Sovereign Wealth Funds: Transnational Regulation and Dispute Resolution

British Institute of International and Comparative Law and Withers (2001)

86 Pages Posted: 30 Oct 2021

See all articles by Hussein Haeri

Hussein Haeri

Withers LLP

Yarik Kryvoi

The British Institute of International and Comparative Law (BIICL)

Robert Kovacs

University of Melbourne - Melbourne Law School

Camilla Gambarini

Withers LLP

Date Written: 2021


As the presence of SWFs in the global economy grows so does their involvement in international disputes. SWFs as SOEs involved in commercial activities present a particular set of challenges for regulators, adjudicators and legal practitioners. Although corporate structuring of SWFs differs, international courts and tribunals often tend to apply similar sets of public international law principles to determine the issues of their standing in investor-State disputes or attribution of their activities to their home States, as well as the possibility of claims being raised on their behalf by their home State.

Domestic law plays a key role when it comes to questions of admission of SWFs as foreign investors, issues of foreign sovereign immunity, sanctions or issues of responsible investment or of business and human rights. However, increasingly States coordinate their approaches to the regulation of SWFs. As at today, the 2008 Santiago Principles remains the main instrument of self-regulation of SWFs.

The increased significance and cross border activities of SWFs have contributed to the adoption of new forms of regulation including national legislation on investment screening and sanctions at the UN, EU and domestic level — such as the Foreign Investment and National Security Act of 2007 in the US — as well as instruments promoting responsible investment, human rights and the environment. In many areas, the regulation of SWFs is still underdeveloped, a prominent example being IIAs. Most IIAs lack clear provisions on the protection of SWFs. Only a relatively small number of new generation IIAs contain express provisions on SWFs, which differ from one treaty to another.

As their importance and value has grown, so have the number of questions surrounding SWFs in relation to their investment strategy, their independence, and their relationship with methods of dispute resolution. The lack of formal regulation presents one of the foremost challenges. There is a recent surge in scrutiny which has resulted in a body of scholarship starting from 2009 onwards. However, jurisprudence in this field is still at an early stage and many cases remain confidential.

The limited publicly available case law of domestic courts and commercial arbitral tribunals shows that SWFs recur to commercial dispute resolution as any other economic actors. However, some disputes relate to the inherent characteristics of SWFs such as their real or perceived ambivalent private and public nature. That includes the issue of corporate structuring, the relationship between SWFs and their home States and sovereign immunity. Similar questions may arise in the context of the WTO and other forms of public international law dispute resolution, thereby creating a need to have a specialised understanding of the nature and functioning of SWFs.

SWFs may be involved in various capacities in dispute resolution. They may initiate proceedings by themselves or request their home State to initiate proceedings on their behalf. Their actions or inactions may also for a basis for an action against them or against the State to which they belong or have a direct or indirect nexus. Only a few reported cases involve SWFs as claimants against host States. Possibly, SWFs may prefer to rely on diplomacy, further emphasising the dual nature of SWFs and the complexity they bring to the analysis of existing dispute resolution practices.

In the available investor-State cases key issues which the tribunals tackle include corporate structuring and the relationship between SWFs and their home States. The question often arises as to whether a SWF as a state-owned entity can commence arbitration proceedings against a host State. According to the prevailing view, the investment guarantee provisions of IIAs usually cover SWFs unless they contain explicit carve-outs for SWFs or State-owned entities. Investor-State tribunals may focus on whether the activities of SWFs have a commercial or governmental nature. The protections for SWFs in the FDI admission process (such as investment screening) are relatively limited and depend on the language of each specific treaty.

SWFs might play (and have played) a role in investor-State arbitration also on the opposite side, namely as organs or instrumentalities of the host State. In that case, the investor would have to show that the conduct of the SWF in question is "attributable" to the host State according to the rules of international responsibility under international law.

A SWF-related litigation may also arise under one of the WTO Agreements. These proceedings may involve proceedings initiated by a State to protect the interests of its SWF, regarding a measure that may affect their interests, such as under the TRIMs or TRIPs. Additionally, measures taken by a State to prefer its own SWF may form a basis of proceedings by another State. There may be other situations of market access or non-tariff barriers or a challenged based under other WTO agreements. These situations can exist generally for any entity, but they are particularly important due to a present or perceived connection between the State and SWFs.

Whether an SWF can rely on sovereign immunity to resist jurisdiction of courts or tribunals or enforcement attempts depends on the law under which proceedings are brought. It also depends on the extent of the SWFs autonomy from the State in its corporate governance structure and the law of the jurisdiction where such proceedings are commenced. If a SWF benefits from State immunity, this may create a jurisdictional obstacle to bringing claims against the SWF or an obstacle in enforcing a court judgment or arbitral award against it.

The determination of SWF activities as commercial often plays a decisive role in any given case and would usually turn on the 'commercial activity' exception contained in particular domestic laws. However, a uniform practice regarding the application of these doctrines to SWFs has not crystallised yet and differs from one jurisdiction to another.

States hosting SWF investments can view the economic power and influence of SWFs with suspicion, as evidenced by legislation on foreign investment screening and national security laws. New types of disputes involving SWFs and investment screening decisions might arise in the future, and this might prompt SWFs to resort to the available domestic and international dispute settlement tools, including domestic litigation, commercial arbitration or investor-State arbitration.

Keywords: Sovereign Wealth Funds, dispute resolution, isds, investor-state disputes, arbitration, sanctions, corporate social responsibility, sovereign investment, state-state disputes

JEL Classification: D63, K33, K40, K41

Suggested Citation

Haeri, Hussein and Kryvoi, Yarik and Kovacs, Robert and Gambarini, Camilla, Sovereign Wealth Funds: Transnational Regulation and Dispute Resolution (2021). British Institute of International and Comparative Law and Withers (2001), Available at SSRN:

Hussein Haeri

Withers LLP ( email )

16 Old Bailey
London, EC4M 7EG
United Kingdom

Yarik Kryvoi (Contact Author)

The British Institute of International and Comparative Law (BIICL) ( email )

Charles Clore House
17 Russell Square
London, WC1B 5JP
United Kingdom


Robert Kovacs

University of Melbourne - Melbourne Law School ( email )

185 Pelham Street
Melbourne, VIC 3010

Camilla Gambarini

Withers LLP ( email )

16 Old Bailey
London, EC4M 7EG
United Kingdom

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