Stanimir Alexandrov, The Baby Boom of Treaty-based Arbitrations and the Jurisdiction of ICSID Tribunals

Citation: 4 Law & Prac. Int'l Cts. & Tribunals 19 2005

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The Law and Practice of International Courts and Tribunals 4:19-59, 2005© 2005 Koninklike Brill NV, Leiden, The Netherlands.

THE "BABY BOOM" OF TREATY-BASED ARBITRATIONS ANDTHE JURISDICTION OF ICSID TRIBUNALS: SHAREHOLDERSAS "INVESTORS" AND JURISDICTION RATIONE TEMPORIS

STANIMIR A. ALEXANDROV*

I. INTRODUCTION

The rapid increase in the number of international arbitrations betweenforeign investors and host governments in recent years has been the subjectof much discussion, with good reason: the statistics are staggering.According to a recent UNCTAD study, the total number of investor-statearbitrations brought under bilateral investment treaties (BITs), regionalinvestment agreements, such as the North American Free TradeAgreement (NAFTA), and multilateral investment agreements, such as theEnergy Charter Treaty, now stands at 160, with well over half of the cases(92) filed during the last three years.' The UNCTAD study furtherindicates that about two thirds of those cases (106) have been filed beforethe International Centre for Settlement of Investment Disputes (ICSID), afacility dedicated to investor-state arbitration proceedings.

ICSID was established under the Convention on the Settlement ofInvestment Disputes between States and Nationals of Other States of 1965(ICSID Convention). The first ICSID case was registered in 1972. Thefirst ICSID case under an investment treaty was registered in 1987. Tenyears ago, at the end of 1994, ICSID had before it only three casesbetween foreign investors and host governments under investment

Partner and Senior International Advisor at Sidley Austin Brown & WoodLLP in Washington D.C. The author may be reached at [email protected] author would like to thank Judge Stephen M. Schwebel and ProfessorChristoph H. Schreuer for their valuable comments.I See UNCTAD, "Occasional Note: International Investment Disputes on theRise", UNCTAD/WEB/ITE/IIT/2004/2 (29 November 2004) at 1. For recentstatistics, see also Luke Eric Peterson, "Research Note: Emerging BilateralInvestment Treaty Arbitration and Sustainable Development" (August 2003),available at http://www.iisd.org/pdf/2003/trade-bits disputes.pdf (last visited7 January 2005).

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20 Stanimir Alexandrov LPICT 2005

treaties.2 The first year in which more than five ICSID cases wereregistered was 1997.

The "baby boom" began in the mid-1990s. At the end of 1997, thenumber of pending cases was 14; at the end of 2001, it was 37; and at theend of 2003, there were 64 pending cases.4 At the end of 2004, ICSID'swebsite listed some 85 pending cases between investors and host states -well over half of which were filed in 2003 and 2004 alone.' The vastmajority of those cases arise between investors and host governmentspursuant to investment treaties between the investor's home and hoststates. At least fifty additional treaty-based cases are understood to bepending before arbitral tribunals organized outside ICSID.6 While asignificant portion of the spike in filings is attributable to a large numberof cases filed against one country, Argentina (the majority of them in thewake of its financial upheavals), even setting those cases aside the trend ofrapid growth is still undeniable.

The roots of this growth appear straightforward. To begin with,foreign direct investment is a large and generally growing component ofeconomic activity around the globe.7 And as governments liberalize andinvite more foreign investment, and investors increasingly commit tooperations and business abroad, the opportunities for friction and disputesmultiply. This growth trend in foreign investment has come hand in handwith exponential growth in the number of investment treaties, particularlyBITs, entered into during the last ten years. The number of BITs has nearlydoubled since the second half of the 1990s. By the end of 2003, some 176countries had entered into over 2,200 such treaties, creating an interlocking

2 See UNCTAD, "Occasional Note: International Investment Disputes on the

Rise", at I & fig. 1.3 See Emmanuel Gaillard, La Jurisprudence du CIRDI 2-3 (Paris, 2004).4 See Gaillard, La Jurisprudence du CIRDI4.5 ICSID, Pending Cases, available at http://www.worldbank.org/icsid/cases/pending.htm (last visited 6 January 2005).6 See UNCTAD, "Occasional Note: International Investment Disputes on theRise", at 1 & fig. 3.7 Foreign direct investment stood at $612 billion in 2004, according toUNCTAD estimates. See Press Release, UNCTAD, "World FDI Flows Grew anEstimated 6% in 2004, Ending Downturn" (11 January 2005),UNCTAD/PRESS/PR/ 2005/002. While global FDI flows did experience declinesin 2001-2003 from the high of $1,388 billion in 2000, they increased in 2004 andUNCTAD predicts continued growth. See UNCTAD, World Investment Report2004 at 1-15, UNCTADIWIR/2004.


The "Baby Boom" of Treaty-Based Arbitrations

web of legal protections for investors that, in the overwhelming majorityof the treaties, is backed by the option to resort to arbitration.8

Given this proliferation of investment treaties and foreign directinvestment, it should come as no surprise that the number of disputes inwhich investors look to such treaties, and make use of the disputesettlement mechanisms available under them, has seen a correspondingincrease. Eloise Obadia, counsel with ICSID, has put it eloquently:

"During the first 30 years of its existence, ICSID was somewhat ofa 'Sleeping Beauty', with an average of one or two cases beingregistered each year. It is with the widespread development ofbilateral and multilateral investment treaties that the activities ofICSID have awakened [...].

In a way, these bilateral and multilateral investment treaties are toICSID what Prince Charming was to Sleeping Beauty, havingstirred the activities of the Centre." 9

With the growth in the number of investor-state arbitrations has comeconsiderable scrutiny of the jurisdictional requirements for investors'claims. This is in part a function of the fact that, because so many of thepending cases were filed recently, many of them are still embroiled in theopening phases of their proceedings - including challenges to jurisdiction.Thus, the parameters of jurisdiction in investor-state treaty arbitrations areevolving and crystallizing as additional jurisdictional decisions emerge.' 0 Itis also partly a function of the fact that, to some, the growth in investor-state arbitration is itself a cause for alarm, or at least introspection andcaution, leading to questions about whether overly generous jurisdictionalstandards are to blame.

This article argues that it is just as likely, if not more so, that thejurisdictional boundaries that are emerging, like the growth in investor-state arbitrations itself, are a fair reflection of the treaty parties' intentions.Governments around the world committed themselves to standards oftreatment under international law, and agreed that foreign investors could

8 See UNCTAD, World Investment Report 2004, at xvii, 6, & fig. 1.3.9 Eloise Obadia, "ICSID, Investment Treaties and Arbitration: Current andEmerging Issues", in Investment Treaties and Arbitration 67, 67-68 (G. Kaufman-Kohler & B. Stucki (eds.), 2002).10 As noted by Georges R. Delaume in 1983, the resolution of new, complex, ornovel issues has "significance for the 'interpretation' and 'application' of theConvention." Georges R. Delaume, "ICSID Arbitration and the Courts", 77 Am. J.Int'lL. 784, 795 (1983).


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seek to hold them to those standards in international investor-statearbitration proceedings. The increased scrutiny of the actions ofgovernments vis-A-vis foreign investors on the plane of international lawand the proliferation of investor-state arbitrations is not necessarily a causefor alarm. It may simply be the case that as more investors become awareof and benefit from treaty protections, more investors are also acting toenforce them. This article explores some of the recent developments injurisdictional decisions in investor-state treaty arbitrations, to highlighthow tribunals have interpreted the scope and limits of their jurisdictionover such claims.

II. BASIC ELEMENTS OF JURISDICTION

The basic requirements for ICSID jurisdiction are set forth in Article 25 ofthe ICSID Convention. To find jurisdiction, an ICSID tribunal mustdetermine that (1) there is a legal dispute arising directly out of aninvestment, between (2) a national of a Contracting State (an investor), and(3) another Contracting State, (4) which the parties have consented inwriting to submit to ICSID for resolution.

The consent of the parties is "the cornerstone of the jurisdiction of theCentre"" and "an indispensable condition for the jurisdiction" of ICSID.12

Ratification of the ICSID Convention by a Contracting State, however,does not constitute consent to arbitrate disputes with foreign investorsbefore ICSID. 3 An additional act is necessary if an ICSID tribunal is tofind jurisdiction: the state must specifically agree to submit a particulardispute or classes of disputes to ICSID jurisdiction.14 Indeed, it is to a largeextent the dynamic relationship between the requirements of the ICSIDConvention and specific consensual instruments that has fueled the fire ofjurisdictional disputes.

A traditional form of consent is the consent established through adirect agreement between the parties. 5 Such consent may be given "in a

" Report of the Executive Directors on the Convention on the Settlement ofInvestment Disputes between States and Nationals of Other States, para. 23(18 March 1965).12 Christoph H. Schreuer, The ICSID Convention: A Commentary 191,Article 25, para. 241 (2001).13 See Georges R. Delaume, "ICSID Arbitration: Practical Considerations", 1 J.Int'lArb. 101, 104-105 (1984).14 See Delaume, "ICSID Arbitration: Practical Considerations", 1 J. Int'l Arb.at 104-105.15 See Schreuer, The ICSID Convention: A Commentary 194-198, Article 25,paras. 249-256.

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clause included in an investment agreement [...] or in a compromisregarding a dispute which has already arisen."'' 6 The ICSID Convention,however, does not require that consent be given in a direct agreement. Itdoes not require that the consent of both parties be expressed in a singleinstrument, nor does it require that consent be simultaneously given. 7 TheConvention "accords the parties much freedom as to when and how theymay give their consent."' 8 All it requires is that the consent be "in writing."Therefore, a state can give its consent to ICSID jurisdiction unilaterally,with respect to a dispute or classes of disputes, in the absence of any directagreement with the investor and even before the dispute or disputescovered by that consent have arisen. The investor can give its consent inanother instrument, at a later time (e.g., when a specific dispute hasalready arisen). Thus, consent may result from "a unilateral offer by thehost State, expressed in its legislation or in a treaty, which is subsequentlyaccepted by the investor."' 9

This is the approach found in the great majority of the BITs: the treatyitself contains the state's advance consent to arbitrate before ICSIDdisputes covered by the treaty. The consent of the state in the treaty is inthe nature of a unilateral offer, a standing invitation, by the host state toforeign investors from the treaty partner to submit investment disputes toICSID arbitration. An aggrieved investor then consents to the arbitration -and thereby completes the agreement to arbitrate - by accepting the hoststate's offer.2 ° Such an acceptance is most often expressed by submitting

16 Report of the Executive Directors, para. 24.17 See Report of the Executive Directors, para. 24; Aron Broches, "TheConvention on the Settlement of Investment Disputes Between States andNationals of Other States of 1965, Explanatory Notes and Survey of ItsApplication", 18 YB. Com. Arb. 627, 643 (1993).18 Antonio R. Parra, "Provisions on the Settlement of Investment Disputes inModem Investment Laws, Bilateral Investment Treaties and MultilateralInstruments on Investment", 12 ICSID Review - F.I.L.J. 287, 313 (1997); see alsoAron Broches, "The Convention on the Settlement of Investment DisputesBetween States and Nationals of Other States", 136 Recueil des Cours 331, 349(1972-II).19 Schreuer, The ICSID Convention: A Commentary 192, Article 25, para. 245;see also Antonio R. Parra "ICSID and New Trends in International DisputeSettlement", News from ICSID, Vol. 10, No. 1, Winter 1993, at 7, 8.20 See, e.g., Bernardo M. Cremades and David J.A. Cairns, "The Brave NewWorld of Global Arbitration", 3 J. World Investment 173, 184 (2002) ("A Stateentering into a bilateral or multilateral investment treaty makes an open offer toinvestors of another State. The investor's acceptance of that offer [...] does notarise until the investor commences arbitration.").


