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Case summaries Respondent Issue 1 I. Pantechniki vs.

Albania (2009)

1. A contractors road work site in Albania was overrun and ransacked by looters during severe civil disturbances in March 1997. It is estimated that two-thirds of the countrys adult population had lost much of their savings to Ponzi schemes in which government officials were said to be complicit. Waves of rioting battered the country. Hundreds of people were killed. The government fell. Disorder was everywhere particularly in the southern region where the work site was located. Neither public nor private security forces could withstand the onslaught of looting. The contractors site at Bushtriza was in a remote location. The nearest police station was distant. The contractors on-site private security personnel were overwhelmed. What equipment could not be stolen was destroyed. 2. The contractor is the Claimant here. Each of its two contracts contained a provision to the effect that the Albanian Governments General Road Directorate accepted the risk of losses due to civil disturbance. The Claimant sought recoupment of losses in excess of US$4.8 million. (Losses valued in Albanian Lek are disregarded for the sake of simplicity.) The Resident Engineer made a lower evaluation of some US$3.1 million. A special commission was then created by the General Road Directorate. This commission valued the Claimants loss at US$1,821,796. The Claimant says it accepted this amount in the interest of good relations. The Minister of Public Works (who supervises the General Road Directorate) wrote to the Minister of Finance requesting payment of the amount established by the commission. The Minister of Finance refused. He explained that his Ministry cannot carry out the obligations of Ministries or other Institutions as a result of their contractual relations unless funds are approved for that purpose by the

Council of Ministers. More than ten years later no payment has been made. 3. The Claimant brought a case against the Ministry of Public Works in an Albanian court in May 2001. It states that it did so in the expectation raised by comments of the Minister of Finance that this would be a mere formality to facilitate the approval of payment. But the Albanian courts have not given the claim a cordial reception. The Court of Appeal of Tirana ruled that the contractual provision referred to above was a nullity under Albanian law because it purported to create liability without fault. The Claimant filed an appeal to the Supreme Court but subsequently abandoned that avenue because of its professed belief that it cannot get a fair disposition of its claim there. 4. Instead the Claimant today invokes the protection of the 1 Albania- Greece bilateral investment treaty of 1991 (the Treaty).
Despite taking a minimalist approach to defining an objective core meaning of investment for the purposes of Art. 25, the approach inFakes diverges from what the 30 July 2009 Award in Pantechniki S.A. Contractors & Engineers v. Albania, referred to as an emerging synthesis, citing Zachary Douglas formulation in The International Law of Investment Claims that: The economic materialisation of an investment requires the commitment of resources to the economy of the host state by the claimant entailing the assumption of risk in expectation of a commercial return. (Rule 23) In Fakes, a certain duration is identified as a necessary criterion, while the formulation in Douglas Rule 23 includes expectation of commercial return but not duration. It is unfortunate that the Tribunal in Fakes, in its attempt to set out a definitive test, did not explain in more detail why a certain duration is a necessary criterion mandated by the ICSID Convention. Why should an investment that has been in a host State for a hour not obtain treaty protection? This would seen to create a perverse incentive for states to expropriate as soon as possible.


Fakes vs. Turkey (2010)

The Fakes Tribunal takes the minimalist middle road in this debate. It affirms that there is an objective definition of investment in the ICSID Convention that cannot be defined simply through the parties consent (para. 108). Second, it finds that the criteria of (i) contribution, (ii) a certain duration, and (iii) an element of risk, are both necessary and sufficient to define an investment within the framework of the ICSID Convention (para. 110).

