Is an Embassy “Territory”?

The concept of “territory” is foundational to international law, yet its functional meaning can shift dramatically across different legal regimes. This tension was recently scrutinised in the Spentech Engineering Limited v. UAE arbitration, raising a jurisdictional question: Does an embassy qualify as the ‘territory’ of the sending State for the purposes of an International Investment Agreement (IIA)?

The dispute arose from a construction contract for the UAE Embassy in Mogadishu, Somalia, between the UAE and Spentech, a Kenyan company. When payment issues arose due to COVID-19 and diplomatic troubles, Spentech initiated arbitration under the UAE-Kenya Bilateral Investment Treaty (BIT). The central jurisdictional issue was whether Spentech’s activities constituted an investment “in the territory of” the UAE (para. 197 of the award). The Claimant submitted that the UAE enjoys limited privileges and entitlements within its Embassy in Mogadishu pursuant to the 1961 Vienna Convention on Diplomatic Relations (VCDR), and that therefore the moveable assets within the precincts of that Embassy “obviously met the requisite territoriality requirement under International Investment Law” (para. 143). The tribunal did not support this submission. Ultimately, the Tribunal rejected the Claimant’s assertion that the treaty’s reference to “territory” encompasses a broader “territorial prescriptive and enforcement jurisdiction” rather than a defined geographic area by affirming the well-established rule of diplomatic law while simultaneously demanding a narrow, geographic reading of ‘territory’ under the BIT.

This case is noteworthy because it highlights two different understandings of ‘territory’ that operate under international law. On one side stands diplomatic law, which grants extensive privileges and immunities to embassy premises but does not convert them into foreign territory. On the other side stands investment law, which requires investments to have a territorial connection to the host state to trigger treaty protection. This article examines these competing conceptions of territory and their implications for the intersection of diplomatic law and investment law.

Diplomatic Premises and the Rejection of “Floating Territory”

Early international law legally fictionalised diplomatic premises as “floating territory”, forming the theoretical foundation for extraterritoriality. Grotius was among those who coined the idea of extraterritoriality of the diplomatic premises. He asserted that ambassadors were deemed to be outside the territory of the host State. Under this fiction, embassies were treated as territorial enclaves of the sending State, physically located in but legally severed from the receiving State’s territory.

However, such extraterritorial fiction was superseded by the modern Vienna Convention system. The cornerstone of contemporary diplomatic privileges is that embassy immunities derive from functional necessity rather than from extensions of territorial sovereignty. The preamble to the VCDR states that “the purpose of such privileges and immunities is not to benefit individuals but to ensure the efficient performance of the functions of diplomatic missions as representing States”. Furthermore, Article 21 VCDR stipulates that “[t]he receiving State shall either facilitate the acquisition on its territory, in accordance with its laws, by the sending State of premises necessary for its mission or assist the latter in obtaining accommodation in some other way” (emphasis added). This language makes clear that embassy premises remain part of the receiving State’s territory, subject to that State’s laws regarding property acquisition, even as they benefit from special protections.

Diplomatic privileges and immunities are mutually granted and mutually beneficial. This reciprocity is a pivotal element that keeps the stability of the diplomatic relations between States (Dissenting opinion of Vice-President Xue). The functional rationale and reciprocal nature of immunity ensure that diplomatic protections serve the international community’s collective interest in facilitating inter-State relations, not in creating territorial enclaves. Having established that diplomatic premises are not ‘territory’ of the sending State under diplomatic law, we must now turn to how investment law conceptualises territory for jurisdictional purposes.

Territoriality in Investment Law

The territorial issue in the Spentech case concerns the territorial status of embassies for treaty application purposes. It is a common practice that IIA requires that investments be made “in the territory of” the host State to qualify for treaty protection. With the territorial provision, IIAs can delimit the scope of their application to investments. In this sense, such territorial provision is a matter of treaty interpretation and thus falls within the interpretative scope of the VCLT. Article 29 VCLT holds that “[u]nless a different intention appears from the treaty or is otherwise established, a treaty is binding upon each party in respect of its entire territory”.

The question becomes: what counts as a State’s “territory” for IIA purposes? In Spentech, the Claimant considered that the territoriality requirements in international investment treaties “usually refer to the host state’s territorial prescriptive and enforcement jurisdiction and not its geographic territory” (para. 148). In line with this argumentation, the relevant question is not where the investment physically sits, but rather which State has regulatory authority over it. Since the UAE enjoys certain privileges and immunities in its Mogadishu embassy, the Claimant reasoned, that investments there fall under UAE prescriptive jurisdiction and therefore satisfy the IIA’s territorial requirement.

