It will be recalled that under Article 25(2)(b) a ‘juridical’ national is:

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(2)(b) extends the definition of ‘national of another Contracting State’ to include a ‘juridical person’. Two categories of juridical persons are contemplated. The first is a corporation of a nationality distinct from that of the contracting state party to the dispute. The second is a corporation which has the nationality of the contracting state party but is under foreign control. In this regard, Professor Lalive

end p.889

has described Article 25(2)(b) as constituting ‘a relatively bold departure from the traditional principle of international law, according to which a state cannot be sued internationally by its own nationals’. 114

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

‘Juridical person’ was never defined prior to its inclusion in the Convention; however, the Preliminary Draft did refer to a ‘company’. 115 Professor Schreuer argues that due in part to the Convention's drafting history, a mere association of individuals or juridical persons would be insufficient for Article 25(2)(b) to apply; rather, the entity must have legal personality. 116 The purpose of Article 25(2)(b) was not to define corporate nationality but to: 117

Indicate the outer limits within which disputes may be submitted to conciliation or arbitration under the auspices of the Centre with the consent of the parties thereto. Therefore the parties should be given the widest possible latitude to agree on the meaning of ‘nationality’ and any stipulation of nationality made in connection with a conciliation or arbitration clause which is based on a reasonable criterion.

Therefore, the BIT definition of ‘investor’ is paramount in each particular case. Under customary international law, two tests which provide criteria for the determination of a juridical person's nationality have become accepted. These are the traditional test of incorporation or effective seat and the control test. 118 For Article 25, Professor Schreuer suggests that the control test is the least appropriate since it imposes a different meaning on each use of ‘nationality’ within the same sentence. 119 ICSID jurisprudence indicates that the applicable test for the determination of corporate nationality under Article 25 is the traditional incorporation/effective seat test. 120 However, this does not negate the ability of parties to agree to a different test, a view that was discussed by the majority tribunal in Tokios Tokel?s v Ukraine . 121

Tokios

In Tokios , the tribunal was faced with an objection to jurisdiction founded on the argument that the control test was the appropriate test for the purposes of Article 25.

end p.890

Tokios Tokel?s, a company incorporated in Lituania, had sued the Ukraine in arbitration, claiming breaches of the Ukraine-Lithuania BIT. 122 The Ukraine contested jurisdiction on the grounds, inter alia, that Tokios Tokel?s was not a genuine ‘investor’ of Lithuania.

Regarding the first objection, there was no dispute that 99 per cent of the shareholding in the claimant was held by Ukrainian nationals. The respondent requested the tribunal to disregard the claimant's state of incorporation and to pierce the corporate veil in order to determine the claimant's nationality on the basis of its controlling shareholders. Article 1(2)(b) of the Ukraine-Lithuania BIT provided that a Lithuanian investor was ‘any entity established in the territory of the Republic of Lithuania in conformity with its laws and regulations’, that is, it recognized an incorporation test of corporate nationality. Article 1(2)(c) defined the meaning of investor for those corporations that were incorporated neither in Lithuania nor in the Ukraine. In such cases, the BIT enabled the nationality to be determined by reference to the nationality of those individuals controlling the entity or by reference to the si?ge social of the entity controlling the entity. The respondent argued that since Article 1(2)(c) contained the control measure of corporate nationality, which could operate to extend the scope of the BIT, this test should also be applicable to limit the scope of Article 1(2)(b). The tribunal dismissed this argument stating that the purpose of Article 1(2)(c) was to extend the definition of investor only in the context of entities incorporated under the laws of a third state. 123 It found that the claimant was an investor of Lithuania within the meaning of Article 1(2)(b) of the BIT.

The majority tribunal then turned to the ICSID Convention. It accepted that the definition of investor adopted by the BIT was consistent with the Convention and accepted that the vast majority of ICSID tribunals had adopted the incorporation test. The tribunal did not accept that the control test, as adopted in the second part of Article 25(2)(b), could be used to restrict the jurisdiction of the Centre since this was inconsistent with the test's purpose of expanding the Centre's jurisdiction. 124 Since there was no agreement to treat the claimant as a corporation of any state other than Lithuania, the control test did not apply to the facts before it. 125

Finally, the majority dealt with the applicability of the equitable doctrine of ‘veil piercing’. The majority did not agree with the respondent that the circumstances were such as to justify a lifting of the corporate veil. It referred to the ICJ decision of Barcelona Traction, Light and Power Co Ltd ( Belgium v Spain ) 126 which outlined loose criteria that would justify the lifting of a corporate veil. The tribunal was

end p.891

satisfied that the claimant's conduct as an entity of Lithuania did not amount to an abuse of legal personality.

The strong dissent in this case argued that the tribunal had no jurisdiction. Professor Prosper Weil disagreed with the approach taken by the majority and the finding that the claimant fell within the definition of a juridical entity as prescribed by the Convention. Professor Weil preferred that any analysis of a nationality objection begin with Article 25 and end with the BIT. 127 Therefore, the tribunal, in his view, should have asked first, whether the claimant fell within the meaning of Article 25(2)(b) corporate nationality and if yes, move on to consider whether the claimant was within the BIT definition. This amounts to favouring the concept of objective ICSID jurisdiction over the parties' consent, for it is within the terms of the BIT that the scope of the parties' consent is defined. Professor Weil argued that the tribunal should not have been blinded by formality, the claimant being almost entirely owned by Ukrainian nationals. The dissenting arbitrator did not perceive the corporate veil to be a relevant issue and saw the decision as being a simple one: either the claimant was of Lithuanian nationality or the claimant was not of Lithuanian nationality, and this question could be resolved with reference to the control or shareholding of the claimant. Professor Weil stated that: 128

The ICSID mechanism and remedy are not meant for investments made in a State by its own citizens with domestic capital through the channel of a foreign entity, whether pre-existent or created for that purpose. To maintain, as the Decision does, that ‘the origin of capital is not relevant’ and that ‘the only relevant consideration is whether the Claimant is established under the laws of Lithuania’ runs counter to the object and purpose of the whole ICSID system.

The basis which led the dissenting arbitrator to find irrelevant the lifting of the corporate veil is not entirely clear. Professor Weil did not discuss Article 1(2)(b) of the BIT and therefore did not seek to justify his examination of the claimant's shareholding to determine nationality by reference to the parties' agreed definition of investor.

The problem with the proposed fixed approach of beginning with the ICSID Convention and then turning to the BIT on questions as to jurisdiction arises when a tribunal finds itself in the ‘outer limits’ of jurisdiction. Any legal definition can be easily applied when a tribunal is in a situation clearly contemplated by it. However, when the tribunal is in a situation which may or may not fall within the definition, the dual interpretation of ICSID and the BIT will be necessary. For example, how the BIT defines an ‘investor’ will no doubt aid the tribunal in deciding whether such a definition is clearly within the scope of the Convention.

In Tokios , the tribunal found itself outside the core meaning of corporate nationality, as defined by the Convention. In other words, this was not a case where the issue of nationality was obvious. For this reason, albeit it was not explicit, it made

end p.892

interpretative sense first to decide whether the issue was contemplated by the BIT. If it were not, then the parties had not consented to the tribunal's jurisdiction, and the parties would have to seek resolution elsewhere.

The majority decision in Tokios and many other ICSID decisions reflect a flexible approach to Article 25. The first step in any situation would be to consider the BIT and how that instrument contemplates dealing with the nationality of the parties. A ‘nationality’ clause in the BIT can adopt its own particular definition of juridical entities. If the corporation's nationality satisfies the BIT definition, then the tribunal can look at whether it also satisfies the Convention. For, although the parties are free to define corporate nationality as they choose, it is not guaranteed that their definition will fall within the scope of the Convention. Deviation from the implicit incorporation test is permitted by agreement. However, it is submitted that this deviation cannot be to the extent that the BIT definition is contrary to the purpose of the Convention. If there is no clause dealing with nationality, then, as Amerasinghe suggests, the tribunal should be ‘extremely flexible’ in using various methods to determine the national of the juridical entity in question. This should include consideration of the control test of nationality.

As the foregoing discussion illustrates, the Article 25 test of nationality is not fixed and will vary to a certain extent, depending on the definition agreed on by the parties in the BIT. ICSID tribunals have accepted, on the whole, that Article 25(2)(b) will usually require a test of incorporation. However, if the parties have clearly set out a control test to determine the diversity of nationality requirement, then that will also satisfy Article 25(2)(b).

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

The second part of Article 25(2)(b) is said to create an ‘exception to the diversity of nationality requirement’. 129 It extends ICSID jurisdiction by recognizing the common situation where a host government insists that a foreign-controlled company be locally incorporated. In practice, BITs give effect to this aspect of Article 25 by the operation of their so-called ‘25(2)(b) clauses’. 130 Such clauses are quite common, in particular in UK treaties, which often provide that: 131

A company which is incorporated or constituted under the law in force in the territory of one Contracting Party and in which before such a dispute arises the majority of shares are

end p.893

owned by nationals of companies of the other Contracting Party shall in accordance with article 25(2)(b) of the Convention be treated for the purpose of the Convention as a company of the other Contracting Party.

Other BITs do not specifically refer to Article 25(2)(b) in their provisions but do recognize or require that the foreign investor of one of the state parties to the BIT, as a vehicle for investment activity, incorporate locally in the other state party. This was the situation in Aguas del Tunari SA v Republic of Bolivia , 132 which is discussed further on in this section.

