Legal Standards, Evidentiary Threshold, Transparency and Due Process in the Context of Investment Screening and Investment Disputes
Author: Jonas Hallberg
I. Legal Standards and Evidentiary Threshold
Security assessments of a prospective investment necessarily involve an assessment of future contingencies; the evidentiary threshold cannot therefore be set unduly high.
The deciding body must collect classified and secret information from its security agencies. Normally this is done in the form of opinions.
Whatever evidentiary threshold is set, the security agencies giving opinions must adhere to it when formulating opinions advocating the imposition of conditions or the prohibition of a transaction. You might expect the security agency producing the opinion, to leave out at least some top-secret information. In such a case the deciding agency is taking a decision without being in position of all relevant information. This presumes that there exists at least a certain level of trust between deciding authority and the security agency.
In the European Union (“EU”) Foreign Direct Investment (“FDI”) Screening Regulation, the requirement to condition or forbid an investment is expressed as investments ‘likely to affect security or public order’ (Article 1(1)) and the relevant factors are framed permissively (Member States and the Commission ‘may consider’) (Article 4).
However, this does not constitute minimum harmonisation. Since EU Member States enjoy procedural autonomy, they retain the competence to define their own evidentiary thresholds within certain limits.
The applicable threshold will therefore depend on the legislation of the individual Member State. From an EU law perspective, guidance may be drawn from the case law on restrictive measures to gauge where such a threshold may lie.
In Kadi II, the Court of Justice of the European Union (“CJEU”) held that it must be in a position to review whether a decision is taken on a sufficiently solid factual basis, and that it is for the competent EU authority to establish that the reasons relied upon against the person concerned are well founded (Judgment, 2013, para. 112).
How the CJEU will address issues like these in the context of investment screening remains to be seen. Potential guidance may be derived from another sanctions-related case where the Advocate General observed that the burden of proof is discharged by a set of sufficiently specific, precise and consistent indicia (2026, para. 84).
II. Transparency and the Right to be Heard
In administrative decision-making in general, a party has a right of access to the file and must be afforded an opportunity to comment on it prior to the adoption of a decision. This right is not absolute in cases involving national security.
i. Case Law of the CJEU
In order to safeguard the right to effective judicial protection, access to the file is required. The CJEU stated in Kadi II that ‘the competent Union authority must ensure that that individual is placed in a position in which he may effectively make known his views on the grounds relied upon against him’ (Judgment, 2013, para. 119).
Under domestic law, the notifying party usually has a right of access to the file, that is, access to the material on which a decision is based. The starting point is that this information shall be communicated before the decision is taken. This does not imply that the notifying party has a right to access all classified information. As an example, in the Swedish Public Access to Information and Secrecy Act, 2009:400, Chapter 10, Section 3 this is formulated as follows:
‘…Such a document or such material shall not be disclosed to the party to the extent that, having regard to public or private interests, it is of particular importance that confidential information in the material is not revealed. In such cases, the authority shall instead provide the party withinformation about what the material contains to the extent necessary for the party to be able to safeguard its rights, provided that this can be done without serious harm to the interest which the confidentiality is intended to protect.’
There is thus no absolute right for a party to access all documents in a case. A practical example of this is Spain’s Council of Ministers decision (27/08/2024, 17:17) to veto Ganz‑Mávag’s takeover bid for Talgo under Spain’s FDI screening regime. The decision was adopted after a negative opinion issued by the Foreign Investments Board determined that ‘the transaction entails risks to public security, order, and health’ (see also Spanish press release, 27/08/2024).
Ganz-Mavag initiated proceedings to request that the State is obligated to grant access to all documents that were declared as reserved by the Council of Ministers. The Tribunal Supremo noted that due process and equal treatment would be infringed if all parties did not have the same access to the administrative file documents, but it also noted that in this proceeding access to the documents were granted ‘with certain, full or partial exemptions, and several assurances’ (Tribunal Supremo, Order dated 29 January 2026, File No. 663/2024, pp. 3-4). Hence, full access was not granted.