Stanimir Alexandrov

an investment dispute to ICSID, i.e., in the investor's request forarbitration."' This consent is valid whether or not the state has any legalcontractual connection with the foreign investor and whether or not thestate could have anticipated the precise dispute at the time it gave itsconsent.22 Because the consent of the state is incorporated in the disputesettlement provisions of the BIT, those provisions "can be put in motiondirectly by a covered investor."23 This phenomenon has been referred to asarbitration without privity. 4

ICSID tribunals have consistently found that such consent meets therequirements of Article 25 of the ICSID Convention. In Lanco v.Argentina, for example, the tribunal explained:

"[C]onsent for the purposes of [jurisdiction] is understood to begiven by the State party to the dispute in the bilateral investmenttreaty from the moment the State extends a generic invitation to allthe investors who are nationals of the other Contracting State tosubmit the settlement of their possible disputes to ICSID [oranother arbitral] jurisdiction. '2 5

Similarly, in AMT v. Zaire, the tribunal found that the host state hadconsented to ICSID jurisdiction in the relevant BIT while the investorconsented by filing the request for arbitration.26 The ICSID tribunal inGoetz v. Burundi referred to the conclusion of the AMT v. Zaire tribunaland found that the situation in Goetz v. Burundi was identical. It concludedthat "le consentement de la R~publique du Burundi ressort de saratification de la Convention [de protection des investissements]; celui desrequ~rants ressort du d~p6t de la requite d'arbitrage." 7

21 The investor can also accept the offer separately, e.g., by a simple letter.22 See Genevieve Burdeau, "Nouvelles perspectives pour l'arbitrage dans les

contentieux 6conomiques int~ressant les Etats", I Revue de l'Arbitrage 3, 14(1995).23 Antonio R. Parra, "Provisions on the Settlement of Investment Disputes in

Modem Investment Laws, Bilateral Investment Treaties and MultilateralInstruments on Investment", 12 ICSID Review - F.I.L.J. at 323.24 See generally Jan Paulsson, "Arbitration without Privity", 10 ICSID Review-F.I.L.J. 232 (1995).25 Lanco International, Inc. v. Argentine Republic, ICSID Case No. ARB/97/6,Decision on Jurisdiction, 8 December 1998, 40 I.L.M. 457, 471, §43 (2001).26 See American Manufacturing & Trading, Inc. v. Republic of Zaire, ICSIDCase No. ARB/93/1, Award, 21 February 1997, 36 I.L.M. 1534, 1545, para. 5.23(1997).27 Antoine Goetz et consorts v. Republique du Burundi, ICSID Case No.ARB/95/3, Award Embodying the Parties' Settlement Agreement, 10 February

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In spite of frequent objections raised by respondents, this issue is notcontroversial. Indeed, in the first ICSID case based on a jurisdictionalclause in a bilateral investment treaty, AAPL v. Sri Lanka, the tribunaldecided without any hesitation to consider the merits of the disputesubmitted by a private investor against Sri Lanka, in the absence of anycontractual link between the investor and the Government of Sri Lanka,and in the absence of any special agreement to arbitrate signed between theparties.28 The request for arbitration and the claims in AAPL v. Sri Lankawere based on the applicable bilateral investment treaty between theUnited Kingdom and Sri Lanka under which the parties consented tosubmit to ICSID "any legal disputes arising between that Contracting Partyand national or company of the other Contracting Party concerning aninvestment of the latter in the territory of the former."'29

ICSID's jurisdiction is therefore a function of the parties' consent toarbitrate the dispute - it is as broad or as narrow as the parties have agreedthat it will be. However, while consent is an essential prerequisite for thejurisdiction of ICSID, "consent alone will not suffice to bring a disputewithin" ICSID's jurisdiction.3" The parties' freedom to consent to ICSIDjurisdiction is not unlimited. It is limited by the terms of Article 25 of theICSID Convention: there must be an investor of a Contracting Party and adispute with another Contracting Party arising directly out of aninvestment. An ICSID tribunal must not only satisfy itself that the disputesubmitted to it is within the parties' scope of consent; it must also makesure that those other requirements of Article 25 of the ICSID Conventionare met. Thus, the parties are free to consent to arbitrate before ICSID butonly within the bounds of the Convention. The task of an ICSID tribunal,therefore, is to determine not only whether there is consent with respect tothe specific dispute but also whether the nature of the dispute and theparties meet the requirements of Article 25.

This task is further complicated because of additional requirementsthat may be imposed by the terms of the BIT. The jurisdictionalrequirements of the ICSID Convention are typically broader or more

1999, 15 ICSID Review - F.I.L.J. 457, 493-494, para. 81 (2000) ("The consent ofthe Republic of Burundi stems from its ratification of the agreement [on theprotection of investments]; the consent of claimants stems from the filing of therequest for arbitration.") (unofficial translation).28 See Asian Agricultural Products Ltd. v. Republic of Sri Lanka, ICSID CaseNo. ARB/87/3, Award, 27 June 1990, 30 I.L.M. 580 (1991).29 AAPL v. Sri Lanka, 30 I.L.M. at 581, para. 2; see also ibid. at 586-587,paras. 18-19.30 Report of the Executive Directors, para. 25.


26 Stanimir Alexandrov

general than the jurisdictional requirements of an investment treaty.Article 25 of the Convention merely sets forth the "outer limits withinwhich disputes may be submitted to conciliation or arbitration under theauspices of the Centre with the consent of the parties thereto., 3 Thus, theparticular jurisdictional requirements for a given investor-state treatydispute will turn on the terms of the treaty itself- that is, on the textualboundaries of the category of disputes that the respondent governmentagreed in the treaty to submit to arbitration. It is the treaty that defines, forexample, who qualifies as a national of a Contracting Party (i.e., aninvestor) and what constitutes an "investment" for purposes of consentunder the treaty, i.e., ultimately, for the purposes of jurisdiction. Inaddition, a BIT commonly contains further limitations and requirements.Professor Schreuer states:

"The BITs also define the parameters for the activities of tribunalsin investor-State arbitration. Jurisdiction may be subject to certainprocedural requirements. For instance, a claimant may be requiredto attempt to reach an amicable settlement for a certain period oftime. The competence of arbitral tribunals may depend onproceedings in the host State's domestic courts. For instance, theBIT may require the exhaustion of local remedies; or it mayrequire the investor to choose between domestic courts andinternational arbitration.

The subject-matter jurisdiction of tribunals also varies. It may bedescribed narrowly or more widely. For instance, jurisdiction maybe limited to claims alleging a violation of the BIT itself or it mayextend to investment disputes in general. 32

As a result, the scope of an ICSID tribunal's jurisdiction depends onboth the ICSID Convention - typically as an outside limit - and thespecific provisions of the treaty in which consent to arbitration isexpressed.

It is thus not at all surprising that ICSID jurisdiction is so frequentlydisputed. The somewhat unusual "advance consent" mechanism in treaties,in which aggrieved investors might call upon states to arbitrate long afterstates have spelled out in their treaties the conditions under which they

31 Aron Broches, "The Convention on the Settlement of Investment Disputes

Between States and Nationals of Other States", 136 Recuel des Cours at 361.32 Christoph H. Schreuer, "Travelling the BIT Route: Of Waiting Periods,

Umbrella Clauses and Forks in the Road", 5 J. World Investment & Trade 231,231 (2004).

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consented to do so, the requirements of the ICSID Convention with respectto the nature of the dispute and the parties, and the additional limitationscontained in the treaties themselves have all given rise to a large number ofjurisdictional challenges in ICSID cases. Recent tribunal decisions haverefined and elaborated on many of the Convention's jurisdictionalrequirements and their interaction with the specific consensual provisionsof different investment treaties. These decisions and those yet to come arecreating a richer and a more sophisticated understanding of the properjurisdictional scope of investor-state arbitration under investment treaties.The rest of this article highlights recent case law developments thatidentify proper investors and investments, clarify questions of timing, andspecify more precisely the nature of the disputes that are encompassed byinvestment treaty provisions.

III. JURISDICTION WITH RESPECT TO CLAIMS BY SHAREHOLDERS

A. The Standing of Shareholders

The right of shareholders to seek protection independently from thecorporation has been recognized in international law. ICSID tribunals andthe International Court of Justice have clearly established this principle,dispelling the view of some that the Court's Barcelona Traction caseadopted the opposite proposition. As the International Court of Justiceitself acknowledged, Barcelona Traction was limited to the exercise ofdiplomatic protection and did not rule on the protection of shareholders ina corporation outside of that context.33 The ICSID tribunal in Azurixconfirmed that distinction when it held Barcelona Traction not to berelevant as "[t]he issues before this Tribunal concern not diplomaticprotection under customary international law but the rights of investors,including shareholders, as determined by the treaty, namely, under theBIT., 34 In Siemens too the ICSID tribunal considered it unnecessary todiscuss Barcelona Traction because it found that, while BarcelonaTraction concerned a state's right to grant diplomatic protection underinternational law, the issues before the Siemens tribunal "concern notdiplomatic protection under customary international law but the rights ofinvestors, including shareholders, as determined by" the relevant treaty.35

33 See Barcelona Traction, Light and Power Co., Ltd. (Belg. v. Spain), I. C.J.Reports 1970, 3, 46-48 (5 February).34 Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Decisionon Jurisdiction, 8 December 2003, 43 I.L.M. 262, 276, para. 72 (2004).35 Siemens A.G. v. Argentine Republic, ICSID Case No. ARB/02/8, Decision onJurisdiction, 3 August 2004, para. 140, available at http://www.asil.org/ilib/siemensArgentina.pdf (last visited 16 February 2005).



Moreover, subsequent to Barcelona Traction, in Elettronica Sicula, theInternational Court of Justice clearly accepted the concept of the protectionof shareholders of a corporation independently from the protection of thecorporation, even though in that case the corporation had the nationality ofthe host state.36

In ICSID treaty-based arbitration, the right of shareholders to bringclaims against the host state is beyond any doubt. Under Article 25 of theICSID Convention, jurisdiction is present when a national of a ContractingState brings a claim against another Contracting State arising directly outof an investment. While Article 25 does not provide a definition of theterm "investment," the ownership of shares was one of the specificexamples given during the negotiations of the ICSID Convention of aninvestment that the parties could include in their consent to jurisdiction.37

Moreover, the overwhelming majority of BITs define the term"investment," and, therefore, the scope of their consent to ICSIDjurisdiction, to include shares or other interests in a local company.38 As aresult, the question whether investors holding shares in local companieshave made an investment in the host state and, therefore, have standing tosubmit claims to ICSID arising directly out of that investment, should notpose significant obstacles to ICSID jurisdiction.

Indeed, ICSID tribunals have had no difficulty finding jurisdictionover claims by shareholders in a local company, provided all otherjurisdictional requirements are met. A number of decisions issued byICSID tribunals have upheld the rights of shareholders to claimindependently of the affected local corporate entity.39 In affirming this

36 See generally Elettronica Sicula S.p.A. (U.S. v. Italy), I.C.J. Reports 1989,

15, 23, 48-82 (20 July); cf. ibid., Dissenting Opinion of J. Oda, at 83.37 See 2 ICSID: Documents Concerning the Origin and the Formulation of theConvention 661 (1968).38 See Rudolf Dolzer & Margrete Stevens, Bilateral Investment Treaties 26, 28(1995).39 Indeed, the first investment treaty case heard by an ICSID tribunal, AsianAgricultural Products Ltd. v. Sri Lanka, recognized this principle. See AAPL v. SriLanka, 30 I.L.M. 580 (1991). In that case, claimant Asian Agricultural ProductsLtd. (AAPL), a Hong Kong corporation, brought a treaty claim for destruction to ashrimp producing center that was owned by AAPL's Sri Lankan subsidiary,Serendib. Ibid., at 581. The tribunal awarded damages to AAPL based on itsownership interest in the Serendib. Other tribunals have found jurisdiction insimilar circumstances. See generally American Manufacturing & Trading, Inc., 36I.L.M. 1534; Antoine Goetz, 15 ICSID Review - F.I.L.J. 457; Lanco International,Inc., 40 I.L.M. 457; Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v.The Republic of Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001, 17

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concept, the tribunal in CMS Gas referred to "the approach now prevailingin international law in respect of claims arising from foreigninvestments"4 and the "trend [ ...] in the context of international law andthe meaning of the 1965 Convention."'', The tribunal in Enron, alsoagreeing that under international law and the ICSID Convention"shareholders may claim independently from the corporation concerned,"noted that this conclusion was consistent with all previous ICSID decisionsand stated its belief that "the conclusions and reasons of those decisionsare correct., 4

' The tribunal in Goetz v. Burundi summarized ICSIDtribunals' practice in the following terms:

"[L]e Tribunal observe que la jurisprudence antrieure du CIRDIne limite pas la qualit6 pour agir aux seules personnes moralesdirectement vis6es par les mesures litigieuses mais l'6tend auxactionnaires de ces personnes, qui sont les vritablesinvestisseurs.' 43

Most recently, in Siemens, the tribunal concluded:

"As regards ICSID law dealing with the issue of the rights ofshareholders to bring a claim before an arbitral tribunal, thedecisions of arbitral tribunals have been consistent in deciding infavor of such right of shareholders."