Wena Hotels

In Wena Hotels , the meaning of such a clause was contested by the parties. The Arab Republic of Egypt (‘Egypt’) and Wena Hotels Limited (‘Wena’) were involved in a dispute relating to the lease and development of two hotels in Egypt. Egypt contested jurisdiction on various grounds, including nationality. The relevant provisions were Article 25(2)(b) and Article 8(1) of the relevant BIT. 133 The latter provided, in part, that:

Such a company of one Contracting Party in which before such a dispute arises a majority of shares are owned by nationals or companies of the other Contracting Party shall in accordance with Article 25(2)(b) of the Convention be treated for the purposes of the Convention as a company of the other Contracting Party.

Egypt contended that Article 8(1) excluded jurisdiction in cases where a company of a non-host state is controlled by nationals or companies of the host state. Wena argued that Article 8(1) was merely giving effect to the second part of Article 25(2)(b) and extending jurisdiction in situations where a company, incorporated in the host state, is under foreign control.

The tribunal was not presented with any evidence of the intention of the parties to the BIT, either in the form of travaux pr?paratoires or otherwise. It therefore focused its attention on academic commentary interpreting similar clauses and Article 25(2)(b). It adopted Wena's interpretation and concluded that the BIT clause operated only in cases where ‘an investment in Egypt or the United Kingdom is made through a local company, owned by companies or nationals of the other country’. 134 In the case before them, Wena Hotels Limited was not locally incorporated and therefore Article 8(1) did not apply.

end p.894

Agreements to Treat a Company as a National of another Contracting State

Holiday Inns/Occidental Petroleum v Government of Morocco135 is authority for the proposition that any agreement to treat a company as a national of another contracting state because of foreign control must be explicit and the tribunal will rarely imply such an agreement. 136 The tribunal further indicated that consent to treat a local company as a ‘national of another Contracting State’ should be expressed in the form of a subsidiary agreement.

However, following Holiday Inns , the tribunals in both Amco et al v Republic of Indonesia137 and Kl?ckner Industrie Anlagen GmbH v United Republic of Cameroon138 held that there is no formal requirement for a state to consent to treat one of its own nationals as a national of another contracting state because of foreign control. They held that all that was necessary was that the host state have knowledge of the foreign control of the relevant company, knowledge that could be implied. Despite the stark contrast in approaches, the different factual scenarios in each case have led them to be reconciled. 139 In Holiday Inns, there was simply no basis for implying that Morocco had agreed to treat the subsidiary companies as nationals of another contracting state. In contrast, in Amco the subsidiary company's parent had signed an agreement containing ICSID arbitration rights and in Kl?ckner the subsidiaries were parties to an agreement containing an ICSID clause.

The facts of Amco were that Amco Asia Corporation, an American company, had agreed in 1968 with Indonesia to construct a hotel in Indonesia. For the purposes of construction, Amco Asia Corporation applied to set up a wholly owned Indonesian incorporated subsidiary called PT Amco Indonesia. The application provided for ICSID arbitration in the event of a dispute. Indonesia agreed to the application. In 1972, shares of the Indonesian subsidiary were transferred from the principal company to the Hong Kong company, Pan American Development Ltd. Once the dispute arose, Indonesia made various jurisdictional objections, notably that it was not clear that Indonesia had agreed that PT Amco should be treated as an American national for the purposes of Article 25(2)(b).

The tribunal firmly rejected its objection. It stated that Article 25 did not require an express clause stating that the parties were treating a company as legally being a national of a contracting state, 140 nor did it require that the country of which the

end p.895

controlling shareholders of PT Amco were the nationals be expressly mentioned in the arbitration clause itself, it being sufficiently stated in the application itself. 141 The tribunal referred to the application submitted by Amco. The application expressly referred to ‘an APPLICATION to establish a foreign business in Indonesia’. The tribunal therefore held that there could be no doubt that Indonesia, in agreeing to the application, knew that PT Amco would be under foreign control. 142

The Extent to which the Juridical Entity is under Foreign Control: Soci?t? Ouest Africaine des B?tons Industriels (SOABI) v Republic of Senegal143

The SOABI arbitration arose out of a dispute over the implementation of a project concerning the construction of low-income housing in Dakar which required a factory for the prefabrication of reinforced concrete to be built by the investor SOABI. Senegal filed an objection to jurisdiction on the grounds of lack of consent on behalf of the parties to submit to arbitration and an objection on the grounds of nationality. When the contract containing the consent to ICSID arbitration was concluded, SOABI was directly controlled by Flexa Company, a company incorporated in Panama—a non-ICSID Contracting State. The tribunal held as a matter of fact that the Flexa Company shareholders were nationals of contracting states. Senegal argued that the foreign control requirement in Article 25(2)(b) meant foreign control by nationals of contracting states, and therefore, because SOABI was owned by a company incorporated in Panama, this requirement was not met. Senegal merely looked at who owned the claimant: Flexa Company, but not at who owned Flexa Company.

The tribunal agreed that foreign control meant foreign control by nationals of contracting states but held that this could mean indirect control: 144

the nationality of the [Flexa] Company which held in 1975 all of the shares of the subscribed capital of SOABI would have determined the nationality of the foreign interests if the Convention were to be interpreted as referring only to the immediate control. But the Tribunal cannot accept such an interpretation which is contrary to the purpose of Article 25(2)(b) in fine. This purpose … is to reconcile the wish of States hosting foreign investments to see these investments carried out through companies established under local law on the one hand and their desire to give these companies the capacity to be parties to procedures under the auspices of the Centre on the other hand.

The tribunal's interpretation of Article 25(2)(b) in SOABI appears to differ from the ICSID decision of Amco , where it was held that the concept of nationality of a

end p.896

juridical person in the Convention is a ‘classical one, based on the law under which the juridical person has been incorporated, the place of incorporation and the place of the social seat’. 145 However, the two cases are not necessarily inconsistent as Amco did not enunciate that ‘test’ as applying to the foreign control limb of Article 25(2)(b), despite the case being in this context. This ‘test’ does not exhaust all possibilities of juridical nationality as it was intended that the nationality of a juridical person also be based on foreign control. 146

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

Aguas considered various facets of corporate nationality, notably (1) the concept of migratory nationality; (2) the interpretation of the BIT definition of corporate nationality; and (3) whether the timing of a corporate restructuring which converted a company without jurisdiction under the BIT into one with jurisdiction was relevant to the finding of jurisdiction

The arbitration related to a water and sewage services contract (‘the concession contract’). Under the contract, the Claimant, Aguas del Tunari (ADT) had received the right to provide water and sewage services to the city of Cochabamba in Bolivia. ADT claimed that Bolivia's actions, including the rescission of the contract (less than a year after it was implemented), breached the Netherlands-Bolivia BIT. One of Bolivia's jurisdictional objections was that ADT was not a Dutch national as defined in the BIT. A related objection was that the change in the place of incorporation of ADT's majority shareholder company, International Water (Aguas del Tunari) Ltd (‘IW Ltd’), breached the concession contract and therefore barred the tribunal's jurisdiction. This latter point is interesting for it refers to the concept of ‘migratory nationality’, a relatively rare concept in investment treaty disputes. It will be discussed first.

Migratory Nationality

Article 37.1 of the concession contract required that the founding stockholders keep more than 50 per cent of the ‘original equity percentage in voting shares of the Concessionaire’, at least for the first seven years of the concessions. An annex to the concession contract listed a company called Bechtel Enterprises Holdings Inc (‘Bechtel’), an American company, as a founding stockholder. Bechtel, at the time the contract was executed, wholly owned IW Ltd, a company incorporated in the Cayman Islands and the 55 per cent shareholder in ADT. A few months after the contract came into force, IW Ltd moved its place of incorporation from the Cayman Islands to Luxembourg and changed the company name to International Water

end p.897

(Tunari) SARL (‘IW SARL’). Bechtel's ownership of IW Ltd also underwent significant restructuring, resulting in a further three intermediary companies between Becthel and IW SARL. 147 The respondent argued that the change in place of incorporation and the upstream changes in incorporation breached Article 37.1 of the concession contract. The claimant disagreed and submitted that there was no change of ownership but merely a migration from the Cayman Islands to Luxembourg. Moreover, the upstream restructuring was not within the scope of Article 37.1, that article addressing only ‘the first tier’ of ADT owners.

The tribunal perceived Bolivia's interpretation of the contract as requiring ADT to remain for the first seven years under the same corporate structure of corporate control as when the contract was signed. It disagreed with this interpretation and was of the opinion that the concession contract did allow for some restructuring. 148 It agreed with the claimant's distinction between first-tier and final-tier shareholders since the contract distinguished between founding shareholders and ultimate shareholders. The respondent's submission was therefore reduced to whether or not IW Ltd had kept more than 50 per cent of its original interest. To answer that question, the tribunal had to determine whether or not the corporate migration had yielded the same or a different entity. The tribunal noted that the possibility of a corporation migrating whilst maintaining the same legal identity was a rare one. Indeed, it required that both jurisdictions legally accept and recognize the migration and that the receiving jurisdiction permit the continuation of the legal entity. 149 However, in the unusual situation before it, both legal systems did permit such an occurrence and the tribunal upheld the claimant's contention that there had been no change in legal identity. Accordingly, there was no breach of the concession contract.

