Vandevelde, kj, United States Investment Treaties: Policy and Practice (Deventer, Netherlands, Kluwer Law and Taxation, 1992)

W?lde, T, ‘Energy Charter Treaty-Based Investment Arbitration’, 5 JWIT 373 (2004)

Weil, P, ‘Probl?mes relatifs aux contrats pass?s entre un Etat et un particulier’, 128 Recueil des Cours 130 (1969-III) Footnotes 1Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 18 March 1965, in force 14 October 1966, 575 UNTS 159, 4 ILM 524 (1965). Generally see L Reed, J Paulsson and N Blackaby, Guide to ICSID Arbitration (The Hague, Kluwer Law International, 2004); C Schreuer The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001). 2 See Schreuer, ibid at 92–4. 3 Agreements to submit existing disputes to arbitration are rare. But see MINE v Guinea , Award, 6 January 1988, 4 ICSID Reports 61, 67; Compania del Desarrollo de Santa Elena SA v Costa Rica , Award, 17 February 2000, 5 ICSID Reports 157 at para 26. 4 See ICSID Model Clauses, Doc ICSID/5/Rev.2 of 1993. Reproduced in 4 ICSID Reports 357. Available online at: <http://www.worldbank.org/icsid/model-clauses-en/main.htm>. 5Amco v Indonesia , Decision on Jurisdiction, 25 September 1983, 1 ICSID Reports 389 at paras 10, 25. 6CSOB v Slovakia , Decision on Jurisdiction, 24 May 1999, 5 ICSID Reports 335 at paras 49–59. 7 See Holiday Inns v Morocco, Decision on Jurisdiction, 12 May 1974; P Lalive, ‘The First “World Bank” Arbitration (Holiday Inns v. Morocco)—Some Legal Problems’, 51 BY IntL 123 (1980) at 156–9; Kl?ckner v Cameroon , Award, 21 October 1983, 2 ICSID Reports 9, 13, 65–9; SOABI v Senegal, Decision on Jurisdiction, 1 August 1984, 2 ICSID Reports 175 at paras 47–58, Award, 25 February 1988, 2 ICSID Reports 190 at paras 4.01–4.52. 8 See Tradex v Albania , Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 47, 54. 9SPP v Egypt , Decision on Jurisdiction I, 27 November 1985, 3 ICSID Reports 112. 10 Ibid at para 70. 11 Ibid at paras 71–3. 12SPP v Egypt, Decision on Jurisdiction II, 14 April 1988, 3 ICSID Reports 131 at paras 53, 73. 13 Ibid at paras 89–101. 14Tradex v Albania , Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 47, 63. 15SPP v Egypt, Decision on Jurisdiction I, 27 November 1985, 3 ICSID Reports 112 at para 40. 16 See the consent clause, quoted above, in SPP v Egypt, Decision on Jurisdiction I, 27 November 1985, 3 ICSID Reports 112, para 70. 17Inceysa v El Salvador , Award, 2 August 2006. 18 Ibid at paras 332 and 333. 19Tradex v Albania , Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 47. 20 Ibid at 54–5. 21 Ibid at 61–2. 22Tradex v Albania , Award, 29 April 1999, 5 ICSID Reports 70 at paras 132–205. 23 See R Dolzer and M Stevens, Bilateral Investment Treaties (The Hague, Boston, and London, Martinus Nijhoff Publishers, 1995) at 129 ff. 24 See Art 10(2) of the Japan-Pakistan BIT of 1998. 25AAPL v Sri Lanka , Award, 27 June 1990, 4 ICSID Reports 250; AMT v Zaire , Award, 21 February 1997, 5 ICSID Reports 11 at paras 5.17–5.23; SGS v Philippines , Decision on Jurisdiction, 29 January 2004, 8 ICSID Reports 518 at paras 30–1; Generation Ukraine v Ukraine , Award, 16 September 2003, 10 ICSID Reports 240 at paras 12.1–12.8; Tokios Tokel?s v Ukraine , Decision on Jurisdiction, 29 April 2004, 11 ICSID Reports 313 at paras 94–100; Impregilo v Pakistan , Decision on Jurisdiction, 22 April 2005, para 108; Camuzzi Intl. SA v Argentina , Decision on Jurisdiction, 11 May 2005, paras 130–2; Sempra Energy International v Argentina , Decision on Jurisdiction, 11 May 2005, para 140; El Paso Energy Intl Co v Argentina , Decision on Jurisdiction, 27 April 2006, paras 35–7; National Grid PCL v Argentina , Decision on Jurisdiction, 20 June 2006, para 49; Pan American v Argentina , Decision on Preliminary Objections, 27 July 2006, paras 33–7. 26Generation Ukraine v Ukraine , Award, 16 September 2003, 10 ICSID Reports 240, paras 12.2, 12.3. 27Salini Costruttori SpA et Italstrade SpA v Royaume du Maroc , Decision on Jurisdiction, 23 July 2001, Journal de Droit International 196 (2002), 6 ICSID Reports 400. 28Art 8 of the Italy and Morocco BIT. 29Salini Costruttori SpA et Italstrade SpA v Royaume du Maroc , Decision on Jurisdiction, 23 July 2001, para 61. 30Compa??a de Aguas del Aconquija, SA & Vivendi Universal (formerly Compagnie G?n?rale des Eaux) v Argentine Republic , Decision on Annulment, 3 July 2002, 6 ICSID Reports 340. 31 Ibid at para 55. 32SGS v Pakistan , Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406. 33 Ibid at para 161. 34 Ibid . 35 See also Tokios Tokel?s v Ukraine , Decision on Jurisdiction, 29 April 2004, 11 ICSID Reports 313, n 42 at para 52. 36SGS v Philippines , Decision on Jurisdiction, 29 January 2004, 8 ICSID Reports 518. 37 Ibid at paras 131–5. In the same sense: Siemens v Argentina , Award, 6 February 2007 at para 205. 38 Umbrella clauses, while common in BITs may also be contained in other treaties for the protection of investments. The Energy Charter Treaty in Article 10(1), last sentence, also contains an umbrella clause: ‘Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party’. 39 F Rigaux, ‘Les situations juridiques individuelles dans un syst?me de relativit? g?n?rale’, 213 Recueil des Cours 229–30 (1989-I); Ibrahim FI Shihata, ‘Applicable Law in International Arbitration: Specific Aspects in the Case of the Involvement of State Parties’, in Shihata, The World Bank in a Changing World: Selected Essays and Lectures, Vol. II (The Hague, Martinus Nijhoff Publishers, 1995) at 601; P Weil, ‘Probl?mes relatifs aux contrats pass?s entre un Etat et un particulier’, 128 Recueil des Cours 130 (1969-III); FA Mann, ‘British Treaties for the Promotion and Protection of Investments’, 52 BrY IL 241 (1981) at 246; Dolzer and Stevens, above n 23 at 81–2; KJ Vandevelde, United States Investment Treaties: Policy and Practice (Deventer, Netherlands, Kluwer Law and Taxation Publishers, 1992) at 78; J. Karl, ‘The Promotion and Protection of German Foreign Investment Abroad’, 11 ICSID Rev-FILJ 1 (1996) at 23; T W?lde, ‘Energy Charter Treaty-based Investment Arbitration’, 5 J WI T 373 (2004) at 393; S Alexandrov, ‘Breaches of Contract and Breaches of Treaty’, 5 J WInT 555 (2004) at 565–7; A Sinclair, ‘The Origins of the Umbrella Clause in the International Law of Investment Protection’, 20 Arbi Int'l 411 (2004). 40 For more detailed treatment, see C Schreuer, ‘Travelling the BIT Route, Of Waiting Periods, Umbrella Clauses and Forks in the Road’, 5 JWIT 231 (2004) at 249. 41SGS v Pakistan , Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406, at paras 163–73. 42 Ibid at para 165. 43 Ibid at para 166. 44SGS v Philipines , Decision on Jurisdiction, 29 January 2004, 8 ICSID Reports 518. 45 Ibid at para 125. 46 Ibid at para 128. The tribunal in Waste Management v Mexico (II) , Award, 30 April 2004, 11 ICSID Reports 362 seemed to confirm this reading in an obiter dictum at para 73. 47Joy Mining v Egypt , Award, 6 August 2004. 48 Ibid at para 81. 49CMS Gas Transmission Company v Argentina , Award, 12 May 2005. 50 Ibid at para 303. 51 Ibid, dispositif, para 1. 52Eureko BV v Poland, Partial Award, 19 August 2005. 53 Ibid at paras 244–60. 54Noble Ventures Inc v Romania , Award, 12 October 2005. 55 Ibid at paras 61–2. 56El Paso Energy Intl Co v Argentina , Decision on Jurisdiction, 27 April 2006; Pan American v Argentina , Decision on Preliminary Objections, 27 July 2006. 57El Paso , at paras 66–86; Pan American , at paras 92–115. 58El Paso , at para 81. 59 Ibid at para 82. 60Siemens v Argentina , Award, 6 February 2007. 61 Ibid at para 206. 62LG&E v Argentina , Decision on Liability, 3 October 2006. 63 Ibid at para 175. 64Gruslin v Malaysia , Award, 27 November 2000, 5 ICSID Reports 483, at paras 22.1–25.7. 65 See Telenor v Hungary , Award, 13 September 2006, at paras 18(2), 25, 57, 81–3; ADC v Hungary , Award, 2 October 2006, at paras 12, 445. 66 For more detailed treatment, see Schreuer, above n 40 at 232. 