The Tribunal rejected this approach. The rationale for territoriality requirements in investment treaties is to establish a jurisdictional link between the investment and the host State’s sovereign authority. A state’s jurisdiction in international law to enforce its laws and regulations is territorial, and the raison d’être of an investment treaty is precisely to reduce the sovereign risk associated with a state’s enforcement jurisdiction (Douglas, 383). The territorial limitation also manifests States’ consent on the scope of treaty application, which defines which investments fall within the treaty’s protective ambit.

In this case, the Claimant stated that the territoriality requirement targets “investments that fall directly under the control of the host state’s legislative, executive and judicial power” (para. 150). This formulation sought to blur the line between geographical territory and regulatory jurisdiction. However, the Tribunal maintained that BITs employ a geographical understanding of territory: the question is where the investment is located, not which State exercises certain regulatory powers over it.

The competing interpretations of ‘territory’ in diplomatic and investment law reveal a deeper conceptual tension concerning the relationship between sovereignty and sovereign rights. The Claimant’s argument rested partly on distinguishing these concepts, a distinction that warrants closer examination.

Situating Territory between Sovereignty and Sovereign Rights

One interesting point raised in the arbitration is the distinction between “sovereignty” and “sovereign rights”, which the Claimant invoked to support its position (para. 142). On this point, the tribunal responded that “the VCDR does not assign sovereignty or sovereign rights, but, rather, regulates the privileges and immunities that are necessary for the functioning of diplomatic missions in the territory of the receiving State” (para. 229, emphasis added).

The terminology surrounding sovereignty and sovereign rights is not entirely settled in international law. “Sovereign rights” and “sovereignty rights” are used interchangeably, though careful analysis suggests they may serve different functions in different contexts. We lack a universal understanding of whether sovereign rights are considered part of sovereignty or whether they are special rights that flow from sovereignty but remain conceptually different.

The United Nations Convention on the Law of the Sea (UNCLOS) provides an instructive example of the latter. UNCLOS uses “sovereign right” to indicate states’ right to exploit their natural resources pursuant to their environmental policies and in accordance with their duty to protect and preserve the marine environment. Here, sovereign rights are functional entitlements to exercise certain competences without implying complete territorial control.

Applying this distinction to diplomatic law, it may be more precise to say that the VCDR does not transfer sovereignty or create new sovereign rights for the sending State; rather, the sending State’s pre-existing sovereign authority is subject to mutual limitations under the principle of reciprocity. The receiving State voluntarily restrains its exercise of territorial jurisdiction to permit the sending State’s diplomatic mission to function effectively. In return, the sending State accepts parallel constraints regarding the receiving State’s missions on its territory. This is not a grant of sovereign rights but a reciprocal arrangement.

Critically, whatever sovereign rights or privileges the sending State enjoys within its embassy premises, these do not satisfy the territoriality requirement in investment law. Investment treaties are concerned with which State exercises general regulatory jurisdiction over the investment.

Perhaps the tribunal is correct in concluding that the embassy is excluded from the territorial scope of the investment treaty, but it could be more accurate in the actual reasoning. Diplomatic immunities carve out certain exceptions to the receiving State’s jurisdiction but do not transfer general regulatory authority to the sending State. The functional differences between diplomatic law and investment law reflect distinct policy goals and legal architectures. It remains to consider what lessons the Spentech case offers for understanding territory as a multi-functional concept in international law.

Conclusion: Territory as a Multi-functional Concept

The Spentech arbitration illuminates a fundamental feature of international law: that foundational concepts like “territory” do not bear uniform functions across different legal regimes. Rather, their functional content shifts depending on the purposes and structures of the particular branch of law in which they operate. Looking forward, the Spentech case serves as a reminder that international lawyers must attend carefully to context when interpreting foundational terms.

In this sense, Spentech is not merely a case about where an embassy is located. It is a case about how international law constructs space, jurisdiction, and authority, and about the limits of analogical reasoning across doctrinal boundaries. The multi-functional character of territory also has implications beyond the specific facts of this case. The framework established here may prove relevant for future disputes involving areas where States exercise certain regulatory controls without claiming territorial sovereignty. Such areas include special economic zones established through bilateral agreements, such as cross-border economic cooperation zones or jointly administered industrial parks at border cities, where host and investor States share or delegate particular sovereign functions. The analysis may also inform disputes touching on aspects of the international public domain, including deep seabed mining operations under Part XI of UNCLOS and activities in outer space governed by the Outer Space Treaty. In these contexts, as in Spentech, the question will not be whether a State has some regulatory authority, but whether the particular form of authority it exercises satisfies the specific territorial requirements of the applicable treaty regime.

The author would like to thank Geraldo Vidigal for drawing the case to the author’s attention.