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The Oxford Handbook of International Investment Law edited by Muchlinski, Peter T; Ortino, Federico; Schreuer, Christoph

Part III Procedural Issues, Ch.22 Jurisdiction and Admissibility

QC David A R Williams

From: The Oxford Handbook of International Investment Law

Edited By: Peter T Muchlinski, Federico Ortino, Christoph Schreuer

From: Investment Claims (http://oxia.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.  Subscriber: null; date: 22 November 2019

Subject(s):
Investment — Investor — Specialized treaty frameworks — Admissibility — Jurisdiction — UNCITRAL Arbitration Rules — Contract claims — Treaty claim — NAFTA (North American Free Trade Agreement) — ECT (Energy Charter Treaty) — International investment law

(p. 868) Chapter 22  Jurisdiction and Admissibility

  1. (1)  ICSID—General Overview of Jurisdictional Requirements 870

  2. (2)  ICSID and Subject-matter Jurisdiction 872

    1. (a)  Is There a Dispute? 873

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

    3. (c)  Is There an ‘Investment’? 875

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

      2. (ii)  The BIT Definition of ‘Investment’ 877

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

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

  3. (3)  ICSID and Personal Jurisdiction 883

    1. (a)  Contracting State 883

    2. (b)  Nationality 884

      1. (i)  A ‘Natural Person’ 884

      2. (ii)  Nationality of a ‘Juridical Person’ 889

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

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

      5. (v)  The Consideration of Other Features of Corporate Nationality: Aguas del Tunari v Republic of Bolivia 897

      6. (p. 869)
      7. (vi)  Jurisdiction Arising through the Nationality of Shareholders—Shareholder Protection in International Investment Law 900

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

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

      2. (ii)  Designation 903

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

  4. (4)  Jurisdictional Requirements under ICSID's Additional Facility 906

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

    1. (a)  NAFTA 908

    2. (b)  The Energy Charter Treaty 909

  6. (6)  Summary of Jurisdictional Requirements under the UNCITRAL Rules, the ICC and LCIA Rules 914

    1. (a)  UNCITRAL Rules 914

    2. (b)  ICC 915

    3. (c)  LCIA 916

  7. (7)  Denial of Benefits Clauses 917

  8. (8)  The Related Concept of Admissibility 919

    1. (a)  Admissibility Contrasted with Jurisdiction 919

      1. (i)  Methanex 920

      2. (ii)  Salini 922

      3. (iii)  SGS v Philippines 923

      4. (iv)  The Relationship between Contract Claims and Treaty Claims: Impregilo v Pakistan 924

    2. (b)  Admissibility Contrasted with Arbitrability 927

      1. (i)  Arbitrability 927

      2. (ii)  Admissibility 928

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

The majority of international investment disputes are determined by arbitration at the International Centre for Settlement of Investment Disputes (‘ICSID’)2 either (p. 870) through ICSID's main facility or ICSID's Additional Facility. Other disputes may be determined by ad hoc arbitration under the UNCITRAL Rules, through the Institutional Arbitration Rules of the International Chamber of Commerce, Paris or the London Court of International Arbitration. As at June 2006, 210 cases had been registered before ICSID from the time of its inception in 1966,3 a case-load which has dramatically increased due to the promulgation of investment treaty arbitration in the last two decades.4 It is therefore appropriate to begin a consideration of the topic of jurisdictional issues other than consent by reference to the ICSID Convention and ICSID case-law.

(1)  ICSID—General Overview of Jurisdictional Requirements

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

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

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

(a)  any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties (p. 871) consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State to the dispute; and

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

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

There are three main jurisdictional requirements to be met under the ICSID Convention: consent, ratione personae, and ratione materiae.8 As the previous chapter has dealt with the jurisdictional element of consent, this chapter addresses solely jurisdiction ratione personae and ratione materiae. Due to the constitutional nature of these jurisdictional requirements, they cannot be waived.9 Fulfilling personal and subject-matter jurisdiction may be influenced by the consent terms contained (p. 872) in the relevant Bilateral Investment Treaty (‘BIT’) or other Treaty.10 Therefore, the three jurisdictional preconditions are somewhat interrelated. Indeed, the relationship between consent and the objective elements of subject-matter and personal jurisdiction was extensively debated during the drafting of the Convention.11 Consent is a necessary but insufficient condition to bring an investment dispute within the ambit of the Centre's jurisdiction. How the ‘objective’ requirements of subject-matter and personal jurisdiction are defined may be influenced by the parties' interpretation of such requirements, but there are nevertheless outer limits to the Centre's jurisdiction which are not subject to the parties' disposition. It is essential that these objective requirements are recognized and accepted, given the sovereign interests involved.12

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

(2)  ICSID and Subject-matter Jurisdiction

Jurisdiction ratione materiae or subject-matter jurisdiction refers to the jurisdictional requirements as to the nature of the dispute. Article 25(1) states that ‘the jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment’.15 The four requirements of subject-matter jurisdiction, which were articulated in a similar form by the tribunal in Mihaly,16 are: first, that there is a (p. 873) dispute; secondly, that the dispute is of a legal nature; thirdly, that there is an investment; and finally, that the dispute arises directly out of that investment. Each of these will be considered in turn.

(a)  Is There a Dispute?

As to the meaning of ‘dispute’ there have been many attempted definitions. In the Case Concerning East Timor 17 the International Court of Justice defined a dispute as ‘a disagreement on a point of law or fact, a conflict of legal views or interests between parties’. It has been submitted that the disagreement must not merely be of a theoretical or academic nature.18 Professor Merkin states that ‘in general terms, a dispute arises when one party makes a claim against the other which is ignored or denied by the other’.19 In Methanex Motunui Ltd v Spellman, Fisher J, in construing the New Zealand Arbitration Act 1996, said that there will be a dispute ‘… when two or more individuals express and maintain in relation to each other conflicting views or positions the resolution of which will or may be of legal consequence’.20 An extensive discussion of ‘dispute’ may be found in the judgment of Hirst LJ in Halki Shipping Corp v Sopex Oils Ltd.21

(b)  Is the Dispute of a Legal Nature?

There is no specific test to be met in order to satisfy this requirement. Dispute was qualified by the word ‘legal’ so as to avoid ‘disputes of a purely commercial or political nature’ and to avoid conflicts of interest as opposed to conflicts of rights being brought before the Centre.22 Matters arising out of the validity, interpretation, expropriation, breach, or termination of an agreement are clearly legal matters, whereas disputes regarding ‘accounting, fact-finding or the desirability of renegotiating the entire agreement or certain of its terms, would normally fall outside the scope of (p. 874) the Convention’.23 Professor Schreuer's observations on the concept of legal dispute aptly summarize the situation:24

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

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

More recently, the AES Corporation tribunal defined what, in its view, was ‘the true test of jurisdiction’ regarding the requirement of a legal dispute.29 The two-step approach involved asking first, whether the claimant had raised some legal issues in relation to a concrete situation and, secondly, whether the tribunal's determination (p. 875) of the answer would have practical and concrete consequences.30 Should the answer to both questions be in the affirmative, then the dispute is a legal one within the tribunal's jurisdiction.

