Factores de reclutamiento y utilización

Considering that capital-exporting States may have doubts about the quality of host States’

domestic institutions in protecting property rights,¹²⁸

125 Emmanuel Gaillard, ‘Identify or Define? Reflections on the Evolution of the Concept of Investment in ICSID Practice’ in Christina Binder, et al (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer, 408-11.

international investment treaties

126 The so-called ‘Salini test’ has been identified as emblematic jurisdictional requirements under the ICSID Convention, which consists of four elements as indicative of an investment: (i) a contribution in money or other assets, (ii) a certain duration, (iii) a sharing of operational risks, and (iv) a contribution to the host State’s economic development. See Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No ARB/00/4, Decision on Jurisdiction, 16 July 2001, paras 52-58.

127 Farouk Yala, ‘The Notion of “Investment” in ICSID Case Law: A Drifting Jurisdictional Requirement?’

(2005) 22(2) J Intl Arb 105.

128 UNCTAD studies had indicated that policy and institutional determinants were especially important in developing countries but they were often characterized by weaker institutions and less consistent policies

40 routinely place dispute settlement outside host States’ domestic systems, and seek to provide adequate protection and security so as to mitigate the damages resulting from the legal and policy system which might lack coherence, predictability and stability. Moreover, investment treaties generally provide for a broad and open-ended definition of ‘investment’, which covers almost every kind of asset or activity associated with investment to demonstrate how developing countries are committed to the protection of foreign investment. Nonetheless, in the event that States defend as respondents in ICSID arbitration cases, they constantly insist on a restrictive method to interpret the notion of

‘investment’ under the ICSID Convention since a restrictive method is not only of great consequence to safeguard judicial sovereignty but also an essential way to provide strong defenses. As a consequence, the first Gordian knot arises: States, by and large, adopt an extensive definition of investment in investment treaties aimed at attracting foreign investment, but insist on a restrictive method to interpret the concept of investment in arbitral proceedings.

The second Gordian knot relates to the criteria on which ICSID tribunals rely to interpret the term ‘investment’. In view of the facts that treaty-based ICSID arbitration cases balloon as BITs proliferate exponentially and that respondent States are usually unfamiliar with jurisdictional foundations, objections to ICSID jurisdiction are almost routinely raised under BITs.¹²⁹ The modern world of arbitration has recognized the authority of arbitral tribunals to determine their own jurisdiction or competence.¹³⁰

(see UNCTAD, ‘The Role of International Investment Agreements in Attracting Foreign Direct Investment to Developing Countries’, 12-13, 16-17).

However, in practice no uniform criteria are imposing on the exercise of such authority and, accordingly, tribunals virtually have absolute sole discretion in rendering decisions on jurisdiction. Intriguingly, while respondent States ordinarily insist on a restrictive method, ICSID tribunals typically tend to affirm claimants’ argument that an interpretation shall respect the fundamental principles pacta sunt servanda and ut res magis valeat quam pereat, eventually following a liberal method to expand the scope of investment. The extra-jurisdictional hurdle under the ICSID Convention may leave foreign investors financially exhausted with insufficient

129 Lucy Reed, et al, Guide to ICSID Arbitration, 143.

130 According to the doctrine of ‘compétence-compétence’ or ‘Kompetenz-Kompetenz’, any objection with respect to the existence or validity of the arbitration agreement falls within the competence of tribunals (see William W. Park, ‘The Arbitrator’s Jurisdiction to Determine Jurisdiction, The Limits of Language’ in Albert Jan van den Berg (ed), International Arbitration 2006: Back to Basics? (Kluwer International, 2007) 56).

41 resources to carry on the proceedings regarding the actual merits of the dispute,¹³¹ in particular given that objections to jurisdiction on the ground of unqualified investments frequently result in a bifurcation of the proceedings into a phase on jurisdiction, and if jurisdiction is proved to exist, a separate phase on the merits.¹³² Even if objections to jurisdiction are finally unapproved by ICSID tribunals, their filing by respondent States has caused considerable delay to the proceeding.¹³³

Practitioners have advocated that ICSID should issue a policy statement to reconcile the two competing methods on the interpretation of investment in accordance with article 25, under which ICSID can confirm that the definition of investment under the Convention is indeed broad and if an investment is eligible under a contract or treaty agreed by host State, tribunals shall not be too fastidious; however, as ICSID arbitration is designed for substantial investment disputes, it is not suitable for small monetary disputes involving claims of no more than U.S. $ 3-5 million.¹³⁴ Some scholars, in stark contrast to those who support the exclusion of small monetary claims, urge ICSID tribunals to protect microinvestment under the Convention so as to promote the reality of the international community moving towards community values.¹³⁵

131 V. V. Veeder, ‘The Investor’s Choice of ICSID and Non-ICSID Arbitration Under Bilateral and Multilateral Treaties’, 7.