The dispute in Fakes arose out of various investigations and lawsuits brought against the Uzans, a prominent family in Turkey who controlled a vast group of companies in a variety of business sectors including banking, electricity, television and telecommunication. (para. 28) Turkish authorities ultimately froze and sold various assets held directly or indirectly by the Uzans, including Telsim Mobil Telekomunikayson Hizmetleri A.S. (Telsim), a leading Turkish telecommunications company. The Claimant submitted that, as a result of series of share sale agreements, on 3 July 2003 he became the legal owner of 66.96% of the shares in Telsim shortly before the Turkish conduct at issue. He claimed an astronomical US$ 19 billion in damages. The Tribunal ultimately disposed of the claim on the basis that although there were formal share sale agreements for the Telsim shares, Mr Fakes did not hold legal title over the Telsim share certificates because the parties never had any intention to transfer any rights to Mr Fakes nor did they actually transfer any rights. In coming to this conclusion, the Tribunal highlighted four points. The Tribunal found that the purpose of the arrangement was to use the name of Mr Fakes as bait to attract potential purchasers who might be hesitant to deal with the Uzans. Second, the low purchase price (US$ 3,800) could not be reconciled with the acquisition of legal rights to the majority of shares in a major telecommunications company, even assuming the amount was paid. Third, Mr Fakes never obtained possession of the share certificates and was not in a position to obtain possession. Fourth, Telsim appeared to be unaware of the share transfer. The Tribunal concluded that, as the parties did not intend to give effect to the alleged share transfer, there was no investment

107. First, the Tribunal considers that the notion of investment, which
is one of the conditions to be satisfied for the Centre to have jurisdiction, cannot be defined simply through a reference to the parties consent, which is a distinct condition for the Centres jurisdiction. The Tribunal believes that an objective definition of the notion of investment was contemplated within the framework of the ICSID Convention, since certain terms of Article 25 would otherwise be devoid of any meaning.

108. In this respect, the Tribunal agrees with the Tribunal in the Joy
Mining v. Egypt case, which emphasized that the Convention itself, in resorting to the concept of investment in connection with jurisdiction, establishes a framework to this effect: jurisdiction cannot be based on something different or entirely unrelated. . . . The parties to the dispute cannot by contract or treaty define as investment, for the purposes of ICSID jurisdiction, something which does not satisfy the objective requirements of Article 25 of the Convention.72 Second, the present Tribunal considers that the criteria of (i) a

contribution, (ii) a certain duration, and (iii) an element of risk, are both necessary and sufficient to define an investment within the framework of the ICSID Convention. In the Tribunals opinion, this approach reflects an objective definition of investment that embodies specific criteria corresponding to the ordinary meaning of the term investment, without doing violence either to the text or the object and purpose of the ICSID Convention. These three criteria derive from the ordinary meaning of the word investment, be it in the context of a complex international transaction or that of the education of ones child: in both instances, one is required to contribute a certain amount of funds or know-how, one cannot harvest the benefits of such contribution instantaneously, and one runs the risk that no benefits would be reaped at all, as a project might never be completed or a child might not be up to his parents hopes or expectations.



Pac Rim Cayman vs. El Salvador (2005)

Most recently, the tribunal in Pac Rim Cayman LLC v. The Republic of El Salvador held that: [T]he dividing-line occurs when the relevant party can see an actual dispute or can foresee a specific future dispute as a very high probability and not merely as a possible controversy. In the Tribunals view, before that dividing-line is reached, there will be ordinarily no abuse of process; but after that dividing-line is passed, there ordinarily will be. The answer in each case will, however, depend upon its particular facts and circumstances, as in this case. (para. 2.99.) Irrespective of how ambiguous this dividing line is, the tribunal laid emphasis on the foreseeability of the dispute. This implies that should subsequent tribunals adopt a first-fact approach (i.e. after the first in a series of facts giving rise to a dispute has taken place), an after-the-fact restructuring will amount to an abuse of rights and such an investment will not be covered by the consent of the host State.

On the other hand and as far as continuing wrongful acts are concerned, the decision in Pac Rim Cayman LLC v. The Republic of El Salvador contains an important finding:

Where the alleged practice is a continuous act , this means that the practice started before the Claimants change of nationality and continued after such change. This analysis

would found the basis of the Tribunals jurisdiction ratione temporis under CAFTA; but it would preclude the exercise of such jurisdiction on the basis of abuse of process if the Claimant had changed its nationality during that continuous practice knowing of an actual or specific future dispute, thus manipulating the process under CAFTA and the ICSID Convention in bad faith to gain unwarranted access to international arbitration. (para. 2.107.)