ICSID Review - F.IL.J 395 (2002); Compahia de Aguas del Aconquia S.A. andCompagnie Gndrale des Eaux v. Argentine Republic, Award, 21 November 2000,ICSID Case No. ARB/97/3, 40 I.L.M 426 (2001); CME Czech Republic B.V. v.Czech Republic, UNCITRAL Arbitration, Partial Award, 13 September 2001,available at http:/ www.mfcr.cz/static/Arbitraz/en/PartialAward.pdf (last visited31 January 2005); AGIP SpA v. People's Republic of Congo, ICSID Case No.ARB/77/1, Award, 30 November 1979, 1 ICSID Reports 306 (1993).40 CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No.ARB/01/8, Decision on Jurisdiction, 17 July 2003, 42 I.L.M. 788, 795, para. 49(2003).41 CMS Gas Transmission Co. 42 I.L.M. at 796, para. 55.42 Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic,

ICSID Case No. ARB/01/3, Decision on Jurisdiction, 14 January 2004, paras. 39-40.43 Antoine Goetz, 15 ICSID Review - F.I.L.J. at 496-497, para. 89 ("[T]heTribunal observes that prior ICSID case law does not restrict the capacity to act toonly those legal persons that are directly affected by the alleged breachingmeasures; it extends that capacity to cover the shareholders in such legal persons,who are the actual investors.") (unofficial translation).44 Siemens A.G., Decision on Jurisdiction, para. 142.


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In sum, it is beyond doubt that shareholders have standing in ICSID tosubmit claims separate and independent from the claims of the corporation.

Moreover, this principle applies to all shareholders, no matter whetheror not they own the majority of the shares or control the corporation.Indeed, BITs that define shares of stock, interest, or participation in localcompanies as a form of "investment" make no distinction betweenmajority or controlling ownership or participation and minorityshareholding for the purposes of jurisdiction. This point was best explainedby the Annulment Committee in Vivendi. In that case, Argentina disputedthe exact percentage of shares owned by the French investor, CompagnieG~nrale des Eaux (CGE), in the Argentine company, Compafhia de Aguasdel Aconquija (CAA), which was the holder of the concession. TheAnnulment Committee found that this question might affect the quantumof recovery but was simply not relevant for the purposes of jurisdiction. Itclarified:

"[I]t cannot be argued that CGE did not have an 'investment' inCAA from the date of the conclusion of the Concession Contract,or that it was not an 'investor' in respect of its own shareholding,whether or not it had overall control of CAA. Whatever the extentof its investment may have been, it was entitled to invoke the BITin respect of conduct alleged to constitute a breach of [substantiveprotections under the BIT]. 45

The 1998 Lanco v. Argentina decision marked the first time an ICSIDtribunal expressly recognized a minority shareholder's right to assertclaims under an investment treaty.46 Lanco International Inc., a U.S.claimant, filed a claim against Argentina for breaches of Argentina'sobligations under the United States-Argentina BIT. Lanco maintained thatit had made an investment in Argentina in connection with a concessionagreement in which it became an 18.3% shareholder of the concessionairedeveloping and operating a cargo terminal in the port of Buenos Aires. TheLanco tribunal held that the term "investment" under the BIT is definedbroadly and includes all forms of shareholder participation, includingminority participation.47 In particular, the tribunal explained:

45 Compahia de Aguas del Aconquija S.A. and Vivendi Universal v. ArgentineRepublic (Vivendi Annulment), ICSID Case No. ARB/97/3, Decision onAnnulment, 3 July 2002, 41 I.L.M. 1135, 1146, para. 50 (2002).46 See generally Lanco International, Inc., 40 I.L.M. 457.47 See Lanco International, Inc., 40 I.L.M. at 461, § 10.

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"[The] ARGENTINA-U.S. Treaty says nothing indicating that theinvestor in the capital stock has to have control over theadministration of the company, or a majority share; thus the factthat LANCO holds an equity share of 18.3% in the capital stock ofthe Grantee allows one to conclude that it is an investor in themeaning of Article I [of the Treaty]."48

On the basis of this conclusion, the Lanco tribunal found jurisdiction.Recent ICSID tribunals have confirmed the conclusions of the Lanco

tribunal regarding the standing of minority shareholders. In CMS Gas,CMS, a U.S. company, owned 29.42% of Transportadora de Gas del Norte(TGN), an Argentine corporation that had obtained a government licensefor the transportation of gas.49 CMS subsequently filed a claim beforeICSID against Argentina alleging breaches of Argentina's obligationsunder the United States-Argentina BIT caused by Argentina's suspensionof a tariff adjustment formula for gas transportation applicable to TGN.5 0

Argentina asserted that, as a minority shareholder, CMS did not havestanding to assert a claim. Argentina argued that TGN held the affectedlicense, while CMS was only a minority shareholder and, therefore, "onlyTGN could claim for any damage suffered"; according to Argentina, CMSdid not have a claim for its proportionate share in TGN because it did nothave standing distinguishable from that of the company."

After examining several other ICSID tribunal decisions that "dealtwith the protection of shareholders,""2 the CMS Gas tribunal concludedthat "the tribunals have in all such cases been concerned not with thequestion of majority or control but rather whether shareholders can claimindependently from the corporate entity."53 Because ICSID jurisprudenceand authorities had consistently recognized the right of shareholders toassert claims independent of the corporate entity without drawing the linesbetween majority and minority shareholders, the CMS Gas tribunal had nodifficulty in concluding that "there is no bar to the exercise of jurisdictionin light of the 1965 Convention and its interpretation as reflected in its

48 Lanco International, Inc., 40 I.L.M. at 461, § 10.49 See CMS Gas Transmission Co., 42 I.L.M. at 791, para. 19.5O See CMS Gas Transmission Co., 42 I.L.M. at 789, para. 1.51 CMS Gas Transmission Co., 42 I.L.M. at 793, paras. 36-37.52 CMS Gas Transmission Co., 42 l.L.M. at 796, paras. 52-53. Specifically, the

tribunal examined AAPL v. Sri Lanka, American Manufacturing & Trading, Inc.,Antoine Goetz, Maffezini v. Spain, Lanco International, Inc., Alex Genin, theVivendi Award and Vivendi Annulment, and CME v. Czech Republic.53 CMS Gas Transmission Co., 42 I.L.M. at 796, para. 55.


32 Stanimir Alexandrov LPICT 2005

drafting history, the opinion of distinguished legal writers and thejurisprudence of ICSID tribunals. 54

The recent Enron case presented a very similar situation, with thesame result.55 Claimants owned 35.263% of the shares in Transportadorade Gas del Sur (TGS), an Argentine corporation and one of the majornetworks for the transportation and distribution of gas in the southernprovinces of Argentina.5 6 Argentina again argued that the measuresallegedly breaching the BIT between the United States and Argentinaaffected only TGS. Claimants, according to Argentina, were affected onlyindirectly, as they were merely minority shareholders. 7 Argentinaaccepted that investment in shares qualified for protection under the BIT,but argued that claims by minority shareholders could only be made "inrespect of measures affecting the shares qua shares, as in the event ofexpropriation of the shares or other measures affecting directly theeconomic rights of the shareholders," rather than in respect of measuresaffecting the company. 8 The tribunal decided, for the sake of brevity, notto repeat the reasoning of prior ICSID decisions on this point. It simplyreferred to them and upheld "the concept that shareholders may claimindependently from the corporation concerned, even if those shareholdersare not in the majority or in control of the company."5 9 Moreover, thetribunal emphasized that "the direct right of action of foreign shareholdersunder the Bilateral Investment Treaty for protecting their interests in thequalifying investment" was not affected by the rights of the localcorporation to pursue claims of its own for the violation of its rights undercontracts, licenses or other instruments.60

The tribunal's decision in Champion Trading Company v. Egypt wasequally concise and categorical. 6' In that case, two corporate and three

54 CMS Gas Transmission Co., 42 I.L.M. at 796, para. 56.55 See Enron Corporation and Ponderosa Assets, L.P., Decision onJurisdiction, paras. 39-40.56 See Enron Corporation and Ponderosa Assets, L.P., Decision onJurisdiction, para. 21.57 See Enron Corporation and Ponderosa Assets, L.P., Decision onJurisdiction, para. 34.58 Enron Corporation and Ponderosa Assets, L.P., Decision on Jurisdiction,para. 35.59 Enron Corporation and Ponderosa Assets, L.P., Decision on Jurisdiction,para. 39.60 Enron Corporation and Ponderosa Assets, L.P., Decision on Jurisdiction,para. 49.61 See Champion Trading Company and Ameritrade International, Inc. v. ArabRepublic of Egypt, ICSID No. ARB/02/9, Decision on Jurisdiction, 21 October



individual shareholders of National Cotton Company (NCC) broughtclaims against Egypt under the United States-Egypt BIT, claiming that theGovernment of Egypt had taken a series of measures that had renderedclaimants' investment worthless.62 Without even discussing their minoritystatus, the tribunal found jurisdiction over the claims of the two corporateminority shareholders, Champion Trading Company (a 20% shareholder)and Ameritrade International, Inc. (a 5% shareholder).63

Finally, the recent NAFTA UNCITRAL arbitration GAMIInvestments, Inc. v. Mexico also confirms that minority stock owners in acompany have the right to raise claims independent from those of thecompany itself.64 GAMI Investments, Inc. (GAMI), was a U.S. companythat held a 14.18% equity interest in Grupo Azucarero M6xico S.A. deC.V. (GAM). After the Mexican government expropriated five of GAM'ssugar mills, GAMI brought a NAFTA Chapter Eleven claim againstMexico asserting that, although no actual shares were seized, theexpropriation of GAM's sugar mills had rendered GAMI's investmentvirtually worthless as the mills were substantially all of GAM's productiveassets.65 GAMI argued that the expropriation protections in NAFTA wouldbe "illusory for any investor in a corporation" if "it were possible for astate to escape liability to foreign shareholders by the simple expedient ofseizing the assets without seizing the shares., 66 The tribunal had no troublefinding that GAMI had made a covered investment. Further, it observedthat "[t]he fact that a host state does not explicitly interfere with shareownership is not decisive"; rather, what is decisive is "whether a breach ofNAFTA leads with sufficient directness to loss or damage in respect of agiven investment., 67 The tribunal then held that GAMI had an independentright to seek redress for damages to its investment in internationalarbitration under NAFTA, and that the fact that it was "only a minorityshareholder does not affect its right" to seek such remedy.68 Moreover, the

2003, at 3, 18, available at http://www.worldbank.org/icsid/cases/champion-decision.pdf (last visited 16 February 2005).62 See Champion Trading Company, Decision on Jurisdiction, at 3-4.63 See Champion Trading Company, Decision on Jurisdiction, at 18.64 See GAMI Investments, Inc. v. United Mexican States, Final Award,

15 November 2004, available at http://www.economia-snci.gob.mx/sphp-pages/importa/solcontro/consultoria/casosMexico/Gami/escritos/GAMI english.pdf(last visited 31 January 2005).65 See GAMl Investments, Inc., Final Award, at 12, paras. 26-28.66 GAM! Investments, Inc., Final Award, at 12, para. 28.67 GAMI Investments, Inc., Final Award, at 14, para. 33.68 GAMi Investments, Inc., Final Award, at 15, para. 37.



tribunal concluded that GAMI was entitled to pursue international actioneven though the majority shareholders caused GAM to seek relief beforethe Mexican courts, and regardless of the fact that the act of expropriationwas rescinded by the national courts.6 9 Although the latter actionsubsequently proved detrimental (even fatal) to GAMI's claims on themerits, it did not affect GAMI's standing or the tribunal's jurisdiction overthe dispute itself.