(c)  Is There an ‘Investment’?

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

It is interesting to briefly place the notion of ‘investment’ in an historic context. Until the mid-20th century with the emergence of the GATT, no distinction was made between investments and other forms of property and economic activity. In relation to dispute resolution, GATT exclusively governed trade differences whilst investment disputes were initially left by the wayside, and later picked up by the ICSID Convention and the emergence of BITs in the 1960s. Various analytical reasons have been proposed for the distinction. However, the general perception tends to be that ‘investment’ is a ‘catalyst for development and prosperity’, and that it helps ‘[expand] welfare around the world’.32 It is in this context that investment protection treaties are concluded and provide for a derogation of state sovereignty. However, if the investment is of such a nature as to cause instability, then the derogation from the state sovereignty provided for in the relevant treaty is not worth undertaking.33 Looking at the nature of investment from the state sovereignty perspective led to Professor Brownlie's dissent in CME Czech Republic BV (The Netherlands) v The Czech Republic 34 where he stated that the meaning of ‘investment’ in the Netherlands-Czech/Slovak Republics did not include all kinds of property and that the benefits of investment protection treaties should only be conferred on property rights that qualify as an investment.35 To do otherwise would be to betray the intent and the consent of the parties to arbitrate their disputes with aliens operating in their territory.

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

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

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

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

This flexibility affords the parties with the discretion to decide whether or not their particular transaction is an investment for the purposes of Article 25.40 For example, the parties are free to define the term ‘investment’ in their BIT and the contracting state may also exclude jurisdiction pursuant to Article 25(4).41 Common disputes which have been excluded include disputes involving natural resources and disputes which apply to certain territories in a particular state.42 This ability to specifically delineate ‘investment’ for the purposes of an individual BIT further supports the view that the term ‘investment’ in Article 25 should be given a broad interpretation.43

(p. 877) The tribunal in Ceskoslovenska Obchodni Banka (CSOB) v The Slovak Republic 44 propounded a broad interpretation of investment.45 After referring to the first paragraph of the Preamble of the ICSID Convention which states that the Contracting States have considered ‘the need for international cooperation for economic development, and the role of private international investment therein’, the tribunal observed that:

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

The Convention encompasses:47

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

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

(ii)  The BIT Definition of ‘Investment’

The transaction at issue being covered by Article 25(1) is a necessary but insufficient condition for the tribunal to exercise its jurisdiction. What the parties have actually agreed on in their BIT must also be considered. A review conducted under the auspices of the United Nations of all the BITs in force found that one of the similarities of all BITs was the broad and open-ended definition of investment, including tangible and intangible assets and of general application to both existing and new investments.50 The BIT may also cover pre-investment activities which are not covered by Article 25(1). To exercise jurisdiction, the transaction in question must fall within two (p. 878) definitions of investment: the BIT definition and the Article 25 definition.51 In practice, the Article 25 definition tends to be narrower than the BIT definition of investment. It therefore acts as a jurisdictional filter. However, the consent of the parties to submit to ICSID arbitration will be taken as evidence of their understanding that their transaction was an investment. Indeed, one tribunal stated that such an understanding should be accorded ‘great weight’ in deciding whether or not the transaction in question is an investment for purposes of Article 25 ICSID Convention.52

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

Promissory Notes

The Tribunal in Fedax NV v Republic of Venezuela 53 had to decide whether the holding of promissory notes issued by the respondent was an investment under Article 25(1). It was the first ICSID case where jurisdiction was objected to on the grounds that the underlying transaction did not qualify as an investment. The definition of investment in the BIT included ‘titles to money’. The respondent contended, and the tribunal agreed, that pursuant to Article 31(1) of the 1969 Vienna Convention on the Law of Treaties, the term investment needed to be interpreted ‘in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose’. The Tribunal examined Article 25(1) and its application in previous arbitrations. It concluded that the broad scope of Article 25 and previous decisions were sufficient to find that there was jurisdiction over such a transaction.54 The tribunal further noted that because loans were clearly within the meaning of investment, and promissory notes were ‘evidence of a loan and a rather typical financial and credit instrument’ there was no reason that the purchase of promissory notes could not come within the Convention.55

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

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

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

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

(p. 879) The tribunal concluded that such a definition was fairly broad and clearly encompassed the purchase of promissory notes.

Loans

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

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

Bank Guarantees

Joy Mining Machinery Ltd v The Arab Republic of Egypt 63 concerned a contract that had been concluded between Joy Mining Machinery Ltd (‘Joy’) and the General Organisation for Industrial and Mining Projects of the Arab Republic of Egypt (‘IMC’) for the supply of mining systems and equipment. Joy had provided several (p. 880) bank guarantees to IMC for the performance, advance payment, and payment received under the contract. Joy was paid the full contract price. However, because of other differences that arose between the parties regarding the performance of certain equipment, IMC would not release the guarantees. Joy therefore initiated arbitration.

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

Mihaly and ‘BOOT’ Projects

The controversial case of Mihaly 69 dealt with the investment by Sri Lanka in a thermal electric power generating plant, the largest foreign investment at the time in Sri Lanka.70 Sri Lanka, having studied extensively the various possibilities of infrastructure development, sent out a Request for Proposal for its Build, Own, Operate and Transfer (BOOT) project.71 Mihaly, a partnership of a Canadian and an American developer, was chosen in 1992 to carry out the project. In February (p. 881) 1993, the respondent issued a letter of intent containing the respondent's agreement to negotiate in good faith to settle in a timely manner the necessary formal contracts. During the following three years of negotiations, which were stalled by both parties for various political and commercial reasons, the respondent received an ‘Award of Contract’ and a renewal of the award. The renewal set out a detailed schedule of various obligations to be met in order to get the negotiations back on track. The claimant met all its obligations, the respondent none. The issue put before the tribunal was whether the significant expenditures by the Mihaly consortium (almost US$6 million) to prepare for construction of the power plant (including plant engineering, financial advice, and legal fees), expended in reliance on the letter of intent and its two renewals, constituted an ‘investment’ sufficient to engage its jurisdiction.