There is an inherent tension between considerations of national security and the protection of sensitive information, and the individual’s right to effective judicial protection. The CJEU accepts that certain information cannot be disclosed to the person concerned. This does not imply that the authority enjoys an unfettered discretion to withhold evidence. On the contrary, the individual must be at least provided with the essence of the reasons underlying the decision, so that they have a genuine opportunity to understand and respond to the allegations. Furthermore, the reasons that are communicated must be sufficiently specific and substantiated to enable effective judicial review. This means that a decision cannot be upheld where it is based solely on confidential evidence to which the individual has not had access. The non-confidential elements of the case file must be sufficient to support the decision, enabling both an effective defence and meaningful judicial scrutiny.
ii. Case Law of the ECtHR
This approach has a clear counterpart in the case law of the European Court of Human Rights (“ECtHR”). In A and Others v United Kingdom, the Court held that even where considerations of national security justify the use of confidential evidence, the individual must be provided with sufficient information about the allegations to respond, at minimum, to the essence of the grounds for the decision (Judgment, 2009, para. 220).
The Court accepts that confidential evidence may be used, but emphasises that such limitations must be counterbalanced by procedural safeguards and must not undermine the right to an effective challenge.
Similarly, in Al-Nashif v Bulgaria, the ECtHR underlined that references to national security must not leave the individual deprived of the possibility to effectively challenge the factual and legal grounds of a measure (Judgment, 2002, paras. 123 and 124).
Both courts thus impose demanding transparency requirements—but what of cases where the security authority considers that all the intelligence information on which its opinion is based is both secret and classified?
Faced with the choice between disclosing sensitive information in compliance with that case law, or adopting a decision based on confidential material that cannot be communicated, there is an evident risk that the latter prevails.
Procedural safeguards must therefore be in place to ensure that the individual is afforded an effective defence even without access to the essence of the allegations.
III. Investment Tribunals
For an arbitral tribunal in an investment dispute, national decisions on transparency and due process fall to be assessed under the fair and equitable treatment (“FET”) standard.
The precise content of the FET standard need not be resolved here, though it cannot be entirely avoided given the variety of formulations found in practice: closed definitions or open-ended clauses without examples, references to the minimum standard of treatment under customary international law, or the absence of such references. The due process standard is not uniform, and identical requirements cannot necessarily be imposed in proceedings involving national security.
Some tribunals have held that the due process standard applicable in administrative proceedings entails a higher threshold for what constitutes a breach of the FET standard compared to judicial proceedings (Award, 2019, para. 870).
Tribunals and respondent States generally require the claimant to demonstrate a pattern of administrative conduct showing a ‘wilful disregard of the fundamental principles upon which the regulatory framework is based, a complete lack of candor or good faith on the part of the regulator in its dealings with the investor, or a total lack of reasoning.’ (Award, 2013, para. 458).
In practical terms, an arbitral tribunal is not in the same position as a decision-making authority or an appellate body in the State where the decision was adopted; it is institutionally removed from the operational context of security authorities. The only information made available to the tribunal may be that provided to the claimant, typically far less than the information held by the domestic security authorities.
Whether an arbitral tribunal could, in theory, be granted security clearance depends on the respondent State and the nationality of the members of the tribunal. The underlying question is whether there exists a security agreement between the relevant States permitting such clearance. In practice it is difficult to envisage an arbitrator — which must remain independent and impartial — surviving a security clearance process. Were such approval to be granted, the claimant would likely challenge the arbitrators on that very ground.
An alternative might be to appoint a special master tasked with reviewing the classified material — as occurs in some US proceedings and occasionally in investment disputes —but a special master would also need to undergo security clearance.
One must therefore assume that the respondent State holds highly relevant information to which neither the claimant nor the arbitral tribunal can gain access. For the claimant, this does not merely constitute a disadvantage in the proceedings, butalso creates an opening to argue that such allegedly classified information does not exist.