67Salini Costruttori SpA et Italstrade SpA v Royaume du Maroc, Decision on Jurisdiction, 23 July 2001, Journal de Droit International 196 (2002), 6 ICSID Reports 400, at paras 15–23; CMS v. Argentina , Decision on Jurisdiction, 17 July 2003, 7 ICSID Reports 494, at paras 121–3; Generation Ukraine v Ukraine , Award, 16 September 2003, 10 ICSID Reports 240, at paras 14.1–14.6; Azurix v Argentina , Decision on Jurisdiction, 8 December 2003, 10 ICSID Reports 416, 43 ILM 262 (2004) at para 55; Tokios Tokel?s v Ukraine , Decision on Jurisdiction, 29 April 2004, 11 ICSID Reports 313, at paras 101–7; LG&E v Argentina , Decision on Jurisdiction, 30 April 2004, 11 ICSID Reports 414, at para 80; MTD v Chile , Award, 25 May 2004, at para 96; Occidental v Ecuador , Award, 1 July 2004, at para 7; Siemens v Argentina , Decision on Jurisdiction, 3 August 2004, at paras 163–73; LESI—DIPENTA v Alg?rie , Award, 10 January 2005, at paras 32–3; AES Corp v Argentina , Decision on Jurisdiction, 26 April 2005, at paras 62–71; Continental Casualty Company v Argentina , Decision on Jurisdiction, 22 February 2006, at para 6; El Paso Energy Intl Co v Argentina , Decision on Jurisdiction, 27 April 2006, at para 38; Pan American v Argentina , Decision on Preliminary Objections, 27 July 2006, at paras 39, 41. See also Metalclad v Mexico , Award, 30 August 2000, 5 ICSID Reports 212 at paras 64–9, applying Art 1120 of the NAFTA; Petrobart v The Kyrgyz Republic , Award, 29 March 2005, VIII. 7. in Stockholm Int Arb Rev (3, 2005) at 77–8 applying Art 26(2) of the ECT and Tradex v Albania , Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports, at 47, 60–1 applying a provision on waiting periods in national legislation. 68 The first such case was not decided under a BIT but under Art 1120 of the NAFTA: Ethyl Corp v Canada , Decision on Jurisdiction, 24 June 1998, Decision on Jurisdiction, 7 ICSID Reports 12 at paras 76–88 where the tribunal dismissed the objection based on the six-month provision since further negotiations would have been pointless. In Wena Hotels v Egypt , Decision on Jurisdiction, 29 June 1999, 6 ICSID Reports 74 at 87, the tribunal noted approvingly that the respondent had withdrawn its objection to jurisdiction based on the waiting period. See also Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Pakistan , Decision on Jurisdiction, 14 November 2005, paras 88–103, where the tribunal found that a requirement to give notice of the dispute for the purpose of reaching a negotiated settlement was not a precondition of jurisdiction. 69Ronald S Lauder v The Czech Republic , Final Award, 3 September 2001, 9 ICSID Reports 66. 70 Ibid at para 183. 71 Ibid at para 187. 72 Ibid at paras 188–91. 73SGS v Pakistan , Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406. 74 Ibid at para 80. 75 Footnote omitted. The tribunal cited the Decision in Ethyl . 76SGS v Pakistan , above n 73 at para 184. Footnote omitted. 77A Goetz v Burundi , Award, 10 February 1999, 6 ICSID Reports 5, at paras 90–3. 78 Ibid at paras 91 and 92. 79 Ibid at para 93. 80Enron Corp and Ponderosa Assets, LP v Argentina , Decision on Jurisdiction, 14 January 2004, 11 ICSID Reports 273. 81 Footnote omitted: the tribunal cited Lauder and Ethyl . 82Enron Corp , above n 80 at para 88. 83Art 26 of the ICSID Convention provides: ‘Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.’ 84Amco v Indonesia , Decision on Annulment, 16 May 1986, 1 ICSID Reports 509 at para 63; Lanco v Argentina , Decision on Jurisdiction, 8 December 1998, 5 ICSID Reports 369 at para 39; Generation Ukraine v Ukraine , Award, 16 September 2003, 10 ICSID Reports 240, paras 13.1–13.6; AES Corporation v The Argentine Republic , Decision on Jurisdiction, 26 April 2005, paras 69, 70. 85CME v Czech Republic , Final Award, 14 March 2003, 9 ICSID Reports 264, para 412; Yaung Chi Oo v Myanmar , Award, 31 March 2003, 8 ICSID Reports 463, 42 ILM 540 (2003), para 40; Nycomb v Latvia , Award, 16 December 2003, 11 ICSID Reports 158, s 2.4. But see Loewen v United States , Award, 26 June 2003, 7 ICSID Reports 442, 42 ILM 811 (2003), paras 142–217. 86 Schreuer, above n 1 at 392. 87 For more detail see C Schreuer, ‘Calvo's Grandchildren: The Return of Local Remedies in Investment Arbitration’, 4 The Law and Practice of International Courts and Tribunals 1 (2005) at 3–5. 88Maffezini v Spain , Decision on Jurisdiction, 25 January 2000, 5 ICSID Reports 396, para 28; Siemens v Argentina , Decision on Jurisdiction, 3 August 2004, 44 ILM 138 (2005), para 104; Gas Natural SDG, SA v Argentina , Decision on Jurisdiction, 17 June 2005, para 30. 89Plama v Bulgaria , Decision on Jurisdiction, 8 February 2005, 44 ILM 721 (2005) at para 224. 90Maffezini v Spain , Decision on Jurisdiction, 25 January 2000, 5 ICSID Reports 396, paras 54–64; Siemens v Argentina , Decision on Jurisdiction, 3 August 2004, 44 ILM 138 (2005), paras 32–110; Gas Natural SDG, SA v Argentina , Decision on Jurisdiction, 17 June 2005, paras 24–49; Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas Servicios Integrales del Agua SA v Argentina , Decision on Jurisdiction, 16 May 2006, paras 52–66; National Grid PCL v Argentina , Decision on Jurisdiction, 20 June 2006, paras 80–93; Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v Argentina and AWG Group Ltd v Argentina , Decision on Jurisdiction, 3 August 2006, paras 52–68. 91 For more detailed treatment, see Schreuer, above n 40 at 239. 92Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia , Award, 25 June 2001, 6 ICSID Reports 241. 93 Ibid at paras 47, 58. 94 Ibid at para 321. 95 Ibid at para 331. 96Eudoro A Olgu?n v Republic of Paraguay , Decision on Jurisdiction, 8 August 2000, 6 ICSID Reports 156, at para 30; Compa??a de Aguas del Aconquija SA & Compagnie G?n?rale des Eaux (Vivendi) v Argentine Republic , Award, 21 November 2000, 5 ICSID Reports 296 at paras 40, 42, 53–5, 81; Compa??a de Aguas del Aconquija, SA & Vivendi Universal (formerly Compagnie G?n?rale des Eaux) v Argentine Republic , Decision on Annulment, 3 July 2002, 6 ICSID Reports 340 at paras 38, 42, 55; Ronald S Lauder v The Czech Republic , Final Award, 3 September 2001, 9 ICSID Reports 66 at paras 162–3; Middle East Cement Shipping and Handling Co SA v Arab Republic of Egypt , Award, 12 April 2002, 7 ICSID Reports 178 at para 71; CMS v Argentina, Decision on Jurisdiction , 17 July 2003, 7 ICSID Reports 494 at paras 77–82; Azurix v Argentina , Decision on Jurisdiction, 8 December 2003, 10 ICSID Reports 416 at paras 37–41, 86–92; Enron Corp and Ponderosa Assets, LP v Argentina , Decision on Jurisdiction, 14 January 2004, 11 ICSID Reports 273 at paras 97–8; Occidental v Ecuador , Award, 1 July 2004 at paras 38–63; LG&E v Argentina , Decision on Jurisdiction, 30 April 2004, 11 ICSID Reports 414 at paras 75, 76; Champion Trading v Egypt , Decision on Jurisdiction, 21 October 2003, 10 ICSID Reports 400 at para 3.4.3.; Pan American v Argentina , Decision on Preliminary Objections, 27 July 2006, paras 155–7. 97North American Free Trade Agreement, December 1992, 32 ILM 605 (1993). 98Art 1116 NAFTA. 99Art 1120 NAFTA. 100Art 1121 NAFTA. 10134 ILM 360 (1995) at 399. 102Art 26(4) ECT. 103Art 26(1) ECT. 104Art 10(1) last sentence ECT. 105Art 26(2) ECT. 106Art 26(3) ECT. 107Art 9 MERCOSUR. 108Arts 17–18 of the FTA. 109 See also R Dolzer and T Myers, ‘After Tecmed: Most-Favored-Nation Clauses in Investment Protection Agreements’, 19 ICSID Rev-FILJ 49 (2004). 110 See Art 1103 NAFTA? Art 10(7) ECT. 111Maffezini v Spain , Decision on Jurisdiction, 25 January 2000, 5 ICSID Reports 396. 112 Ibid at paras 38–64. 113 Ibid at para 64. 114 Ibid at para 63. 115 Ibid at para 62. 116Siemens v Argentina , Decision on Jurisdiction, 3 August 2004, paras 32–110; Gas Natural SDG, SA v Argentina , Decision on Jurisdiction, 17 June 2005, paras 24–31, 41–9; Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas Servicios Integrales del Agua SA v Argentina , Decision on Jurisdiction, 16 May 2006, paras 52–66; National Grid PCL v Argentina , Decision on Jurisdiction, 20 June 2006, paras 53–94; Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v Argentina and AWG Group Ltd v Argentina , Decision on Jurisdiction, 3 August 2006, paras 52–68. 