The tribunal stated that:

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

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

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

It is clear from most bilateral investment treaties, which contain definitions of ‘investment’, and from the jurisprudence, including leading arbitral decisions at ICSID and elsewhere, that the word investment is intended to be construed expansively, to suit current needs and practices. This decision by an ICSID Tribunal erects a barrier to that construction, and also (p. 882) to achieving the major purpose of ICSID: encouragement of private investment in developing countries.75

However, the suggestion in the separate concurring opinion76 in Mihaly that in future ICSID tribunals should accept jurisdiction over similar claims in order to encourage ‘transparency’ in tender procedures, as well as to protect successful bidders who incur expenditures when embarking on these costly preliminary procedures, has been criticized as creating a ‘risk that host states will face systematic or even abusive claims brought by disgruntled or disappointed bidders’.77

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

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

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

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

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

(p. 883) (3)  ICSID and Personal Jurisdiction

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

Article 25(1) of the ICSID Convention requires that a dispute be ‘between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by the State) and a national of another Contracting State …’. The dispute must therefore be of a mixed nature.82 Restricting ICSID's application to state/foreign national disputes was one of the Convention's main goals.83 The objective was to bypass states' prerogative of diplomatic protection and to empower individual investors to take direct action against states without the aid of their own state. Closing the procedural gap84 was intended to enable individual investor claimants to have their own remedy when their own states were unwilling or politically unable to espouse the claim on their behalf and has fulfilled what was once thought unlikely.85

(a)  Contracting State

The facilities of the Centre are only available to contracting states and to their nationals, the one requirement common to both parties. Under the ICSID Convention, contracting states are states that have ratified the treaty by depositing their instruments of ratification, acceptance, or approval. Thirty days after their instruments have been deposited, they become contracting states.86 As of 9 May 2007, there were 144 contracting states to which the Convention had entered into force and 12 other states that had signed the Convention but had not ratified it.87 A state can withdraw from (p. 884) the Convention and cease to be bound by submitting a written notice.88 This will not affect the state's consent to the Centre's jurisdiction given prior to their withdrawal and will only become effective six months after they have denounced the treaty.89 It is not necessary for either the governmental party or the foreign national's state to be a member of the Centre when the parties agree to submit to an ICSID arbitration.90 This was illustrated in the Holiday Inns et al v Morocco 91 case where Morocco had objected to jurisdiction on the grounds that neither Morocco nor Switzerland (the state of the foreign investor, Holiday Inns) were contracting states when the parties had agreed to submit any dispute to ICSID. The tribunal disagreed that the host and foreign states needed to be members on the date of the arbitration agreement. The tribunal stated that the relevant date for jurisdictional reasons ‘is the date when the conditions are definitely satisfied, as regards one of the Parties involved, which constitutes … the date of consent by that Party’.92

(b)  Nationality

(i)  A ‘Natural Person’

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

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

A natural person presents much less difficulty than the term ‘juridical person’ and has been interpreted according to its ordinary meaning of an individual human investor. The natural person nationality requirement has two temporal aspects: the investor must be a national of the relevant state, first, at the time the dispute was consensually submitted to arbitration and secondly, at the time the request for arbitration is registered. The definition expressly excludes any person who on either of (p. 885) those dates was also a national of the contracting state party to the dispute; that is, the host state.

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

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

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

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

(p. 886) The issue of ‘effective nationality’ has been raised in three well-known cases examined below. The first case, Hussein Nuaman Soufraki v United Arab Emirates,99 concerned the more simple objection based on the claimant lacking the effective nationality of the contracting state, as required by Article 25(2)(a) of the ICSID Convention. The last two cases, Marvin Roy Feldman Karpa v United Mexican States 100 and Champion Trading Co v Arab Republic of Egypt,101 considered the concept of dual nationality.

Soufraki

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

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

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

Accordingly, the tribunal found that it could look behind the certificates of nationality provided by the claimant104 because, although it accepted that the certificates were ‘prima facie’ evidence of nationality, it agreed with Professor Schreuer that: (p. 887)

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

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

Karpa

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

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

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

Champion Trading

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

(p. 888) The request for arbitration was made under the 1982 BIT between the USA and the Arab Republic of Egypt.108 There were five claimants, three individuals and two companies. The respondent objected on the ground of lack of jurisdiction and invoked Article 25(2)(a). The respondent's claim, which was accepted by the tribunal, was that the three individual claimants held both American and Egyptian nationality when the parties consented to submit the dispute to arbitration and when the request was registered. The respondents relied on evidence that when the three individuals were born, their father had Egyptian nationality. Therefore, under Egyptian law, they had also acquired Egyptian nationality. The claimants made two arguments: first, that the father had lost his nationality before they were born and secondly, that the three claimants did not meet the international law test of ‘real and effective’ Egyptian nationality.

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

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

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

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

The claimants also relied on the Interpretation by the Iran-US Claims Tribunal of the international treaty called the ‘Algiers Declaration110 where the Iran-US tribunal stated that the Nottebohm decision demonstrated:111

The acceptance and the approval by the International Court of Justice of the search for the real and effective nationality based on facts of a case, instead of relying on more formalistic (p. 889) criteria … In view of the pervasive effect of this rule … the Tribunal concludes that references to ‘national’ and ‘nationals’ in the Algiers Declarations must be understood as consistent with that rule unless an exception is clearly stated.

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

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

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

(ii)  Nationality of a ‘Juridical Person’

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 (p. 890) 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 Tokelés 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. (p. 891) Tokios Tokelés, 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 Tokelés 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 siège 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 (p. 892) 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 (p. 893) 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 (p. 894) 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 préparatoires 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.

(p. 895) Agreements to Treat a Company as a National of another Contracting State

Holiday Inns/Occidental Petroleum v Government of Morocco 135 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 Indonesia 137 and Klöckner Industrie Anlagen GmbH v United Republic of Cameroon 138 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 Klöckner 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 (p. 896) 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: Société Ouest Africaine des Bétons Industriels (SOABI) v Republic of Senegal 143

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 (p. 897) 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 (p. 898) (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.

(p. 899) 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.

(p. 900) 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 Tokéles v Ukraine 159 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 (p. 901) 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 Traction 163 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 (p. 902) 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 (p. 903) 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 (p. 904) 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 Klöckner 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 (p. 905) 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 Nevis 193 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 (p. 906) objections based on constitutionality, estoppel, and the importance of limiting internal issues to the domestic arena:

  1. (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.

  2. (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.

  3. (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 (p. 907) 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 (p. 908) 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 rules210 which may be invoked against the state parties for alleged breaches of the treaty.

(p. 909) 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:

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

    1. (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

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

  2. (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 (p. 910) 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

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

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

  3. (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.217 Article 1(7) defines an investor as: (p. 911)

(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.219 Article 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, (p. 912) 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 (p. 913) ICSID jurisprudence on point, notably the Fedax,225 Salini Costruttori,226 and SGS v Philippines 227 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 (p. 914) 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 BIT235 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 (p. 915) 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 Republic 237 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

(p. 916) 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 Ecuador 245 (Canada-Ecuador BIT) and Occidental Exploration and Production Company v The Republic of Ecuador 246 (US-Ecuador BIT). However, in both of these cases, the LCIA's role (p. 917) 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 (p. 918) 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 Société Aurifère 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 Société Aurifère 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 Société Minière 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. (p. 919) 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 (p. 920) 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 Jordan 259 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 (p. 921) and therefore could not be ruled on as a preliminary basis. Those four challenges were as follows:

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

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

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

  4. (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.

