On May 29, 1996, the Governments of Barbados and Canada signed an Agreement for the Reciprocal Promotion and Protection of Investments (the “Agreement“)[1] and on January 17, 1997, the Agreement entered into force.

Article 2 of the Agreement provides, amongst other things, that each contracting party shall (i) encourage the creation of favourable conditions for investors of the other contracting party to make investments in its territory; (ii) accord fair and equitable treatment and full protection and security to investments or returns of investors of the other contracting party and; (iii) permit the establishment of a new business enterprise or acquisition of an existing enterprise or a share of such enterprise by investors or prospective investors of the other contracting party on a basis no less favourable than that which, in like circumstances, it permits such acquisition or establishment by its own investors, prospective investors, investors or prospective investors of any third state.

A Canadian investor under the Agreement is therefore entitled to have its investment accorded fair and equitable treatment, full protection and security of the law and treatment that is no less favourable than that which is accorded to local Barbadian investors.

The question of who is an “investor” under the Agreement determines whether a Canadian investor is entitled to the benefits under the Agreement. Is a Canadian holding company of a Barbados subsidiary, for example, an investor under the Agreement?

Article 1 (f) of the Agreement defines “investment” broadly as “any kind of asset owned or controlled either directly, or indirectly through an investor of a third State, by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the latter’s laws…”. It lists particular examples of assets which are included such as movable and immovable property and any related property rights (such as mortgages), shares and intellectual property rights.

Article 1 (g) of the Agreement defines “investor” (in the case of Canada) as a Canadian citizen or permanent resident or an entity incorporated in Canada who makes the investment in Barbados and who is not a Barbados citizen.

An investment indirectly owned or controlled by a Canadian holding company in a Barbados subsidiary therefore appears to come within the above definitions.

The related issue as to whether a holding company may recover for losses to its subsidiary under a BIT similar to the Agreement is well examined in investment treaty jurisprudence (which serves as a useful guide for tribunals and parties to investment arbitration proceedings). The authors of International Investment Arbitration – Substantive Principles[2] have noted that if a state commits a breach, the wrong will be done to the local subsidiary or investment vehicle and without a specific agreement to the contrary, the subsidiary will not be able to bring a treaty claim since any dispute it may have with the state will be a domestic dispute. They further note that the shareholder investor however, may be able to qualify as a claimant under an investment treaty but it will need to show that it has standing to recover damages for a wrong committed to the subsidiary.

In one of the numerous investment treaty cases on this issue, the case of American Manufacturing and Trading Inc. v. The Republic of Zaire[3], the Tribunal considered the definition of investment provided by the USA-Zaire BIT which provided, that the term “investment” included “every kind of investment, owned or controlled directly or indirectly, including equity” as well as “a company or shares of stocks or other interests in a company or interests in the assets thereof”. When Zaire contested the claimant’s right to recover for losses suffered by a local subsidiary, the Tribunal concluded that the subsidiary belonged to the claimant 94% and that the claimant was formed in US and controlled by Americans hence the subsidiary “should be considered in terms of the perfectly clear provisions of the Treaty as an investment of the Claimant”.

From a review of the Agreement and investment arbitration jurisprudence on whether a shareholder/beneficial owner may make a claim under a BIT based on losses suffered by a subsidiary which is indirectly owned by it, it appears that a Canadian holding company, as the ultimate beneficial owner of a Barbados subsidiary, may have the standing to bring such a claim under the Agreement. The particular factual circumstances and merits of each such case however would have to be examined and determined on a case by case basis.

[1] This form of Agreement is generally referred to as a Bilateral Investment Treaty (“BIT”).

[2] International Investment Arbitration – Substantive Principles Campbell McLachlan QC, Laurence Shore and Matthew Weiniger, (Oxford: Oxford University Press, 2007) at p. 184.

[3] American Manufacturing and Trading Inc. (AMT) v. Republic of Zaire (Award) 5 ICSID Rep 11 (ICSID, 1997, Sucharitkul P. Golsong & Mbaye) at page 20.


About the Author

Nicola Berry FCIArb. - Partner, Clarke Gittens Farmer Attorneys-at-Law

Nicola A. Berry provides advice to local, regional and international business clients on corporate and commercial law matters including, corporate finance, financial regulation, securities law, capital markets, fintech related matters, mergers and acquisitions, energy related matters, competition law, aviation law and international commercial arbitration