B. The Nationality of Corporate Shareholders

Article 25(2)(b) of the ICSID Convention specifically grants ICSIDtribunals jurisdiction to decide the claims of juridical persons having thenationality of a Contracting Party in a dispute with another ContractingParty. The ICSID Convention, however, does not spell out criteria on thebasis of which a tribunal should determine the nationality of a claimantwhen the claimant is a juridical person. Thus, an ICSID tribunal calledupon to decide on the nationality of a corporate claimant must look, forthat purpose, to the instrument of consent. Once again, the ICSIDConvention provides the outer limits and leaves to the parties to specifythe precise scope of their consent. The contracting parties to an investmenttreaty may define the meaning of "national" or "investor" as they chooseand agree on the criteria to be applied in determining nationality. 0 RecentICSID tribunals have had to confront such questions of a corporateinvestor's nationality.

Although Article 25(2)(b) of the Convention does not set forth arequired method for determining corporate nationality, the rule that thenationality of a corporation is determined on the basis of its si~ge social orits place of incorporation is generally accepted, even if it remainsimplicit.7' As Professor Schreuer has stated, "[t]he overwhelming weightof the authority [...] points towards the traditional criteria of incorporation

69 See GAMI Investments, Inc., Final Award, at 15-18, paras. 36-43.70 See Aron Broches, "The Convention on the Settlement of Investment

Disputes Between States and Nationals of Other States", 136 Recueil des Cours at361 (explaining that "the parties should be given the widest possible latitude to

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The "Baby Boom" of Treaty-Based A rbitrations

or seat for the determination of corporate nationality underArt. 25(2)(b). 72 Indeed, "ICSID tribunals have uniformly adopted the testof incorporation or seat rather than control when determining thenationality of a juridical person. 73 In SOABI, for example, the tribunalobserved:

"As a general rule, States apply either the head office or the placeof incorporation criteria in order to determine nationality. Bycontrast, neither the nationality of the company's shareholders norforeign control, other than over capital, normally govern thenationality of a company [...]. Thus, 'a juridical person which hadthe nationality of the Contracting State party to the dispute', thephrase used in Article 25(2)(b) of the Convention, is a juridicalperson which, in accordance with the laws of the State in question,had its head office or has been incorporated in that State. 74

The tribunal in Amco concluded likewise that "the concept ofnationality is [...] a classical one, based on the law under which thejuridical person has been incorporated, the place of incorporation and theplace of the social seat., 75 Referring to SOAB1 and Amco, the tribunal inAutopista Concesionada de Venezuela likewise concluded in 2001 that,while there are different criteria to determine a juridical person'snationality, the "most widely used is the place of incorporation orregistered office" and that "the place of the central administration oreffective seat may also be taken into consideration. 76 Professor Schreuer

72 Schreuer, The ICSID Convention: A Commentary 281, Article 25, para. 468.73 Schreuer, The ICSID Convention: A Commentary 279-280, Article 25, paras.465 (citing, e.g., Kaiser Bauxite Company v. Jamaica, ICSID Case No. ARB/74/3,Decision on Jurisdiction, 6 July 1975, 1 ICSID Reports 296, 303 (1993)).74 Socit Ouest Africaine des Batons Industriels [SOABI] v. Senegal, ICSIDCase No. ARB/82/1, Decision on Jurisdiction, 1 August 1984, 2 ICSID Reports175, 180-181, para. 29.75 Amco Asia Corp. and others v. Republic of Indonesia, ICSID Case No.ARB/81/1, Decision on Jurisdiction, 25 September 1983, 1 ICSID Reports, 393,396, para. 14.76 Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic ofVenezuela, No. ARB/00/5, Decision on Jurisdiction, 27 September 2001, 16ICSID Review - F.I.L.J. 469, 505, para. 107 (2001). This conclusion was alsoreached by the tribunal in Tokios. See Tokios Tokeles v. Ukraine, ICSID Case No.ARB/02/18, Decision on Jurisdiction, 29 April 2004, at 17, para. 42, available athttp://www.worldbank.org/icsid/cases/tokios-decision.pdf (last visited 5 January2005).



concludes that "[a] systematic interpretation of Art. 25(2)(b) wouldmilitate against the use of the control test for a corporation's nationality."77

Nevertheless, Article 25 of the ICSID Convention allows the partiesthe freedom to determine the criteria for the nationality of juridicalpersons. Thus, in treaty-based arbitrations, one must look at the provisionsof the relevant treaty. Many BITs require no more than that the juridicalperson be incorporated or organized under the laws and regulations of theother Contracting Party to the BIT. Other investment agreements haveadditional criteria or requirements. Some define nationality on the basis ofthe entity's principal place of business." Others use the place ofincorporation as a starting point, but also require that the company engagein substantial business activities in the territory where it is incorporated.79

A few treaties define the nationality of a juridical entity according to thenationality of its controlling shareholders.8 0 At least one investmentagreement defines nationality based on the place of incorporation and the"place of effective management."'" However, the most commonly usedcriterion for determining nationality remains the place of incorporation.82

77 Schreuer, The ICSID Convention: A Commentary 278, Article 25, para. 463.78 See Rudolf Dolzer & Margrete Stevens, Bilateral Investment Treaties 35,

37-38.79 See, e.g., The Energy Charter Treaty, Annex 1 to the Final Act of theEuropean Energy Charter Conference, Article 17(1), 17 December 1994, availableat http://www.encharter.org/upload/l/TreatyBook-en.pdf (reserving the right ofeach Party to deny the benefits of the Treaty to any company of the other Partythat is controlled by nationals of any third country and that has no substantialbusiness activity in the territory of the other Party); Treaty between the UnitedStates of America and the Argentine Republic Concerning the ReciprocalEncouragement and Protection of Investment, 14 November 1991, Article 1(2)(reserving the right of a Party to deny the benefits of the Treaty to any company ofthe other Party that is controlled by nationals of any third country, or by nationalsof the denying Party, and that has no substantial business activity in the territoryof the other Party); Treaty between the United States of America and UkraineConcerning the Encouragement and Reciprocal Protection of Investment, 4 March1994, Article 1(2) (reserving the right of each Party to deny the benefits of theTreaty to any company of the other Party that is controlled by nationals of anythird country and that has no substantial business activity in the territory of theother Party).80 See Rudolf Dolzer & Margrete Stevens, Bilateral Investment Treaties 35,38-41 (citing to the 1992 Swiss BITs with Albania, Latvia, Lithuania, andVietnam, and the 1991 Swiss BIT with Argentina).81 See Article 1(2) of the Agreement among the Governments of BruneiDarussalam, the Republic of Indonesia, Malaysia, the Republic of the Philippines,the Republic of Singapore, and the Kingdom of Thailand for the Promotion and

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It is logical that the place of incorporation, rather than the nationalityof the owners, is the preferred test for the nationality of a juridical person.Publicly traded companies, for example, often have a huge number ofshareholders of different nationalities. Determining the nationality ofpublic companies on the basis of the nationality of their controllingshareholders in some cases may be a virtually impossible task. Applyingthe test of the place of incorporation, on the other hand, is straightforwardfrom a legal point of view. Still, for the purposes of jurisdiction under theICSID Convention, defining the nationality of juridical entities strictly byplace of incorporation while ignoring the nationality of the shareholdersraises several questions. What if the company is owned by nationals of athird state that has no BIT with the host state, who use the company as aconduit to make sure their investment in the host state enjoys treatyprotection? What if the company, incorporated in the home state, is ownedby shareholders who are nationals of the host state? Because the ICSIDConvention leaves the definition of nationality to the instruments ofconsent, in the case of treaty-based arbitrations the answers to thosequestions are to be found in the applicable investment treaty. If the treatydefines nationality on the basis of the place of incorporation, contains noother conditions with respect to nationality, and is silent with respect toownership, the answer is clear: a company incorporated in one contractingparty has standing to submit a claim before ICSID against the othercontracting party, regardless of the nationality of its controllingshareholders or the company's level of economic activity in its state ofincorporation.

The recent Tokios decision on jurisdiction embraced precisely thatview. It clearly established that, if an investment treaty defines thenationality of juridical entities according to their state of incorporation,then a foreign corporation has standing to bring investment treaty claimsagainst the host state regardless of the nationality of the corporation'sshareholders and, in particular, regardless of the fact that the shareholdersare nationals of the host state. 83 The issue in Tokios was novel but not

Protection of Investments, 15 December 1987, 27 I.L.M. 612 (1988). The title wasamended to ASEAN Agreement for the Promotion and Protection of Investmentsby the Jakarta Protocol of 12 December 1996. For a discussion and analysis of thatprovision, see Yaung Chi Oo Trading Pte Ltd. v. Government of the Union ofMyanmar, ASEAN I.D. Case No. ARB/O1/1, 42 I.L.M. 540, 549-550, paras. 46-52 (2003).82 See Autopista Concesionada de Venezuela, 16 ICSID Rev. - F.LL.J. at 505,para. 107.83 See Tokios Tokeles, Decision on Jurisdiction, at 10-22, paras. 25-52. The


38 Stan imir Alexandrov

necessarily one of first impression. Indeed, prior to Tokios, the tribunal inChampion Trading Company upheld the standing of a corporate entity toassert claims against the host state, Egypt, even though the individualshareholders of that entity were deemed Egyptian nationals for purposes oftheir individual claims, and were thus barred from bringing claims of theirown under the treaty.84 Nevertheless, the Tokios decision is importantbecause of its thorough analysis of the issues of corporate standing, foreigncontrol, and equitable veil piercing.

Tokios Tokeles, a business enterprise established under Lithuanianlaw, had formed a wholly-owned subsidiary (Taki spravy) under the lawsof Ukraine.85 In 2002, Tokios initiated ICSID arbitration proceedingsalleging that Ukraine had breached the BIT between Lithuania andUkraine by engaging in a series of actions that adversely affected Tokios'sinvestment in Ukraine.86 Ukraine objected to the ICSID tribunal'sjurisdiction, contending, inter alia, that Tokios was not a "genuine entity"of Lithuania because it was owned predominantly by Ukrainian citizens.87

The tribunal explained Ukraine's arguments as follows:

"The Respondent argues [...] that the Claimant is not a 'genuineentity' of Lithuania first because it is owned and controlledpredominantly by Ukrainian nationals. There is no dispute thatnationals of Ukraine own ninety-nine percent of the outstandingshares of Tokios Tokeles and comprise two-thirds of itsmanagement. The Respondent also argues, but the Claimantstrongly contests, that Tokios Tokeles has no substantial businessactivities in Lithuania and maintains its sikge social, oradministrative headquarters, in Ukraine. The Respondent contends,therefore, that the Claimant is, in terms of economic substance, aUkrainian investor in Lithuania, not a Lithuanian investor inUkraine.

The Respondent argues that to find jurisdiction in this case wouldbe tantamount to allowing Ukrainian nationals to pursueinternational arbitration against their own government, which theRespondent argues would be inconsistent with the object and

Tokios Decision was adopted by a majority of the tribunal with the president of thetribunal dissenting.84 See Champion Trading Company, Decision on Jurisdiction, at 3, 18.85 See Tokios Tokeks, Decision on Jurisdiction, at 1-2, para. 3.86 See Tokios Tokeles, Decision on Jurisdiction, at 1, paras. 1-2.87 Tokios Tokelks, Decision on Jurisdiction, at 8, para. 21.