(p. 922) (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. (p. 923) The approach in Salini to questions of admissibility was not followed in Société Générale de Surveillance (SGS) v Republic of the Philippines,266 which will be discussed now.

(iii)  SGS v Philippines

The ICSID Tribunal in SGS v Philippines 267 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 occasions269 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 (p. 924) 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 (p. 925) 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.

(p. 926) 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

(p. 927) 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 arbitrability283 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 (p. 928) 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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Footnotes:

J Lew, L Mistelis, and S Kröll, Comparative International Commercial Arbitration (London, Kluwer Law International, 2003) at 329 citing J Gotanda, ‘An Efficient Method for Determining Jurisdiction in International Arbitrations’ 40 Columbia J Transn L 15 (2001).

Convention on the Settlement on Investment Disputes between States and Nationals of Other States, 18 March 1965, in force 14 October 1966, 575 UNTS 159, 4 ILM 524 (1965) (‘The ICSID Convention’). Generally see L, Reed, J Paulsson, and N Blackaby, Guide to ICSID Arbitration (The Hague, Kluwer Law International, 2004); Christoph Schreuer, The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001).

ICSID Annual Report 2006, 5, available at: <http://www.worldbank.org/icsid/pubs/1998ar/ICSID_AR_06_ENG_CRA2.pdf>.

For a discussion of the origins of investment treaty arbitration see the Sir Elihu Lauterpacht QC's foreword to Professor Schreuer's ICSID Convention: A Commentary, above n 2 and David AR Williams QC, ‘Challenging Investment Treaty Arbitration Awards—Issues Concerning the Forum Arising from the Metalclad Case’, in Albert Jan van den Berg (ed), International Commercial Arbitration: Important Contemporary Questions, ICCA International Arbitration Congress Series No. 11 (The Hague, Kluwer Law International, 2003) at 444.

Paul C Szasz, ‘The Investment Disputes Convention—Opportunities and Pitfalls (How to Submit Disputes to ICSID)’, 5 J Law & Econ Dev 23 (1970–1) at 24.

Schreuer, above n 2 at 89.

ICSID Annual Report 2004, 3. In the 2006 ICSID Annual Report, it was noted that no conciliations were referred to the Centre during the 2006 financial year. Conciliation does not result in a binding decision, but merely a recommendation to the parties which they are not obliged to follow.

As to the burden of proof as to jurisdiction, this question has been addressed in a number of recent investment treaty arbitrations. See eg Plama Consortium v Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005; Methanex Corporation v United States of America, (NAFTA) Final Award, 9 August 2005; Société Générale de Surveillance (SGS) v Republic of the Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004. A convenient analysis of the topic was given by the distinguished tribunal (composed of Mr Albert Jan van den Berg, VV Veeder QC, and Carl F Salans) in Plama Consortium, where the tribunal cited the test of Judge Rosalyn Higgins, put forward in the Case concerning Oil Platforms (Islamic Republic of Iran v United States of America) 1996, ICJ Reports 803, which had been followed in various investment treaty cases. At para 34 of that decision, the judge stated that ‘The Court should … see if, on the facts as alleged by [claimant] the [respondent's] actions complained of might violate the Treaty articles … Nothing in this approach puts at risk the obligation of the Court to keep separate the jurisdictional and merits phases … and to protect the integrity of the proceedings on the merits … what is for the merits, (and which remains pristine and untouched by this approach to the jurisdictional issue) is to determine what exactly the facts are, whether as finally determined they do sustain a violation of [the treaty] and if so, whether there is a defence to that violation …. In short it is at the merits that one sees “whether there really has been a breach” ’. The Plama Consortium Tribunal noted at para 120 that the burden of proof would be different for issues that did not relate to jurisdiction and went to the merits.

Szasz, above n 5, at 26.

10  Carolyn B Lamm, ‘Jurisdiction of the International Centre for Settlement of Investment Disputes’, 6 ICSID Rev-FILJ 462 (1992) at 464; See also, Ceskoslovenska Obchodni Banka (CSOB) v The Slovak Republic, ICSID Case No. ARB/97/4, Decision on Jurisdiction, 24 May 1999, 14 ICSID Rev-FILJ 251 (1999) at 274.

11  Schreuer, above n 2 at 89.

12  Stephen Wallace, ‘The “Juridical Architecture” of ICSID Arbitration under International Petroleum Agreements (and in Other Complex Situations)’, 18 ICSID Rev-FILJ 413 (2003) at 415.

13  CF Amerasinghe, ‘Jurisdiction Ratione Personae under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States’, 47 BYIl L 227 (1974–5) at 231.

14  Ibid, at 231–2.

15  Emphasis added.

16  Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/00/2, Award, 15 March 2002 at para 31.

17  ICJ Reports 89 (1995) at 99.

18  Schreuer, above n 2 at 102.

19  Robert Merkin, Arbitration Law (London, LLP, 2004) para 5.6.

20  [2004] 1 NZLR 95 (HC).

21  [1998] 2 All ER 23, 28–35 (CA).

22  Lamm, above n 10 at 474; W Michael Tupman, ‘Case Studies in the Jurisdiction of the International Centre for Settlement of Investment Disputes’, 35 ICLQ 813 (1986) at 815; Fedax NV v Republic of Venezuela, ICSID Case No. ARB/96/3, Award on Jurisdiction, 11 July 1997, excerpts in 24a YB Comm Arb 23 (1999).

23  Georges R Delaume, ‘ICSID and the Transnational Financial Community’, 1 ICSID Rev-FILJ 237 (1996) at 242.

24  Schreuer, above n 2 at 104.

25  Malcolm N Shaw, International Law (Cambridge, Cambridge University Press, 4th edn, 1997) at 129.

26  Benvenutti & Bonfant v Congo, ICSID Case No. ARB/77/2, Award, 8 August 1980, 1 ICSID Reports 330 (1993).

27  There was no denial of the dispute being a legal one: see CSOB v The Slovak Republic, Decision on Jurisdiction, above n 10 at 272.

28  Ibid at 272.

29  AES Corporation v The Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005 at para 44.

30  Ibid.

31  Walid Ben Hamida, ‘The Mihaly v Sri Linka Case: Some Thoughts relating to the Status of Pre-investment Expenditures’, in Todd Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron May, 2005) at 47.

32  Noah Rubins, ‘The Notion of “Investment” in International Investment Arbitration’ in Norbert Horn and Stephen Kröll (eds), Arbitrating Foreign Investment Dispute (The Hague, Kluwer Law International, 2004) at 283, 286.

33  Ibid at 287.

34  CME v Czech Republic, UNCITRAL Arbitration Proceedings, Separate Opinion at the Quantum Phase, 14 March 2003.

35  Ibid at paras 17 and 72.

36  IBRD Convention on the Settlement of Investment Disputes between States and Nationals of Other States—Documents Concerning the Origin and Formulation of the Convention (Washington, IBRD, 1968) at 623.