The Interpretation of the BIT Definition of Corporate Nationality

Turning to whether or not ADT was a Dutch national, the tribunal had to find that, pursuant to Article 1(b)(ii) and (iii) of the BIT, it was ‘controlled directly or indirectly’ by nationals of the Netherlands. There was no dispute that ADT was incorporated in, and therefore a national of, Bolivia. However, the BIT recognized the concept of a local entity under foreign control. The tribunal's finding on this issue therefore depended on the location of that foreign control. Each party had argued a different meaning of the word ‘control’: the claimant submitted control meant having the legal potential to control; the respondent contended that it meant having the actual exercise of control.

end p.898

The tribunal's approach was dictated by its application of Article 31 ‘General rule of interpretation’ and Article 32 ‘Supplementary means of interpretation’ of the Vienna Convention on the Law of Treaties (‘Vienna Convention’). The Tribunal looked first at the ordinary meaning of the expression, as required by Article 31. Then, pursuant to Article 32, it confirmed this interpretation. Finally, it applied its interpretation to the case before it. The tribunal regarded the interpretation of Article 31 as: 150

A process of progressive encirclement where the interpreter starts under the general rule with (1) the ordinary meaning of the terms of the treaty, (2) in their context and (3) in light of the treaty's object and purpose, and by cycling through this three step inquiry iteratively closes in upon the proper interpretation.

The tribunal's discussion on the meaning of the expression ‘controlled directly or indirectly’ was detailed. 151 The tribunal agreed with the claimant's interpretation that ‘control’ required potential and not actual control for three reasons. First, the notion that ‘control is a quality that accompanies ownership’ was supported by law in that an entity that owns 100 per cent of the shares of another entity necessarily possesses the power to control the second entity’. 152 Secondly, the requirement of ‘actual control’ was ‘sufficiently vague as to be unmanageable’. 153 Thirdly, this uncertainty surrounding the notion of ‘actual control’ was inconsistent with the object and purpose of the BIT: 154

The [Netherlands-Bolivia BIT] is intended to stimulate investment by the provision of an agreement on how investments will be treated, that treatment including the possibility of arbitration before ICSID. If an investor can not ascertain whether their ownership of a locally incorporated vehicle for the investment will qualify for protection, then the effort of the BIT to stimulate investment will be frustrated.

The tribunal rejected the respondent's argument that statements made the Dutch government changed this interpretation because they amounted to ‘subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation’ as provided for in Article 31(3) of the Vienna Convention. Not only were the comments of a general nature but there had been some acknowledgement by the Dutch government that they were potentially incorrect. Therefore, this could not amount to ‘subsequent practice’ establishing an agreement between the parties.

end p.899

The tribunal confirmed its interpretation by reference to (a) the negotiating history of the BIT, (b) the jurisprudence regarding Article 25(2) of the ICSID Convention, (c) the holdings of other arbitral awards concerning ‘control’, and (d) the BIT practice generally of both nations, as required by Article 32 of the Vienna Convention. 155 In doing so, the tribunal held that ICSID jurisprudence on the meaning of ‘control’ in Article 25(2)(b) of the ICSID Convention was unhelpful in interpreting the BIT. It cited Professor Schreuer's observations that national and treaty-based definitions should be deferred to, so long as they are reasonable. Applying its meaning of Article 1(b)(iii) to the facts before it, the tribunal concluded that ADT was indirectly controlled by Dutch nationals and that the jurisdictional requirements of the BIT were met.

Timing of Corporate Restructuring

The tribunal noted the respondent's objection based on the timing of the transfer of ownership of the claimant to Dutch nationals, that is, after the problems with the investment arose. At the time ADT had signed the Concession Agreement, its upstream ownership did not provide it with jurisdiction ratione personae under ICSID. 156 The respondent argued that the timing of the restructuring was tantamount to a ‘fraudulent or abusive device to assert jurisdiction under the BIT’. 157 The tribunal rejected this claim, which has incurred some criticism. 158

Basing jurisdiction on the nationality of an intermediate holding company also occurred in Tokios Tok?les v Ukraine159 and in Saluka Investments BV v The Czech Republic . 160 However, such intermediate companies were in existence prior to problems arising with the investment, a fact which can be contrasted with the Aguas case. 161

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

Due to the explosion in the number of BITs in operation between different combinations of states, the applicability or otherwise of that part of Article 25(2)(b) which concerns the nationality of a corporation has diminished in importance because such BITs often include shareholding in a locally incorporated corporation in the definition of an investment. Therefore, the foreign shareholder in a company incorporated in the host state, be it a natural person or a company, becomes the

end p.900

investor and the shareholding itself is the investment for the purposes of ICSID arbitrations. 162 In this scenario, it is possible to overcome the problem that a company established under the law of the host state is disqualified as a claimant because it does not have the requisite nationality to give it the status of a foreign investor. The subject of shareholder protection in international investment law is of great practical importance. It is also one of some complexity and space does not permit an extensive treatment of the topic.

The classic case on the protection of shareholders is the Barcelona Traction163 case where the International Court of Justice held that Belgium, the state of nationality of the majority shareholders of a company incorporated in Canada, was unable to pursue claims against Spain for damage done to the company. The judgments have been subject to many and varied analyses. 164 A search for the true interpretation of the case will not be undertaken since, as Professor Schreuer has observed, ‘practice since 1970, the year of the decision in Barcelona Traction, demonstrates an increasing willingness to grant an independent standing to shareholders …’ so that ‘one can make a strong argument that the decision of the ICJ no longer reflects the current state of international law’. 165

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

It will be recalled that Article 25(1) extends the definition of a contracting state to any ‘constituent subdivision or agency of a Contracting State designated to the Centre by that State’. Despite the limited significance of this category of jurisdiction ratione personae in practice, for the sake of completeness, it is included within this chapter. The ability of a constituent subdivision or agency of a contracting state to be a party to an

end p.901

ICSID proceeding is an acknowledgement that in reality, agreements with investors are not always entered into by the government, and therefore the state. 166 Indeed, in many cases statutory bodies or bodies which carry out public functions are legally separate from the state itself. In federal states, such as the USA and Australia, it is often the constituent states that contract with foreign investors.

There are two requirements under Article 25 in order for constituent subdivisions or agencies of a contracting state to have standing. First, under Article 25(1) the subdivision or agency of a contracting state must be designated to the Centre by the state in order for the Centre's jurisdiction to extend to them. Secondly, Article 25(3) requires that any agreement between a designated subdivision or agency and a foreign investor to submit a dispute to arbitration must be approved by the state of that subdivision or agency unless the state in question has notified the Centre that no such approval is required. These two requirements are distinct, the former being an issue of jurisdiction ratione personae, the latter being an issue related to consent. 167 This chapter will deal with both.

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

The requirement of designation reduces the importance of defining ‘constituent subdivision’ and ‘agency’. 168 The drafters of the ICSID Convention recognized that states will define government entities in various forms and chose not to define the terms ‘constituent subdivision(s)’ and ‘agency’. 169 A general distinction between a ‘constituent subdivision’ and an ‘agency’ is based on territoriality. Constituent subdivisions are generally territorial whereas agencies are not. 170

‘Constituent subdivisions’ covers a large range of subdivisions including: municipalities, local government bodies in unitary states, semi-autonomous dependencies, provinces or federated states in non-unitary states and local government bodies in such subdivisions. 171 It has also been held that ‘constituent subdivision’ can be ‘any territorial entity below the level of the State itself’. 172

‘Agency’ is a term which was intended to encompass the widest range of entities possible and should be interpreted accordingly. 173 As Amerasinghe has said: 174

It is probably necessary that the entity be acting on behalf of the government of the State concerned or one of its constituent subdivisions, and this is perhaps the main criterion. It would not seem to matter that the agency belongs to a political subdivision or that it has

end p.902

separate legal personality from the government. Indeed, the use of the term ‘agencies’ as opposed to ‘instrumentalities’ may well indicate that it was intended to include even certain government-owned companies or government-controlled companies. On the other hand, mere ownership by the government of shares in a public company may be inadequate for the entity to qualify as an agency.

Overall, to determine whether or not an entity is an agency for the purposes of Article 25(1), one should primarily consider whether or not the entity is carrying out a public function and, as a secondary matter, look at the entity's structure. 175 The concept of a ‘public-function test’ is found in common law countries that have the judicial review of public bodies and public bodies subject to Bills of Rights. 176 It is clear from New Zealand and Canadian jurisprudence that what amounts to the performance of a ‘public function’ is a matter of policy rather than law. 177

The designation by a state of a particular entity will create a strong presumption in favour of finding that that entity is in fact a constituent subdivision or agency for the purposes of Article 25(1). 178 However, a ‘consent to arbitration’ agreement between a foreign investor and a particular entity of a contracting state does not create a presumption that the entity satisfies the requirements of the Convention. 179 In any event, regardless of the consent agreement and the designation, the entity must satisfy the Convention's jurisdictional requirements if it is to have any standing at all before the Centre. 180 The tribunal or commission has the power to decide proprio motu the question of whether or not a designated body falls within the terms of the Convention: that is, a tribunal can, without the issue being raised by one of the parties, hold that a designated entity is not within the terms of the Convention, and therefore deny jurisdiction. 181 This power is consistent with Articles 32(1) and 41(1) which accord tribunals and commissions the right to be the judge of their own competence.