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purpose of the ICSID Convention. To avoid this result, theRespondent asks the Tribunal to 'pierce the corporate veil', that is,to disregard the Claimant's state of incorporation and determine itsnationality according to the nationality of its predominantshareholders and managers, to what the Respondent contends isthe Claimant's lack of substantial business activity in Lithuania,and to the alleged situs of its si~ge social in Ukraine."88

Rejecting the respondent's arguments and finding jurisdiction overTokios's claims, the tribunal set out several important principles regardingthe jurisdiction ratione personae of corporate entities. First, the tribunalaffirmed that the definition of corporate nationality set forth in the BITshould be interpreted according to the ordinary meaning of its terms, thushonoring the agreement reached by the Contracting Parties. In this case,the Ukraine-Lithuania BIT followed the traditional rule that the nationalityof a juridical entity is the place of its legal organization. 89 Unless the termsof the applicable investment treaty limit the state-of-incorporation test byreference to other criteria, such as the nationality of controllingshareholders, a corporation's nationality is strictly and definitivelyestablished by its place of incorporation.9 ° Second, a lack of substantialbusiness activity in the place of incorporation does not affect jurisdictionunless the applicable investment treaty includes a "denial of benefits"provision that operates against companies with no substantial businessactivities in the country of incorporation.9' Third, Article 25(2)(b) of theICSID Convention permits a departure from the generally accepted rulethat corporate nationality is defined by the place of incorporation only ifthere is a specific agreement to that effect between the parties.92 Fourth, tothe extent that a tribunal could invoke the equitable doctrine of "veil-piercing," i.e., disregarding a company's place of incorporation andlooking instead to its shareholders for the purposes of defining itsnationality, it could do so only if there is evidence that a claimant "used itsformal legal nationality for [an] improper purpose."93

The last point merits more discussion. As a general rule, the Tokiostribunal found that the equitable doctrine of "veil piercing", to the extent

88 Tokios Tokeks, Decision on Jurisdiction, at 8-9, paras. 21-22 (internal

citations omitted).89 See Tokios Tokeles, Decision on Jurisdiction, at 11-13, paras. 27-30.90 See Tokios Tokeks, Decision on Jurisdiction, at 14-15, 17-19, paras. 33-36,42-44.91 See Tokios Tokelks, Decision on Jurisdiction, at 14-15, paras. 33-36.92 See Tokios Tokels, Decision on Jurisdiction, at 19-22, paras. 44-52.93 Tokios Tokels, Decision on Jurisdiction, at 24, para. 56.


Stanimir Alexandrov

recognized in customary international law, might override the terms of theagreement between the parties to a BIT with respect to the nationality of ajuridical person only in exceptional circumstances. The tribunal noted that,according to the International Court of Justice in Barcelona Traction, "theveil is lifted, for instance, to prevent the misuse of the privileges of legalpersonality, as in certain cases of fraud or malfeasance, to protect thirdpersons such as a creditor or purchaser, or to prevent the evasion of legalrequirements or of obligations", i.e., types of conduct that involve usingthe formal legal nationality of the corporation for an improper purpose.94

On that basis, the Tokios tribunal found that lifting the corporate veilwould require a showing that claimant had used its status as a juridicalentity of Lithuania to perpetrate fraud, engage in malfeasance, or evadeapplicable legal requirements or obligations, or that the corporate veil hadto be pierced in order to protect third persons.95 Because none of theclaimant's conduct with respect to its status as an entity of the home stateconstituted an abuse of legal personality, and there was no evidence thatthe claimant used its formal legal nationality for any improper purpose, theTokios tribunal found no reason to pierce the corporate veil.96

The Tokios decision confirms the basic premise of ICSID jurisdiction.Unless the relevant treaty on which consent is grounded contains specificrestrictions, the nationality of the shareholders of a corporate investor isgenerally irrelevant for the purposes of establishing the nationality of thecompany itself. Absent an express provision to the contrary, the nationalityof a company is determined according to the general default rule - that is,on the basis of the place of incorporation. If the parties to the treaty intendto exclude from the treaty's protections (or from the treaty's disputesettlement provisions) companies incorporated in the home state butowned by nationals of the host state or third parties, they must do sothrough express provisions in the treaty. In the absence of such provisions,the nationality of juridical entities is conclusively determined by theirplace of incorporation.

C. Claims by Shareholders Arising Directly out of an Investment

Claims filed by shareholders raise a further question: whether disputesrelating to measures affecting the local company (rather than itsshareholders as such) arise directly out of the investment made by ashareholder. A categorical answer has been given as recently as 2003 by

94 See Tokios Tokeles, Decision on Jurisdiction, at 22-24, paras. 53-56(quoting Barcelona Traction, I. C.J. Reports 1970, at 39, para. 56).95 See Tokios Tokels, Decision on Jurisdiction, at 23, para. 55.96 See Tokios Tokeks, Decision on Jurisdiction, at 24, para. 56.

LPICT 2005



the CMS Gas tribunal. In CMS Gas, Argentina argued that the measuresalleged to be in breach of the BIT affected the license to transport gasgranted to TGN, the local company. In Argentina's view, because thelicense was granted to a local company, that license as such did not qualifyas an investment under the BIT, and the local company itself did notqualify as an investment either because CMS was only a minorityshareholder. Therefore, Argentina argued, since there was no coveredinvestment affected by the measures, the dispute did not arise directly outof an investment.9 The CMS Gas tribunal disposed quickly of thisobjection. It referred to its earlier conclusion that the rights of shareholderscan be asserted independently from the rights of the local company andfrom the rights relating to the license. It also referred to the shareholders'separate cause of action under the BIT in connection with the protectedinvestment, their shares. This was found by the tribunal to be a sufficientbasis for the conclusion that the dispute in the case arose "directly from theinvestment made., 98

In Enron, Argentina again argued that the measures allegedlybreaching the BIT affected TGS, the local company, and that the minorityshareholder claimants were affected only indirectly. 99 Argentina assertedthat claims by minority shareholders could only be made in case the sharesare affected directly, e.g., if the shares are expropriated.' 0 Claimantsresponded that their claim was not filed on behalf of TGS; rather it was anindependent claim for treaty breaches filed by a qualifying investor, ashareholder in TGS, and could stand on its own irrespective of whether themeasures complained of could also constitute breaches of TGS's rightsunder domestic law.' 0' The tribunal reasoned that the question of standingthus presented was "inseparable from the determination of the Claimant'sstatus as a protected investor" and approached this question in two steps:first, it asked whether a shareholder could claim for its rightsindependently from the rights of the local company, and second, itconsidered whether these rights "refer only to the Claimants' status as

97 See CMS Gas Transmission Co., 42 I.L.M. at 798, para. 66.98 CMS Gas Transmission Co., 42 I.L.M. at 798, para. 68.99 See Enron Corporation and Ponderosa Assets, L.P., Decision onJurisdiction, para. 34.100 See Enron Corporation and Ponderosa Assets, L.P., Decision onJurisdiction, para. 35.101 See Enron Corporation and Ponderosa Assets, L.P., Decision on

Jurisdiction, para. 36.


Stanimir Alexandrov

shareholders or also to substantive rights connected with the legal andeconomic performance of the investment made."' 2

Having affirmed the right of minority shareholders to claimindependently from the corporation,0 3 the Enron tribunal turned to thesecond question. It started by agreeing with the tribunal in Lanco'0 4 and theannulment committee in Vivendi0 5 that the definition of investment set outin the Argentina-United States BIT and other comparable BITs is broad yetreasonable and consistent with the object and purpose of the ICSIDConvention. This definition "does not exclude claims by minority or non-controlling shareholders."'0 6 Having reached this conclusion, the tribunaladdressed Argentina's argument that the BIT does not include within itsscope "indirect damages," i.e., damages suffered by minority shareholdersresulting from economic harm to the corporation. The tribunal noted thatwhile the BIT does not expressly provide for the rights of shareholders toclaim such damages, it could not be concluded that it meant to excludesuch rights. The tribunal, therefore, found that under the BIT, with itsbroad definition of "investment" and, generally, broad provisionsprotecting and promoting investment, claims of minority shareholders arecovered and admissible. Moreover, in the view of the tribunal, the rights ofsuch minority shareholders include the direct right of action under the BITto protect their interests in the qualifying investments.'07

This, however, was not the end of the analysis. Argentina had furtherargued that the dispute did not arise directly out of an investment, asrequired by the ICSID Convention, because the dispute concerned only taxobligations by the local company, TGS, and the local company itself didnot qualify as an investment. In this context, Argentina repeated its earlierargument from CMS Gas that the dispute did not affect the rights ofshareholders as such and that, therefore, the dispute did not arise out of theshareholders' investment, i.e., did not arise directly out of their interests inthe local company. 10 8 The tribunal did not spend much time in responding

102 Enron Corporation and Ponderosa Assets, L.P., Decision on Jurisdiction,

para. 37.103 See Enron Corporation and Ponderosa Assets, L.P., Decision onJurisdiction, para. 39.104 See Lanco International, Inc., 40 I.L.M. at 461, § 10.105 See Vivendi Annulment, 41 I.L.M. at 1145, para. 46.106 Enron Corporation and Ponderosa Assets, L.P., Decision on Jurisdiction,para. 44.107 See Enron Corporation and Ponderosa Assets, L.P., Decision onJurisdiction, paras. 45-49.108 See Enron Corporation and Ponderosa Assets, L.P., Decision on

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to this argument and found "no obstacle to a finding on jurisdiction on thiscount."'0 9 It reasoned that since the shareholders had rights that could beasserted independently from the rights of the local company and, therefore,had a separate cause of action under the BIT, there was no doubt that thedispute arose directly out of the investment made by the shareholders."'

In Siemens the situation was very similar, with the exception thatSiemens was not a minority shareholder; instead, it wholly owned the localsubsidiary in Argentina, Siemens IT Services S.A. (SITS)."' SITS hadwon the bid for a contract to establish a system of migration and personalidentification. The contract was terminated by the government ofArgentina. Argentina objected to the tribunal's jurisdiction arguing, interalia, that the dispute did not arise directly out of an investment. Accordingto this argument, the investment of Siemens consisted of shares of SITS.The dispute, however, related to actions by the host government relating tothe contract entered into by SITS. Thus, according to Argentina, thedispute arose out of SITS's contractual rights and obligations, not out ofthe investment by Siemens in SITS. In other words, Argentina claimed thatthe dispute did not arise directly out of the investment by Siemens in thestock of SITS; it arose directly out of assets (the contract) that did not inand of themselves constitute an investment by Siemens." 2 The Siemenstribunal, like the tribunal in Enron, found that the investment by Siemensconsisted of "'shares, rights of participation in companies and other typesof participation,' 'claims to money that has been used to create economicvalue or claims to any performance under a contract having an economicvalue,' 'intellectual property rights' and 'business concessions conferredby public law.""' 3 The tribunal concluded that "[t]here is no doubt that thedispute with Argentina under the Treaty is a dispute which arises directlyfrom the investment as defined by Siemens."' '14

In Azurix, the situation was also very similar. Claimant, Azurix, was amajority owner (albeit indirectly) of a local company that had been granteda concession to provide water and sewage services and the dispute aroseout of measures that affected the concession. Argentina argued that Azurix

Jurisdiction, para. 58.109 Enron Corporation and Ponderosa Assets, L.P., Decision on Jurisdiction,

para. 60.110 See Enron Corporation and Ponderosa Assets, L.P., Decision on

Jurisdiction, para. 60.III See Siemens A.G., Decision on Jurisdiction, para. 23.112 See Siemens A.G., Decision on Jurisdiction, paras. 145-146.113 Siemens A.G., Decision on Jurisdiction, para. 150.114 Siemens A.G., Decision on Jurisdiction, para. 150.