Such observation is backed up by the ad hoc annulment committee in Malaysian Historical Salvors, SDN, BHD v. Malaysia which

132 Arbitral tribunals are able to deal with objections as a preliminary question or join objections to the merits of disputes. The practice of joining preliminary objections to the merits of disputes initiated in 1933 in case concerning the Administration of the Prince Von Pless and then in the Panevezys-Saldutiskis Railway Case.

Since questions of jurisdiction and merits are regularly closely intertwined, nowadays ICSID tribunals frequently join objections to the merits. However, separate decisions on jurisdiction are also rendered by many ICSID tribunals.

133 In some cases years pass between the date of the tribunal’s first session and the date of decision on jurisdiction. Eg, the tribunal in Sempra Energy International v. Argentine Republic (ICSID Case No ARB/02/16) constituted in May 2003, but the decision on objections to jurisdiction was rendered in May 2005.

134 V. V. Veeder, ‘The Investor’s Choice of ICSID and Non-ICSID Arbitration Under Bilateral and Multilateral Treaties’, 8.

135 Perry S. Bechky, ‘Microinvestment Disputes’ (2012) 45 Vand J Transnatl L 1043. In defending investor-State arbitration, ICC UK also underpinned the rights of small investor, arguing that small investor would be denied access to remedy if investor-State arbitration was unavailable. This was because State was forced to weigh the broader political and economic implications of taking a claim against another State if dispute was resolved on State-State level (see Peter Gooderham (Director of ICC UK) ‘Small Investors Would be Denied Access to Remedy’, Financial Times, Letters, 27 October, 2014).

42 determined that the ICSID Convention rejected a minimum requirement.¹³⁶ Here, the second Gordian knot arises: given that the ICSID Convention is created to provide a reliable forum to foster international cooperation for economic development and that the Convention does not specifically exclude minor financial claims, a liberal method can be adopted by ICSID tribunals in construing the diction of article 25. However, if this assumption is not implausible, the possibility exists that more trivial disputes will be submitted to ICSID tribunals, plunging the resolution process into the whirlpool of contention of jurisdiction and further deteriorating or destructing the utility of investor-State arbitration.

In general terms, a similar Gordian knot would not occur in non-ICSID arbitration since objections to jurisdiction, though not rare in non-ICSID arbitration, appear to be impractical to bring about a significant delay of arbitral proceedings. As the practice of investor-State arbitration becomes more sophisticated, objections to the jurisdiction of non-ICSID arbitral tribunals may delay or even disrupt arbitral proceedings. It happens when one of the disputing parties abuse national court proceedings to derail arbitral proceedings.¹³⁷

136 The committee held that ‘it was not the intent of the drafters of the ICSID Convention to exclude claimants advancing claims of minor financial dimension’ (see ICSID Case No ARB/05/10, Decision on the Application for Annulment, 16 April 2009, para 82).

However, this is not a common situation. In practice, challenges to the jurisdiction of non-ICSID arbitral tribunal occur in two forms, namely partial challenges total challenges. A partial challenge, which normally depends on whether part of the claims falls within the scope of an arbitration agreement, is insufficient to amount to a primary attack on the tribunal’s jurisdiction. In case of a total challenge, where applicants commonly question whether an arbitration agreement is valid and seek to overturn the basis upon which the tribunal has competency, the doctrine of compétence-compétence empowers arbitral tribunals to decide on their own jurisdiction. More importantly, the doctrine of separability affects, to a large extent, the outcome of tribunals’ decision.

According to the doctrine of separability, any challenge to the main agreement does not affect the validity of the arbitration agreement; in other words, the arbitration agreement shall be treated as an agreement independent of the main agreement, and thus a decision

137 See Salini Costruttori S.P.A. v. The Federal Democratic Republic of Ethiopia, Addis Ababa Water and Sewerage Authority, ICC Arbitration No10623/AER/ACS, Award regarding the suspension of the proceedings and jurisdiction, 7 December 2001; Himpurna California Energy Ltd v. Indonesia, Interim Award (Ad Hoc UNCITRAL Proceeding), 16 October 1999, 25 YB Com Arb 109 (2000). These cases will be discussed in section ‘3.3 The Interference of National Courts’.