117Gas Natural SDG, SA v Argentina , Decision on Jurisdiction, 17 June 2005, para 49. 118Salini v Jordan , Decision on Jurisdiction, 29 November 2004. 119 Ibid at para 115. 120 Ibid at para 119. 121Plama v Bulgaria , Decision on Jurisdiction, 8 February 2005. 122 Ibid at para 198. 123 Ibid at para 204. 124 Ibid at para 223. 125Telenor v Hungary , Award, 13 September 2006. 126 Ibid at paras 90–7. 127 Ibid at para 100. 128 See Holiday Inns v Morocco , Decision on Jurisdiction, 12 May 1974; Lalive, above n 7 at 146; Autopista v Venezuela , Decision on Jurisdiction, 27 September 2001, 6 ICSID Reports 419 at paras 90, 91; Generation Ukraine v Ukraine , Award, 16 September 2003, 10 ICSID Reports 240 at paras 12.4–12.8. 129Art 25(1) last sentence ICSID Convention. 130Art 25(2) ICSID Convention. 131Art 26 ICSID Convention. 132Art 27 ICSID Convention. 133Art 44 ICSID Convention. The parties may agree otherwise. 134Art 36(3) ICSID Convention. 135Tradex v Albania , Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 47. 136 Ibid at 57–8. The tribunal found that it did have jurisdiction on the basis of domestic legislation. 137Maffezini v Spain , Decision on Jurisdiction, 25 January 2000, 5 ICSID Reports 396, paras 90–8. 138 Ibid at paras 92, 93. 139 International Court of Justice: Case concerning East Timor, ICJ Reports (1995) 90 at para 22, with reference to earlier decisions of both the Permanent Court of International Justice and the International Court of Justice. 140Maffezini , above n 88 at para 95. 141 Ibid at para 96. 142 Ibid at para 98. 143Lucchetti v Peru , Award, 7 February 2005. 144 Ibid at para 53. 145Jan de Nul & Dredging International v Egypt , Decision on Jurisdiction, 16 June 2006. 146 Belgo-Luxembourg Economic Union. 147Jan de Nul , above n 145 at para 117. 148 Ibid at para 128. 149 Ibid at paras 110–31. 150Helnan International Hotels A/S v The Arab Republic of Egypt , Decision on Jurisdiction, 17 October 2006. 151 Ibid at para 52. 152 Ibid at paras 53–7. 153 See especially Art 28 of the Vienna Convention on the Law of Treaties providing for non-retroactivity of treaties. For discussions of this issue see Generation Ukraine v Ukraine , Award, 16 September 2003, 10 ICSID Reports 240 at paras 11.2, 11.3 and 17.1; SGS v Philippines , Decision on Jurisdiction, 29 January 2004, 8 ICSID Reports 518 at para 166; Salini v Jordan , Decision on Jurisdiction, 29 November 2004 at paras 176, 177; Impregilo v Pakistan , Decision on Jurisdiction, 22 April 2005, para 309. 154Art 1116 NAFTA. 155Mondev Int. Ltd v United States of America , Award, 11 October 2002, 6 ICSID Reports 192. 156 Ibid at para 57. 157 Ibid at para 58. Footnote omitted. 158 Ibid at para 69. Footnote omitted. 159 Ibid at para 70. 160 Ibid at para 73. 161SGS v Philippines , Decision on Jurisdiction, 29 January 2004, 8 ICSID Reports 518. 162 Ibid at para 167. 163T?cnicas Medioambientales TECMED SA v United Mexican States , Award, 29 May 2003, 10 ICSID Reports 134. 164 Ibid at para 63. 165 Ibid at paras 64, 65. 166 Ibid at para 68. 167Amco v Indonesia , Decision on Jurisdiction, 25 September 1983, 1 ICSID Reports 389 at paras 12, 16. 168 Ibid at para 14. Emphases original. See also remarks to the same effect at paras 18 and 29. This decision was cited with approval in Cable TV v St. Kitts and Nevis , Award, 13 January 1997, 5 ICSID Reports 108 at para 6.27; CSOB v Slovakia , Decision on Jurisdiction, 24 May 1999, 5 ICSID Reports 335 at para 34; Ethyl Corp v Canada , Decision on Jurisdiction, 24 June 1998, Decision on Jurisdiction, 7 ICSID Reports 12 at para 55. 169Amco , above n 167 at para 24. 170SOABI v Senegal, Award, 25 February 1988, 2 ICSID Reports 190. 171 Ibid at para 4.08. 172 Ibid at para 4.09. 173 Ibid at para 4.10. 174SPP v Egypt, Decision on Jurisdiction, 14 April 1988, 3 ICSID Reports 131. 175 Ibid at para 63. This passage was quoted with approval in Inceysa v El Salvador , Award, 2 August 2006, at para 176. 176Mondev Intl Ltd v United States of America , Award, 11 October 2002, 6 ICSID Reports 192. 177 Ibid at para 42. 178 Ibid at para 43. Footnotes omitted. The tribunal cited several decisions by the International Court of Justice and by other tribunals. 179Duke Energy v Peru , Decision on Jurisdiction, 1 February 2006, paras 76–8; El Paso Energy v Argentina , Decision on Jurisdiction, 27 April 2006, paras 68–70; Inceysa v El Salvador , Award, 2 August 2006, paras 176–81. 180Methanex v United States , Preliminary Award on Jurisdiction, 7 August 2002, 7 ICSID Reports 239, paras 103–05; Aguas del Tunari, SA v Bolivia , Decision on Jurisdiction, 21 October 2005, para 91; SGS v Philippines , Decision on Jurisdiction, 29 January 2004, 8 ICSID Reports 518, para 116; Eureko v Poland , Partial Award, 19 August 2005, para 248; Suez, Sociedad General de Aguas de Barcelona SA, and InterAguas Servicios Integrales del Agua SA v Argentina , Decision on Jurisdiction, 16 May 2006, paras 59, 64. 181Tradex v Albania , Decision on Jurisdiction, 24 December 1996, 5 ICSID Reports 47. 182 Ibid at 68. 183SGS v Philippines , Decision on Jurisdiction, 29 January 2004, 8 ICSID Reports 518. 184 Ibid at para 116. See also R Dolzer ‘Indirect Expropriations: New Developments’, 11 NYU Environmental L J 64 (2002) at 73: ‘Inasmuch as Article 31 of the Vienna Convention lays emphasis on the object and purpose of a treaty, it might be argued that a teleological approach to interpreting bilateral or multilateral treaties should be based on the assumption that these treaties have been negotiated to facilitate and promote foreign investment, which is often reflected in the wording of the preambles. Thus it might be concluded that, when in doubt, these treaties should be interpreted in favorem investor, stressing and expanding his rights so as to promote the flow of foreign investment’. Footnotes omitted. 185Noble Ventures v Romania , Award, 12 October 2005, para 55. 186SGS v Pakistan , Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406. 187 Ibid at para 171. The Tribunal's interpretation prompted a letter by the government of Switzerland to the Deputy Secretary-General of ICSID in which it expressed its disapproval and alarm over the very narrow interpretation given to the umbrella clause. See Alexandrov above n 39 at 570–1. 188SPP v Egypt , Decision on Jurisdiction II, 14 April 1988, 3 ICSID Reports 131. 189 Ibid at paras 55–60. 190 Ibid at para 61. 191CSOB v Slovakia , Decision on Jurisdiction, 24 May 1999, 5 ICSID Reports 335. 192 Ibid at paras 49–55. 193 Ibid at para 35. 194Azurix v Argentina , Decision on Jurisdiction, 8 December 2003, 10 ICSID Reports 416, 43 ILM 262 (2004) at paras 48–50; Enron Corp. and Ponderosa Assets, LP v Argentina , Decision on Jurisdiction, 14 January 2004, 11 ICSID Reports 273 at para 38; Siemens v Argentina , Decision on Jurisdiction, 3 August 2004 at paras 29–31; Camuzzi v Argentina , Decision on Jurisdiction, 11 May 2005, paras 15–17, 57; AES Corp v Argentina , Decision on Jurisdiction, 26 April 2005, paras 34–9; Jan de Nul NV Dredging Intl NV v Egypt , Decision on Jurisdiction, 16 June 2006, paras 65–8. 195Art 42 of the ICSID Convention deals with the law applicable to the dispute. 196CMS v Argentina , Decision on Jurisdiction, 17 July 2003, 7 ICSID Reports 494, 42 ILM 788, at para 88. 0 Authors: David Ar Williams QC ? Keywords: Arbitral rules & institutions – ICSID (International Centre for Settlement of Investment Disputes) – Specialized treaty frameworks – Admissibility – Investment – Investor This chapter begins with an overview of the jurisdictional requirements of the International Centre for Settlement of Investment Disputes (ICSID). It then discusses ICSID and subject-matter jurisdiction, ICSID and personal jurisdiction, jurisdictional requirements under ICSID's Additional Facility, jurisdictional requirements under the North American Free Trade Agreement (NAFTA) and the Energy Charter Treaty (ECT); jurisdictional requirements under the UNCITRAL Rules, the ICC and LCIA Rules; denial of benefits clauses, and the concept of admissibility.