2.16. In summary, the Respondents presentation of its jurisdictional objection based on Abuse of Process begins with a statement of facts, which are not contested by the Claimant: Pacific Rim Mining Corp. is a Canadian company that applied for an environ- mental permit and a mining exploitation concession in El Salvador through one of its subsidiaries in 2004. The environmental permit and the concession were not granted. Three years later, in December of 2007, Pacific Rim Mining Corp. changed the nationality of another subsidiary, Pac Rim Cayman, from the Cayman 8 Islands to the United States... 2.17. The Respondent then makes its legal analysis on these facts, which (as will be seen later in this Decision) is strongly contested by the Claimant. In the Respondents submission, the Claimant has abused the provisions of CAFTA and the interna- tional arbitration process by changing Pac Rim Cayman's nationality to a CAFTA Party to bring a preexisting dispute before this Tribunal under CAFTA. 2.21. In summary, the Claimant submits that its change of nationality was not an abuse of process because it was part of an overall plan to restructure the Pac Rim group of companies. According to the Claimant, (i)n 2007, the 11 Companies were looking for ways to save money; and as a result, changes are alleged to have been envisioned, as follows: This led to an examination of the overall corporate structure of the Companies. There were administrative costs




involved in maintaining Pac Rim Cayman as a Cayman Islands entity. At the same time, the Companies were advised that there would be no adverse tax consequences to domesticating Pac Rim Cayman to Nevada the jurisdiction from which it had been effectively managed by Mr. Shrake since 1997. In other words, the Companies believed that by domesticating Pac Rim Cay- man to Nevada, they could eliminate the costs of maintaining Pac Rim Cayman in the Cayman Islands, without losing any tax benefits. It made no sense to manage a Cayman Islands company from Nevada, if that company could be domesticated to Nevada with cost 12 savings and no adverse tax consequences.
-President Sacas speech March 2008 114.

2.77. Accordingly, the Respondent contends that the relevant acts, measure, measures and other essential facts giving rise to the Parties dispute all took place before 13 De- cember 2007. The Respondent specifically alleges that: (i) with regard to the envi- ronmental permit, MARN did not meet the time limit established under Salvadoran law to either issue or deny the environmental permit by December 2004 (i.e. three 59 years before the Claimants change of nationality); and (ii) with regard to the ex- ploitation concession filed with the Bureau of Mines, once the Bureau of Mines sent the two warning letters to the Claimant in October and December 2006 triggering the provisions of Article 38 of the Mining Law, that application was effectively terminated; nothing more could have been done by the Claimant after the expiration of the 30-day extension to revive it; and, therefore, such application should be treated as having been effectively terminated under the laws of the Respondent by January 2007 60 (i.e. one year before the Claimants change of nationality).

2.78. The Claimants Submission: In summary, the Claimant

alleges that the relevant measure was the de facto mining ban 61 consisting of a practice of withholding min- ing-related permits and concessions which only became public and known to the Claimant in March 2008 (with President Sacas speech); and which then wiped out the value of its mining investments and nullified its legitimate expectations and other protections under CAFTA, thereby giving rise to its present dispute with the Res- pondent.
I. Archer Daniels Midland vs. Mexico (2007) Chapter Eleven of the NAFTA applies to measures adopted or maintained by a Party relating to, inter alia "investments of investors of another Party in the territory of the Party", and pursuant to Article 1101(1)@) only measures relating to investments that are within the scope of Chapter Eleven should be covered. This means that the protection applies only to measures relating to investments of investors of one Party that are in the territory of the party that has adopted or maintained such measures. In a case such as the one at bar, this would exclude investments of ADM and TLIA located outside of Mexico, even if such investments are destined to promote fructose sales in Mexico. II. Joy Mining vs. Egypt (2004)

5. The dispute in this case arises out of a Contract for the Provision of Longwall Mining Systems and Supporting Equipment for the Abu Tartur Phosphate Mining Project (the Contract), executed on April 26, 1998 between Joy Mining Machinery Limited and the General Organization for Industrial and Mining Projects of the Arab Republic of Egypt (IMC). Following various disagreements between the parties, the Contract was amended by an agreement of November 8, 2000 (Amendment Agreement). 16. The Abu Tartur Phosphate Mining Project (the Project) is located in Egypts Western Desert and is managed by IMC. The phosphate extracted is used for the production of fertilizers. The

