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Many BITs provide for additional requirements by limiting the treaty protection to investments that have been made “in accordance with the laws and regulations” of the host state. Similar provisions are to be found, for example, in the Sweden-Bosnia BIT, Art. 1(1). An analogous provision is contained in the Italy-Morocco BIT according to which investments include “all categories of assets invested […] by a natural or legal person, […] on the territory of the other Contracting Party, in accordance with the laws and regulations of the aforementioned party”. In the ICSID case Salini v.Morocco,

the tribunal interpreted the reference to the requirement of the conformity with national laws and regulations as follows:

“The Tribunal cannot follow the Kingdom of Morocco in its view that paragraph 1 of Article 1 refers to the law of the host State for the definition of ‘investment’. In focusing on the ‘categories of invested assets […] in accordance with the laws and regulations of the aforementioned party’, this provision refers to the validity of the investment and not to its definition. More specifically, it seeks to prevent the Bilateral Treaty from protecting investments that should not be protected, particularly because they would be illegal”228 [emphasis added].

In LESI-Dipenta v.Algeria, the ICSID tribunal similarly held that:

“the reference by the provision to the requirement of the conformity to the applicable laws and regulations does not constitute a formal recognition of the notion of investment as defined by Algerian law in a restrictive manner, but, in line with a standard and perfectly justified rule, the exclusion of the protection for all investments that have been made in violation of the fundamental principles that apply”229 [emphasis added].

The non-compliance with municipal law and regulations would not result in a jurisdictional bar since it “does not create an obstacle to treaty coverage per se and access to a neutral forum for the resolution of investment disputes, to the extent that the asset under consideration falls under the definition of an investment provided by the applicable treaty; rather, such alleged non-compliance may constitute a limitation with respect to the merits of the claim related to the covered investment”.230

In Saipem v.Bangladesh the tribunal concurred with the Salini v.Morocco tribunal previous case-law by noting that the phrase “in conformity with the laws and regulations [of the host state]” following the “investment” in Article 1(1) of

228.Salini Costruttori S.p.A. & Italstrade S.p.A., v.Kingdom of Morocco, (ICSID Case No. ARB00/4), Decision on Jurisdiction, 16 July 2001, (2003) 42 ILM 606.

229.Consortium Groupement LESI-Dipenta v.Algeria, ICSID Case No. ARB/03/08, Award, 10 January 2005, para. 24 (unofficial translation from the original French text available at www.worldbank.org/icsid).

230. E. Gaillard, “Investments and Investors Covered by the Energy Charter Treaty”, in

the BIT does not limit the definition of investment under the treaty to investment within the laws and regulations of Bangladesh.231

However, the non-compliance with national laws has been recently interpreted as a jurisdictional requirement. In Fraport v.The Republic of the Philippines,232 the tribunal held by majority that an investment intentionally structured in violation of Philippine Law in order for the investor to gain the prohibited management and control of a project did not qualify as an investment and fell outside the ICSID jurisdiction and the competence of the tribunal. As a consequence, since the tribunal held by majority that there was no “investment in accordance with law”, it also found that it lacked jurisdiction ratione materiae. According to the majority of the tribunal economic transactions undertaken by a national of one of the parties to the BIT have to meet certain legal requirements of the host state in order to qualify as an “investment”.

In the dissenting opinion appended to the award, the third arbitrator took the view that since the claimant’s shareholdings do constitute an investment covered by Article 1(1) of the Germany-Philippines BIT which defines investment as an “asset” and includes shares as a kind of asset, the requirement that the investment shall be accepted in accordance with the Philippine law could not be interpreted as a jurisdictional bar. As pointed out in the dissenting opinion, “[t]he purpose of these provisions is not to condition the right to arbitrate on the minute compliance by the investor at all times and in all respects with the domestic law and regulation of the Host State. […] Such an argument has been raised before an international arbitral tribunal and was properly rejected because ‘to exclude an investment on the basis of such minor errors would be inconsistent with the object and purpose of the Treaty’ (see Tokios Tokeles v.Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction of 29 April 2004, paras 83-86)”. The dissenting arbitrator also took care in distinguishing the present case form the award rendered in Inceysa Vallisoletana S.L. v.Republic of El Salvador233 which involved systematic fraud in securing a contract with the Republic of El Salvador, for the operation of vehicle inspection stations. In that case, the tribunal held that there was no jurisdiction on a number of grounds, including that the investment was not made in accordance with the laws of El Salvador. But both good faith and international public policy considerations were relevant in reaching this conclusion.

231.See also PSEG et al. v.Turkey, Decision on Jurisdiction, 4 June 2004, paras. 109, 116-120; Plama v.Bulgaria, Decision on Jurisdiction, 8 February 2005, 44 ILM 721 (2005), paras. 126-131; Bayindir v.Pakistan, Decision on Jurisdiction, 14 November 2005, paras. 105-110.

232.Fraport AG Frankfurt Airport Services Worldwide v.The Republic of the Philippines, ICSID Case No. ARB/03/25, Award, 16 August 2007.

233.Inceysa Vallisoletana S.L. v.Republic of El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006.