bad. The issue is how to structure and investment so as to maximise the potential protection which these BITs and free trade agreements provide foreign investors. The structuring of an investment through an appropriate vehicle from a country where there is adequate protection under a bilateral investment treaty is as important an issue in investment structuring as the tax treatment of that investment. We hope that you will find the detail that is contained in our guide useful for the structuring of your business and the protection of your foreign investment.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.