0subscriber_article?script=yes&id=%2Fic%2FMonograph%2Flaw-iic-9780199231386&recno=62&searchType=browse Chapter 22 Jurisdiction and Admissibility

(1)ICSID—General Overview of Jurisdictional Requirements870

(2)ICSID and Subject-matter Jurisdiction872

(a) Is There a Dispute? 873

(b) Is the Dispute of a Legal Nature? 873

(c) Is There an ‘Investment’? 875

(i) Article 25(1) to Receive a Broad Interpretation 876

(ii) The BIT Definition of ‘Investment’ 877

(iii) Arbitral Decisions on the Definition of ‘Investment’ 878

(d) Has the Dispute Arisen Directly from that Investment? 882

(3)ICSID and Personal Jurisdiction883

(a) Contracting State 883

(b) Nationality 884

(i) A ‘Natural Person’ 884

(ii) Nationality of a ‘Juridical Person’ 889

(iii) Defining Corporate Nationality: A Test of Incorporation or Control? 890

(iv) The Second Part of Article 25(2)(b): The Nationality of Foreign-controlled Corporations 893

(v) The Consideration of Other Features of Corporate Nationality: Aguas del Tunari v Republic of Bolivia897

end p.868

(vi) Jurisdiction Arising through the Nationality of Shareholders—Shareholder Protection in International Investment Law 900

(c) A Constituent Subdivision or Agency of a Contracting State 901

(i) Definition of ‘Constituent Subdivision’ and ‘Agency’ 902

(ii) Designation 903

(iii) Article 25(3): Approval by the State of an Agreement to Submit to Arbitration 905

(4)Jurisdictional Requirements under ICSID's Additional Facility906

(5)Jurisdictional Requirements under the North American Free Trade Agreement (‘NAFTA’) and the Energy Charter Treaty (‘ECT’)908

(a) NAFTA 908

(b) The Energy Charter Treaty 909

(6)Summary of Jurisdictional Requirements under the UNCITRAL Rules, the ICC and LCIA Rules914

(a) UNCITRAL Rules 914

(b) ICC 915

(c) LCIA 916

(7)Denial of Benefits Clauses917

(8)The Related Concept of Admissibility919

(a) Admissibility Contrasted with Jurisdiction 919

(i) Methanex920

(ii) Salini922

(iii) SGS v Philippines923

(iv) The Relationship between Contract Claims and Treaty Claims: Impregilo v Pakistan924

(b) Admissibility Contrasted with Arbitrability 927

(i) Arbitrability 927

(ii) Admissibility 928

The jurisdiction of the tribunal is fundamental to the authority and decision making of the arbitrators. Awards rendered without jurisdiction have no legitimacy. The absence of jurisdiction is one of the few recognized reasons for a court to set aside or refuse recognition and enforcement of an award. 1

THE majority of international investment disputes are determined by arbitration at the International Centre for Settlement of Investment Disputes (‘ICSID’) 2 either

end p.869

through ICSID's main facility or ICSID's Additional Facility. Other disputes may be determined by ad hoc arbitration under the UNCITRAL Rules, through the Institutional Arbitration Rules of the International Chamber of Commerce, Paris or the London Court of International Arbitration. As at June 2006, 210 cases had been registered before ICSID from the time of its inception in 1966, 3 a case-load which has dramatically increased due to the promulgation of investment treaty arbitration in the last two decades. 4 It is therefore appropriate to begin a consideration of the topic of jurisdictional issues other than consent by reference to the ICSID Convention and ICSID case-law.

(1) ICSID—General Overview of Jurisdictional Requirements

The possibility of a private investor litigating directly with a foreign state, the unique feature of the ICSID Convention, was secured at the cost of defining the jurisdiction of the Centre in a careful and narrow fashion. 5Article 25 sets out the scope of ICSID's jurisdictional reach. In material part, it provides as follows:

(1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.

(2) ‘National of another Contracting State’ means:

(a) any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties

end p.870

consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State to the dispute; and

(b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.