Longwall Mining System consists of equipment allowing for the use of a specialized technique for this kind of min- ing activity. The Contract envisaged two stages. The first concerned the partial replacement of equipment already existing at the Project site supplied by other companies (Replacement Longwall), while the second stage comprised a new Longwall System (First New Longwall). 17. The total Contract price amounted to UK13,325,293. Letters of guar- antee for Contract Performance, Advance Payment and Remaining Payment or Balance were supplied by the Company for each of the Contracts stages, amounting to a total of UK12,950,737. This amount was later reduced by the Amendment Agreement to UK9,605,228. These guarantees have been renewed at various points in time and are currently in place at the Bank of Alexandria. The Contract and later the Amendment Agreement provided for a timetable and conditions for the release of these guarantees connected to the performance of the equipment and to the achievement of certain levels of pro- duction. 18. Installation of the equipment on site began in February 1999 and since the outset each party has claimed that performance problems which surfaced are to be blamed on the other. Joy Mining asserts that there were geological

problems in the mine site as well as poor management of the Project by IMC, while the latter asserts that the problems arose from the malfunctioning of the equipment. As disagreements continued, independent experts were appointed and discussions held later with a committee appointed by the Minister for Industry and Technology. The Amendment Agreement resulted from these discussions and some timetables, conditions and guarantees were adjusted accordingly. 19. Disagreement persisted between the parties as to technical

aspects relat- ed to the commissioning and performance tests of the equipment. However, the Company was paid the full purchase price of the equipment in accordance with the Contract. The guarantees have not been released by IMC and, as mentioned, have been renewed by the Company several times in order to pre- vent their drawdown. Further negotiations to resolve the differences between the parties have been unsuccessful. 20. Joy Mining asserts that it is entitled to the release of the guarantees, explaining that if commissioning and testing of the equipment had been car- ried out in accordance with the Contract and the Amendment Agreement, both Provisional and Final Acceptance Certificates would have been issued at the latest in April and July 2003. Thereafter, the guarantees would have been released at different dates in accordance with their schedule, but ending at the latest on July 31, 2003. 21. IMC contends that the guarantees should remain in place until the com- missioning and testing of the equipment is satisfactorily carried out and that in any event the question of performance under the Contract and connected guarantees has to be settled through a separate dispute settlement mechanism agreed to under the Contract, which will be discussed further below in con- nection with the objections to jurisdiction. 22. Joy Mining submitted the dispute to ICSID arbitration under the United Kingdom-Arab Republic of Egypt Agreement for the Promotion and Protection of Investments, in force as from February 24, 1976. The Company claims that the Contract is an investment under this Treaty and that the deci- sions by IMC and Egypt not to release these guarantees are in violation of the Treaty. In particular, it is claimed that nationalization or measures having an effect equivalent to expropriation have been undertaken in respect of the bank guarantees, that the free transfer of funds has been prevented, that discrimina-


tion has taken place and that, generally, fair and equitable treatment and full protection and security have not been accorded.

58. The Tribunal is also mindful that if a distinction is not drawn between ordinary sales contracts, even if complex, and an investment, the result would be that any sales or procurement contract involving a State agency would qualify as an investment. International contracts are today a central feature of international trade and have stimulated far reaching developments in the governing law, among them the United Nations Convention on Contracts for the International Sale of Goods,21 and significant conceptual contributions.22 Yet, those contracts are not investment contracts, except in exceptional circumstances, and are to be kept separate and distinct for the sake of a stable legal order. Otherwise, what difference would there be with the many State contracts that are submitted every day to international arbitration in connection with contractual performance, at such bodies as the International Chamber of Commerce and the London Court of International Arbitration?2 III. Globex vs. Ukraine (2010)