If the information held by the respondent State is based, for example, on surveillance, intelligence obtained from another State, or information from informants, it is inconceivable that such information could be disclosed to the claimant or the arbitral tribunal. It is also likely that even the respondent State’s external litigation team lacks access to such information as does, with a high degree of probability, State’s in-house counsel.
The only known ISDS-disputes based on investment screening decisions are Global Telecom Holdings SAE v Canada and Ganz-Mavag v Spain.
i. Telecom Holdings SAE v Canada
Global Telecom Holdings SAE v Canada arose under the Canada-Egypt BIT. The claimant alleged that Canada’s decision under the Investment Canada Act to prohibit the resale of its investment and requiring divestment breached the treaty’s protections; Canada relied on legitimate regulatory and national security interests (Award, 2020, paras. 202, 203 and 205).
In addition to the substantive issues, a central procedural question arose concerning the claimant’s right to be heard and access to relevant evidence. In particular, the question arises as to the extent to which, if at all, a State may restrict the disclosure of documents by invoking national security.
The redactions in the award indicates that certain information was withheld or provided only in redacted form, raising the question of whether the investor was afforded a genuine opportunity to respond to the State’s evidence.
The Tribunal was therefore required to balance the State’s interest in protecting sensitive information against the claimant’s right to an effective defence. This engages the principle of equality of arms, requiring that each party be afforded a reasonable opportunity to present its case.
Full transparency is not always possible in security-sensitive cases; the central question therefore is whether the limited access to documentary evidence affected the fairness of the proceedings to such an extent that it constitutes a procedural defect.
The parties advanced different positions.
Claimant argued that the FET standard protects investors against conduct that is unreasonable, arbitrary, discriminatory or inconsistent; that lacks transparency; or that denies due process (Award, 2020, para. 456).
Canada, by contrast, submitted that the FET standard does not impose a general obligation of transparency (Award, 2020, para. 480). While a complete absence of transparency may be a relevant factor in the FET analysis, there is no support for the claimant’s position that a measure ‘lacking in transparency’ constitutes a breach of FET. Furthermore, any lack of transparency must be assessed in light of all surrounding circumstances. In particular, in the context of national security concerns, it would be unreasonable to expect a State to act with full transparency.
A tribunal must therefore determine whether FET constitutes an autonomous standard or reflects the minimum standard of treatment under customary international law. In treaties where the minimum standard is expressly referenced, the answer is relatively straightforward. Where the treaty is silent, the issue is less clear.
Where tribunals have found a distinction, they generally hold that the autonomous standard affords a higher level of protection, thereby imposing stricter requirements on the respondent State. This argument is often based on the principle of effetutile, namely that the reference to the minimum standard must be given practical effect. (Award 2020, paras. 486-487).
In the Canada-Egypt BIT (1996), there is no reference to the minimum standard. The Tribunal therefore found that the provision refers to FET in conformity with principles of international law without incorporating the minimum standard of treatment (Award, 2020, para. 484). Canada argued that the applicable threshold required conduct that was ‘grossly unfair’ and contrary to good faith (Award, 2020, para. 478). The Tribunal rejected this position, instead holding that a measure is arbitrary where it is not based on legal standards but on excess of discretion, prejudice or personal preference, and is taken for reasons different from those put forward by the decision-maker (Award, 2020, para. 561).
At the same time, the Tribunal emphasised that deference to primary decisionmakers cannot be unlimited, as otherwise a host State would be entirely shielded from responsibility and the standards of protection contained in BITs would be rendered nugatory (Award, 2020, para. 562).
What follows in the award is largely redacted. It is clear, however, that the claimant contended that it had been deprived of due process in the national security review, in breach of Canada’s obligations under the FET standard.
In its defence, Canada relied on CC/Devas v India, to which we return below. Canada’s submissions concerning the national security review and the information provided to the claimant prior to the decision are likewise largely redacted.