37  C F Amerasinghe, ‘The Jurisdiction of the International Centre for the Settlement of Investment Disputes’, 19 Indian J Int'l L 166 (1979) at 181; CSOB v The Slovak Republic, Decision on Jurisdiction, above n 10; Fedax NV v Republic of Venezuela, Award on Jurisdiction, above n 22 at 25.

38  Mihaly, above n 16.

39  Ibid at para 33.

40  Carolyn B Lamm and Abby Cohen Smutney, ‘The Implementation of ICSID Arbitration Agreements’, 11 ICSID Rev-FILJ 64 (1996) at 80.

41  Art 25(4) states that: 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. Despite excluding the Centre from a particular dispute, the state can still agree on an ad hoc basis to the Centre's jurisdiction: Tupman, above n 22 at 816.

42  Ibid.

43  Report of the Executive Directors of the World Bank, 1 ICSID Rep 28 (1993).

44  ICSID Case No. ARB/97/4, Decision on Jurisdiction, 24 May 1999, (1999) 14 ICSID Rev-FILJ 251.

45  See also the tribunal's comments in Fedax NV v Republic of Venezuela, Award on Jurisdiction, above n 22 at paras 7–15.

46  CSOB v The Slovak Republic, Decision on Jurisdiction, above n 10 at para 64.

47  Christopher M Koa, ‘The International Bank for Reconstruction and Development and Dispute Resolution: Conciliation and Arbitrating with China through the International Centre for Settlement of Investment Disputes’, 24 NYU J Int'l L & Politics 439 (1991) at 452.

48  Delaume, above n 23 at 242.

49  Ibid.

50  United Nations Conference on Trade and Development, Trends in International Investment Agreements: An Overview (Geneva, United Nations, 1999) at 45.

51  This two-stage approach has been adopted by ICSID tribunals in Fedax NV v Republic of Venezuela, Award on Jurisdiction, above n 22, and CSOB v The Slovak Republic, Decision on Jurisdiction, above n 10.

52  Alcoa Minerals of Jamaica v Jamaica, ICSID Case No. ARB/74/2, 4 YB Com Arb 206 (1979) at 207.

53  ICSID Case No. ARB/96/3, Award on Jurisdiction, 11 July 1997, excerpts in (1999) 24a YB Com Arb 23 (‘Fedax’).

54  Fedax, ibid at para 15.

55  Ibid.

56  Ibid at para 17.

57  ICSID Case No. ARB/97/4, Decision on Jurisdiction, 24 May 1999, 14 ICSID Rev-FILJ 251 (1999) (‘CSOB v Slovak’).

58  Ibid at para 12.

59  Ibid at para 65.

60  Ibid at para 66.

61  Ibid at para 68.

62  Ibid.

63  ICSID Case No. ARB/03/11, Award on Jurisdiction, 6 August 2004, available at <http://www.asil.org/ilib/JoyMining_Egypt.pdf> (‘JoyMining’).

64  Ibid at para 44.

65  Ibid at para 53.

66  Ibid at para 56.

67  Ibid at para 58.

68  Ibid at para 62.

69  Mihaly, above n 16.

70  J Michael Robinson, ‘ICSID Cases on its Jurisdiction: A Serious Problem for Public/Private Partnerships for Infrastructure in Developing Countries’, Int'l Bus Law 263 (2004).

71  BOOT projects are being used by developing states, notably Asian states, for large infrastructure projects. The projects include the buildings of highways, ports, dams, mass transit systems, power generation plants, water supply systems, and industrial estates. Their identifying feature is their connection with the economic development functions of the state, assigned to various ministries. Furthermore, legislation is usually passed to control the use of the projects. See M Sornarajah, The Settlement of Investment Disputes (The Hague, Kluwer Law International, 2000) at 46–8.

72  Mihaly, above n 16 at para 32; emphasis in original.

73  Individual Concurring Opinion by Mr David Suratgar, 17 ICSID Rev-FILJ 161 (2002).

74  Robinson, above n 70.

75  Ibid at 265.

76  Individual Concurring Opinion by Mr David Suratgar, 17 ICSID Rev-FILJ 161 (2002).

77  Farouk Yala, ‘The Notion of “Investment” in ICSID Case Law: A Drifting Jurisdictional Requirement Some “Un-Conventional” Thoughts on Salini, SGS and Mihaly’, 2 J Int'l Arb 105 (2005) at 123.

78  Schreuer, above n 2 at 116.

79  Fedax v Venezuela, Decision on Jurisdiction, above n 22 at para 10.

80  ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004.

81  Amerasinghe, ‘Jurisdiction Ratione Personae’, above n 13 at 229.

82  Schreuer, above n 2 at 89.

83  Stephen Jagusch and Matthew Gearing, ‘International Centre for the Settlement of Investment Disputes (ICSID)’, in J William Rowley (ed), Arbitration World: Jurisdictional Comparisons (London, The European Lawyer Ltd, 2nd edn, 2006) p lxv.

84  Schreuer, above n 2 at 89.

85  Alan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration (London, Sweet & Maxwell, 4th student edn, 2004) at 563–4.

86  ICSID Convention Art 68.

88  ICSID Convention Art 71.

89  ICSID Convention Arts 71 and 72.

90  Lamm, above n 10 at 468.

91  ICSID ARB/72/1, Decision on Jurisdiction, 12 May 1974 (‘Holiday Inns’). The decision remains unpublished but a detailed description of the decision is provided by Pierre Lalive, ‘The First World Bank Arbitration (Holiday Inns v Morocco)—Some Legal Problems’, 51 BYIL 123 (1980).

92  Holiday Inns, ibid at para 20.

93  Francisco Orrego Vicuña, ‘Changing Approaches to the Nationality of Claims in the Context of Diplomatic Protection and International Dispute Settlement’, 15 ICSID Rev-FILJ 340 (2000) at 353.

94  Ibid.

95  Anthony C Sinclair, ‘Nationality of Individual Investors in ICSID Arbitration’, 6 Int'l Arb L Rev 191 (2004).

96  There is an exception in the Canada-Venezuela BIT which excludes persons of dual nationality from the definition of ‘investors’ for the purposes of the agreement.

97  Redfern and Hunter, above n 85 at 568; Sinclair, above n 95 at 193.

98  Ibid.

99  ICSID Case No. ARB/02/07, Decision on Jurisdiction, 7 July 2004, 17 World Trade and Arbitration Materials 129 (2005) (‘Soufraki’).

100  ICSID Case No. ARB(AF)99/1, Interim Decision on Preliminary Jurisdictional Issues, 6 December 2000, in 18 ICSID Rev-FILJ 469 (2003) (‘Karpa’).

101  ICSID Case No. ARB/02/09, Decision on Jurisdiction, 21 October 2003, in 19 ICSID Rev-FILJ 275 (2004) (‘Champion Trading’).