(ii) Designation

The primary purpose of the requirement to designate entities that might become parties in ICSID proceedings to the Centre is to give an investor assurance that he is dealing with an authorized entity. 182

A constituent subdivision or agency's consent to jurisdiction will only be activated once the designation has actually been made. 183 In principle, the designation may be

end p.903

made any time before or after a foreign investor enters into an agreement with the entity in question, such agreement containing a consent clause. However, if there has not been a designation made by the time a request is filed with the Centre, jurisdiction will generally be denied. 184 In Kl?ckner v Cameroon , the tribunal made an exception to this rule in allowing the Cameroon government to designate SOCAME as a constituent subdivision eight months after a request for arbitration against Cameroon and SOCAME (a joint venture company) was registered. Interestingly, in that case, the secretary-general registered the case, despite the lack of designation. Furthermore, as Professor Schreuer points out: 185

… the case shows that an entity that at one stage was an instrument of the investor and that was even regarded as capable of contracting an ICSID arbitration clause with the Government subsequently became an agency of the Government which was capable of being designated to ICSID in that capacity.

There is no formal method to be adopted by the state in designating a particular subdivision or agency to ICSID. 186 However, designating a particular subdivision or agency within an investment agreement concluded between the contracting state and the subdivision or agency, without officially communicating that designation to the Centre would be inadequate. 187 Notwithstanding this, effect must as far as possible be given to the intention of the parties. Therefore, if there was a clear intention on the part of the state to designate a particular entity, this need not be communicated by the state itself, but can come to the Centre's attention via other parties to the designation agreement. 188 On this point, it has been cautioned that designation cannot be completely dispensed with, but will be recognized if it has: 189

… general notoriety and comes to the Centre's attention. Legislation by the Contracting State that clearly includes a designation in the sense of Art. 25 should suffice. This would also apply to a designation contained in a bilateral investment treaty. Despite this, it is advisable that the Contracting State sends a clear and separate notification of the designation to the Centre in order to avoid any jurisdictional difficulties.

As an example of designation, on 8 October 1998 Turkey designated the Turkish Electricity Generation and Transmission Corporation (TEAS) and the Petroleum Pipeline Corporation (BOTAS) as agencies capable of being parties to an ICSID proceeding. 190 Once any consent to jurisdiction given by those agencies has been approved by Turkey under Article 25(3), ICSID's jurisdiction will extend to these

end p.904

companies in a dispute between them and a national of a contracting state other than Turkey.

There is no explicit statement in the Convention that the designation be absolute. In other words, it would be acceptable for the state to limit its designation in some way, be it temporally or to a particular type of investment. 191 However, if a state were concerned with limiting a particular entity's power, it could achieve this by withholding consent under Article 25(3). 192

The case of Cable Television of Nevis Ltd and Cable Television of Nevis Holdings Ltd v The Federation of St Christopher (St Kitts) and Nevis193 illustrates the result of non-designation. The claimants were both incorporated in Nevis and controlled by nationals of the USA. The claimants had entered into an investment agreement with the government of Nevis to construct a cable television system on the island of Nevis. The respondent submitted that the tribunal did not have jurisdiction for two primary reasons. First, the tribunal was not competent to substitute the government of Nevis as a party for the Federation. Secondly, that being so, the government of Nevis, or the Nevis Island Administration (‘NIA’), had not been designated to the Centre by the respondent. The tribunal agreed with the respondents. It established that the proper parties to the investment agreement containing a dispute resolution clause were in fact the claimants and the NIA, and not the claimants and the Federation. It came to this conclusion following an analysis of the Constitution of Saint Christopher and Nevis where it was explicitly stated within numerous sections that the island of Nevis was distinct from the Federation. 194 The tribunal placed primary importance on sections of the Constitution giving Nevis a separate Legislature. 195 Accordingly, because the NIA, as a constituent subdivision or agency of the Federation, was not designated by the Federation, the tribunal had no jurisdiction.

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

As mentioned above, the approval by the State of an entity consenting to arbitration is a separate issue to that of designation. However, the existence of an approval from a state may be interpreted as an ad hoc designation. 196

The ability of a state to notify the Centre that no approval is required stems from objections made during the drafting of the Convention. There were three main

end p.905

objections based on constitutionality, estoppel, and the importance of limiting internal issues to the domestic arena:

(i) It would be unconstitutional in federal states for a federal state to need to give approval of an agreement entered into between constituent states and provinces and foreign investors.

(ii) It ought not to be possible for a state to be allowed to withhold approval when the constituent subdivision or agency had held itself out to the investor as competent to enter into an agreement to submit to arbitration.

(iii) The question of a state giving approval is a domestic law issue and should not be dealt with in the international sphere. 197

There is no particular form of approval required under the Convention. There is no explicit requirement that there be communication of the approval made directly to the Centre. Furthermore, it is not necessary for the entity to be informed of the approval or to accept the approval. 198 A valid approval includes a ‘clause in an agreement with the host state in which the host State approves the consent to submit dispute to the Centre’ and a ‘designating instrument [containing] an approval of the consent to arbitration’. 199

However, notwithstanding the lack of a requirement of communication to the Centre, it is clear that the tribunal or the commission is free to decide on the validity of the approval as part of determining its jurisdiction. Accordingly, to hold that there is a valid approval, an overt, albeit unilateral, act is required. Therefore, a mere intention to approve will be insufficient to establish valid approval. 200 Once a state has approved the entity's consent, it cannot withdraw it as this would contravene Article 25(1). 201

(4) Jurisdictional Requirements under ICSID's Additional Facility

The Additional Facility Rules were adopted in order to broaden the Centre's access to investment disputes in cases where the jurisdictional requirements

end p.906

under Article 25 have not been met. 202 These Rules can be described as setting up residual jurisdiction. Article 2 sets out the conditions of access to the Centre:

The Secretariat of the Centre is hereby authorized to administer, subject to and in accordance with these Rules, proceedings between a State (or a constituent subdivision or agency of a State) and a national of another State, falling within the following categories:

(a) conciliation and arbitration proceedings for the settlement of legal disputes arising directly out of an investment which are not within the jurisdiction of the Centre because either the State party to the dispute or the State whose national is a party to the dispute is not a Contracting State;

(b) conciliation and arbitration proceedings for the settlement of legal disputes which are not within the jurisdiction of the Centre because they do not arise directly out of an investment, provided that either the State party to the dispute or the State whose national is a party to the dispute is a Contracting State; and

(c) fact-finding proceedings.

In the situations contemplated by Article 2(a) and (b), the Additional Facility's jurisdiction for legal disputes is complementary to Article 25 jurisdiction and is only triggered if Article 25 is not satisfied. Under Article 2(c), no jurisdictional requirements are indicated. Under the Additional Facility, the Centre can have jurisdiction only if either the host state or the investor's home state is a contracting state. The non-contracting state can agree to submit to arbitration.

A leading case decided under ICSID's Additional Facility is that of Metalclad Corporation v United Mexican States . 203 Since Mexico is not a party to the ICSID Convention, NAFTA cases involving the United Mexican States will either proceed under the Additional Facility or with an ad hoc tribunal established under the UNCITRAL Rules. The unfolding of events in this case served to expose some possible anomalies in the appellate process following the issuing of an Additional Facility Award. Had the award been rendered under the standard facility the only means of challenge would have been by way of proceedings for annulment pursuant to Article 52 of the Convention. 204 The reviewing body in such cases is an ad hoc committee which tends to be composed of international lawyers with a corresponding background in international law. In contrast, under the Additional Facility, an appeal may be possible to the relevant domestic courts. In Metalclad, the relevant court was the Supreme Court of British Columbia which derived its jurisdiction under section 5 of the International

end p.907

Commercial Arbitration Act RSBC 1996. 205 Being a domestic court, its usual judicial activity is: 206

in the field of domestic law and is rarely, if ever, involved in matters of public international law … There is a real possibility in such circumstances that the review judge before whom the matter comes may approach matters in a manner that a public international lawyer would not—for example in relation to the technique for the interpretation of treaties or the determination of the content of customary international law … In Metalclad the consideration of the issue of jurisdiction involved considerable discussion of international law.

It has been suggested that to the extent that Additional Facility proceedings merge international and domestic proceedings, the situation is unsatisfactory and the Additional Rules could be amended so as to prevent such situations. 207 From a practical point of view, the Metalclad message is that courts at the place of arbitration will have the last word and therefore the place of arbitration should be selected with care; countries whose laws grant a court the power to ‘second-guess the arbitrator on the substantive merits of the dispute’ should perhaps be avoided. 208

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

(a) NAFTA

NAFTA is a multilateral treaty between Canada, the USA and Mexico. 209 Under Chapter XI of NAFTA, investors have a direct right of access to various arbitration rules 210 which may be invoked against the state parties for alleged breaches of the treaty.

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Article 1101 of NAFTA defines the scope of Chapter XI and in material part provides:

1. This Chapter applies to measures adopted or maintained by a Party relating to:

(a) investors of another Party;

(b) investments of investors of another Party in the territory of the Party existing at the date of entry into force of this Agreement as well as to investments made or acquired thereafter by such investors; and

(c) with respect to Article 1106 [Performance Requirements], all investments in the territory of the Party existing at the date of entry into force of this Agreement as well as to investments made or acquired thereafter.

For a tribunal to have jurisdiction ratione personae over a dispute, the investor must be a national of a NAFTA country (natural or juridical person) who has made an investment which is owned or controlled directly or indirectly by that national. 211 A juridical entity which is incorporated and has substantial business activities in a NAFTA country will be protected, notwithstanding any origin of capital limitations. 212 Regarding jurisdiction ratione materiae, Article 1138 of NAFTA provides a broad definition of ‘investment’ but expressly excludes from its definition of investment:

(i) claims to money that arise solely from either:

(i) commercial contracts for the sale of goods or services by a national or enterprise in the territory of one Party to an enterprise in the territory of another Party, or

(ii) the extension of credit in connection with a commercial transaction, such as trade financing, other than a loan covered by subparagraph (d), or

(j) any claims to money,

that do not involve the kinds of interests set out in sub-paragraphs (a) through (h).