An excellent illustration of the general trend of exclusion of sales contracts is provided by the Global Trading and Globex v. Ukraine case. The tribunal, after resorting to previous ICSID decisions, concluded that pure commercial transactions, such as simple purchase and sale contracts, cannot be considered as investments for the purpose of Article 25.47 As for the transactions in question in that particular case, which were rather typical trans-boundary CIF sales, the tribunal stated:
these are each individual contracts, of limited duration, for the purchase and sale of goods, on a commercial basis and under normal CIF trading terms, and which provide for delivery, the transfer of title, and final payment, before the goods are cleared for import into the recipient territory; and that neither contracts of that kind, nor the moneys expended by the supplier in financing its part in their performance, can by any reasonable process of interpretation be construed to be investments for the purposes of the ICSID Convention.48

36. The Claimants case is based upon the following key alleged

facts (which for the purposes of this application were not disputed by the Respondent and are taken as true by the Tribunal). The Claimants allege that due to the structure of the Ukrainian poultry market, imports had been severely limited with the result that domestic prices soared to the benefit of domestic poultry producers and to the detriment of the Ukrainian consumer. After her election in December 2007, Yulia V. Tymoshenko became Prime Minister of Ukraine and, the Claimants plead, resolved to deal with the poultry supply issue in order to reduce prices to consumers. On 1 June 2008 the Prime Minister requested the United States Embassy in Kyiv to identify US poultry exporters willing to consider exporting to Ukraine and approximately 6 weeks later, a meeting hosted by the Prime Minister was held between US exporters, a US Embassy official, and Ukrainian officials in Kyiv. 37. At this meeting, according to the Claimants, Prime Minister Tymoshenko proposed a poultry purchase-and-import program as a special government initiative for the express purpose of correcting what she perceived to be anti-competitive and 9 inflationary conditions in the Ukrainian poultry industry. This, it is contended, led directly to the poultry sales and purchase contracts negotiated by the Claimants with senior Ukrainian officials. 38. The Claimants allege further that officials of the State Reserve also attended the meeting. The State Reserve subsequently designated Alan Trade as counterparty to the poultry sales and 10 purchase contracts with the Claimants. The Claimants emphasise both the economic development purposes of the Prime Minister's solicitation of the sales and purchase contracts and her assurances 11 of payment by Ukraine. 39. The Request for Arbitration sets out in detail the steps taken by both Claimants to perform their respective purchase and sale contracts, Ukraine's failure to pay for and take delivery of most of

the poultry shipped to the designated port, the efforts of the United States Embassy to convince Ukraine to fulfil its contractual obligations to the two exporters, and the resulting losses, including demurrage charges, incurred by the Claimants before they finally 12 disposed of the goods.


SGS vs. Pakistan (2003)

The dispute in SGS v. Pakistan emerged from the PSI entered into between the Swiss company SGS and the Republic of Pakistan whereby SGS was to provide PSI services with respect to goods exported from certain countries to Pakistan. The PSI Agreement was mutually performed, although the parties disputed the adequacy of each others performance, before Pakistan terminated the Agreement. The resulting dispute between the parties as regards the validity and consequences of the termination gave rise to different proceedings. In September 2000, Pakistan initiated an arbitration in Pakistan on the basis of the arbitration clause inserted in the PSI Agreement (the PSI Agreement arbitration). SGS filed preliminary objections to the jurisdiction of the arbitrator along with a counter-claim for alleged breaches of the PSI Agreement. In parallel, SGS sought the resolution of its disputes with Pakistan under the BIT between the Swiss Confederation and the Islamic Republic of Pakistan and, on October

66. Firstly, textually, Article 11 falls considerably short of saying what the Claimant asserts it means. The commitments the observance of which a Contracting Party is to constantly guarantee are not limited to contractual commitments.175 The commitments referred to may be embedded in, e.g., the municipal legislative or administrative or other unilateral measures of a Contracting Party. The phrase constantly [to] guarantee the observance of some statutory, administrative or contractual commitment simply does not to our mind, necessarily signal the creation and acceptance of a new internation- al law obligation on the part of the Contracting Party, where clearly there was none