Article 25(1) refers to the ‘jurisdiction of the Centre’ and therefore includes conciliation as well as arbitration. 6 Conciliation is a small component of the ICSID case-load and represents a mere 2 per cent of registered cases. 7 Therefore, this chapter will focus on the arbitral jurisdiction of ICSID.

There are three main jurisdictional requirements to be met under the ICSID Convention: consent, ratione personae, and ratione materiae. 8 As the previous chapter has dealt with the jurisdictional element of consent, this chapter addresses solely jurisdiction ratione personae and ratione materiae. Due to the constitutional nature of these jurisdictional requirements, they cannot be waived. 9 Fulfilling personal and subject-matter jurisdiction may be influenced by the consent terms contained

end p.871

in the relevant Bilateral Investment Treaty (‘BIT’) or other Treaty. 10 Therefore, the three jurisdictional preconditions are somewhat interrelated. Indeed, the relationship between consent and the objective elements of subject-matter and personal jurisdiction was extensively debated during the drafting of the Convention. 11 Consent is a necessary but insufficient condition to bring an investment dispute within the ambit of the Centre's jurisdiction. How the ‘objective’ requirements of subject-matter and personal jurisdiction are defined may be influenced by the parties' interpretation of such requirements, but there are nevertheless outer limits to the Centre's jurisdiction which are not subject to the parties' disposition. It is essential that these objective requirements are recognized and accepted, given the sovereign interests involved. 12

The interpretation of Article 25 will play a large part in establishing whether or not jurisdiction exists in any particular case. Accordingly, it has been stated that a liberal and teleological approach should be adopted. 13 This approach is especially important when jurisdiction is not explicitly or implicitly excluded by the Convention and the parties have clearly consented to take the matter to arbitration. 14

(2) ICSID and Subject-matter Jurisdiction

Jurisdiction ratione materiae or subject-matter jurisdiction refers to the jurisdictional requirements as to the nature of the dispute. Article 25(1) states that ‘the jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment’. 15 The four requirements of subject-matter jurisdiction, which were articulated in a similar form by the tribunal in Mihaly , 16 are: first, that there is a

end p.872

dispute; secondly, that the dispute is of a legal nature; thirdly, that there is an investment; and finally, that the dispute arises directly out of that investment. Each of these will be considered in turn.

(a) Is There a Dispute?

As to the meaning of ‘dispute’ there have been many attempted definitions. In the Case Concerning East Timor17 the International Court of Justice defined a dispute as ‘a disagreement on a point of law or fact, a conflict of legal views or interests between parties’. It has been submitted that the disagreement must not merely be of a theoretical or academic nature. 18 Professor Merkin states that ‘in general terms, a dispute arises when one party makes a claim against the other which is ignored or denied by the other’. 19 In Methanex Motunui Ltd v Spellman , Fisher J, in construing the New Zealand Arbitration Act 1996, said that there will be a dispute ‘… when two or more individuals express and maintain in relation to each other conflicting views or positions the resolution of which will or may be of legal consequence’. 20 An extensive discussion of ‘dispute’ may be found in the judgment of Hirst LJ in Halki Shipping Corp v Sopex Oils Ltd . 21

(b) Is the Dispute of a Legal Nature?

There is no specific test to be met in order to satisfy this requirement. Dispute was qualified by the word ‘legal’ so as to avoid ‘disputes of a purely commercial or political nature’ and to avoid conflicts of interest as opposed to conflicts of rights being brought before the Centre. 22 Matters arising out of the validity, interpretation, expropriation, breach, or termination of an agreement are clearly legal matters, whereas disputes regarding ‘accounting, fact-finding or the desirability of renegotiating the entire agreement or certain of its terms, would normally fall outside the scope of

end p.873

the Convention’. 23 Professor Schreuer's observations on the concept of legal dispute aptly summarize the situation: 24

Commentators on the ICISD Convention have endeavoured to come to terms with the concept of legal dispute by listing typical factual situations and the questions that they entail. These include expropriation, breach or termination of an agreement or the application of tax and customs provisions. While these descriptions are undoubtedly useful, it must be borne in mind that fact patterns alone do not determine the legal character of a dispute. Rather, it is the type of claim that is put forward and the prescription or policy that is invoked that decides whether a dispute is legal or not. Thus, it is entirely possible to react to a breach of agreement by relying on moral standards, by invoking concepts of justice or by pointing to the lack of political and economic wisdom of such a course of action. The dispute will only qualify as legal if legal remedies such as restitution or damages are sought and if legal rights based on, for example, treaties or legislation are claimed. Consequently, it is largely in the hands of the claimant to present the dispute in legal terms.

Furthermore, a dispute may be legal but deemed non-justiciable by the tribunal in question. In international law, the non-justiciability of a dispute relates to those disputes that fall within the competence of the executive, to the exclusion of the judiciary, for example acts of state. 25 This has not been mirrored in the ICSID arbitration setting. Indeed, an ICSID tribunal has readily examined state action involving the dissolution of a claimant's company. 26 In response to the emphasis placed on the political nature of the dispute by the respondent in Ceskoslovenska Obchodni Banka (CSOB) v The Slovak Republic , 27 the tribunal stated that the political nature of a legal dispute will not necessarily preclude the tribunal from having jurisdiction: 28‘While it is true that investment disputes to which a State is a party frequently have political elements or involve governmental actions, such disputes do not lose their legal character as long as they concern legal rights or obligations or the consequences of their breach’.

More recently, the AES Corporation tribunal defined what, in its view, was ‘the true test of jurisdiction’ regarding the requirement of a legal dispute. 29 The two-step approach involved asking first, whether the claimant had raised some legal issues in relation to a concrete situation and, secondly, whether the tribunal's determination

end p.874

of the answer would have practical and concrete consequences. 30 Should the answer to both questions be in the affirmative, then the dispute is a legal one within the tribunal's jurisdiction.

(c) Is There an ‘Investment’?

The notion of investment is one of the most controversial in law and in economic science. It has been variously described as ‘untraceable’, ‘inexistent’, ‘nebulous’ and ‘used in law without an established definition’. 31

It is interesting to briefly place the notion of ‘investment’ in an historic context. Until the mid-20th century with the emergence of the GATT, no distinction was made between investments and other forms of property and economic activity. In relation to dispute resolution, GATT exclusively governed trade differences whilst investment disputes were initially left by the wayside, and later picked up by the ICSID Convention and the emergence of BITs in the 1960s. Various analytical reasons have been proposed for the distinction. However, the general perception tends to be that ‘investment’ is a ‘catalyst for development and prosperity’, and that it helps ‘[expand] welfare around the world’. 32 It is in this context that investment protection treaties are concluded and provide for a derogation of state sovereignty. However, if the investment is of such a nature as to cause instability, then the derogation from the state sovereignty provided for in the relevant treaty is not worth undertaking. 33 Looking at the nature of investment from the state sovereignty perspective led to Professor Brownlie's dissent in CME Czech Republic BV (The Netherlands) v The Czech Republic34 where he stated that the meaning of ‘investment’ in the Netherlands-Czech/Slovak Republics did not include all kinds of property and that the benefits of investment protection treaties should only be conferred on property rights that qualify as an investment. 35 To do otherwise would be to betray the intent and the consent of the parties to arbitrate their disputes with aliens operating in their territory.

end p.875

(i) Article 25(1) to Receive a Broad Interpretation

The notion of whether or not there is an investment for the purposes of the ICSID Convention is undoubtedly fundamental. The First Draft of the Convention defined investment to mean ‘any contribution of money or other asset of economic value for an indefinite period or, if the period be defined, for not less than five years’. 36 In the end, the drafters of the Convention left the term ‘investment’ undefined.

A broad interpretation of Article 25 ‘investment’ is supported by distinguished commentators and the awards of various tribunals. 37 There are very few cases where it has been held that there has been no ‘investment’. One such case is Mihaly , 38 discussed below, where the preliminary development, investigative, and other costs in relation to a governmental project which ultimately never proceeded, were held not to be an investment.