43 rendered by the tribunal that the main agreement is null and void shall not entail ipso jure the invalidity of the arbitration agreement.¹³⁸ In non-ICSID arbitration, these doctrines strengthen the jurisdiction of arbitral tribunals and minimize challenges being employed as tactical manoeuvres to delay or derail arbitral proceedings. The doctrines, however, work to little avail in ICSID arbitration in that the decision of objection to ICSID jurisdiction ordinarily depends on the approach applied to construing article 25 of the Convention.

Though it is notable that the Gordian knot has caused, and continues to cause, confusion in ICSID arbitration, it seems quite impractical to cut the Gordian knot as long as the concept of investment under the ICSID Convention remains undefined. However, at the present time two measures might be supportive in reducing, or at least mitigating, the risks and damages that disputing parties would encounter at the jurisdictional stage. First and foremost, if States intend to adopt a more restrictive method in arbitral proceedings, they should consider including in investment treaties a less broad definition of investment. In this regard, a new approach called ‘closed-list’ definition emerges to avoid an excessively wide definition of ‘investment’. Without providing a conceptual stipulation, investment treaties adopting the so-called ‘closed-list’ approach merely consist of an ample, but finite, list of tangible and intangible assets that are eligible for protection under the treaties. ¹³⁹ Such an approach reduces risks to an acceptable level, and dispenses with States’ concern whether a relatively narrower notion of investment would lose attraction to foreign investors.

Second, article 25 of the Convention shall not be construed by ICSID tribunals restrictively, nor liberally, but in good faith. It appears that the Gordian knot, to some extent, does not bring ICSID tribunals between Scylla and Charybdis. Instead, the interests of both investors and respondent States can be taken into account jointly and fairly by ICSID tribunals in adjudicating the cases. As stated in Amco Asia Corporation and others v.

Republic of Indonesia, investors had an interest in submitting disputes to international arbitration, and such interest was matched by the interest of host States because ‘to protect investment is to protect the general interest of development and of developing

138 Julian D. M. Lew, et al, Comparative International Commercial Arbitration, 334-35. The doctrines of compétence-compétence and separability have been adopted by a number of institutional rules. Eg, art 23(1) of the UNCITRAL Rules.

139 For example, art 1 of Canadian Model BIT (2004).

44 countries’. ¹⁴⁰ Accordingly, jurisdictional instruments should be interpreted neither restrictively nor expansively, but rather objectively and in good faith¹⁴¹ with consequences that both parties might be considered as having reasonably and legitimately envisaged.¹⁴² A potential approach to taking into account the expectation of both investors and State can be to set an outer limit beyond which ICSID tribunals are not granted the power to expand the notion of investment. Given that claimants constantly intend to expand the definition of investment, the evaluation of respondent States’ expectation is more essential. When ruling on the outer boundaries of the definition in accordance with article 25(1), ICSID tribunals are suggested to identify whether the subject matter is a type of transaction that host States would like to submit directly to international arbitration, which can be conducted through examining the concept of investment in other treaties or agreements concluded by host States.¹⁴³ Such an approach is more than mere temporary expediency as ICSID arbitral proceedings shall be neither more intensive nor more extensive than necessary to reconcile the interests of investors and States who have an equivalent stake in an orderly, constructive and efficient resolution of jurisdictional contention.

Overall, it has become evident and well-recognized that the current development has demonstrated a liberal trend promoting an expansion of ICSID jurisdiction to cover any kind of asset or activity in some way related to investment. Considering that one of the ICSID’ objectives is to create a reliable forum which empowers States to strike a deal with potential sources of foreign capital, and that host States would create a secure legal environment in exchange for foreign investment based on BITs that contain a broad definition of investment,¹⁴⁴ it is not unacceptable that nearly every asset or activity associated with investment can be adjudicated within the competence of ICSID tribunals.

The concept of investment in modern arbitration, though not comprehensive as compared to the diction of ‘commercial’ in non-ICSID arbitration, is sufficient for ICSID tribunals to exercise their jurisdiction over a wide range of assets and activities.

140 ICSID Case No ARB/81/1, Decision on Jurisdiction, 25 September 1983, para 23.

141 Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No ARB/84/3, Decision on Jurisdiction and Dissenting Opinion of 14 April 1988, para 63.

142 ICSID Case No ARB/81/1, Decision on Jurisdiction, 25 September 1983, para 14.

143 Tony Cole, Kumar Vaksha, ‘Power-conferring Treaties: The Meaning of “Investment” in the ICSID Convention’ (2011) Leiden J Intl L 305, 327-29.

144 Julian Davis Mortenson, ‘Meaning of “Investment”: ICSID’s Travaux and the Domain of International Investment Law’ (2010) 51 Harv Intl LJ 257.

45 2 Compatibility with Other Dispute Resolution