before. Further, the commitments subject matter of Article 11 may, without imposing excessive violence on the text itself, be commitments of the State itself as a legal person, or of any office, entity or subdivision (local gov- ernment units) or legal representative thereof whose acts are, under the law on state responsibility, attributable to the State itself. As a matter of textuality therefore, the scope of Article 11 of the BIT, while consisting in its entirety of only one sentence, appears susceptible of almost indefinite expansion. The text itself of Article 11 does not purport to state that breaches of contract alleged by an investor in relation to a contract it has concluded with a State (widely considered to be a matter of municipal rather than international law) are auto- matically elevated to the level of breaches of international treaty law. Thus, it appears to us that while the Claimant has sought to spell out the conse- quences or inferences it would draw from Article 11, the Article itself does not set forth those consequences. 167. Considering the widely accepted principle with which we started, namely, that under general international law, a violation of a contract entered into by a State with an investor of another State, is not, by itself, a violation of international law, and considering further that the legal consequences that the Claimant would have us attribute to Article 11 of the BIT are so far-reaching in scope, and so automatic and unqualified and sweeping in their operation, so burdensome in their potential impact upon a Contracting Party, we believe that clear and convincing evidence must be adduced by the Claimant. Clear and convincing evidence of what? Clear and convincing evidence that such was indeed the shared intent of the Contracting Parties to the Swiss-Pakistan Investment Protection Treaty in incorporating Article 11 in the BIT. We do not find such evidence in the text itself of Article 11. We have not been point- ed to any other evidence of the putative common intent of the Contracting Parties by the Claimant.

168. The consequences of accepting the Claimants reading of Article 11 of the BIT should be spelled out in some detail. Firstly, Article 11 would amount to incorporating by reference an unlimited number of State contracts, as well as other municipal law instruments setting out State commitments including unilateral commitments to an investor of the other Contracting Party. Any alleged violation of those contracts and other instruments would be treated as a breach of the BIT. Secondly, the Claimants view of Article 11 tends to make Articles 3 to 7 of the BIT substantially superfluous. There would be no real need to demonstrate a violation of those substantive treaty standards if a sim- ple breach of contract, or of municipal statute or regulation, by itself, would suffice to constitute a treaty violation on the part of a Contracting Party and engage the international responsibility of the Party. A third consequence would be that an investor may, at will, nullify any freely negotiated dispute set- tlement clause in a State contract. On the reading of Article 11 urged by the Claimant, the benefits of the dispute settlement provisions of a contract with a State also a party to a BIT, would flow only to the investor. For that investor could always defeat the States invocation of the contractually specified forum, and render any mutually agreed procedure of dispute settlement, other than BIT-specified ICSID arbitration, a dead-letter, at the investors choice. The investor would remain free to go to arbitration either under the contract or under the BIT. But the State party to the contract would be effectively pre- cluded from proceeding to the arbitral forum specified in the contract unless the investor was minded to agree. The Tribunal considers that Article 11 of the BIT should be read in such a way as to enhance mutuality and balance of ben- efits in the inter-relation of different agreements located in differing legal orders.

Socit Gnrale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction, paragraphs 166-67 (Aug. 6, 2003).


El Paso vs. Argentina1, (2006)

1. EI Paso is a company incorporated under the laws of the State of Delaware (United States). It owns a 99.92% indirect controlling shareholding in Servicios El Paso SRL ("Servicios") and indirect noncontrolling shareholdings in Companias Asociadas Petroleras SA ("CAPSA"), CAPEX SA ("CAPEX"), Central Costanera SA and Gasoducto del Pacifico SA ("Pacifico"). CAPSA, CAPEX, Costanera and Pacifico will hereafter be collectively referred to as the "Argentine Companies", all being incorporated under the laws of Argentina. EI Paso owns a 45% interest in CAPSA, the latter having a 60% interest in CAPEX (for a graphic representation of the structure of the EI Paso group, see Request for Arbitration, Exhibit 8). 12. CAPSA is engaged in the exploration, development and production of oil and, through CAPEX, in the generation of power. CAPSA is mainly in the business of generating electrical power and, accessorily, in the exploration, development and production of crude oil and gas as well as in the marketing of propane, butane and gasoline. According to the Claimant, a series of measures taken by the Government since December 2001 were in breach of fundamental undertakings by which it had induced EI Paso and other foreign investors to invest in Argentina, replacing these undertakings by conditions which have proved devastating to the Claimant and have amounted to an expropriation of the Claimant's investment. Under the new scheme, CAPEX could no longer function independently; El Paso's investment in the latter and in CAPSA was rendered essentially worthless; and the new conditions have also adversely affected Servicios, Costanera and Pacifico. Under the Argentina-US Treaty Concerning the Reciprocal Encouragement and Protection of Investment concluded on 14 November 1991 and entered into force on 20 October 1994 (ibid., Exhibit 1), the Government's actions, according to the Claimant, amount to expropriation
El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Decision on Jurisdiction,(April 27, 2006).

