Worldwide: Jurisdictional Limitations And The Definition Of ‘Investment' In The ICSID Convention

The term jurisdiction in common parlance denotes the court or the tribunal's authority to hear the case whereas in international arbitration the notion of jurisdiction is also equated with the competence of the tribunal, which is generally based on the consent of the parties and the same could also be true for the jurisdiction of international courts and tribunals.¹ In practice, the jurisdictional objections concern the issue of whether the parties have consented to have the case decided by the tribunal at all.² The jurisdictional limitations of the ICSID Convention ('Convention') can be found in the bare provisions of the Convention and the ICSID Arbitration Rules ('Rules'). In particular the jurisdiction of the ICSID arbitration is governed by Article 25³ of the ICSID Convention and further complemented by Articles 36(3)⁴ and 41⁵ of the Convention respectively. The said provisions in the Convention are also complemented by Rule 41 (Preliminary Objections)⁶ and Rule 42(4) (Default)⁷ of the Rules. Notably, four key elements must be satisfied in order to establish jurisdiction under the Convention namely, the existence of a legal dispute; the legal dispute must be arising directly out of an investment; the investment must be between a Contracting State and a national of another Contracting State and lastly the necessity of consent in writing. In order to understand the jurisdictional limitations of the ICSID Convention, it is imperative to analyse the aforesaid four requirements in greater detail. The first two requirements encapsulate the jurisdiction rationae materiae i.e. the subject matter jurisdiction of the Centre. The Report of the Executive Directors on the Convention describes the first requirement as the existence of a disagreement concerning the scope of a legal right or obligation, or the nature or extent of the reparation to be made for breach of a legal obligation'.⁸ The International Court of Justice defines a dispute as a "disagreement on a point of law or fact"⁹ and in the same vein several ICSID tribunals have also adopted similar description of "disputes". Such a requirement also presupposes a minimum threshold of communication between the disputing parties and the existence of a natural sequence of events leading to a dispute,¹⁰ however, failure to respond to a specific claim within a reasonable time would be sufficient to establish the existence of a dispute.¹¹ An important distinction also needs to be drawn between 'disputes' and 'divergences' as there is a subtle difference in the degree of animosity in the situations.¹² The timing of the disputes may also have an impact especially when the agreement specifies that it applies only to disputes that arise after the entry into force of the agreement. The tribunal in such a situation would determine when the dispute actually arose, and jurisdiction may not be available if the dispute arose before the investment treaty comes into force.¹³

Furthermore, the Convention in Article 25(4)¹⁴ provides for the possibility of exclusion of certain types of disputes by the state vide a notification to the Centre. Such a notification is not a reservation to the Convention and it should not be construed as the expression of a state's consent to jurisdiction¹⁵ nor does it limit the state's ability to give consent with respect to a dispute falling into the list of excluded disputes.¹⁶ The Centre has received seven notifications under the aforesaid provisions as of date.¹⁷ In this regard, it is pertinent to observe that no published ICSID award appears to have denied jurisdiction on the ground of non-existence of a 'legal dispute'.¹⁸

The second requirement or limitation forming part of the jurisdiction rationae materiae of the Centre is the necessity for a claim to emanate directly out of an investment. Notably, the Convention does not categorically define investment and the tribunals ceased with the issue usually determine it using a set of criteria considered inherent to the notion of investment. An exposition of this position shall also address the issue of whether the Convention should define investment or not. Ordinarily, the states define investment in the International Investment Agreement i.e. in the Bilateral Investment Treaty or in the Investment Chapter contained in the Trade Agreement or through the procedure set out by the Convention or by expecting state consent to manage the jurisdiction of the Centre. However, successive arbitral panels realized the absence of an objective criteria setting out the contours of Centre's authority and that consent alone could not qualify as an investment. The initial foundations of a workable test to determine whether something falls within the ambit of investment was laid down in Fedax N.V. vs. The Republic of Venezuela¹⁹ and was later crystallized and established by the arbitral tribunal in Salini et al v. Morocco²⁰ , which propounded a set of objective criteria known as the Salini Test and today remains the leading case on the subject.