At a more general level, Canada argued that national security reviews involve sensitive information and materials and, by their very nature, cannot be fully transparent. Nevertheless, Canada maintained that it had provided the claimant with sufficient information to ensure procedural fairness. Even if the FET standard were to include a transparency requirement — which Canada denied — the information provided more than satisfied it. However, since the relevant material is redacted, this cannot be meaningfully verified.
The Tribunal stated that, in order to assess the claims, it was sufficient to examine how the process had been conducted. In the context of a national security review, intelligence agencies may conduct investigations prior to informing the affected party, and responses to requests for information may not set out the reasons in full detail.
The Tribunal considered that the due process standard is satisfied where the subject of the investigation is afforded a fair opportunity to present its case in relation to identifiable issues, and where that opportunity is provided sufficiently in advance of the administrative decision, based on objectively verifiable factors and within a reasonable timeframe (Award, 2020, para. 608).
Given that the Tribunal’s reasoning is also heavily redacted, little more can be gleaned than that the tribunal considered that Canada had afforded the claimant an adequate opportunity to present its case in both the regulatory and national security reviews under the Investment Canada Act, and that the claimant had participated fully in that process.
The Claimant also argued that the purpose of the national security review in this case was in fact to advance telecommunications policy objectives or to allow time to implement the Transfer Framework, and that the review did not genuinely concern national security. The tribunal characterised this allegation as serious, akin to alleging a conspiracy, and found that the claimant had failed to meet the evidentiary burden required to substantiate it. The claim was therefore dismissed(Award, 2020, para. 617).
The Tribunal was thus faced with a decision taken on grounds of national security. The Claimant contended that it had not been granted access to all relevant information prior to the decision. Yet it bore the burden of proof for that claim, a burden which it was unable to discharge.
ii. CC/Devas v India
In CC/Devas v India, the Tribunal emphasised the particular complexity of such cases, observing that ‘[a]n arbitral tribunal may not sit in judgment on national security matters as on any other factual dispute arising between an investor and a State’ (Award on Jurisdiction, 2016, para. 245). The Tribunal further noted that ‘[n]ational security issues relate to the existential core of a State. An investor who wishes to challenge a State decision in that respect faces a heavy burden of proof, such as bad faith, absence of authority or application to measures that do not relate to essential security interests.’ (Award on Jurisdiction, 2016, para. 245).
Tribunals must recognise a wide margin of deference to which the State is entitled in identifying and addressing its national security interests. Such deference is understandable; arbitral tribunals are not embedded within the host State, and State authorities are better placed to assess the relevant conditions, needs, sensitivities, priorities, technical specificities and the stakeholder interests.
iii. Ganz-Màvag v Spain
Finally, on 29 April 2025, Ganz‑Mávag initiated an investor-state arbitration against Spain before the Stockholm Chamber of Commerce (“SCC”), invoking the Energy Charter Treaty. The seat of arbitration is Zurich. SCC administers the case and the parties have chosen not to disclose much of the proceeding and we do not know if document production has occurred. Hence, there is still little known of how the Tribunal has chosen to treat access to documents. According to a Global Arbitration Reporter article dated 24 April 2026, Ganz Màvag is reportedly in the process of discontinuing the proceedings, subject to certain points on costs that may require Tribunal decision. According to the article the reason is how the Tribunal Supremo is handling the cases before it.
Conclusion
Evidentiary thresholds in FDI screening must be sufficiently low to capture forward-looking security risks, while remaining grounded in a solid factual basis. A fundamental tension persists between national security and the right to effective judicial protection, requiring that individuals at least be provided with the essence of the reasons. The case law of the CJEU and the ECtHR demands transparency and procedural safeguards, while accepting that confidentiality may justify limitations. In investment arbitration, information asymmetry and security considerations generate a significant degree of deference to the State. Due process in security-related matters is ultimately maintained through proportionate balancing,not full disclosure.
The author works at the National Board of Trade Sweden. This article is written in his personal capacity and does not necessarily reflect the opinions of the Board.