Notwithstanding the uncertainty which arises from the lack of a clear definition, there is good reason to leave the term undefined. Indeed, leaving investment undefined has been described as ‘preserving its integrity and flexibility and allowing for future progressive development of international law on the topic of investment’. 39

This flexibility affords the parties with the discretion to decide whether or not their particular transaction is an investment for the purposes of Article 25. 40 For example, the parties are free to define the term ‘investment’ in their BIT and the contracting state may also exclude jurisdiction pursuant to Article 25(4). 41 Common disputes which have been excluded include disputes involving natural resources and disputes which apply to certain territories in a particular state. 42 This ability to specifically delineate ‘investment’ for the purposes of an individual BIT further supports the view that the term ‘investment’ in Article 25 should be given a broad interpretation. 43

end p.876

The tribunal in Ceskoslovenska Obchodni Banka (CSOB) v The Slovak Republic44 propounded a broad interpretation of investment. 45 After referring to the first paragraph of the Preamble of the ICSID Convention which states that the Contracting States have considered ‘the need for international cooperation for economic development, and the role of private international investment therein’, the tribunal observed that:

This language permits an inference that an international transaction which contributes to cooperation designed to promote the economic development of a Contracting State may be deemed to be an investment as that term is understood in the Convention. 46

The Convention encompasses: 47

Capital contributions, joint ventures, loans, ‘as well as modern kinds of investment resulting from new forms of association between States and foreign investors, such as profit-sharing, service and management contracts, turn-key contracts, international leasing arrangements and agreements for the transfer of know-how and technology’.

The statement that an investment includes modern forms of association between foreign partners and host states is supported by Delaume. 48 Delaume also points out that transnational loans are clearly included in the definition of investment, referring both to the first draft of the Convention and to the fact that the parties involved in transnational loan agreements usually specifically state that their loan is an investment for the purposes of the Convention. 49

(ii) The BIT Definition of ‘Investment’

The transaction at issue being covered by Article 25(1) is a necessary but insufficient condition for the tribunal to exercise its jurisdiction. What the parties have actually agreed on in their BIT must also be considered. A review conducted under the auspices of the United Nations of all the BITs in force found that one of the similarities of all BITs was the broad and open-ended definition of investment, including tangible and intangible assets and of general application to both existing and new investments. 50 The BIT may also cover pre-investment activities which are not covered by Article 25(1). To exercise jurisdiction, the transaction in question must fall within two

end p.877

definitions of investment: the BIT definition and the Article 25 definition. 51 In practice, the Article 25 definition tends to be narrower than the BIT definition of investment. It therefore acts as a jurisdictional filter. However, the consent of the parties to submit to ICSID arbitration will be taken as evidence of their understanding that their transaction was an investment. Indeed, one tribunal stated that such an understanding should be accorded ‘great weight’ in deciding whether or not the transaction in question is an investment for purposes of Article 25 ICSID Convention. 52

(iii) Arbitral Decisions on the Definition of ‘Investment’

Promissory Notes

The Tribunal in Fedax NV v Republic of Venezuela53 had to decide whether the holding of promissory notes issued by the respondent was an investment under Article 25(1). It was the first ICSID case where jurisdiction was objected to on the grounds that the underlying transaction did not qualify as an investment. The definition of investment in the BIT included ‘titles to money’. The respondent contended, and the tribunal agreed, that pursuant to Article 31(1) of the 1969 Vienna Convention on the Law of Treaties, the term investment needed to be interpreted ‘in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose’. The Tribunal examined Article 25(1) and its application in previous arbitrations. It concluded that the broad scope of Article 25 and previous decisions were sufficient to find that there was jurisdiction over such a transaction. 54 The tribunal further noted that because loans were clearly within the meaning of investment, and promissory notes were ‘evidence of a loan and a rather typical financial and credit instrument’ there was no reason that the purchase of promissory notes could not come within the Convention. 55

The tribunal then turned to the actual wording of the Netherlands-Venezuela BIT. The tribunal perceived the BIT's definition of investment as ‘[governing] the jurisdiction of ICSID’. 56 The relevant provision read as follows:

The term ‘investments’ shall comprise every kind of asset and more particularly though not exclusively:…

(ii) rights derived from shares, bonds and other kinds of interests in companies and joint ventures;

(iii) titles to money, to other assets or to any performance having an economic value …

end p.878

The tribunal concluded that such a definition was fairly broad and clearly encompassed the purchase of promissory notes.

Loans

In Ceskoslovenska Obchodni Banka (CSOB) v The Slovak Republic , 57 the tribunal had to deal with whether loans made by CSOB to a ‘Collection Company’, established by the Slovak Republic pursuant to a consolidation agreement, was an investment under Article 25(1). The loans were made following an assignment of non-performing loan portfolio receivables to the Slovak Collection Company. The agreement stated that the Collection Company was to pay CSOB for the assigned receivables and therefore CSOB, under the terms of a separate loan agreement, the ‘Loan Agreement on the Refinancing of Assigned Receivables’, loaned them the necessary funds.

The respondent argued that the loan to their Collection Company was not an ‘investment’ but rather an ‘element of the inter-governmental restructuring division of CSOB, necessitated by the dissolution of the Czech and Slovak Federal Republic (CSFR), and not an operation from which either party to the dispute was intended to receive a benefit’. 58 The tribunal considered that as the respondent had not made any declaration under Article 25(4), it had accordingly submitted itself ‘broadly to the full scope of the subject matter jurisdiction governed by the Convention’. 59 It further held that as the parties had consented to the Centre's jurisdiction, a ‘strong presumption that they considered their transaction to be an investment within the meaning of the ICSID Convention’ had been created. 60 The tribunal accepted that the mere description of a transaction as an ‘investment’ was insufficient to find that the transaction satisfied Article 25(1)—the transaction had to be considered objectively. 61 A twofold test was adopted: 62 first, the tribunal looked at whether the transaction came within Article 25(1) of the Convention. Once that was satisfied, it considered whether the transaction was within the definition of investment as outlined in the parties' consent to ICSID arbitration, in their reference to the BIT and in the BIT.

Bank Guarantees

Joy Mining Machinery Ltd v The Arab Republic of Egypt63 concerned a contract that had been concluded between Joy Mining Machinery Ltd (‘Joy’) and the General Organisation for Industrial and Mining Projects of the Arab Republic of Egypt (‘IMC’) for the supply of mining systems and equipment. Joy had provided several

end p.879

bank guarantees to IMC for the performance, advance payment, and payment received under the contract. Joy was paid the full contract price. However, because of other differences that arose between the parties regarding the performance of certain equipment, IMC would not release the guarantees. Joy therefore initiated arbitration.

The Republic of Egypt objected to jurisdiction on the grounds that the bank guarantee was not an investment, either as contemplated by the BIT or under Article 25. Its objection was upheld on both grounds. The tribunal concluded that a ‘contingent liability’ such as a bank guarantee was not an asset as defined in the BIT and would go far beyond the concept of investment. 64 As regards the definition of investment in Article 25, the tribunal stated that ‘the project in question should have a certain duration, a regularity of profit and return, an element of risk, a substantial commitment and that it should constitute a significant contribution to the host State's development’. 65 Despite holding that the scope and the terms of the supply contract were ‘entirely normal commercial terms, including those governing the bank guarantees’, 66 the tribunal drew a distinction between ‘ordinary sales contracts, even if complex, and an investment’ on the grounds that, not to do so would be to allow ‘any sales or procurement contract [involving a State agency to] qualify as an investment’. 67 The Tribunal did note that certain public procurement contracts and construction projects would amount to an eligible investment, as long as the ‘criteria’ were met, as they were in Salini Costruttori SpA. and Italstrade SpA. v Kingdom of Morocco . 68

Mihaly and ‘BOOT’ Projects

The controversial case of Mihaly69 dealt with the investment by Sri Lanka in a thermal electric power generating plant, the largest foreign investment at the time in Sri Lanka. 70 Sri Lanka, having studied extensively the various possibilities of infrastructure development, sent out a Request for Proposal for its Build, Own, Operate and Transfer (BOOT) project. 71 Mihaly, a partnership of a Canadian and an American developer, was chosen in 1992 to carry out the project. In February

end p.880

1993, the respondent issued a letter of intent containing the respondent's agreement to negotiate in good faith to settle in a timely manner the necessary formal contracts. During the following three years of negotiations, which were stalled by both parties for various political and commercial reasons, the respondent received an ‘Award of Contract’ and a renewal of the award. The renewal set out a detailed schedule of various obligations to be met in order to get the negotiations back on track. The claimant met all its obligations, the respondent none. The issue put before the tribunal was whether the significant expenditures by the Mihaly consortium (almost US$6 million) to prepare for construction of the power plant (including plant engineering, financial advice, and legal fees), expended in reliance on the letter of intent and its two renewals, constituted an ‘investment’ sufficient to engage its jurisdiction.