Stanimir Alexandrov

had no standing to bring the claim because it was only a shareholder in theconcessionaire and, therefore, its claim relating to the local company'scontractual rights was only indirect." 5 The tribunal followed the inevitablelogic. First, it found that the investment by Azurix was an investmentprotected by the applicable BIT and that the dispute no doubt arosedirectly out of that investment." 6 In doing so, the tribunal pointed out thatbecause Azurix owned and controlled the local company, its investmentconsisted of its shares as well as the "rights under a contract held by [the]local company.""' 7 Second, the tribunal explicitly agreed with the CMSGas tribunal that shareholders had the right of direct action under a BIT."18

Finally, it concluded that Azurix had standing to bring the dispute becauseit was an investor that had made an investment under the BIT.19

The tribunal's reasoning and conclusions in Generation Ukraine wereconsistent with the reasoning and conclusions of the other ICSID tribunalsdiscussed above, even though the legal and factual situation in GenerationUkraine was somewhat different.' The claimant, a United Statescompany, owned and controlled a Ukrainian company, Heneratsiya, whichit used as a vehicle to invest in an urban development project in Ukraine. 2'The tribunal had no difficulty finding that Generation Ukraine's holdinginterest (or ownership rights) in Heneratsiya was an investment under theUnited States-Ukraine BIT. It warned, however, that Generation Ukrainehad not shown its ownership rights "to have been affected by the conduct"that Generation Ukraine complained of, because Heneratsiya had notactually made an investment in the urban project.22 The tribunal reasonedthat in this situation there would be no investment dispute unless claimant"was in a position to invoke pre-investment protections;" while, thetribunal noted, such protections "do exist in various international treaties(e.g., the right to establish a business or tender for contracts withoutdiscrimination) [...] no such right has been invoked here."' 23 The tribunal,however, concluded that this was a question relating to the merits as itrequired a determination of whether there were proprietary rights that had

115 See Azurix, 43 I.L.M. at 270, paras. 42-43.116 See Azurix, 43 I.L.M. at 275, paras. 65-66.117 See Azurix, 43 I.L.M. at 275, para. 63.118 See Azurix, 43 I.L.M. at 277, para. 73.

119 See Azurix, 43 I.L.M. at 275, para. 74.120 Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award,

16 September 2003, available at http://www.asil.org/ilm/Ukraine.pdf.121 See Generation Ukraine, at 34, paras. 8.5-8.6.122 Generation Ukraine, at 34, paras. 8.5-8.6.123 Generation Ukraine, at 34, para. 8.6.

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been expropriated and the tribunal was nevertheless "satisfied that theClaimant's efforts resulted in the materialisation of rights that qualify as'investments' under several criteria defined in" the BIT. 2 4 Further, thetribunal did find that there was a dispute arising out of an investment withrespect to several claims for breaches of provisions of the BIT, andasserted jurisdiction over these causes of action. 15

It is noteworthy that all the tribunals' decisions discussed above gavelittle if any credence to the argument that when a shareholder invokes adispute relating to assets of the local company (e.g., rights under a license,or contractual rights), such a dispute does not arise directly out of aninvestment in the stock of the company. Tribunals disposed of thisargument in a rather summary fashion. It is clear that they all considered itto be beyond doubt that a shareholder's interest in a company includes aninterest in the assets of that company, including its licenses, contractualrights, rights under law, claims to money or economic performance, etc.,and that in finding jurisdiction they based that reasoning on the broaddefinition of investment in the applicable BITs.

D. Have Holders of Securities or Debt Instruments Made an Investmentin the Territory of the Host State?

Another question arising out of claims submitted by shareholders iswhether a shareholder, or the holder of any security or debt instrument, hasmade an investment in the territory of the host country. This questionarises particularly in a situation where the securities may have beenpurchased outside of the host state and/or the funds paid by the purchaserto the seller may not have "entered" the territory of the host state - such aswould be the case in the purchase of securities in the international financialmarkets.

This question was answered in the landmark Fedax case. Fedax N.V.,a company established in Curagao, Netherlands Antilles, acquired byendorsement certain promissory notes that were issued by the governmentof Venezuela in conjunction with a contract that Fedax entered into with aVenezuelan corporation. 126 After Venezuela failed to make payments onthe promissory notes, Fedax brought a claim against Venezuela under theNetherlands-Venezuela BIT. Venezuela objected to the tribunal'sjurisdiction, alleging inter alia that Fedax had not "made an investment"for purposes of Article 25(1) of the Convention because it had received the

124 Generation Ukraine, at 35, para. 8.8.125 See Generation Ukraine, at 35-37, paras. 8.9-8.14.126 Fedax N. V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision

on Jurisdiction, 1 1 July 1997, 37 I.L.M. 1378, 1379, 1381, paras. 1, 18 (1998).



promissory notes by endorsement.' 21 Venezuela argued that there was no"transfer of financial resources - capital flow - from one country toanother.'

128

The tribunal rejected Venezuela's objection. Not surprisingly, it basedits finding on the broad definition of investment in the applicable BIT andconcluded that "loans qualify as an investment within ICSID's jurisdiction,as does, in given circumstances, the purchase of bonds. Since promissorynotes are evidence of a loan and a rather typical financial and creditinstrument, there is nothing to prevent their purchase from qualifying as aninvestment under the Convention."' 29 Once this was established, thetribunal rejected Venezuela's argument that the owner of the promissorynotes did not qualify as an investor because it had not made an investmentin the territory of the host state. The tribunal stated that, "although theidentity of the investor will change with every endorsement" of thepromissory notes, "the investment itself will remain constant," while theissuer of the notes - Venezuela - "will enjoy a continuous credit benefituntil the time the notes become due."'3 ° Therefore, the tribunal concludedthat the foreign holder of the notes was a foreign investor and the creditprovided by the foreign holder of the notes "constitutes a foreigninvestment which in this case is encompassed by the terms of the [ICSID]Convention and the [Bilateral Investment] Agreement."''

In Tokios, the tribunal was faced with a "mirror image" of the samequestion. The respondent, Ukraine, argued that the claimant could notprove that the capital invested in the Ukrainian subsidiary of Tokioscrossed the border. In that case, however, the respondent did not contendthat foreign capital never entered the territory of the host state (as inFedax); rather the respondent argued that because the owners of Tokios (aLithuanian company) were predominantly Ukrainian nationals, the tribunalshould conclude that the investment in the Ukrainian subsidiary was madewith Ukrainian, not foreign (i.e., Lithuanian), capital and thus claimant hadnot made an "investment" from Lithuania into Ukraine under the BIT.'32

The tribunal rejected Ukraine's argument, concluding that the Lithuanianclaimant made an investment in Ukraine when it exercised its legal powersto direct the expenditure of funds to establish and maintain a subsidiary in

127 See FedaxN. V., 37 I.L.M. at 1381, para. 18.128 FedaxN. V.,371.L.M. at 1381, para. 19.129 Fedax N. V., 37 I.L.M. at 1384, para. 29 (internal citations omitted).130 Fedax N. V., 37 I.L.M. at 1386, para. 40.

... Fedax N. V., 37 I.L.M. at 1386, para. 40.132 See Tokios Tokeks, Decision on Jurisdiction, at 31, para. 72.

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Ukraine. 3 3 Having satisfied itself that claimant's enterprise in Ukraine fitwithin the definition of investment, the tribunal found no support in thetreaty for an additional requirement that claimant prove that the capitalused to make that investment originated outside Ukraine.134

Two other ICSID decisions shed light on the question whether aninvestment is made in the territory of the host state, and support thefindings of the Fedax tribunal, although they do not involve investments inthe form of securities or debt instruments. The dispute in SGS v. Pakistanarose out of a contract between the government of Pakistan and Soci~t6G~n6rale de Surveillance S.A. (SGS) whereby SGS agreed to provide"pre-shipment inspection" services with respect to goods to be exportedfrom certain countries to Pakistan. SGS undertook to inspect such goodsoutside of Pakistan, through its offices and affiliates, and at Pakistani portsof entry jointly with Pakistani Customs.'35 Pakistan argued that the "pre-inspection of goods imported into Pakistan was conducted by pre-existingSGS-controlled or affiliated entities outside Pakistan" and, therefore, didnot involve an investment in the territory of Pakistan.'36 The tribunalrejected Pakistan's argument for several reasons. First, it found that SGShad a right to carry pre-shipment inspections giving rise to "claims tomoney," which are included in the definition of "investment" in theapplicable BIT. Second, the tribunal concluded that Pakistan hadeffectively granted SGS a "concession under public law" (also included inthe definition of "investment") because it had conferred on SGS certainpowers that ordinarily would have been exercised by the PakistaniCustoms service. Third, the tribunal ruled that the rights of SGS were"rights given by law" and "by contract" - again, rights defined as"investment" in the BIT.'37 Finally, the tribunal also noted that SGS had tomake certain expenditures, which - albeit relatively small - involved the"injection of funds into the territory of Pakistan for the carrying out ofSGS's engagements" under the contract with Pakistan. 3 8 Thus, the SGS v.Pakistan tribunal found that an investment was made "in the territory of'Pakistan because SGS had contractual rights and claims to money for

133 See Tokios Tokels, Decision on Jurisdiction, at 32-33, paras. 75-76.134 See Tokios Tokels, Decision on Jurisdiction, at 33-34, para. 77.135 See SGS Socit9 Ggngrale de Surveillance S.A. v. Islamic Republic ofPakistan, ICSID Case No. ARB/01/13, Decision on Objections to Jurisdiction,6 August 2003, 18 ICSID Review- F.LL.J. 307, 310, para. 11 (2003).136 SGS v. Pakistan, 18 ICSID Review - FIL.J. at 330, para. 76.131 SGSv. Pakistan, 18ICSID Review-F..L.J. at 348, para. 135.138 SGS v. Pakistan, 18 ICSID Review - FLL.J. at 348, para. 136.



services performed under a contract with Pakistan, even though SGS hadnot transferred significant capital "in the territory" of Pakistan.

The tribunal in SGS v. Philippines explicitly agreed with theconclusion of the SGS v. Pakistan tribunal. The factual situation in SGS v.Philippines was very similar: SGS had a contract to carry out pre-shipmentinspections of goods imported into the Philippines.139 The Philippinesargued that the investment of SGS, while beneficial to the Philippines, wasmade outside of the territory of the Philippines and, therefore, was notcovered by the applicable BIT. In the view of the Philippines, thoseaspects of SGS's performance of the contract that occurred in thePhilippines were "merely incidental or peripheral" and "the gist" of theclaim was a claim for money due for services performed "in the country ofexport, not in the Philippines."'40 The tribunal rejected the argument.Moreover, the Philippines argued that the bulk of the costs for providingthe services was incurred outside of the Philippines, that the expensesincurred in the Philippines were a fraction of the total costs, and that fortax purposes, the services of SGS were treated as performed abroad. Thetribunal found that none of these facts were decisive' 4' and looked at thebasic purpose of the contract and the services provided. In doing so, thetribunal found that SGS provided services "with a view to improving andintegrating the import services and associated customs revenue gatheringof the Philippines," and that "[t]he focal point of SGS's services was theprovision, in the Philippines, of a reliable inspection certificate." Thus,"SGS's inspections abroad were not carried out for their own sake but inorder to enable it to provide, in the Philippines, an inspection certificate,"on which the relevant authorities of the Philippines could rely to entergoods in the Philippines and to collect the ensuing revenue. 4 The tribunalconcluded that a "substantial and non-severable aspect of the overallservice was provided in the Philippines" and "SGS's entitlement to be paidwas contingent on that aspect." It also emphasized that "[t]here was nodistinct or separate investment made elsewhere than in the territory of thePhilippines.' 43

" See SGS Socit G~n&ale de Surveillance S.A. v. Republic of thePhilippines, ICSID Case No. ARB/02/6, Decision on Objections to Jurisdiction of29 January 2004, at paras. 12-18, available at http://www.worldbank.org/icsid/cases/SgsvPhil-final.pdf (last visited 16 February 2005).140 SGS v. Philippines, Decision on Jurisdiction, para. 100.141 See SGS v. Philippines, Decision on Jurisdiction, paras. 104-107.142 SGS v. Philippines, Decision on Jurisdiction, para. 101.14 SGS v. Philippines, Decision on Jurisdiction, para. 112.