The aforesaid test defines an investment as having four vital elements: a contribution of money or assets to the host states economy; a certain duration of this contribution or commitment; the assumption of risk and the expectation of profit; and a contribution to the economic development of the host state.²¹ Several subsequent tribunals have dealt with this subject upholding the tests, albeit some appear to have taken a diverging position either by questioning the veracity or the relevance of the fourth prong i.e. a contribution to the economic development of the state²² or by adding a further element to the aforesaid catalogue such as the necessity of an investment being made in good faith.²³ Some recent tribunals also highlight the need for greater flexibility in applying these criteria and the need for exempting the non-fulfilment of certain elements in justifying something as investment.²⁴ The Salini catalogue has also come under attack in some recent cases where the tribunal expressed doubts about their relevance at the first place.²⁵

As regards the jurisdiction rationae personae of the Centre, it is noteworthy that the Convention categorically requires the dispute to be between the national of a Contracting State and a Contracting State or any constituent subdivision or agency of the state designated to the Centre by the State.²⁶ The term national of a Contracting State includes both natural and juristic persons,²⁷ however, persons with dual nationality are expressly excluded with the nationality of the Respondent State in the Convention²⁸ whereas the Centre's jurisdiction could extend to foreign-controlled juridical persons with the nationality of the State that is a party to the dispute, in the event of a specific agreement in this regard.²⁹ Moreover, the Convention merely states the outer limits of who may be the national of a Contracting State and leaves the ultimate question of determining nationality to the Contracting State itself.³⁰

Furthermore, consent with regard to submission to ICSID arbitration forms another essential jurisdictional requirement of the Centre in addition to the foregoing jurisdictional limitations. Article 25 of the Convention categorically requires the consent of the parties to submit the dispute to the Centre. Notably, apart from the above-mentioned jurisdictional requirements, the primary requirement is the existence of an agreement referring the dispute to arbitration under the relevant set of rules. In investment arbitration, such an agreement is formed by the investor accepting the host state's offer to arbitrate found in the dispute resolution clause of the relevant international investment agreement, which is traditionally done by filing a notice to arbitration. Additionally, the investor invoking a treaty-based arbitration also needs to demonstrate the existence of a prima facie case with respect to the breach of a treaty-based protection accorded to the investor as an additional requirement to establish jurisdiction before the tribunal.

Footnotes

1 See e.g., Gary B. Born, International Commercial Arbitration, Wolters Kluwer, Second Edn. Volume I, p. 201, 1046; also see Corfu Channel Case (United Kingdom of Great Britain and Northern Ireland v. Albania), Judgment on Preliminary Objections of 25 March 1948, ICJ Reports 15 (1948).

2 James Crawford, Brownlie's Principles of Public International Law, 693 (8th ed., Oxford University Press 2012).

3 Article 25(1): "The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre." When the parties have given their consent, no party may with- draw its consent unilaterally."

4 Article 36(3): The Secretary-General shall register the request unless he finds, on the basis of the information contained in the request, that the dispute is manifestly outside the jurisdiction of the Centre. He shall forth- with notify the parties of registration or refusal to register.

5 Article 41: (1) The Tribunal shall be the judge of its own competence.
(2) Any objection by a party to the dispute that that dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Tribunal, shall be considered by the Tribunal which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute.

6 Rule 41: (1) Any objection that the dispute or any ancillary claim is not within the jurisdiction of the Centre or, for other reasons, is not within the competence of the Tribunal shall be made as early as possible. A party shall file the objection with the Secretary-General no later than the expiration of the time limit fixed for the filing of the counter- memorial, or, if the objection relates to an ancillary claim, for the filing of the rejoinder—unless the facts on which the objection is based are unknown to the party at that time.
(2) The Tribunal may on its own initiative consider, at any stage of the proceeding, whether the dispute or any ancillary claim before it is within the jurisdiction of the Centre and within its own competence.
(3) Upon the formal raising of an objection relating to the dispute, the Tribunal may decide to suspend the proceeding on the merits. The President of the Tribunal, after consultation with its other members, shall fix a time limit within which the parties may file observations on the objection.
(4) The Tribunal shall decide whether or not the further procedures relating to the objection made pursuant to paragraph (1) shall be oral. It may deal with the objection as a preliminary question or join it to the merits of the dispute. If the Tribunal overrules the objection or joins it to the merits, it shall once more fix time limits for the further procedures.
(5) Unless the parties have agreed to another expedited procedure for making preliminary objections, a party may, no later than 30 days after the constitution of the Tribunal, and in any event before the first session of the Tribunal, file an objection that a claim is manifestly with- out legal merit. The party shall specify as precisely as possible the basis for the objection. The Tribunal, after giving the parties the opportunity to present their observations on the objection, shall, at its first session or promptly thereafter, notify the parties of its decision on the objection. The decision of the Tribunal shall be without prejudice to the right of a party to file an objection pursuant to paragraph (1) or to object, in the course of the proceeding, that a claim lacks legal merit.
(6) If the Tribunal decides that the dispute is not within the juris- diction of the Centre or not within its own competence, or that all claims are manifestly without legal merit, it shall render an award to that effect.