Cases decided under NAFTA are discussed under the UNCITRAL section below as well as in the section on admissibility.

(b) The Energy Charter Treaty

The state parties to the ECT are numerous and include some states which have not ratified the ICSID Convention. The treaty became effective on 16 April 1998, following the ratification of its 30th member. 213 Under Article 26 of the ECT, a

end p.909

foreign investor may choose between four tribunals: an ICSID Main Facility tribunal, an ICSID Additional Facility tribunal, an ad hoc tribunal established under UNCITRAL, or an arbitral tribunal under the auspices of the Arbitration Institute of the Stockholm Chamber of Commerce (‘SCC’). 214 The ICSID Main Facility is the sole option which contains a jurisdictional filter operating via the Article 25 definition of investment, which has been discussed at length above. As with BITs, in the ECT context, when the arbitral tribunal is established under the ICSID Main Facility the claimant faces two jurisdictional hurdles: first, to fall within the scope of ECT protection and secondly, to come within Article 25. 215

Investment in the ECT is very broadly defined in Article 1(6) and ‘means every kind of asset, owned or controlled directly or indirectly by and Investor’ and then lists a number of covered investments. Article 1(6) also states that:

A change in the form in which assets are invested does not affect their character as investments and the term ‘Investment’ includes all investments, whether existing at or made after the late of the date of entry into force of this Treaty for the Contracting Party of the Investor making the investment and that for the Contracting Party in the Area of which the investment is made (hereinafter referred to as the ‘Effective Date’) provided that the Treaty shall only apply to matters affecting such investments after the Effective Date.

The Understandings with respect to the Treaty state that control of an investment is control in fact. They also outline various factors that should be considered when establishing control, including: 216

(a) financial interest, including equity interest, in the Investment;

(b) ability to exercise substantial influence over the management and operation of the Investment; and

(c) ability to exercise substantial influence over the selection of members of the board of directors or any other managing body.

Where there is doubt as to whether an investor controls, directly or indirectly an investment, an investor claiming such control has the burden of proof that such control exists.

The types of transactions which are expressly excluded from the meaning of investment in Article 1138 of NAFTA are not mirrored in the ECT. 217Article 1(7) defines an investor as:

end p.910

(a) with respect to a Contracting Party:

(i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law;

(ii) a company or other organisation organised in accordance with the law applicable in that Contracting Party;

(b) with respect to a ‘third state’, a natural person, company or other organisation which fulfils, mutatis mutandis, the conditions specified in subparagraph (a) for a Contracting Party.

Article 1(7)(a)(i) protects permanent residents of a contracting state in another contracting state. This mirrors Article 201 of NAFTA which states that ‘national means a natural person who is a citizen or permanent resident or a Party and any other natural person referred to in Annex 201.1’ (emphasis added). The reach of Article 1(7)(1)(i) has been described as ‘striking’ and contrasted with the additional requirement imposed by the ICSID Convention's Article 25 that natural persons not hold the nationality of the host state. 218

Article 1(7)(a)(ii) protects, in general, legal entities that are organized in accordance with the law applicable in that contracting state. This definition appears broader than, for example, the 1987 ASEAN Agreement for the Promotion and Protection of Investments. 219Article I(2) of the ASEAN Agreement states that a company of a contracting state is generally a legal entity which is incorporated under the laws in force in the territory of any Contracting Party ‘wherein the place of effective management is situated’. Therefore if the incorporation and effective management of the company are physically separate for a particular company, the ASEAN agreement will not apply to that particular company.

The Article 1(7)(a)(ii) definition can also be compared to the Sweden-India BIT. 220 That BIT, in Article 1(d) states:

‘Companies’ mean any corporations, firms and associations incorporated or constituted under the law in force in the territory of either Contracting Party, or in a third country if at least 51 percent of the equity interest is owned by the investors of that Contracting Party, or in which investors of that Contracting Party control at least 51 percent of the voting rights in respect of shares owned by them. (Emphasis added)

Therefore the Sweden-India BIT permits there to be a ‘middle’ country. For example, if Swedish investors own 51 per cent of a company incorporated in the USA (the third country) with investments in India, the company is covered as an investor. Similarly,

end p.911

if Swedish investors control 51 per cent of the US incorporated company which has investments in India, the company is covered as an investor. The ECT will also allow such a situation as long as the investors in a foreign-incorporated company control in fact that company. 221

An interesting decision of an SCC tribunal, that of Petrobart Ltd v The Kyrgyz Republic , 222 dealt extensively with the meaning of an investment for the purposes of Article 1(6) of the ECT and touched briefly on the meaning of investor under Article 1(7). Petrobart submitted its request for arbitration with the SCC against the respondent Kyrgyz Republic pursuant to Article 26 of the ECT. In January 1997, the Kyrgyz Republic, a small state undergoing transition from a communist regime to a democratic one, established a joint stock company called Kyrgyzgazmunaizat (‘KGM’) for the purpose of rationalizing the use of the state-owned infrastructure for the supply of oil and natural and liquid gas products within the Republic. On 23 February 1998, the parties entered into a Goods Supply Contract No. 1/98-PB (‘the Contract’) pursuant to which Petrobart agreed to supply and transfer ownership of 200,000 tons of stable gas condensate for one year on a monthly basis to KGM in exchange for US$143.50 per metric ton of gas. KGM failed to make all the payments that were due. Petrobart postponed further deliveries and went to the local courts, which eventually resulted in KGM being declared bankrupt.

Petrobart submitted that it was an investor within the definition of Article 1(7) of the ECT and that the contract, its claims for money under that contract, and the Bishkek's Court's judgment of 25 December 1998 in favour of Petrobart all represented investments within the meaning of Article 1(6) of the ECT. Regarding Article 1(7) of the ECT, the Kyrgyz Republic argued that Petrobart being a company organized in accordance with the laws of Gibraltar was not an investor for the purposes of the ECT because the UK had not ratified the ECT on Gibraltar's behalf. The tribunal rejected this contention and held that the Treaty continued to apply on a provisional basis to Gibraltar notwithstanding the fact that UK's ratification did not cover Gibraltar. 223

Turning to whether or not Petrobart had an investment for the purposes of Article 1(6), the tribunal held that the contract and the judgment were not assets in their own right but legal documents which established legal rights. Those legal rights in turn could be considered assets. In light of this legal finding, the question then became ‘whether Petrobart's right under the Contract to payment for goods delivered under the Contract was an asset and constituted an investment under the [ECT]’. 224 The tribunal began its analysis by referring to Article 1(6)(c) which included as an investment ‘claims to money and claims to performance pursuant to contract having an economic value and associated with an investment’. It then went on to consider

end p.912

ICSID jurisprudence on point, notably the Fedax , 225Salini Costruttori , 226 and SGS v Philippines227 cases to support the proposition that it was not unusual for claims to money, even if not based on any long-term involvement in a business, to be included within the definition of ‘investment’. The tribunal noted that the Article 1(6)(c) definition in the ECT was somewhat ambiguous for the following reasons: 228

In particular, it is not entirely clear whether the words ‘pursuant to contract having an economic value and associated with an Investment’ or part of these words—‘having an economic value and associated with an Investment’ or ‘associated with an Investment’—relate only to ‘claims to performance’ or also to ‘claims for money’. It we assume that at least the terms ‘associated with an Investment’ also relate to ‘claims for money’, we are faced with the logical problem that the term ‘Investment’ is not only the term to be defined but is also used as one of the terms by which ‘Investment’ is defined. This means that the definition is in reality a circular one which raises a logical problem and creates some doubt about the correct interpretation.

The tribunal solved this dilemma by seeking guidance from Article 1(6)(f) which permitted any right conferred by contract to undertake any economic activity in the energy sector to be considered an investment. An ‘economic activity in the energy sector’ was further defined in Article 1(5) as:

economic activity concerning the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing or sale of Energy Materials and Products except those included in Annex NI, or concerning the distribution of heat to multiple premises.

It was not disputed therefore that gas condensate was to be considered as ‘Energy Materials and Products’ and it was not within those activities contained in Annex NI of the ECT. The tribunal therefore concluded that Petrobart had an investment within the meaning of the ECT. There has been interesting scholarship to suggest that, had Petrobart been decided under the ICSID Rules and based on the decisions and commentary to date, the claim would have not qualified as an investment for the purposes of Article 25. 229 The same authors state that ICSID's jurisdiction ratione materiae has an outer limit which is contained within the sphere of the ECT's definition of investment. 230 If one were to draw two circles, one inside the other, the inner circle would represent the Article 25 definition of investment, whilst the outer circle would be the ECT definition. In this respect, the different arbitration mechanisms contained in Article 26 of the ECT not only

end p.913

entail different procedures, but the choice of mechanism could also affect the tribunal's jurisdictional breadth. 231

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

It is convenient to deal briefly with investment treaty disputes which are arbitrated under the UNCITRAL Rules, the Rules of the International Chamber of Commerce, Paris (‘ICC’) or the London Court of International Arbitration (‘LCIA’).