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While not dealing with an investment in the form of securities or debtinstruments, but rather in the form of services, the two SGS tribunalsessentially followed the reasoning of the tribunal in Fedax. As in Fedax,they focused on the source of the rights of the investors, the nature of theinvestment, and the strength of the link between the investment and theterritory of the host state, rather than on the question whether funds weretransferred and expenditures incurred "in the territory" of the host state.

IV. JURISDICTION RATIONE TEMPORIS

The dramatic increase in BITs entering into force over the past severalyears has also given rise to increased discussion and interpretation ofICSID tribunals' jurisdiction ratione temporis. It is particularly likely thatsuch debates will arise in the years that immediately follow a BIT's entryinto force. For example, a claimant may seek arbitration under a new BITfor a dispute that may have its origins in events prior to the applicableinvestment treaty's entry into force. In such circumstances, an ICSIDtribunal may need to determine whether an existing dispute is within itsjurisdiction even though the dispute's origins predated the effective date ofthe consent instrument and the effectiveness of the BIT's substantiveprotections.

Under customary international law, treaties do not as a general matterapply retroactively. This rule of customary international law is embodiedin Article 28 of the Vienna Convention on the Law of Treaties, whichstates:

"Unless a different intention appears from the treaty or isotherwise established, its provisions do not bind a party in relationto any act or fact which took place or any situation which ceased toexist before the date of the entry into force of the treaty withrespect to that party." '144

At the same time, Paragraph (3) of the official Commentary to theVienna Convention clarifies that when "an act or fact or situation whichtook place or arose prior to the entry into force of a treaty continues tooccur or exist after the treaty has come into force, it will be caught by theprovisions of the treaty., 145 It further states that "[t]he non-retroactivityprinciple cannot be infringed by applying a treaty to matters that occur or

'44 Vienna Convention on the Law of Treaties, 23 May 1969, Article 28, 1155U.N.T.S. 331 (entered into force on 27 January 1980).145 The Vienna Convention on the Law of Treaties: Travaux Pr6paratoires 220,

para. 3 (compiled by Dr. Ralf Ganter Wetzel; Prof. Dr. Dietrich Rauschning ed.1978).


Stanimir Alexandrov

exist when the treaty is in force, even if they first began at an earlierdate."'146 Additionally, Paragraph (2) of the Commentary provides thatjurisdictional clauses that refer "disputes" to international tribunals, wheresuch disputes do not include any qualifications as to when the "disputes"arose, do not violate the non-retroactivity principle. It states that "[b]yusing the word 'disputes' without any qualification, the parties are to beunderstood as accepting jurisdiction with respect to all disputes existingafter the entry into force of the agreement."' 147

Thus, pursuant to Article 28, a treaty will not apply retroactively toacts or facts which occur or cease to exist before it enters into force, butwill be deemed applicable to acts, omissions, facts or conduct which takeplace or continue to exist after it enters into force. When a claim submittedto ICSID centers around an "existing" dispute, even if that dispute weredeemed to have originally arisen prior to the BIT's entry into force, theICSID tribunal would not violate the principle of non-retroactivity byassuming jurisdiction over it. A number of recent cases - Marvin RoyFeldman Karpa v. United Mexican States,148 Mondev International Ltd.and United States of America, 149 Thcnicas Medioambientales Tecmed S.A.v. United Mexican States,'5" and SGS v. Philippines5 ' - follow theprinciple of Article 28 of the Vienna Convention that treaties do not applyretroactively, but nevertheless do apply to measures and disputes thatcontinue to exist after the treaty's entry into force.

Feldman and Mondev both involved claims under NAFTA. Thetribunals in both these cases concluded that NAFTA was not intended toapply retroactively to conduct occurring before its entry into force on1 January 1994,12 but that conduct continuing or occurring thereafter

146 The Vienna Convention on the Law of Treaties: Travaux Prrparatoires 220,

para. 3147 The Vienna Convention on the Law of Treaties: Travaux Prfparatoires 220,para. 3148 Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No.

ARB(AF)/99/1, Interim Decision on Preliminary Jurisdictional Issues,6 December 2000, 40 I.L.M. 615 (2001).149 Mondev Int'l Ltd. v. United States of America, ICSID Case No.ARB(AF)/99/2, Award, 11 October 2002, 42 I.L.M. 85 (2003).150 T&nicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSIDCase No. ARB(AF)/00/2, Award, 29 May 2003, available at http://www.worldbank.org/icsid/cases/laudo-051903%20-English.pdf (last visited 16 February2005).151 See generally SGS v. Philippines, Decision on Jurisdiction.152 See Feldman, 40 I.L.M. at 625, para. 62 ("NAFTA itself did not purport tohave any retroactive effect"); Mondev, 42 I.L.M. at 96, para. 58 ("The Tribunal

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could constitute a breach of obligations under NAFTA. In Feldman thetribunal concluded that "if there has been a permanent course of action byRespondent which started before January 1, 1994 and went on after thatdate [...] that post-January 1, 1994 part of Respondent's alleged activity issubject to the Tribunal's jurisdiction [...].1 In Mondev, the tribunalfound that "conduct committed prior to the entry into force of a treatymight continue in effect after that date, with the result that the treaty couldprovide a basis for determining the wrongfulness of the continuingconduct."'

15 4

Tecmed and SGS v. Philippines involved alleged violations of theMexico-Spain and the Switzerland-Philippines BITs, respectively. Thetribunals in these cases also found that conduct occurring after a BITenters into force may constitute a breach of treaty obligations subject toarbitration even if that conduct relates in part to conduct occurring beforethe BIT's entry into force. The tribunal in Tecmed concluded thatrespondent's conduct before the BIT's entry into force was relevant indetermining whether the respondent violated the BIT after it entered intoforce.'55 Similarly, the tribunal in SGS v. Philippines confirmed that theBIT may apply to conduct continuing after it entered into force,'56 althoughultimately no issue of retroactivity was raised by the specific facts of thatcase.

57

The proper application of the non-retroactivity principle is ofparticular significance when an ICSID tribunal has to deal with asystematic and continuous pattern of conduct, attributable to therespondent state, that has resulted, subsequent to the BIT's entry intoforce, in current and continuing breaches of the BIT. In such situations, thefact that some of the governmental conduct took place prior to the BIT'sentry into force cannot be the basis for excluding such conduct from thetribunal's consideration. According to Article 14(2) of the Articles forState Responsibility, "[t]he breach of an international obligation by an actof a State having a continuing character extends over the entire periodduring which the act continues and remains not in conformity with the

agrees with the parties [...] as to the non-retrospective effect of NAFTA").'.. Feldman, 40 I.L.M. at 625, para. 62.114 Mondev, 42 I.L.M. at 96, paras. 57-58. The tribunal also agreed with theparties that NAFTA was not retrospective in effect.155 See Tecmed, Award, para. 66.156 See SGS v. Philippines, Decision on Jurisdiction, para. 167.157 See SGS v. Philippines, Decision on Jurisdiction, para. 168.


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international obligation., 15 8 As stated by Special Rapporteur Roberto Agoin his Fifth Report on State Responsibility:

"There will be a breach of the international obligation with whichthe conduct of the State is in conflict in so far as, for a certain timeat least, the continuance of the act of the State and the existence ofthe obligation incumbent on it are simultaneous. If the conductbegan before the obligation came into force for the State andcontinues thereafter, there will be a breach of the obligation fromthe moment when it began to exist for the State."' 59

The tribunal in SGS v. Philippines adhered to this precise rule when itstated that "it is clear that [the BIT] applies to breaches which arecontinuing at [the date of the BIT's entry into force], and the failure to paysums due under a contract is an example of a continuing breach."' 6 °

In addition, the breaching conduct may comprise a series of actions oromissions that taken as a whole are wrongful, whether or not severallylawful. In that case, consistently with the principle of non-retroactivity, anICSID tribunal will have jurisdiction if at least some of the actions andomissions occur after the applicable treaty's effective date. Article 15(1)-(2) of the Articles on State Responsibility provides:

"(1) The breach of an international obligation by a State through aseries of actions or omissions defined in aggregate as wrongful,occurs when the action or omission occurs which, taken with theother actions or omissions, is sufficient to constitute the wrongfulact.

(2) In such a case, the breach extends over the entire periodstarting with the first of the actions or omissions of the series andlasts for as long as these actions or omissions are repeated andremain not in conformity with the international obligation."'' 6

The Commentary to Article 15 provides examples of this conduct,including "systematic acts of discrimination prohibited by a trade

158 Articles on Responsibility of States for Internationally Wrongful Acts, 2 YB.

Int'lL. Comm'n 14, Article 14(2) (2001).'59 Roberto Ago, State Responsibility: Fifth Report on State Responsibility,Document A/CN.4/291 and ADD.1-2, 2 YB. Int'l L. Comm'n, Part One, para. 62(22 March, 14 April, and 4 May, 1976) (emphasis added).160 SGS v. Philippines, Decision on Jurisdiction, para. 167.161 Articles on State Responsibility, Article 15(1)-(2).

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agreement."' 62 It further states that "[o]nly after a series of actions oromissions takes place will the composite act be revealed, not merely as asuccession of isolated acts, but as a composite act, i.e., an act defined inaggregate as wrongful.' ' 163 Thus, the composite act does not "occur" untilthe completion of the series, and it is sufficient that the point ofcompletion, rather than every event in the series, takes place after theeffective date of the treaty in order for a tribunal to find that it hasjurisdiction ratione temporis. The Commentary also provides that "whilecomposite acts are made up of a series of actions or omissions defined inaggregate as wrongful, this does not exclude the possibility that everysingle act in the series could be wrongful in accordance with anotherobligation.""

The findings of the tribunal in Mondev were consistent with theprinciples of the Articles on State Responsibility. In Mondev, therespondent objected to the tribunal's jurisdiction over claims forexpropriation and violation of the standard of treatment under NAFTA onthe basis of, inter alia, the non-retroactive application of NAFTA. Thetribunal found that if the conduct in question occurred prior to the entryinto force of NAFTA and continued after that date, it could be in breach ofthe treaty. 65 Thus, the question to be resolved was whether the dispute inMondev involved an act of a continuing character or a completed act thatcontinued to cause loss or damage. To make that determination, theMondev tribunal noted that it would be dependent "both on the facts andon the obligation said to have been breached.' '166 Based on the facts beforeit, the tribunal concluded that the claimant's expropriation claims werebased on a completed act that took place prior to NAFTA's entry intoforce. Therefore, the tribunal lacked jurisdiction over the claimant'sexpropriation claims. With respect to claimant's claims for violation of theminimum standard of treatment, the tribunal noted:

"[E]vents or conduct prior to the entry into force of an obligationfor the respondent State may be relevant in determining whetherthe State has subsequently committed a breach of the obligation.But it must still be possible to point to conduct of the State afterthat date which is itself a breach.' 67

162 Articles on State Responsibility, Commentary to Article 15, para. 2.163 Articles on State Responsibility, Commentary to Article 15, para. 7.

164 Articles on State Responsibility, Commentary to Article 15, para. 7.165 See Mondev, 42 I.L.M. at 96, paras. 57-58.166 Mondev, 42 I.L.M. at 96, para. 58.167 Mondev, 42 I.L.M. at 98, para. 70.


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The Mondev tribunal thus made two significant points. First, there isjurisdiction ratione temporis when the breaching conduct continues afterthe entry into force of the treaty. Second, when it does, prior conduct maybe relevant for the tribunal's determination of whether there is a breach ofthe treaty's provisions. The recent decision on jurisdiction in Salini v.Jordan expressly referred to the conclusions in Mondev with agreement.The Salini tribunal noted that the Italy-Jordan BIT does not give thesubstantive provisions of the treaty "any retrospective effect" and,therefore, "the normal principle stated in Article 28 of the ViennaConvention" applies.'68 Because it found that the alleged acts breaching theBIT arose after the entry into force of the BIT, the Salini tribunal did nothave difficulties asserting jurisdiction over those claims.