102  Bilateral Treaty for the Promotion and Protection of Investments between Italy and the United Arab Emirates, opened for signature 22 January 1995, ICSID Investment Treaties Vol 6 (entered into force 29 April 1997) (‘UAE-Italy BIT’).

103  Soufraki at para 55.

104  Ibid at para 63.

105  Karpa at para 11(e).

106  Ibid at para 30.

107  Ibid at paras 34–5.

108  1982 Treaty between the United States of America and the Arab Republic of Egypt Concerning the Reciprocal Encouragement and Protection of Investments (entered into force 1992) (USA-Egypt BIT).

109  Nottebohm Case (Second Phase) [6 April 1955] International Court of Justice <http:// www.icj-cij.org/icjwww/idecisions/isummaries/ilgsummary550406.htm> (at 14 August 2006). (‘Nottebohm’).

110  Declaration of the Government of the Democratic Popular Republic of Algeria concerning the Settlement of Claims by the government of the United States of America and the Government of the Islamic Republic of Iran.

111  Case No. A/18 Concerning the Question of Jurisdiction over Claims of Persons with Dual Nationality, 5 Iran-US CTR 252 (1984 I).

112  Champion Trading, above n 101 at 288.

113  Ibid at 290.

114  Lalive above n 91 at 140.

115  Schreuer, above n 2 at 276.

116  Ibid.

117  Aron Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of Other States’, 136 Receuil des Cours 331 (1972-II) at 361.

118  Schreuer, above n 2 at 277.

119  Ibid at 278.

120  Ibid at 281.

121  ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, (‘Tokios’). For another decision which has dealt with the issue of corporate nationality see eg AES Corporation v The Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005.

122  Agreement between the Government of Ukraine and the Government of the Republic of Lithuania for the Promotion and Reciprocal Protection of Investments, 8 February 1994. (entered into force 27 February 1995) (‘Ukraine-Lithuania BIT’).

123  Tokios, above n 121 at para 30.

124  Ibid at para 46.

125  Ibid at para 50.

126  1970 ICJ 3 (5 February).

127  Dissenting Opinion of Professor Prosper Weil (‘Tokios Dissent’).

128  Tokios Dissent, ibid at para 19.

129  Christoph Schreuer, ‘Commentary on the ICSID Convention’, 12 ICSID Rev-FILJ 59 (1997) at 94.

130  Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No. ARB/98/4 in [2002] 41 ILM 881, 888 (‘Wena Hotels’). As to the annulment proceedings, see: Wena Hotel Limited v Arab Republic of Egypt, 5 February 2002 in 41 ILM 933 (2002). For a commentary on the decision on application for annulment see Eric A Schwartz, ‘Finality at What Cost? The Decisions of the Ad Hoc Committee in Wena Hotels v Egypt’, in Emmanuel Gaillard and Yas Banifatemi (eds), Annulment of ICSID Awards (Huntington, NY, Juris Publishing Inc & IAI, 2004) at 43.

131  Wena Hotels, above n 130 at 888.

132  ICSID Case No. ARB/02/3, Decision on Respondent's Objections to Jurisdiction, 21 October 2005, available at < http://ita.law.uvic.ca/documents/AguasdelTunari-jurisdiction-eng_000.pdf> (at 17 August 2006) (‘Aguas’). For another decision which has dealt with the issue of corporate nationality, see eg AES Corporation v The Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005.

133  The Agreement between the Arab Republic of Egypt and the United Kingdom of Great Britain and Northern Ireland for the Promotion and Protection of Investments (entered into force on 24 February 1976).

134  Wena Hotels above n 130 at 889.

135  ICSID Case No. ARB/72/1, Decision on Jurisdiction, 12 May 1974.

136  Holiday Inns, above n 91 at 15, referred to in Tupman, above n 22 at 819.

137  ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983, in 23 ILM 351 (1984) at para 14 (iii) (‘Amco’).

138  ICSID Case No. ARB/81/2, Award, 21 October 1983, 10 YB of Com Arb 71 (1985). This decision was then annulled by an Ad Hoc ICSID Committee on 3 May 1985, see 1 ICSID Rev-FILJ 89 (1986) and subsequently resubmitted to arbitration. The second Award on 26 January 2008 was also the subject of annulment proceedings; however they were unsuccessful.

139  Tupman, above n 22 at 835.

140  Amco, above n 137 at para 14(ii).

141  Ibid at para 14(iii).

142  Ibid at para 14(ii).

143  ICSID Case No. ARB/82/1, Decision on Jurisdiction, 1 August 1984, excerpts in 17 YB Com Arb 42 (1992) at 46–8 (‘SOABI’).

144  Ibid at 48.

145  Amco, above n 137 at para 14(iii).

146  Antonio Parra, ‘Provisions on the Settlement of Investment Disputes in Modern Investment Law’, ICSID Rev-FILJ 287 (1997) at 299.

147  The new restructure can be described as follows: the 55% owner of the Claimant was IW SARL (Luxembourg) which was 100% owned by International Water (Tunari) BV (Netherlands), in turn 100% owned by International Water Holdings BV (Netherlands), which was 50% owned by Baywater Holdings (Netherlands), which was 100% owned by Bechtel (USA). See Aguas, above n 132, at para 71 for a diagram showing the complicated ownership structure of the claimant.

148  Aguas at para 165.

149  Aguas at para 174.

150  Aguas at para 91.

151  Aguas at paras 225–48 and 264–323.

152  Aguas at para 245.

153  Aguas at para 246.

154  Aguas at para 247. On this point, there was a dissent in which the dissentient disagreed with the majority's conclusion on the meaning of control, concluding that it required actual control. Therefore, given that no evidence of actual control had been submitted by the claimant, it did not meet the BIT criteria and was outside of ICSID's jurisdiction.

155  Aguas at paras 266–314.

156  Alexandre de Gramont, ‘After the Water War: The Battle for Jurisdiction in Aguas del Tunari SA v Republic of Bolivia’, 3 TDM (2006).

157  Aguas at para 330.

158  De Gramont, above n 156.

159  ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004.

160  UNCITRAL, Partial Award, 17 March 2006.

161  De Gramont, above n 156.

162  For a comprehensive discussion on the protection of shareholders in international investment law, see Christoph Schreuer, ‘Shareholder Protection in International Investment Law’, 2 TDM (2005). The text relies heavily on Professor Schreuer's lucid exposition of the topic.

163  Case Concerning the Barcelona Traction, Light and Power Company Limited (Belgium v Spain), 5 February 1970 (1970) ICJ 3 (‘Barcelona Traction’).

164  See, eg Ian A Laird, ‘A Community of Destiny: The Barcelona Traction Case and the Development of Shareholder Rights to Bring Investment Claims’, in Todd Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron & May, 2005) 77; Yoram Dinstein, ‘Diplomatic Protection of Companies under International Law’, in Karel Wellens (ed), International Law: Theory and Practice, Essays in Honour of Eric Suy (The Hague, Kluwer Law International, 1998) at 505.