(a) UNCITRAL Rules

Arbitration under UNCITRAL Rules may be a specific option under a Multilateral Investment Treaty (MIT) or a BIT. As discussed above, NAFTA is a prime example of the former situation. 232 Alternatively, provision may be made in an arbitration agreement for a dispute to be referred to an ad hoc tribunal operating under UNCITRAL Rules. 233 As to the latter situation, CME /Lauder v the Czech Republic arbitrations (1999–2001) is said to be the ‘first publicly known investment dispute involving bilateral investment treaties’ to be decided under UNCITRAL as opposed to ICSID. 234 In that case, the dispute resolution provision in the relevant BIT 235 provided for a dispute to be submitted to an ad hoc arbitral tribunal which would determine its own procedure and apply the UNCITRAL Rules. Following the award being rendered in Stockholm against the Czech Republic, the Czech Republic challenged the award before the Court of Appeal in Stockholm pursuant to the Swedish

end p.914

Arbitration Act. 236 (Appeals to state courts are precluded by Arts 26 and 53 of the ICSID Convention and the only recourse against an ICSID Award is through the annulment procedures of Art 52.)

Saluka Investments BV (The Netherlands) v The Czech Republic237 is another example of a BIT requiring that the arbitral tribunal apply the UNCITRAL Rules. The relevant BIT was the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic signed on 29 April 2001.

(b) ICC

Investment laws, BITs, and MITs are increasingly mentioning the ICC as a possible arbitral institution to which reference may be made in the event of an investment dispute. 238 The ICC's jurisdiction is based on an agreement to arbitrate between the parties. If there is a dispute as to whether there is jurisdiction under the relevant agreement to arbitrate, the ICC Court of Arbitration will first determine under Article 6(2) of the ICC Rules whether it is ‘prima facie satisfied that an agreement under the Rules may exist’. 239 If the Court is so satisfied, the dispute will then be passed to the arbitral tribunal. The tribunal however retains the power, in an interim decision or a final award, to decide whether or not jurisdiction exists. 240 If the Court concludes that there is no evidence of a prima-facie agreement, then the parties still retain the right under Article 6(2) to request a court having jurisdiction to decide whether or not there is a binding arbitration agreement. 241

end p.915

An example of the use of the ICC Rules in an investment arbitration is Bridas SAPIC v Government of Turkmenistan . 242 As a result of an international tendering process, the claimant and the government of Turkmenistan reached an agreement on the formation of a joint venture which was to be structured as a legal entity registered in Turkmenistan. The object of the joint venture vehicle was to carry out oil and gas explorations and production in an area of Turkmenistan. The joint venture agreement provided for ICC arbitration. The main jurisdictional issue in the case was whether the Turkmenistan government should be bound as an alter ego of a state concern which signed the arbitration agreement. The ICC arbitral panel held that the government was a proper party to the arbitration and that it had jurisdiction to adjudicate the claimant's dispute with the government. The tribunal held the government liable for repudiating the JVA and awarded US$495 million in damages. However, the award was rejected by the US federal courts and the award against the government vacated. 243

(c) LCIA

Article 23 of the LCIA Rules deals with the jurisdiction of the arbitral tribunal. In the conventional way, it confirms that the tribunal has power to rule on its own jurisdiction. It provides that a plea as to jurisdiction must be raised promptly. 244 The arbitral tribunal has a discretion as to whether to deal with the plea as to its jurisdiction in an Award as to Jurisdiction or later in an Award on the Merits. Article 23(4) provides that:

By agreeing to arbitration under these Rules, the parties shall be treated as having agreed not to apply to any state court or other judicial authority for any relief regarding the Arbitral Tribunal's jurisdiction or authority, except with the agreement in writing of all parties to the arbitration or the prior authorisation of the Arbitral Tribunal or following the latter's award ruling on the objection to its jurisdiction or authority.

Reference may be made to two investment treaty disputes which have been decided under the auspices of the LCIA and have resulted in publicly available Awards. They are: EnCana Corporation v Republic of Ecuador245 (Canada-Ecuador BIT) and Occidental Exploration and Production Company v The Republic of Ecuador246 (US-Ecuador BIT). However, in both of these cases, the LCIA's role

end p.916

was purely administrative and the UNCITRAL Rules were the substantive rules applied by the tribunal.

(7) Denial of Benefits Clauses

The issue of denial of benefit clauses has arisen in the context of various BITs and MITs. NAFTA and ECT both contain express denial of benefit provisions.

NAFTA's Article 1113 permits party A to deny an enterprise investor of party B of NAFTA protection if investors of a non-party own or control the enterprise and either party A does not maintain diplomatic relations with the non-party or party A adopts or maintains measures with respect to the non-party that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of Chapter XI were accorded to the enterprise or its investments.

The ECT denial of benefit clause, Article 17, is drafted in similar terms. This chapter will focus on that part of Article 17 which applies to legal entities. Article 17(1) in Part III of the ECT (the ‘Investment Promotion and Protection’) permits every contracting party to deny the advantages of Part II to legal entities if: ‘Citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organised …’.

The operation of Article 17(1) was dealt with extensively by the tribunal in Plama Consortium Ltd v Republic of Bulgaria . 247 That case held that Article 17(1) only applied exclusively to Part III of the ECT and not to other Parts, including Part V which contains the dispute settlement provisions and Article 26. The tribunal stated at paragraph 148:

… As a matter of language, it would have been simple to exclude a class of investors completely from the scope of the ECT as a whole, as do certain other bilateral investment treaties; but that is self-evidently not the approach taken in the ECT … the object and purpose of the ECT, in the Tribunal's view, clearly requires Article 26 to be unaffected by the operation of Article 17(1).

The tribunal also discussed three other features of the operation of Article 17(1). First, the ‘denial of benefits right’ had to be exercised by the contracting party: 248

… the existence of a ‘right’ is distinct from the exercise of that right … a Contracting Party has a right under Article 17(1) ECT to deny a covered investor the advantages under Part III; but it is not required to exercise that right; and it may never do so … the interpretation of

end p.917

Article 17(1) ECT under Article 31(1) of the Vienna Convention requires the right to be exercised by the Contracting State.

Secondly, the ‘denial of benefits right’ had no retroactive effect. 249 Finally, where the right is exercised, the expression ‘own or control’ in Article 17(1) includes indirect and beneficial ownership and control in fact. The tribunal phrased it in the following way: 250

… ownership includes indirect and beneficial ownership; and control includes control in fact, including an ability to exercise substantial influence over the legal entity's management, operation and the selection of members of its board of directors or any other managing body.

In Banro American Resources Inc and Soci?t? Aurif?re du Kivy et du Maniema SARL v Democratic Republic of the Congo , 251 Banro American, a company incorporated in the State of Delaware and a wholly owned subsidiary of a Canadian company, brought an action against the Democratic Republic of the Congo (‘DRC’) for the alleged expropriation of the assets of Soci?t? Aurif?re du Kivy et du Maniema SARL (‘Sakima’) in violation of a certain mining convention.

Sakima was a subsidiary of Banro American and incorporated under the laws of the DRC. Banro American's Canadian parent company, Banro Resources together with Soci?t? Mini?re et Industrielle du Kivu SARL (‘Sominki’) had entered into a mining convention with the DRC for the exploration and development of mining rights in the provinces of Kivu and Maniema. Sominki, Banro Resource, and the DRC, when the mining convention was due to expire, entered into a second mining convention which transferred the mining concessions to Sakima. This second convention contained an ICSID arbitration clause. The Congolese government later repealed the decree that had approved this second convention and the creation of Sakima. Following that decision, Banro Resource transferred its Sakima shares to Banro American, the latter company becoming a majority shareholder in Sakima.

On the face of it, the jurisdictional problem in Banro stemmed from the fact that Canada, the country of nationality of Banro Resource, was not a party to the ICSID Convention. However, beneath this simple framing of the issue lies some complexity. The tribunal put the issue as follows: 252

The problem that the Tribunal has to face in the present case is not a choice between a flexible and realistic attitude or a formalistic and rigid attitude with respect to private law relationships between companies of the same group. The problem before the Tribunal involves considerations of international public policy and is governed by public international law.

end p.918

The Tribunal cannot allow the requirements of nationality imposed by the Washington Convention to be neutralized by investors who are seeking to avail themselves, depending on their own interests at a given point in time, simultaneously or successively, of both diplomatic protection and ICSID arbitration, by playing on the fact that one of the companies of the group does have the nationality of the Contracting State party to the Convention, and can therefore benefit from diplomatic protection by its home State, while another subsidiary of the group possesses the nationality of a Contracting State to the Convention and therefore has standing before an ICSID tribunal.

The tribunal therefore denied the claimant of the benefit of ICSID protection on the grounds of international public policy.

(8) The Related Concept of Admissibility

(a) Admissibility Contrasted with Jurisdiction

This is an area of great practical importance as demonstrated by the numerous cases in recent years where ad hoc and ICSID tribunals have had to deal with the question of admissibility. 253 There has been no consistent approach to the distinction between jurisdiction and admissibility by investment treaty tribunals and as such, it is the subject of much scholarship. 254 This is in contrast to ICJ jurisprudence, which has developed a clear distinction between the two concepts. In that context, an objection to the admissibility of a claim is the equivalent of pleading that the tribunal should rule the claim to be inadmissible on a ground other than its ultimate merits, whereas an objection to jurisdiction is the equivalent of pleading that the tribunal is incompetent to give any ruling at all, whether that ruling relates to the admissibility of the claim or its merits. 255 It has been said that issues such as the existence of a legal dispute, the existence of a legal interest by the claimant, or

end p.919

the nationality of the claim all provide grounds for a challenge to admissibility. 256 In international law, the distinction has been described as follows: 257

Objections to the jurisdiction, if successful, stop all proceedings in the case, since they strike at the competence of the Tribunal to give rulings as to the merits or admissibility of the claim. An objection to the substantive admissibility of a claim invites the Tribunal to reject the claim on a ground distinct from the merits—for example, undue delay in presenting the claim. In normal cases the question of admissibility, especially those concerning the nationality of the claimant and the exhaustion of local remedies, may be closely connected with the merits of the case.