The tribunal stated that:

A fortiorissime, without proof of an ‘investment’ under Article 25(1), neither Party need to argue further, for without such an ‘investment’, there can be no dispute, legal or otherwise, arising directly or indirectly out of it, which could be submitted to the jurisdiction of the Centre and the Tribunal. 72

The tribunal concluded that the claimant's expenditures did not amount to an ‘investment’ for the purposes of Article 25(1) and declined jurisdiction. There was an individual concurring opinion rendered by Mr David Suratgar. 73

Concerns have been expressed regarding the tribunal's non-recognition of the Mihaly financial outlay as an ‘investment’ for the purposes of Article 25(1). 74 In evidence, the claimant had submitted an affidavit of a retired ‘very senior official’ of the World Bank. This official stated quite clearly two necessary requirements associated with ‘Build, Own, Operate and Transfer’ projects. First, the private investor must make significant initial expenditures and secondly, a formal contract between the state and the private investor needs to be executed before any financiers will formally commit to the project. This affidavit urged the tribunal to recognize the nature of such projects and the method of building up infrastructure and that accordingly, the initial financial outlays be included as part of the investment. The tribunal refused to extend the definition of investment to include expenditures in a project where neither a formal contract had been signed nor construction commenced. The concern over such an approach has been summarized as follows:

It is clear from most bilateral investment treaties, which contain definitions of ‘investment’, and from the jurisprudence, including leading arbitral decisions at ICSID and elsewhere, that the word investment is intended to be construed expansively, to suit current needs and practices. This decision by an ICSID Tribunal erects a barrier to that construction, and also

end p.881

to achieving the major purpose of ICSID: encouragement of private investment in developing countries. 75

However, the suggestion in the separate concurring opinion 76 in Mihaly that in future ICSID tribunals should accept jurisdiction over similar claims in order to encourage ‘transparency’ in tender procedures, as well as to protect successful bidders who incur expenditures when embarking on these costly preliminary procedures, has been criticized as creating a ‘risk that host states will face systematic or even abusive claims brought by disgruntled or disappointed bidders’. 77

(d) Has the Dispute Arisen Directly from that Investment?

The problem of directness commonly arises in situations where the ‘central’ investment transaction is accompanied by ancillary transactions, each with separate contracts and those contracts occasionally containing dispute settlement clauses. 78 In Fedax N V v Republic of Venezuela , the tribunal stated that: 79

It is apparent that the term ‘directly’ relates in this Article to the ‘dispute’ and not to the ‘investment’. It follows that jurisdiction can exist even in respect of investments that are not direct, so long as the dispute arises directly from such transaction. This interpretation is also consistent with the broad reach that the term ‘investment’ must be given in the light of the negotiation history of the Convention.

The tribunal therefore held that the dispute in question had arisen directly from the purchase of promissory notes by the Claimant's predecessor and that Article 25(1) was satisfied in this respect.

In Siemens AG v Argentine Republic , 80 shares in a local subsidiary were held to be an eligible indirect investment. Siemens requested arbitration pursuant to a contract its Argentine subsidiary had entered into with Argentina for the delivery of an IT system of migration control and personal identification. Argentina had forced a contract renegotiation and Siemens argued that this breached the underlying BIT.

end p.882

(3) ICSID and Personal Jurisdiction

There is good reason for the disputes which come within the jurisdiction of the Centre to be restricted ratione personae in the way they are under Article 25(1). Disputes between private individuals can be settled through municipal systems of law. Disputes between States and their own nationals fall outside the scope of an international convention intended to deal with foreign investment. Disputes between States may be settled under traditional international law. 81

Article 25(1) of the ICSID Convention requires that a dispute be ‘between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by the State) and a national of another Contracting State …’. The dispute must therefore be of a mixed nature. 82 Restricting ICSID's application to state/foreign national disputes was one of the Convention's main goals. 83 The objective was to bypass states' prerogative of diplomatic protection and to empower individual investors to take direct action against states without the aid of their own state. Closing the procedural gap 84 was intended to enable individual investor claimants to have their own remedy when their own states were unwilling or politically unable to espouse the claim on their behalf and has fulfilled what was once thought unlikely. 85

(a) Contracting State

The facilities of the Centre are only available to contracting states and to their nationals, the one requirement common to both parties. Under the ICSID Convention, contracting states are states that have ratified the treaty by depositing their instruments of ratification, acceptance, or approval. Thirty days after their instruments have been deposited, they become contracting states. 86 As of 9 May 2007, there were 144 contracting states to which the Convention had entered into force and 12 other states that had signed the Convention but had not ratified it. 87 A state can withdraw from

end p.883

the Convention and cease to be bound by submitting a written notice. 88 This will not affect the state's consent to the Centre's jurisdiction given prior to their withdrawal and will only become effective six months after they have denounced the treaty. 89 It is not necessary for either the governmental party or the foreign national's state to be a member of the Centre when the parties agree to submit to an ICSID arbitration. 90 This was illustrated in the Holiday Inns et al v Morocco91 case where Morocco had objected to jurisdiction on the grounds that neither Morocco nor Switzerland (the state of the foreign investor, Holiday Inns) were contracting states when the parties had agreed to submit any dispute to ICSID. The tribunal disagreed that the host and foreign states needed to be members on the date of the arbitration agreement. The tribunal stated that the relevant date for jurisdictional reasons ‘is the date when the conditions are definitely satisfied, as regards one of the Parties involved, which constitutes … the date of consent by that Party’. 92

(b) Nationality

(i) A ‘Natural Person’

Article 25(2) extends jurisdiction to any dispute arising between a contracting state and a national of another contracting state. The term ‘national’ encompasses natural and juridical persons. Natural persons will be considered first. Under Article 25(2)(a), a ‘natural person’ national is any person:

… who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered … but does not include any person who on either date also had the nationality of the Contracting State party to the dispute. (Emphasis added.)

A natural person presents much less difficulty than the term ‘juridical person’ and has been interpreted according to its ordinary meaning of an individual human investor. The natural person nationality requirement has two temporal aspects: the investor must be a national of the relevant state, first, at the time the dispute was consensually submitted to arbitration and secondly, at the time the request for arbitration is registered. The definition expressly excludes any person who on either of

end p.884

those dates was also a national of the contracting state party to the dispute; that is, the host state.

The exclusion of persons with double nationality from making certain claims has its origin in the traditional rules relating to diplomatic protection, codified in Articles 4 and 5 of the 1930 Hague Convention on Certain Questions Relating to the Conflict of Nationality Laws. 93 The four scenarios that may arise in the context of double nationality in cases of diplomatic protections have been presented as follows: 94

… (i) a State should not be allowed to present a claim on behalf of a national when such person is also a national of the respondent state and with which it is more closely connected; (ii) this claim should not be presented even where the national in question is more closely connected with the claimant State; (iii) if the national of the claimant State is also a national of a third State—not being the respondent—and is more closely connected with that State, the claim should not be allowed either; and, (iv) if in this last situation the national is more closely connected with the claimant State than with the third State in question, then the claim could be brought against the respondent.

In the field of investment treaty arbitration, it is rare that an individual investor will be denied jurisdiction on the grounds of failure to satisfy the nationality requirement, although there have been isolated cases where this has happened. 95 Objections to nationality commonly arise in two situations. The first is where a claimant allegedly has dual nationality and possesses the nationality of the contracting state party to the dispute, in conflict with the express exclusion contained in Article 25(2)(a). Most BITs do not specifically address the issue of dual nationality. 96 The second situation is where the claimant allegedly lacks the nationality of the contracting state upon which it bases its jurisdiction.