165  As Professor Schreuer says: ‘the limited applicability of a doctrine denying rights to shareholders under international law is demonstrated by another judgment of the ICF in the subsequent ELSI case. That case concerned claims against Italy on behalf of the United States shareholders in a company incorporated in Italy. In that case, the ICJ took it for granted, without discussion in the judgment, that the United States was entitled to protect its shareholders in the Italian company.’ see Schreuer, above n 162.

166  Schreuer above n 2 at 91.

167  Ibid at 149.

168  Amerasinghe, above n 13 at 234.

169  Koa, above n 47 at 453.

170  Schreuer, above n 2 at 154.

171  Amerasinghe, above n 13 at 233.

172  Schreuer above n 2 at 151.

173  Amerasinghe, above n 13 at 233.

174  Ibid at 234.

175  Schreuer above n 2 at 151.

176  See eg New Zealand Bill of Rights 1990 s 3.

177  Paul Rishworth, Grant Huscroft, Scott Optican, and Richard Mahoney, The New Zealand Bill of Rights (Oxford, Oxford University Press, 2003) at 89.

178  Schreuer above n 2 at 151.

179  Amerasinghe, above n 13 at 234.

180  Ibid.

181  See, ibid; Schreuer, above n 2 at 152.

182  Ibid.

183  Ibid at 155.

184  Ibid at 156.

185  Ibid at 157.

186  See eg Lamm, above n 10 at 469; Amerasinghe, above n 13 at 235; Schreuer, above n 2 at 153.

187  See eg Amerasinghe, above n 13 at 235; Schreuer, above n 2 at 153.

188  Amerasinghe, above n 13 at 235.

189  Schreuer, above n 2 at 154.

190  Ali Yesilirmak, ‘Jurisdiction of the International Centre for Settlement of Investment Dispute over Turkish Concession Contracts’, 14 ICSID Rev-FILJ 391 (1999) at 409.

191  Amerasinghe, above n 13 at 235.

192  See eg Schreuer, above n 2 at 153; Amerasinghe, above n 13 at 235.

193  ICSID Case No. ARB/95/2, Award, 16 December 1996, 13 ICSID Rev-FILJ 328 (1998) (‘Cable Television’).

194  Ibid, at para 2.04.

195  Ibid, at para 2.05.

196  Schreuer above n 2 at 153; Amerasinghe, above n 13 at 335.

197  Convention on the Settlement of Investment Disputes between States and Nationals of Other States: Analysis of Documents Concerning the Origin and the Formulation of the Convention (1970) Vol 2, 860.

198  Amerasinghe, above n 13 at 236.

199  Ibid.

200  Ibid, at 237.

201  Schreuer, above n 2 at 336. But see Amerasinghe, above n 13 at 237–8. His approach is similar to an estoppel argument. He argues that an approval only becomes irrevocable ‘when one or both of the parties to the investment agreement have acted or changed their positions in reliance on it’. He does not refer to the prohibition on the unilateral withdrawal of consent found in Art 25(1).

202  The Additional Facility Rules were adopted 27 September 1978.

203  ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000 (‘Metalclad’). For a commentary on the case see Williams, above n 4 at 444.

204  Sir Elihu Lauterpacht, ‘Arbitration between States and Foreign Investors: Retrospect and Prospect’, in Julian DM Lew and Loukas A Mistelis (eds), Arbitration Insights: Twenty Years of the Annual Lecture of the School of International Arbitration (The Hague, Kluwer Law International, 2007) at 307, 323.

205  The decision of the Supreme Court of British Columbia United Mexican States v Metalclad Corporation (2001) BCSC 664 is available at: <http://www.naftaclaims.com>.

206  Lauterpacht, above n 204 at 323.

207  A full discussion of this topic is beyond the scope of this chapter and reference should be made to the commentaries on the case for an intensive review of the subject. See eg Lauterpacht, above n 204 at 307; Guillermo Aguilar Alvarez and William W Park, ‘The New Face of Investment Arbitration: NAFTA Chapter 11’, 28 Yale J Int'l L 365 (2003) at 377 and Williams, above n 4 at 444.

208  Alvarez and Park, above 207 at 377.

209  Canada signed the ICSID Convention in December 2006 and ratified it in March 2008.

210  Investor-state arbitration under NAFTA can potentially take place under three sets of rules. First, the ICSID Convention if both the disputing state and the state of the investor are parties to the Convention. Neither Canada nor Mexico is a party to the ICSID Convention; therefore at this stage, ICSID arbitration is unavailable. Secondly, the ICSID Additional Facility Rules—as long as either the disputing state or the investor state but not both is a party to the ICSID Convention. Finally, the arbitration can take place under the UNCITRAL rules: Art 1120.

211  Art 1138 NAFTA.

212  Alvarez and Park, above n 207 at 372.

213  Gillian Turner, ‘Investment Protection through Arbitration: The Dispute Resolution Provisions of the Energy Charter Treaty’, 5 Int'l Arb L Rev 166 (1998).

214  The SCC has been described as the ‘more generally available form of institutional arbitration for ECT cases’ compared to the other two forms: Antonio Parra, ‘Investments and Investors covered by the ECT and other Investment Protection Treaties’, in Clarisse Ribeiro (ed), Investment Arbitration and the Energy Charter Treaty (Huntington, NY, JurisNet LLC, 2006) at 54.

215  Stephen Jagush and Anthony Sinclair, ‘The Limits of Protection for Investments and Investors under the Energy Charter Treaty’, in Clarisse Ribeiro (ed), Investment Arbitration and the Energy Charter Treaty (Huntington, NY, JurisNet LLC, 2006) at 76.

216  Energy Charter Secretariat, ‘The Energy Charter Treaty and Related Documents: A Legal Framework for International Energy Cooperation’ (2004) 26.

217  Jagush and Sinclair, above n 215 at 81.

218  Ibid at 88.

219  27 ILM 612. The ASEAN Agreement is in force among the members of the Association of South East Asian Nations, namely, Brunei, Vietnam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, The Philippines, Singapore, and Thailand.

220  Emmanuel Gaillard, ‘Investments and Investors Covered by the Energy Charter Treaty’, presentation given at Stockhom, 9 June 2005.

221  Ibid.

222  ARB No. 126/2003 (SCC), Award, 29 March 2005 (‘Petrobart’).

223  Ibid at 62–3.

224  Ibid at 71.

225  Fedax NV v Republic of Venezuela, Award on Jurisdiction, above n 22.

226  Salini Construttori SpA and Italstrade SpA v Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 23 July 2001, 6 ICSID Rep 400 (2004).