Respondent governments have advanced various arguments seekingto avoid jurisdiction over a series of acts beginning before the treaty'sentry into force and continuing after that date. One such argument is thatthe separate acts constitute separate breaches and, therefore, give rise toseparate disputes. The consequence of accepting that argument would bethat a tribunal would have jurisdiction ratione temporis only over those"mini-disputes" that have occurred after the effective date of the treaty.Tribunals, however, have not entertained that argument. In CMS Gas, forexample, the tribunal rejected Argentina's argument that CMS's claimsshould be considered as two distinct disputes. It concluded that all the legalmeasures enacted by Argentina over a three-year period gave rise to onedispute affecting the investment by CMS.'69 The tribunal stated:

"As long as [the measures] affect the investor in violation of itsrights and cover the same subject matter, the fact that they mayoriginate from different sources or emerge at different times doesnot necessarily mean that the disputes are separate and distinct."'7 °

The Annulment Committee in Vivendi was even more explicit inrecognizing that while a given act by itself may not constitute a violationof the BIT, several actions taken together can constitute a violation of theBIT. The Annulment Committee explained:

168 Salini Construttori S.p.A. and Italstrade S.p.A. v. Hashemite Kingdom

Jordan, ICSID Case No. ARB/02/13, Decision on Jurisdiction, 29 November2004, para. 177, available at http://www.worldbank.org/icsid/cases/salini-decision.pdf. See also Tradex Hellas S.A. v. Albania, ICSID Case No. ARB/94/2,Decision on Jurisdiction, 24 December 1996, 14 ICSID Review - F.I.L.J. 161(1999); Generation Ukraine, at 41, paras. 11.1-11.4.169 See CMS Gas Transmission Co., 42 I.L.M. at 803-805, paras. 101-115.170 CMS Gas Transmission Co., 42 I.L.M. at 805, para. 109.

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"The claim was not simply reducible to so many civil oradministrative law claims concerning so many individual actsalleged to violate the Concession Contract or the administrativelaw of Argentina. It was open to Claimants to claim, and they did

claim, that these acts taken together, or some of them, amounted toa breach of Articles 3 and/or 5 of the BIT. In the Committee'sview, the Tribunal, faced with such a claim and having validlyheld that it had jurisdiction, was obliged to consider and to decidei t . ,1 1

That a series of events relating to the same subject matter comprise asingle dispute has also been illustrated by the International Court of Justicein the cases brought by Yugoslavia against members of the North AtlanticTreaty Organization based on their bombing of Yugoslav territory. 72

Yugoslavia's declaration limited its acceptance of the compulsoryjurisdiction of the Court to "disputes arising or which may arise after thesignature of the present Declaration, with regard to the situations or factssubsequent to this signature" (i.e., 25 April 1999).17 3 To avoid the temporalrestriction in its declaration, Yugoslavia claimed that each air attackconstituted a separate wrongful act, thereby giving rise to a number ofseparate disputes, some of which arose after 25 April 1999. The Courtobserved that Yugoslavia's Application was directed in essence against"the bombing of the territory of the Federal Republic of Yugoslavia,"which "began on 24 March 1999 and ha[s] been conducted continuouslyover a period extending beyond 25 April 1999 [...].9174 The Court rejected

171 VivendiAnnulment, 41 I.L.M. at 1157, para. 112.

172 See Case Concerning Legality of Use of Force (Yugoslavia v. Belgium),

Order of 2 June 1999 (Request for the Indication of Provisional Measures), I. C.J.Reports 1999, 124, para. 29; Case Concerning Legality of Use of Force(Yugoslavia v. Canada), Order of 2 June 1999 (Request for the Indication ofProvisional Measures), I.C.J. Reports 1999, 259, para. 28; Case ConcerningLegality of Use of Force (Yugoslavia v. Netherlands), Order of 2 June 1999(Request for the Indication of Provisional Measures), I. C.J Reports 1999, 542,para. 29; Case Concerning Legality of Use of Force (Yugoslavia v. Portugal),Order of 2 June 1999 (Request for the Indication of Provisional Measures), L CJReports 1999, 656, para. 28.173 Use of Force (Belgium), para. 23; see also Use of Force (Canada), para. 22;Use of Force (Netherlands), para. 23; Use of Force (Portugal), para. 22.174 Use of Force (Belgium), paras. 27-28; see also Use of Force (Canada),paras. 26-27; Use of Force (Netherlands), paras. 27-28; Use of Force (Portugal),paras. 26-27.


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Yugoslavia's contention that each attack constituted a separate dispute 7 'and concluded that "each individual air attack could not have given rise toa separate subsequent dispute."' 7 6 Following the same logic, an ICSIDtribunal should not look at the individual acts in isolation; instead, atribunal is bound to consider a series of acts or events as a whole whenthose acts and events merge to give rise to a treaty claim.

Finally, one should be mindful of the fact that the general principle ofnon-retroactivity as described above applies in the absence of a specificagreement between the parties to a treaty providing otherwise. AsArticle 28 of the Vienna Convention states, the rule applies "[u]nless adifferent intention appears from the treaty or is otherwise established."'7 7

Thus, while the principle of non-retroactivity governs the applicabilityratione temporis of the substantive provisions of a treaty, the parties to aninvestment treaty are free to impose further limitations on the jurisdictionof an ICSID tribunal ratione temporis. As the Salini tribunal observed,"one must distinguish carefully between jurisdiction ratione temporis of anICSID Tribunal (i.e., the existence of a dispute) and applicability rationetemporis of the substantive obligations contained in a BIT."'178

For example, the parties to a treaty can limit ICSID's jurisdictionratione temporis by excluding from their scope of consent to suchjurisdiction disputes that have arisen before the entry into force of the BIT.This is the case of some BITs that expressly exclude disputes arisingbefore the BIT entered into force, even if the disputes continue to existafter the BIT's effective date and even if they involve conduct, facts orsituations continuing or occurring after that date.' 79 Under this type of

175 See Use of Force (Belgium), para. 29; see also Use of Force (Canada),

para. 28; Use of Force (Netherlands), para. 29; Use of Force (Portugal), para. 28.176 Use of Force (Belgium), para. 29; see also Use of Force (Canada), para. 28;

Use of Force (Netherlands), para. 29; Use of Force (Portugal), para. 28.177 Vienna Convention, Article 28.178 Salini v. Jordan, Decision on Jurisdiction, para. 176.179 See Agreement between the Portuguese Republic and the Islamic Republic ofPakistan on the Mutual Promotion and Protection of Investments, 17 April 1995,Article 11 (Article 11, "Application of the Agreement" states that the BIT "shallnot apply to any dispute concerning investments which have arisen before its entryinto force"); Agreement for the Reciprocal Promotion and Protection ofInvestments between the Kingdom of Spain and the Argentine Republic, 3 October1991, Article 11(2) ("However, this agreement shall not apply to disputes or claimsoriginating before its entry into force.") (unofficial translation); Treaty betweenthe Republic of Peru and the Republic of Chile for the Reciprocal Promotion andProtection of Investments, 2 February 2000, Article 2 ("The present Conventionwill apply to investments made before or after the entry into force of the

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provision, a tribunal would not have jurisdiction over disputes that arosebefore the BIT's entry into force even when such disputes are of acontinuing nature. In other words, while the acts, facts and situations havenot ceased to exist and are, therefore, covered by the scope of the BIT'ssubstantive provisions, an ICSID tribunal would have no jurisdiction if thedispute relating to such acts, facts, or situations arose prior to its entry intoforce. This was the situation in Maffezini, where the applicable BITbetween Argentina and Spain contained a provision ratione temporisexcluding disputes or claims originating before the BIT entered into forcein 1992."80 The tribunal in Maffezini focused its inquiry on whether thedispute arose before or after the treaty entered into force and foundjurisdiction because it established that the dispute arose after the treaty'seffective date. The fact that an explicit provision ratione temporis isrequired to exclude disputes that have arisen before the BIT's entry intoforce when such disputes continue to exist confirms the general rule ofArticle 28 of the Vienna Convention that such disputes are otherwisewithin the jurisdiction of an ICSID tribunal.

V. CONCLUSION

Recent ICSID decisions on jurisdictional matters are contributing to thecrystallization of the law governing investor-state arbitration. In thecontext of jurisdiction ratione materiae, ICSID tribunals have confirmedbasic and relatively uncontroversial principles that were sketched out inearly arbitrations - e.g., that a shareholder has standing independent of thecorporation whose equity is held; that the shareholder may claim formeasures that affect the company and its assets, not just the shares andshareholder rights as such; and that corporate nationality is generallyassessed based on the place of incorporation. Tribunals have alsoelaborated on the logical reach of such basic principles - e.g., to explainthat shareholder standing is not limited to majority or controllingshareholders. With respect to temporal jurisdictional issues, which are bytheir nature case-specific, investor-state jurisprudence is building on thefoundations of the Vienna Convention on the Law of Treaties andinvestment treaty texts. One of the conclusions that has found

Convention by investors of a Contracting Party in accordance with the legalprovisions of the other Contracting Party, in the territory of the latter. However, itwill not apply to disputes that have arisen before its entry into force.") (emphasisadded) (unofficial translation).180 See Emilio Agustin Maffezini v. Kingdom of Spain, ICSID Case No.ARB/97/7, Decision on Jurisdiction, 25 January 2000, 16 ICSID Review - F.I.L.J.1, 33, para. 91 (2001).



overwhelming support is that, barring a specific agreement of the parties tothe contrary, acts, facts or situations that continue to exist after a BIT'sentry into force are within the jurisdiction of an ICSID tribunal rationetemporis.

These are only two strands of doctrine in the many jurisdictionaldecisions now emerging from the "baby boom" of treaty-based arbitrationsof recent years. While the growth in investor-state arbitration activity isindeed notable in its own right, the frequency of jurisdictional challengesin particular is unsurprising in light of the consent mechanism in mostinvestment treaties, which involves a general offer by the state to allcovered investors with respect to all covered disputes and a subsequentacceptance by a specific investor with respect to a specific dispute. Moreimportantly, both strands of case law discussed here illustrate that thedecisions that emerge from these cases are neither groundbreaking norsurprising. Rather, they represent a careful and incremental exposition ofthe jurisdictional parameters that will govern investor-state disputes undera treaty network that is over 2,200 strong and growing. It has beensuggested that the broad interpretation of "investment" relied upon byrecent tribunals in the cases discussed above or the application of a BIT toexisting disputes even if such disputes arose before the BIT entered intoforce was not intended by BIT negotiators. This argument has beeninvoked particularly with respect to developing countries who, theargument goes, were somehow misled into signing BITs with such a broadinterpretation of investment and such a broad scope of consent. ProfessorOrrego Vicufia gives the best answer to this argument:

"The argument is based on the false assumption that developingcountries were ignorant of what they were actually signing, andthat the BITs were not to their advantage. Thank you for thatpaternalistic thought, but with respect, I must say that lawyersfrom developing countries are not dummies. BITs are signedbecause they offer guarantees and safeguards needed for theinvestments to come. On occasion, the same guarantees areembodied in national legislation.' ' 81

The ICSID tribunals' decisions on these jurisdictional matters reflectthe balanced nature of the ICSID Convention and its system of investor-state arbitration. The words of the founding father of the ICSIDConvention, Aron Broches, are notable:

181 Francisco Orrego Vicufia, "Carlos Calvo, Honorary NAFTA Citizen", 11

N.Y U. Envtl. L.J. 19, 30 (2002).

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"The Convention has sometimes been regarded as an instrumentfor the protection of private foreign investment. Thischaracterization is one-sided and too narrow. The purpose of theConvention is to promote private foreign investment by improvingthe investment climate for investors and host States alike. Thedrafters have taken great care to make it a balanced instrumentserving the interests of host States as well as investors.''82

The words of Mr. Broches have turned out to be prophetic: the ICSIDsystem has received the ringing endorsement of many hundreds ofinvestment treaties that include consent to ICSID arbitration.

182 Aron Broches, "The Convention on the Settlement of Investment Disputes

Between States and Nationals of Other States", 136 Recuei des Cours at 348.

