Investment treaty protection cannot be taken for granted: it has to be designed before the investment is made. The September 30, 2026 award in JLL Capital v. Honduras (ICSID ARB/23/3) made that clear. By majority, the tribunal declined jurisdiction over a US$460 million claim because the measures concerned financial services, a sector not covered by the investment chapter of the Mexico–Central America FTA, according to Honduras’ Office of the Attorney General.
The tribunal never reached the question of whether there had been an expropriation. A sizable claim ended at the jurisdictional stage because of the wording of the treaty. With Honduras back in ICSID since August 16, 2026, it is worth reviewing how to structure an investment so that protection is there when it is needed.
1. Before investing: which treaty applies and what it covers
The first step is to identify which treaties link the host country with the investor’s home country and to read their actual scope. According to the UNCTAD database, Honduras has bilateral investment treaties in force with Germany, Chile, Spain, the United States, France, the Netherlands, the United Kingdom and Switzerland. It is also a party to free trade agreements with investment provisions, including CAFTA-DR, the Central America–Mexico FTA and the agreements with Canada, South Korea, Peru and the United Kingdom.
- Sector. Some treaties deal with certain sectors separately. CAFTA-DR covers financial services in Chapter 12, under its own rules (chapter text). The Central America–Mexico FTA kept the regime of the previous treaty for that sector (Article 21.8). That is what decided the JLL case.
- Definition of investment. Compare the treaty’s definition with the way the capital comes in: equity contribution, loan or intragroup funding.
- Standards of protection. Obligations vary from treaty to treaty. Check which ones are included in the treaty that applies to you and which can be taken to arbitration.
- Available forum. CAFTA-DR offers three options: the ICSID Convention, if both States are parties; the ICSID Additional Facility, if only one is; or the UNCITRAL Arbitration Rules (Article 10.16.3). Honduras withdrew from ICSID in August 2024 and rejoined in August 2026, so dates matter.
2. The vehicle: nationality, substance and timing
The nationality of the investing company determines which treaty can be invoked. Choosing a holding company in a country with a strong treaty is legitimate, but it comes with two limits that tribunals enforce strictly.
Substance. Denial of benefits clauses allow the State to deny protection to companies that have no substantial business activities in their home country and are controlled from a third State. In Pac Rim v. El Salvador (decision of June 1, 2012), the tribunal applied Article 10.12.2 of CAFTA-DR. It found that the Nevada subsidiary was little more than a shell company, whose ultimate owners were Canadian, and dismissed the claims under the treaty.
Timing. Restructuring when a dispute is already foreseeable may amount to an abuse of rights. In Philip Morris Asia v. Australia (award on jurisdiction of December 17, 2015), the tribunal dismissed the case because the restructuring took place when there was already a reasonable prospect of a dispute.
In practice:
- Structure on the way in, not once the warning signs of a dispute appear.
- Give the holding company real substance: offices, directors, decision-making and activity in its home country.
- Document the commercial and tax rationale for the structure, beyond treaty protection.
- Check whether the treaty protects indirect investments held through several corporate layers.
3. The contractual layer and insurance
The treaty is one layer of protection, not the only one. The other layers cover what the treaty excludes or leaves unclear.
- Contracts with the State. CAFTA-DR allows arbitration not only of treaty breaches but also of breaches of an investment authorization or an investment agreement (Article 10.16). In Honduras Próspera v. Honduras, the claimants relied on both CAFTA-DR and a Legal Stability and Investor Protection Agreement signed with the State (IISD).
- Host country investment law. It may provide its own route to arbitration. In Pac Rim, once CAFTA-DR protection was ruled out, the tribunal agreed to hear the claims under El Salvador’s investment law, although it dismissed them on the merits in 2016 (IISD).
- Shareholders’ agreement. The JLL case grew out of a dispute between shareholders of the Honduran subsidiary, which ended up in a lawsuit in Honduras challenging corporate resolutions (El Heraldo). An agreement providing for international commercial arbitration can keep that kind of dispute out of the local courts.
- Political risk insurance. The MIGA guarantee, offered by the World Bank Group, covers currency inconvertibility and transfer restriction, expropriation, war and civil disturbance, breach of contract by the government and non-honoring of sovereign financial obligations. Coverage must be selected before the guarantee is issued.
4. When a dispute arises: preserving protection
A well-designed structure can be lost through procedural mistakes. Under CAFTA-DR, for example:
- Notice of intent. Written notice of the intent to arbitrate must be given at least 90 days before the claim is submitted. The notice must state the provisions breached, the facts, the legal basis and the approximate amount claimed (Article 10.16.2).
- Six months. A claim may only be submitted once six months have elapsed since the events giving rise to it (Article 10.16.3).
- Three-year limitation period. A claim may not be submitted if more than three years have passed since the investor knew, or should have known, of the breach and the loss (Article 10.18.1). In Corona Materials v. Dominican Republic (award of May 31, 2016), the tribunal declined jurisdiction on that ground. A letter the investor sent to the Ministry of Environment in February 2011 proved that it was already aware of the loss (IISD).
- Waiver of local proceedings. The claim must be accompanied by a written waiver of the right to initiate or continue local proceedings with respect to the same measure, with exceptions for non-monetary interim relief (Article 10.18). In Honduras Próspera, the tribunal relied on that waiver to conclude that Honduras had set aside, for CAFTA-DR purposes, the requirement to exhaust local remedies under its Decree 41-88 (IISD).
Other treaties handle the relationship between local proceedings and arbitration differently. That is why it pays to define the strategy with arbitration counsel before the first court filing.
It is also important to document everything from the outset: the investment made, communications with the authorities, a timeline of the measures and their economic impact.
Investor checklist
|
Question |
Why it matters |
|
Which treaties link the host country with my vehicle’s country? |
Determines whether protection exists and under what rules |
|
Is my sector covered by the investment chapter? |
Sectors such as financial services may have their own regime, as in the JLL case |
|
Does my contribution fit the treaty’s definition of “investment”? |
Without a protected investment, there is no jurisdiction |
|
Does the holding company have substantial activity in its home country? |
Avoids denial of benefits, as in Pac Rim |
|
Am I structuring before any sign of a dispute? |
Restructuring when a dispute is foreseeable may amount to an abuse of rights, as in Philip Morris |
|
Which forums does the treaty offer and which are available on the relevant dates? |
ICSID, the Additional Facility or UNCITRAL, depending on the States and the treaty |
|
Do I have an investment or stability agreement with the State? |
May provide a basis for a claim in addition to the treaty |
|
Does my shareholders’ agreement provide for international arbitration? |
Keeps corporate disputes out of the local courts |
|
Do I know the required deadlines and waivers? |
Under CAFTA-DR: 90-day notice, six-month waiting period, three-year limitation period and waiver of local proceedings |
|
Have I assessed political risk insurance? |
MIGA covers expropriation, transfer restrictions, war and breach by the government |
How BLP can help
BLP advises investors in Central America on treaty review, investment structuring and investor–State arbitration, with a comprehensive approach to identifying risks, protecting their interests and making informed decisions at every stage of their investment.