7 Rule 42(4): The Tribunal shall examine the jurisdiction of the Centre and its own competence in the dispute and, if it is satisfied, decide whether the submissions made are well-founded in fact and in law. To this end, it may, at any stage of the proceeding, call on the party appearing to file observations, produce evidence or submit oral explanations.

8 See e.g., Report of the Executive Directors on the Convention on Settlement of Investment Disputes between States and Nationals of Other States, ¶ 26.

9 See e.g., Case Concerning East Timor (Portugal v. Australia), I.C.J. Reports 1995, p. 90; General List No. 84

10 See e.g., Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7

11 See e.g., Asian Agricultural Products Ltd v Sri Lanka, ICSID Case No ARB/87/3 (registered in 1987); also see, Christoph H. Schreuer, Loretta Malintoppi, August Reinisch sand Anthony Sinclair, The ICSID Convention: A Commentary, 93-95, 98-101 (2nd ed., Cambridge University Press 2009).

12 See e.g., the distinction illustrated in the Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19

13 UNCTAD, Scope and Definition: A Sequel, series on Issues on International Investment Agreement II, 46 (United Nations Publications 2011).

14 Article 25 (4): Any Contracting State may, at the time of ratification, acceptance or approval of this Convention or at any time thereafter, notify the Centre of the class or classes of disputes which it would or would not consider submitting to the jurisdiction of the Centre. The Secretary- General shall forthwith transmit such notification to all Contracting States. Such notification shall not constitute the consent required by paragraph (1).

15 Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB/84/3 (DJ), 27 November 1985, 3 ICSID Reports.

16 See e.g., Christoph H. Schreuer, Loretta Malintoppi, August Reinisch sand Anthony Sinclair, The ICSID Convention: A Commentary, p.343 (2nd ed., Cambridge University Press 2009).

17 NOTIFICATIONS CONCERNING CLASSES OF DISPUTES CONSIDERED SUITABLE OR UNSUITABLE FOR SUBMISSION TO THE CENTRE, ICSID/8-D, available online at https://icsid.worldbank.org/en/Documents/icsiddocs/ICSID%208Contracting%20States%20and%20Measures
%20Taken%20by%20Them%20for%20the%20Purpose%20of%20the%20Convention.pdf

18 Gary B. Born, International Commercial Arbitration, Wolters Kluwer, Second Edn. Volume I, p. 421.

19 Fedax NV. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to jurisdiction, 1381 16 (Jul. 11, 1997), 37 I.L.M. 1380 (1998).

20 Salini et al v. Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 152 (Jul. 23, 2001), 42 I.L.M. 609 (2003).

21 Id. ¶ 52

22 Quiborax v. Bolivia., ICSID Case No. ARB/06/2, Decision on Jurisdiction, 1 220 (Sept. 27, 2012); Saba Fakes v. Republic of Turk., ICSID Case No. ARB/07/20, Award, T 110 (Jul. 14, 2010).

23 See e.g., Phoenix Action v. Czech Republic, ¶ 114; also see, Plama Consortium v. Bulgaria, (ICSID Case No. ARB/03/24), Award of 27 August 2008, ¶ 144-146.

24 See e.g., Biwater Gauff v. Tanzania, (ICSID Case No. ARB/05/22), Award of 24 July 2008, ¶ 316–318; Malaysian Historical Salvors v. Malaysia, (ICSID Case No. ARB/05/10), Decision on Annulment of 16 April 2009, ¶ 80; Pantechniki v. Albania, ICSID Case No. ARB/07/21, Award of 30 July 2009, ¶ 43–48; Alpha v. Ukraine, (ICSID Case No. ARB/07/16), Award of 8 November 2010, ¶ 314.

25 See e.g., Philip Morris v. Uruguay, ¶ 203; however, for a detailed comment in favour of Salini Test see Grabowski, Alex (2014) " The Definition of Investment under the ICSID Convention: A Defense of Salini," Chicago Journal of International Law: Vol. 15: No. 1, Article 13, available at: http://chicagounbound.uchicago.edu/cjil/vol15/iss1/13

26 Article 25(1) of the ICSID Convention

27 Article 25(2) of the ICSID Convention

28 Article 25(2)(a) of the ICSID Convention

29 Article 25(2)(b) of the ICSID Convention

30 Article 25(2) of the ICSID Convention; also see, David Williams, Jurisdiction and Admissibility, in The Oxford Handbook of International Investment Law 890 (Peter Muchlinski, Federico Ortino and Christoph Schreuer eds., Oxford University Press 2008).

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