The brief foregoing discussion serves to illustrate the interrelationship between the two concepts since in the realm of investment treaty arbitration, objections based on the nationality of a claimant are, pursuant to Article 25 of the ICSID Convention, framed as jurisdictional objections as opposed to objections based on admissibility. Therefore, the manner in which an objection is worded can be important as to how the tribunal approaches it. In Methanex Corporation v United States of America , 258 the tribunal was faced with various objections which amounted to an argument that, even assuming all the facts alleged by the claimant party were true, their claim could still not succeed. The Methanex tribunal actively engaged in the process of defining each individual objection as either jurisdictional or one going to admissibility. However, a similar objection placed before the tribunal in the case of Salini Costruttori SpA and Italstrade SpA v The Hashemit Kingdom of Jordan259 was not recognized as one of admissibility. These two approaches adopted by different investment treaty tribunals demonstrate that the line between what is a jurisdictional objection and what is an objection based on a claim's admissibility for investment treaty claims is not always clear.

(i) Methanex

This case was in the context of NAFTA and the UNCITRAL Rules. The Methanex arbitration arose out of Methanex's production and sale of a methanol-based source of octane and oxygenate for gasoline called methyl tertiary-butyl ether (‘MTBE’) in the USA and measures taken by the State of California to restrict the use of MTBE in that state. The USA made seven challenges to Methanex's claim, each challenge based on particular NAFTA articles. Of those seven challenges, four were rejected by the tribunal on the grounds that they raised questions of admissibility

end p.920

and therefore could not be ruled on as a preliminary basis. Those four challenges were as follows:

(i) Challenge 1: the alleged breach was not the proximate cause of the alleged loss (Art 1116(1)).

(ii) Challenge 2: Methanex had had no legal right impugned by the steps taken by the USA (Arts 1105 and 1110).

(iii) Challenge 4: Methanex had not suffered, or could not in any event suffer, any loss (Art 1116(1)).

(iv) Challenge 7: There was no possible claim because Methanex had failed to allege that the USA had treated it or its investments differently from any other USA producer or marketer of methanol (Art 1102).

The tribunal dealt with the issue of whether the respondent could seek at the jurisdictional stage a definitive interpretation of the substantive provisions of Chapter 11 of NAFTA in order to prove that on Methanex's alleged facts, there could have been no breach of the applicable NAFTA provisions and the claim was therefore inadmissible. In the circumstances before it, the tribunal did not think such challenges were jurisdictional in nature and stated that: 260

Article 21(1) of the UNCITRAL Arbitration Rule does not accord to the Tribunal any power to rule on objections relating to admissibility. There is no express power; and it is not possible to infer any implied power … Nor is such a power to be found elsewhere in Chapter 11 NAFTA. Where the procedures set out in Chapter 11 are met, the NAFTA Party consents to arbitration, and such consent takes effect under Article II of the UN's 1958 New York Arbitration Convention (article 1122). There is here no express power to dismiss a claim on the grounds of ‘inadmissibility’, as invoked by the USA; and where the UNCITRAL Arbitration Rules are silent, it would be still more inappropriate to imply any such power from Chapter 11.

The tribunal contrasted the UNCITRAL and NAFTA provisions with Article 79(1) of the ICJ Rules of Procedure, which explicitly permitted questions of admissibility to be raised as a preliminary objection. The rules governing the tribunal's procedure on the case before it did not permit it to, as a preliminary matter, dismiss a portion of a claim even if the tribunal expected that that portion would be unsuccessful on the merits. In its view, ‘the question of whether “alleged facts” are capable of coming within the substantive provisions of a BIT is one of admissibility rather than jurisdiction, and outside the preliminary requirements of the BIT’. 261 In other words, having held that the questions before it were questions of admissibility, it had no power to deal with them at the preliminary stage. Having reached this conclusion, the tribunal found that it did not need to deal with the requisite burden of proof required to be satisfied by the claimant in order to establish the admissibility of the claim.

end p.921

(ii) Salini

The Salini tribunal also had to decide upon the extent to which a BIT can be interpreted at a preliminary stage for the purposes of resolving a respondent's objections on admissibility and/or jurisdiction. The case arose out of a dispute over the amount of money due to the claimants following their construction and completion of the Karemeh Dam Project. The claimants had entered into a contract with the Ministry of Water and Irrigation-Jordan Valley Authority (‘the contract’). The claimants' case was based on both the alleged violations by Jordan of the contract and the Italy-Jordan BIT. The respondent objected to the claim on jurisdictional grounds, arguing that it concerned a contractual dispute and that such contractual claims were governed by the dispute settlement provisions of the contract which took precedence over the treaty claim. Moreover, the respondent contended that the claimants had not disclosed an arguable case of a violation of the BIT. These objections raised the issue of to what extent the relevant provisions in the BIT should be interpreted in order to address the conflict between the provisions of the arbitration agreement and the BIT. 262

Contrary to the Methanex tribunal, the Salini tribunal proceeded on the basis that the objections were jurisdictional in nature and did not make reference to the difference between the concepts of jurisdiction and admissibility. However, the result reached was the same: in Salini v Jordan the tribunal did not definitively decide on the legal meaning of the BIT articles in question. After considering the same ICJ cases reviewed by the Methanex tribunal, the Salini tribunal stated: 263

[the jurisprudence] reflects the balance to be struck between two opposing preoccupations: to ensure that courts and tribunals are not flooded with claims which have no chance of success and sometimes are even of an abusive nature; but to ensure equally that, in considering issues of jurisdiction, courts and tribunals do not go into the merits of cases without sufficient prior debate. In conformity with this jurisprudence, the Tribunal will accordingly seek to determine whether the facts alleged by the Claimants in this case, if established, are capable of coming within those provisions of the BIT which have been invoked. (Emphasis added)

The Salini tribunal's formulation of the test to be met at the preliminary stage, that is, that the facts are ‘capable’ of coming within the provisions of the relevant BIT merged the concepts of admissibility and jurisdiction into one. 264 The Methanex tribunal perceived such an inquiry as one going to the admissibility of the claim and therefore outside those matters that could be determined at a preliminary stage under the terms of the BIT. 265 The Methanex tribunal separated out matters of jurisdiction and matters of admissibility, the latter being outside the tribunal's scope.

end p.922

The approach in Salini to questions of admissibility was not followed in Soci?t? G?n?rale de Surveillance (SGS) v Republic of the Philippines , 266 which will be discussed now.

(iii) SGS v Philippines

The ICSID Tribunal in SGS v Philippines267 noted that the concept of admissibility is subtly distinct to that of jurisdiction. The tribunal described the issue of admissibility in the following terms: 268

Thus the question is not whether the Tribunal has jurisdiction: unless otherwise expressly provided, treaty jurisdiction is not abrogated by contract. The question is whether a party should be allowed to rely on a contract as the basis of its claim when the contract itself refers that claim exclusively to another forum. In the Tribunal's view the answer is that it should not be allowed to do so, unless there are good reasons, such as force majeure, preventing the claimant from complying with its contract. This impediment, based as it is on the principle that a party to a contract cannot claim on that contract without itself complying with it, is more naturally considered as a matter of admissibility than jurisdiction.

The facts of that case were that during the 1980s, the Philippines contracted with SGS on three separate occasions 269 to provide a comprehensive import supervisions service (‘CISS’), a certification service which verified the quantity, quality and price of imported goods prior to their shipment to the Philippines. The final contract of 23 August 1991 was for a three-year period and was modified and renewed for a further three years prior to its expiry. SGS's services were discontinued on 31 March 2000, apparently motivated by changes to customs arrangements. Following the discontinuance, SGS submitted certain monetary claims to the Philippines. A settlement was never reached and in April 2002 SGS commenced proceedings pursuant to the relevant BIT: the 1997 Bilateral Agreement between the Swiss Confederation and the Republic of the Philippines on the Promotion and Reciprocal Protection of Investments. 270 SGS claimed numerous breaches of the BIT and based its request for arbitration on Article 25(1) of the ICSID Convention, claiming that jurisdiction ratione materiae and ratione personae were both made out. The Philippines objected on numerous grounds, notably that the issue in dispute was governed by the dispute resolution provision in the 1991 CISS Agreement. Article 12 of the agreement provided for any disputes ‘in connection with the obligations of either party to this Agreement [to be] filed at the Regional Trial Courts of Makati or Manila’.

The tribunal examined the CISS Agreement, the BIT, and the ICSID Convention. In doing so, it concluded that the dispute did fall squarely within the CISS Agreement

end p.923

and that Article 12 was prima facie a binding obligation. Despite some legal systems interpreting such clauses as mere acknowledgements of a jurisdiction already in existence and therefore legally ineffective in conferring or affecting jurisdiction, 271 the tribunal was unwilling to interpret Article 12 in the same manner. The tribunal noted that the claimant did not dispute that a provision conferring exclusive jurisdiction was effective and binding. The tribunal therefore approached the matter as follows. In the context of the principle that any binding exclusive jurisdiction clause in a contract should be upheld, unless overridden by another valid provision, the tribunal looked at whether the BIT or the ICSID Convention overrode Article 12. Having decided that they did not, it considered whether a valid and applicable exclusive jurisdiction clause affected the tribunal's jurisdiction or the admissibility of the claim. The tribunal decided, based on arbitral jurisprudence, that it was affected, as the claim was inadmissible. The tribunal relied on the doctrine that when the essence of an arbitral claim is a breach of contract, any valid choice of forum clause will be given effect to, referring to such a doctrine as one of admissibility. 272 The tribunal therefore held that it did have jurisdiction, but that its jurisdiction was properly suspended, pending an attempt to resolve the matter in the local courts of the Philippines being undertaken.