82. In conclusion, in this Tribunal's view, following the important precedents set by Tribunals presided over by Judge Feliciano, Judge Guillaume and Professor Orrego Vicuna, an umbrella clause cannot transform any contract claim into a treaty claim, as this would necessarily imply that any commitments of the State in respect to investments, even the most minor ones, would be transformed into treaty claims. These far-reaching consequences of a broad interpretation of the so-called umbrella clauses, quite destructive of the distinction between national legal orders and the international legal order, have been well understood and clearly explained by the first Tribunal which dealt with the issue of the so-called "umbrella clause" in the SGS v. Pakistan case and which insisted on the theoretical problems faced. It would be strange indeed if the acceptance of a BIT entailed an international liability of the State going far beyond the obligation to respect the standards of protection of foreign investments embodied in the Treaty and rendered it liable for any violation of any commitment in national or international law "with regard to investments". A wellknown specialist of ICSID, Christoph Schreuer, has strikingly described what some of the practical consequences ofa broad interpretation ofthe umbrella clauses could be:
El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Decision on Jurisdiction,(April 27, 2006).


Pan American vs. Argentina2,

Pan American Energy LLC and BP Argentina Exploration Company v. Argentine Republic, ICSID Case No. ARB/03/13 (July 27, 2006).


Mafezzini vs. Spain (2000)

In the Maffezini case (Emilio Agustn Maffezini v. Kingdom of Spain, No. ARB/97/7, award of January 25, 2000), the Tribunal analyzed the issue from a different point of view. In this case Spain alleged that ICSID lacked
Pan American Energy LLC and BP Argentina Exploration Company v. Argentine Republic, ICSID Case No. ARB/03/13 (July 27, 2006).

jurisdiction because the dispute was not between an individual (Maffezini) and a State (Spain) but between an individual and a Corporation (SODIGA). The Tribunal stated that to determine if an entity was a States organ and its doings attributable to the latter two tests were required: structural and functional. If on analyzing the structure of an entity it seems that it is not a States organ because the State has used a corporate veil, the analysis needs to be turned to the function of the entity. If the entity is in charge of States functions, then the entity will be considered an organ of the State.


Military Operations vs. Nicaragua and Bosnia genocide case standard of effective control acting under specific instructions BOSNIA GENOCIDE:

399. This provision must be understood in the light of the Courts jurisprudence on the subject, particularly that of the 1986 Judgment in the case concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America) referred to above (paragraph 391). In that Judgment the Court, as noted above, after having rejected the argument that the contras were to be equated with organs of the United States because they were completely dependent on it, added that the responsibility of the Respondent could still arise if it were proved that it had itself directed or enforced the perpetration of the acts contrary to human rights and humanitarian law alleged by the applicant State (I.C.J. Reports 1986, p. 64, para. 115); this led to the following significant conclusion: For this conduct to give rise to legal responsibility of the United States, it would in principle have to be proved that that State had effective control of the military or paramilitary operations in the course of which the alleged violations were committed. (Ibid., p. 65.) 400. The test thus formulated differs in two respects from the test described above to determine whether a person or entity may be equated with a State organ even if not having that status under internal law. First, in this context it is not necessary to show that the persons who performed the acts alleged to have violated international law were in gen- eral in a relationship of complete dependence on the respondent State; it has to be proved that they acted in accordance with that States instruc- tions or under its effective control. It must however be shown that this effective control was exercised, or that the States instructions were given, in respect of each operation in which the alleged

violations occurred, not generally in respect of the overall actions taken by the persons or groups of persons having committed the violations.