227  Société Générale de Surveillance (SGS) v Republic of the Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004.

228  Petrobart, above n 222 at 72.

229  Jagush and Sinclair, above n 215 at 86–7.

230  Ibid.

231  Ibid at 87.

232  Leading NAFTA cases decided under UNCITRAL Rules: GAMI Investments, Inc v the United Mexican States, Final Award, 15 November 2004; International Thunderbird Gaming Corporation v the United Mexican States, Final Award, 26 January 2006 with a dissenting opinion; Ethyl Corporation v Canada, Final Award, 24 June 1998; Methanex Corporation v United States of America, Final Award delivered on 9 August 2005.

233  Parra, above n 146 296.

234  Giorgio Sacerdoti, ‘Investment Arbitration Under ICSID and UNCITRAL Rules: Prerequisites, Applicable Law, Review of Awards’, 19 ICSID Rev-FILJ 1 (2004).

235  1991 BIT between Czech and Slovak Federal Republic and the Netherlands.

236  There were four grounds to the challenge: the exclusion of one of the arbitrators from the arbitrators' deliberations, non-application of applicable law, issues of lis pendens and res judicata, and finally excess of the arbitrators' mandate. The Court dismissed the challenge on all four grounds. Regarding the claim that the dissenting arbitrator had been excluded, the Court found that this allegation was not proved and had been close to groundless, a finding which has met with some controversy: see Stanislaw Soltysinski and Marcin Olechowski, ‘Observations’, in Sigvard Jarvin and Annette Magnusson, International Arbitration Court Decisions (Huntington, NY, Juris Net LLC, 2006) at 722. Also see eg Hans Bagner, ‘Swedish Appeals Court Strikes Delicate Balance in Czech Republic v CME’, 18(6) Mealey's Int'l Arb Rep 34 (2003). The text of the judgment of the SVEA Court of Appeal can be found in: Jarvin and Magnusson, International Arbitration Court Decisions above at 663 and in 18(6) Mealey's Int'l Arb Rep s A-1 (2003).

237  UNCITRAL Rules, Partial Award, 17 March 2006, available at <http://www.pcacpa.org/ENGLISH/RPC/SAL-CZ%20Partial%20Award%20170306.pdf> (at 17 August 2006).

238  Parra, above n 146 at 296.

239  W Laurence Craig, William W Park, and Jan Paulsson, International Chamber of Commerce Arbitration (New York, Oceana Publications Inc, 3rd edn, 2000) at 155.

240  Ibid.

241  For a full analysis of jurisdictional aspects under the ICC Rules, see ibid.

242  Case No. 9058/FMS/KGA, 21 October 1999.

243  The order to vacate the Award was issued by the US CA for the 5th Circuit on 21 April 2006, Case No. 04-20842. See commentary in 21(4) Mealey's Int'l Arb Rep 5 (2006). For a copy of the full text, see 21(4) Mealey's Int'l Arb Rep s A (2006) and <http://www.caselaw.lp.findlaw.com/data2/circs/5th/0420842cv0p.pdf>.

244  Art 23(2) of the LCIA Rules.

245  Case No. UN 348n1, Award dated 3 February 2006.

246  Case No. UN 3467, Award dated 1 July 2004.

247  ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005 (‘Plama Consortium’).

248  Ibid at paras 155–8.

249  Ibid at paras 161–2.

250  Ibid at para 170.

251  ICSID Case No. ARB/98/7, Award, 1 September 2000, excerpts available at 17 ICSID Rev-FILJ 362 (2002) (‘Banro’).

252  Ibid at 391.

253  See eg Eureko BV v Republic of Poland, Partial Award and Dissenting Opinion, 19 August 2005, paras 92; ff Antoine Goetz et consorts c République du Burundi, Award, 10 February 1999, paras 86 ff; Sempra Energy International v The Argentine Republic, ICSID Case No. ARB/02/16, Decision on Objections to Jurisdiction, 11 May 2005 at para 109.

254  Ian A Laird, ‘A Distinction without a Difference An Examination of the Concepts of Admissibility and Jurisdiction in Salini v Jordan and Methanex v USA’ in Todd Weiler (ed), International Investment Law and Arbitration (London, Cameron May, 2005) at 201.

255  Gerald Fitzmaurice, The Law and Practice of the International Court of Justice (Cambridge, Grotius, 2006) at 438–9.

256  Laird above n 254 at 203.

257  Ian Brownlie, Principles of Public International Law (Oxford, Clarendon Press, 5th edn, 1998) at 479.

258  Methanex v United States, UNCITRAL, Partial Award on Jurisdiction, 7 August 2002 (‘Methanex’), at para 109.

259  ICSID Case No. ARB/02/13 Decision on Jurisdiction, 15 November 2004 (‘Salini’).

260  Methanex, above n 258 at paras 123–4.

261  Laird, above n 254 at 215.

262  Ibid at 211.

263  Salini, above n 259 at para 151.

264  Laird, above n 254 at 215.

265  Ibid.

266  ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004 (‘SGS v Philippines’).

267  Ibid.

268  Ibid, at para 154.

269  They contracted twice in 1986 and a third time in 1991.

270  Signed 31 March 1997, entered into force 23 April 1999.

271  This was the approach adopted in Lanco International Inc v Argentine Republic, 5 ICSID Reports 367 (1998).

272  SGS v Philippines, above n 266 at paras 153–4.

273  Impregilo SpA v Islamic Republic of Pakistan, ICSID Case No. ARB/03/03, Decision on Jurisdiction, 22 April 2005 (‘Impregilo’).

274  For a detailed treatment of this topic, see Jacomijn J van Haersolte-van Hof and Anne K Hoffmann, ‘The Relationship between International Tribunals and Domestic Courts’, ch 24 below and Katia Yannaca-Small ‘Parallel Proceedings’ ch 25 below.

275  Impregilo, above n 273 at para 17.

276  Ibid at para 188.

277  Ibid at para 189.

278  Ibid at para 109.

279  Ibid at para 289.

280  Ibid at para 290.

281  Ibid at para 291.

282  For a full discussion of issues surrounding lis pendens or parallel proceedings, see Katia Yannaca-Small, ch 25 below.

283  Craig et al, above n 239 at 60.

284  For example, see CMS Gas Transmission Company v The Republic of Argentina, ICSID Case No. ARB/01/8, Decision on Jurisdiction, 17 July 2003, in 42 ILM 2003 788, 793 where an objection based on the claimant's locus standi was framed in terms of the ‘inadmissibility of the claim’ when it should more appropriately have been submitted in terms of whether or not the tribunal had jurisdiction over a person with disputable standing.

285  Redfern and Hunter, above n 85 at 163.

286  Ibid at 164.

287  Although see the Mitsubishi Motors Corp v Soler Chrysler Plymouth Inc, 473 US 614, where an antitrust issue was held to arbitration under the Federal Arbitration Act despite the existence of public policy considerations to the contrary.

288  For a more detailed analysis of each category, please see Redfern and Hunter, above n 85 at 165–72.

289  SGS v Philippines, above n 266 at para 154.