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

The concept of admissibility, as applied by the tribunal in the SGS v Philippines case was pleaded as an objection to jurisdiction by Pakistan in the Impregilo arbitration. 273 The case warrants mention on that basis although, in the end, it is one which is of greater interest in its treatment of overlapping contractual and treaty claims. 274

In early 2003, an Italian company, Impregilo, sent in a request for arbitration against the Republic of Pakistan, pursuant to the BIT between the government of the Italian Republic and the government of the Islamic Republic of Pakistan, signed on 19 July 1997. In the mid-1990s, various participants, including the claimant, entered into a Joint Venture Agreement (‘JVA’). Under this JVA, a joint venture called Ghazi-Barotha Contractors (‘GBC’) was formed under Swiss Law in early 1995. GBC was formed to facilitate the preparation and submission of tenders for

end p.924

the construction of hydroelectric power facilities in Pakistan, known as the Ghazi-Barotha Hydropower Project (the ‘Project’). Impregilo, as the leader of the JVA and on behalf of the joint venture, entered into two contracts with the Pakistan Water and Power Development Authority (‘WAPDA’). One allowed for the construction of a barrage downstream of the Tarbela Dam that would control the flow of the Indus River. The second contract was for the construction of four main sets of infrastructure: a channel that would convey the water from the barrage to the powerhouse, a railway bridge, various bridges, and various drainage structures. The value on both contracts was estimated at US$500 million. The performance of the contracts was controlled by Pakistan Hydro Consultants, an engineering firm, acting as an agent for WAPDA.

Deadlines set out in the contracts were not met, for various reasons. The claimants alleged obstructive and impeding behaviour on the part of both the engineering firm and WAPDA. 275 GBC attempted amicable settlement of its disputes with WAPDA. The contracts contained detailed settlement clauses. Under the contractual provisions, disputes had first to be submitted to Pakistan Hydro Consultants within 28 days. If that was unsuccessful, or either party dissatisfied, the next step was to refer the matter to a Disputes Review Board (‘DRB’) within 14 days. Finally, if the DRB was unsuccessful in obtaining settlement, arbitration could be commenced in Lahore within 14 days.

The dispute between WAPDA and Impregilo reached the DRB level. Impregilo claimed that the DRB's functioning was frustrated by WAPDA's deliberate interference with the process. From its point of view, resort to the DRB was a precondition of commencing arbitration in Lahore. Therefore, frustration of the DRB made arbitration under the contracts impossible and Impregilo filed a request for arbitration. Impregilo submitted that the tribunal had jurisdiction under the terms of the BIT with respect to breaches of both the BIT and the two contracts.

Pakistan objected to the tribunal's jurisdiction on numerous grounds, notably on the grounds of jurisdiction ratione materiae. The respondent emphasized that the dispute was in essence a contractual one and the dispute settlement mechanism set out in the relevant contracts must have priority over the more general jurisdiction clause in the BIT. Therefore, Impregilo's claims were inadmissible.

The BIT concluded between Italy and Pakistan did not contain an ‘umbrella clause’. The relevant articles of the BIT were Article 9 and Article 3. Article 9(1) stated that: 276

… any disputes arising between a Contracting Party and the investors of the other, including disputes relating to compensation for expropriation, nationalization, requisition or similar measures, and disputes relating to the amount of the relevant payment shall be settled amicably, as far as possible.

end p.925

Article 9(2) provided that: 277

… in the case that such a dispute cannot be settled amicably within six months of the date of a written application, the investor in question may submit the dispute at his discretion for settlement to [various fora, including ICSID].

Article 3, the most-favoured-nation clause stated: 278

(1) ° Both Contracting Parties, within the bounds of their own territory, shall offer investments effected by, and the income accruing to, investors of the other Contracting Party no less favourable treatment than that accorded to investments effected by, and income accruing to, its own national or investors of third States.

(2) The treatment accorded to the activities connected with the investment of investors of either Contracting Party shall not be less favourable than that accorded to similar activities connected with investments made by their own investors or by investors of any Third country.

With respect to the contractual claims, the tribunal held that it did not have jurisdiction as Pakistan was not a party. Accordingly, neither Article 9 nor Article 3 afforded the tribunal with jurisdiction to resolve disputes relating to the contracts. However, the treaty claims were another matter. As the tribunal stated at paragraph 219:

The fact that … the BIT does not endow the Tribunal with jurisdiction to consider Impregilo's Contract Claims does not imply that the Tribunal has no jurisdiction to consider Treaty Claims against Pakistan which at the same time could be breaches of the Contracts.

Indeed, the tribunal concluded that treaty claims and contract claims could be considered simultaneously. The tribunal therefore turned to the issue of how the integrity of the contractual dispute resolution clauses in the contract could be protected. Contrary to the approach in SGS v Philippines , the tribunal, did not perceive the existence of contractual dispute resolution clauses as depriving it of jurisdiction or rendering the treaty claim inadmissible. It regarded a stay of proceedings as inappropriate because first, the contract enquiry and the treaty enquiry were fundamentally different and secondly, unlike in SGS v Philippines, the parties to the ‘treaty’ proceedings (Impregilo and Pakistan) were distinct from the parties to the contract arbitration proceedings (GBC and WAPDA). 279 Other factors which were relevant to the tribunal's decision were the uncertainty relating to the length of a stay, the precise event which would trigger the stay's cessation, and what attitude the tribunal ought to adopt if proceedings were subsequently resumed. 280 The tribunal concluded that it had no jurisdiction over Impregilo's contract claims and decided that it should determine its jurisdiction regarding the treaty claims in its award on the merits. 281

end p.926

The tribunal in the Impregilo decision did not consider the existence of contractual dispute resolution clauses as rendering the treaty claim before them inadmissible. In the author's view, this was the correct approach because Impregilo was not a situation of ‘true’ lis pendens: the contractual parties were distinct from the parties to the treaty. In such situations, a tribunal should not be required to stay its proceedings, unless it considers such a stay appropriate for practical reasons. In this respect, the decision is entirely consistent with SGS v Philippines decision because that dispute involved a situation of true lis pendens. 282

(b) Admissibility Contrasted with Arbitrability

The concept of admissibility as relied on in SGS v Philippines is distinct from the notion of arbitrability and the terms should not be confused. Arbitrability and admissibility are both preconditions of a tribunal exerting jurisdiction over a certain claim. However, in the former, the tribunal will not have jurisdiction at all, whereas in the latter, the tribunal will have jurisdiction but will properly not exercise it until the claim is rendered admissible. Unfortunately, the word jurisdiction is often used interchangeably with both the word arbitrability 283 and the term admissibility. 284

(i) Arbitrability

Arbitrability, as the word suggests, implies that the dispute is ‘arbitrable’ or capable of being settled by arbitration. 285 Arbitration is a private proceeding with public consequences: the recognition and enforcement of a particular award will inevitably have an impact on states involved. In this regard, whether or not a particular dispute is ‘arbitrable’ under a state's laws is a matter of public policy, which the national laws will decide. 286 Therefore, based on a state's laws, certain matters may not be arbitrable, such as disputes involving patents, antitrust and competition law, 287

end p.927

securities, bribery and corruption, and fraud. 288 If a dispute is not arbitrable, the proper domain for resolution is the relevant domestic courts. In foreign investment situations, arbitrability will rarely, if ever, be an issue due to the commercial nature of the disputes.

As discussed above, parties can exclude from ICSID's jurisdiction particular disputes under Article 25(4). Such disputes may be expressly excluded because the party in question deems them inappropriate for the international arbitration sphere. Conceptually, this looks a lot like the concept of arbitrability. It is submitted, however, that such an exclusion is framed in terms of ICSID's jurisdiction, and therefore such disputes should not be referred to as non-arbitrable but merely as disputes outside the tribunal's jurisdiction.

(ii) Admissibility

As the tribunal held in SGS v Philippines , just because a dispute is inadmissible does not mean the tribunal does not have jurisdiction. The tribunal will still have jurisdiction, but that jurisdiction may be suspended or stayed until the matter is rendered admissible.

In SGS v Philippines , the tribunal also included within the concept of admissibility the principle that local remedies must first be exhausted. 289 Professor Schreuer discusses the requirement of the exhaustion of domestic remedies in his chapter on consent to arbitration. As discussed by Professor Schreuer, the ICSID Convention expressly excludes the requirement to exhaust domestic remedies ‘unless otherwise stated’. One must tread carefully when making a claim of inadmissibility on the grounds of the failure to exhaust local remedies. Presumably, if the exhaustion of local remedies is framed as a condition of consent in the BIT, then the matter is properly dealt with as a jurisdictional issue of consent, the claim itself being admissible. However, if such a requirement is framed in an alternate way within the BIT, the matter then becomes one of the admissibility or inadmissibility of the claim. For instance, if the contract between the parties requires, similar to the situation in SGS v Philippines, that local remedies be exhausted, then such a requirement must be met before a party can make a claim that will succeed at the preliminary stages.

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