It has been suggested that the concept of ‘effective nationality’ may provide a solution to the definition of nationality in the Convention. 97 The acceptance of effective nationality has been an issue in various ICSID cases. An examination of ICSID's drafting history shows that a suggestion that effective nationality be made a requirement never made it to the drafting stage and that possession of dual nationality is not in itself a bar to ICSID. From this, the conclusion has been drawn that it was never intended that the Convention preclude claims of dual nationals. 98

end p.885

The issue of ‘effective nationality’ has been raised in three well-known cases examined below. The first case, Hussein Nuaman Soufraki v United Arab Emirates , 99 concerned the more simple objection based on the claimant lacking the effective nationality of the contracting state, as required by Article 25(2)(a) of the ICSID Convention. The last two cases, Marvin Roy Feldman Karpa v United Mexican States100 and Champion Trading Co v Arab Republic of Egypt , 101 considered the concept of dual nationality.

Soufraki

Mr Soufraki, via arbitration, sought protection under the United Arab Emirates-Italy BIT. 102 As evidence of his Italian nationality, the claimant investor produced two Italian passports, five certificates of Italian nationality issued by Italian authorities, and a letter from the Ministry of Foreign Affairs of Italy confirming his right to have recourse to the BIT on the basis of his citizenship. The respondent objected on the ground that Mr Soufraki lacked effective nationality as required under international law. The ICSID tribunal upheld their objection. The tribunal held that the claimant, on acquiring Canadian nationality in 1991, automatically lost his Italian citizenship.

The claimant had argued that a letter from Italian authorities effectively giving him permission to rely on the UAE-Italy BIT precluded the tribunal from looking any further into the matter. The tribunal disagreed with this contention, basing their decision on Article 41(1) which states that the ICSID tribunal is ‘the judge of its own competence’. The tribunal stated that: 103

When, in international arbitral or judicial proceedings, the nationality of a person is challenged, the international tribunal is competent to pass upon that challenge. It will accord great weight to the nationality law of the State in question and to the interpretation and application of that law by its authorities. But it will in the end decide for itself whether, on the facts and law before it, the person whose nationality is at issue was or was not a national of the State in question and when, and what follows from that finding.

Accordingly, the tribunal found that it could look behind the certificates of nationality provided by the claimant 104 because, although it accepted that the certificates were ‘prima facie’ evidence of nationality, it agreed with Professor Schreuer that:

end p.886

… A certificate of nationality will be treated as part of the ‘documents or other evidence’ to be examined by the tribunal in accordance with Art 43 [of the Convention]. Such a certificate will be given its appropriate weight but does not preclude a decision at variance with its contents.

Having looked behind the certificates, the tribunal discovered that the authorities had issued them without knowledge of the necessary facts—that is, that Mr Soufraki had lost his Italian nationality in 1991.

Karpa

Mr Karpa had requested arbitration pursuant to Chapter 11 of NAFTA, on behalf of the Corporaci?n de Exportaciones Mexicanas SA de CV (‘CEMSA’), a company constituted under the laws of Mexico and owned by the claimant. A jurisdictional objection was made by Mexico on the grounds that the claimant had dual nationality. The jurisdictional issue was ‘whether the Claimant, being a citizen of the United States of America, and a registered permanent resident in Mexico, has standing to sue under Chapter Eleven of NAFTA’. 105

The tribunal considered the principles of international law and concluded that citizenship, not residence or other geographic affiliation, was the main connecting factor between a state and an individual because ‘[r]esidence, even permanent or otherwise authorized or officially certified residence, only fulfills a subsidiary function which, as a matter or principle, does not amount to, or compete with, citizenship’. 106

Therefore, the tribunal decided that the search for the ‘dominant or effective nationality’ required first the existence of a double citizenship and was not an issue in the case. The tribunal went on to ‘check’ this principle of international law against the NAFTA legal framework and the definition of ‘national’ contained in the NAFTA treaty. ‘National’ was defined in Article 201 as ‘a natural person who is a citizen or permanent resident of a Party’. As a matter of interpretation, the respondent had argued that the article rendered permanent residence tantamount to nationality for all intents and purposes, giving rise to a situation of dual nationality. The tribunal rejected this interpretation, based on both the structure of Chapter 11 and the purpose of NAFTA itself, and upheld the claimant's standing. 107

Champion Trading

The Champion Trading case dealt primarily with the application of the clear and specific rule contained in Article 25(2)(a) excluding as nationals of a contracting state natural persons who at the relevant dates were also nationals of the contracting state party to the dispute.

end p.887

The request for arbitration was made under the 1982 BIT between the USA and the Arab Republic of Egypt. 108 There were five claimants, three individuals and two companies. The respondent objected on the ground of lack of jurisdiction and invoked Article 25(2)(a). The respondent's claim, which was accepted by the tribunal, was that the three individual claimants held both American and Egyptian nationality when the parties consented to submit the dispute to arbitration and when the request was registered. The respondents relied on evidence that when the three individuals were born, their father had Egyptian nationality. Therefore, under Egyptian law, they had also acquired Egyptian nationality. The claimants made two arguments: first, that the father had lost his nationality before they were born and secondly, that the three claimants did not meet the international law test of ‘real and effective’ Egyptian nationality.

The claimants derived the real and effective nationality test from various international law sources. They referred to Article 1 of the Hague Convention on Nationality of 12 April 1930, a convention accepted as part of international law, despite it never coming into force. Article 1 of that Convention states:

It is for each State to determine under its law who are its nationals. This law shall be recognized by other States in so far as it is consistent with international conventions, international custom, and the principles of law generally recognised with regard to nationality.

The Claimants then turned to the International Court of Justice decision of Liechtenstein v Guatemala , 109 in which the following statement about nationality was made:

Nationality is a legal bond having as its basis a social fact of attachment, a genuine connection of existence, interests and sentiments.… It may be said to constitute the juridical expression of the fact that the individual upon whom it is conferred, either directly by the law or as the result of an act of the authorities, is in fact more closely connected with the population of the State conferring nationality that with that of any other State ….

The claimants also relied on the Interpretation by the Iran-US Claims Tribunal of the international treaty called the ‘Algiers Declaration’ 110 where the Iran-US tribunal stated that the Nottebohm decision demonstrated: 111

The acceptance and the approval by the International Court of Justice of the search for the real and effective nationality based on facts of a case, instead of relying on more formalistic

end p.888

criteria … In view of the pervasive effect of this rule … the Tribunal concludes that references to ‘national’ and ‘nationals’ in the Algiers Declarations must be understood as consistent with that rule unless an exception is clearly stated.

Regarding the claimant's first argument, the ICSID tribunal in Champion Trading held as an evidentiary matter that the individual claimants had failed to show that their father had lost his Egyptian nationality prior to their birth. On the second argument, the tribunal made some interesting observations: 112

The Tribunal notes that [the Algiers Declaration decision] contained an important reservation that the real and effective nationality was indeed relevant ‘unless an exception is clearly stated’. The Tribunal is faced here with such an exception… . According to the ordinary meaning of the terms of the Convention (Article 25(2)(a)) dual nationals are excluded from invoking the protection under the Convention against the host country of the investment of which they are also a national. This Tribunal does not rule out that situations might arise where the exclusion of dual nationals could lead to a result which was manifestly absurd or unreasonable (Vienna Convention, Article 32(b)). One could envisage a situation where a country continues to apply the jus sanguinis over many generations. It might for instance be questionable if the third or fourth foreign born generation, which has no ties whatsoever with the country of its forefathers, could still be considered to have, for the purpose of the Convention, the nationality of this state.

The Champion case also confirmed that, in contrast to the express exclusion of natural dual nationals in the ICSID Convention, the presence of dual nationals as shareholders of a claimant company does not preclude the tribunal from having jurisdiction over that company. The tribunal reached this conclusion based on the definition of ‘company of a party’ in the BIT and Article 25(2)(b) of the Convention, neither of which expressly excluded companies with dual national shareholders. 113

(ii) Nationality of a ‘Juridical Person’