When a foreign State expropriates, withdraws a licence, blocks transfers or treats an investor arbitrarily, the contract and the local courts are not always enough. The bilateral investment treaties signed by France, close to a hundred of them in force, allow a French investor to sue the State directly before an international arbitral tribunal, most often under the auspices of ICSID. Three conditions must still be met: a treaty must exist with the country concerned, the investment must fall within its definition, and the investor must have the right nationality at the right time. These three conditions are prepared before investing, not after the first letter from the ministry.
A food-processing group from the Vendée region of western France builds a fruit-processing plant in an East African country in 2021, for 35 million euros, under an establishment agreement signed with the Ministry of Industry that guarantees it a tax regime for ten years. In 2025, after a change of government, a new finance act abolishes the exemptions in force, the tax authorities issue a retroactive reassessment of 9 million euros, and the export licence is suspended “for verification”. The group’s chief financial officer asks whether the establishment agreement, which provides for arbitration, is enough. He then discovers that the plant is owned by a Luxembourg subsidiary set up by a former partner, and that he does not know which treaty applies.
1. What a bilateral investment treaty protects
A bilateral investment treaty is an agreement between two States under which each undertakes to grant the investors of the other a set of guarantees. The treaties signed by France generally contain the same protections: fair and equitable treatment, which sanctions arbitrariness, denial of justice and the breach of legitimate expectations created by the State; full protection and security; a ban on direct or indirect expropriation without prompt and adequate compensation; the free transfer of funds related to the investment; national treatment and most-favoured-nation treatment. Some treaties add a so-called “umbrella” clause, which turns the breach of a contractual commitment by the State into a breach of the treaty.
Above all, the treaty gives the investor a direct right of action against the State, before an arbitral tribunal, without going through diplomatic protection or the local courts. That changes everything.
2. Checking the applicable treaty
The first check is simple: is there a treaty in force between France and the host country? The list is available from the French Treasury (direction générale du Trésor) and in the UNCTAD databases. The second is more subtle: do the investment and the investor fall within the treaty’s definitions? A loan, a trade receivable, a minority stake or a construction contract are not always covered. Some treaties require the investment to have been admitted in accordance with the law of the host State, and an irregularity at the time of admission may deprive the investor of any protection.
The procedural conditions must also be read: prior notice of the dispute, a mandatory negotiation period, often three to six months, possibly the exhaustion of local remedies, and the so-called fork-in-the-road clause, which bars arbitration once the same dispute has been brought before the local courts.
3. The investor’s nationality is prepared in advance
An investment held through a Luxembourg, Dutch or Singaporean subsidiary may benefit from the treaty concluded by that State, rather than from the French treaty. This is often an advantage: some countries have a more favourable treaty network. But the restructuring must take place before the dispute is foreseeable. An arbitral tribunal declined jurisdiction over a group that had moved its investment to a company in another State at a time when the dispute was already foreseeable, finding an abuse of process (Philip Morris Asia v. Australia, PCA, award of 17 December 2015). Structuring from the outset is planning; restructuring in the middle of a crisis is a risk of losing the treaty.
The Vendée group learned that its Luxembourg subsidiary was covered by the treaty concluded by the Belgium-Luxembourg Economic Union with the host country, with protections comparable to the French treaty. It was lucky.
4. The special case of investments within the European Union
Bilateral treaties between Member States can no longer be relied on. The Court of Justice held that the arbitration clause in an intra-EU treaty is incompatible with EU law (CJEU, 6 March 2018, Achmea, C-284/16), then extended this reasoning to the Energy Charter Treaty in intra-EU relations (CJEU, 2 September 2021, Komstroy, C-741/19). Most Member States, including France, signed an agreement on 5 May 2020 terminating their intra-EU bilateral treaties. A French investor in Spain or Poland must therefore turn to the national courts and to EU law.
France has also withdrawn from the Energy Charter Treaty, with effect from 8 December 2023. Article 47(3) of the treaty nevertheless maintains its protection for twenty years for investments made before the withdrawal, which is still relevant to French energy investors outside the Union.
5. Investment arbitration in practice
Most treaties refer to the International Centre for Settlement of Investment Disputes (ICSID), created by the 1965 Washington Convention, or to arbitration under the UNCITRAL Rules. Proceedings generally last three to five years and are expensive, which explains the growing use of third-party funding. The investor must prove a breach of the treaty, not merely of its contract, and quantify its loss with the help of experts.
Enforcement is the sensitive point. An ICSID award must be recognised by all States parties as a final judgment (Article 54 of the Convention), but State immunity from enforcement remains. In France, since the Sapin II Act of 9 December 2016, any enforcement measure against the property of a foreign State requires the prior authorisation of the court, and property used for a diplomatic mission or of a sovereign nature is in principle immune from seizure (Articles L. 111-1-1 to L. 111-1-3 of the French Code of Civil Enforcement Procedures). A favourable award rarely turns into immediate payment; it becomes leverage that the State has an interest in settling, because an unpaid award weighs on its access to international financing, on its credit rating and on the confidence of other investors who watch how it treats those already established on its territory, and because the creditor may, with the court’s authorisation, pursue State property specifically used for purposes other than non-commercial public service, in France as in the other countries party to the Washington Convention, which makes every trade receivable, every cargo sold by a State-owned company that is not truly separate from the State and every non-sovereign account a possible target, one that lawyers at the finance ministry quickly learn to take seriously.
6. The other protection tools
The treaty is not the only instrument. The investment contract or establishment agreement concluded with the State may contain an international arbitration clause and a clause stabilising the legal and tax regime. Political risk insurance, offered by Bpifrance Assurance Export for French investments abroad or by the Multilateral Investment Guarantee Agency, covers expropriation, breach of contract by the State, non-transfer and political unrest. And careful documentation, from the admission of the investment onwards, of the commitments made by the authorities is the best evidence of the investor’s legitimate expectations.
The Vendée group gave notice of the dispute under the treaty and, in parallel, started the procedure provided for in the establishment agreement. The export licence was reinstated during the negotiation period. The tax reassessment is still under discussion.
Protecting your investment
The firm advises French investors on structuring their investments abroad and assists them when a dispute arises with a State. See our international law page and our article on enforcing an arbitral award in France and abroad. For an initial discussion, use the contact page.
Further reading: Mediation before arbitration: a useful clause, if it is well drafted.
Frequently asked questions
What is a bilateral investment treaty?
An agreement between two States that guarantees the investors of each, on the territory of the other, fair and equitable treatment, compensation in the event of expropriation and the free transfer of funds, and that allows them to bring a claim directly against the host State before an international arbitral tribunal.
How do I know whether a treaty protects my investment?
You must check that a treaty is in force between the investor’s State and the host State, then that the investment and the investor fall within the treaty’s definitions. The lists are published by the French Treasury and UNCTAD.
Can the nationality of an investment be changed to benefit from a treaty?
Yes, as long as the dispute is not foreseeable. A restructuring carried out when a dispute is already foreseeable may be held abusive, as in Philip Morris Asia v. Australia in 2015.
Do bilateral treaties protect investments within the European Union?
No. Since the Achmea judgment of 2018 and the agreement of 5 May 2020 terminating intra-EU treaties, a French investor in another Member State must bring its case before the national courts.
Is an award against a State easy to enforce?
Not always. State immunity from enforcement limits seizures, and in France any measure against the property of a foreign State requires the court’s prior authorisation. The award nevertheless remains powerful leverage in negotiation.
On the same subject: the ICC arbitration clause, five decisions before signing, enforcing an ICC arbitral award in France and abroad and the ACE 2026 congress on hardship in international law.