SGS vs. Philippines (2004)

SGS is part of a large group providing, inter alia, certification services based on pre- shipment inspections carried out on behalf of the governmental authorities of the importing country in the country of export. Pre-shipment inspection not only covers quality, quantity and export market price, but also seeks to verify compliance with import regulations, the declared value of goods and their classification for customs purposes. In addition SGS provides assistance in the modernization of customs and tax infrastructures in the country of import. 13. In the 1980s, the Philippines decided to appoint an inspector in its countries of supply to provide a comprehensive import supervision service (CISS), including verification of the quality, quantity and price of imported goods prior to shipment to the Philippines. The Philippines entered into two successive CISS contracts with SGS in 1986 before putting the subsequent contract out to tender. A number of companies were short-listed in a bidding process conducted on 6 November 1990, which led to a new agreement entered into with SGS on 23 August 1991 (the CISS Agreement) for an initial period of three years. Conclusion of the CISS Agreement was approved by the President of the Philippines. 14. Before the end of the three year period, the parties agreed on the extension of the CISS Agreement, with certain modifications, for a further three year term (the First Addendum). Subsequently, they agreed to introduce further amendments and to extend the duration of the CISS Agreement from 15 March 1998 to 31 December 1999 (the Second Addendum). By a document dated 22 December 1999, the Philippines asked SGS and the latter agreed to extend the provision of services under the CISS Agreement as amended. This further extension lasted from 31 December 1999 to 31 March 2000, at which point SGSs services under the CISS Agreement were discontinued. In the

early years there was some opposition to the CISS system, but this seems to have dissipated by the time of the First and Second Addendums. In any event the Tribunal has no evidence that the discontinuance in 2000 was due to any overall dissatisfaction on the part of the Philippines Bureau of Customs (BOC) with the service provided by SGS. It seems that it was primarily motivated by changes to customs arrangements associated with the implementation of the GATT-WTO Valuation System, in accordance with which customs duty would be chargeable on transaction values rather than assessed values, reducing the need for physical inspection of imports.3 15. SGS submitted to the Philippines certain monetary claims which were subject to various attempts for amicable settlement. In substance its claim was for monies unpaid under the amended CISS Agreement, amounting to CHF202,413,047.36 (approximately US$140m), in addition to which SGS sought interest on the amount unpaid. 16. In commencing the present proceedings SGS alleged that, in refusing to pay the amount claimed (most of which was conceded by the BOC to be payable), the Philippines is in breach of Articles IV(1), IV(2), VI(1) and X(2) of the BIT. SGS bases its Request for Arbitration on Article 25(1) of the ICSID Convention, considering that (a) there is a dispute of legal nature; (b) arising directly out of an Investment; (c) between a contracting State and a National of another Contracting State; and (d) the parties have consented in writing to ICSID Arbitration.

Doctrine: 153. But it is one thing for a defined class of existing claims to be referred to an international tribunal without exception, and another for a government to agree to the adjudication for the future of an indefinite range of cases in a number of different forums with different rules. The Tribunal cannot accept that standard BIT jurisdiction clauses automatically override the binding selection of a forum by the parties to determine their contractual claims. As the ad hoc Committee said in the Vivendi case:

where the essential basis of a claim brought before an international tribunal is a breach of contract, the tribunal will give effect to any valid choice of forum clause in the contract.82 (iii) Distinction between jurisdiction and admissibility 154. In the Tribunals view, this principle is one concerning the admissibility of the claim, not jurisdiction in the strict sense. The jurisdiction of the Tribunal is determined by the combination of the BIT and the ICSID Convention. It is, to say the least, doubtful that a private party can by contract waive rights or dispense with the performance of obligations imposed on the States parties to those treaties under international law. Although under modern international law, treaties may confer rights, substantive and procedural, on individuals,83 they will normally do so in order to achieve some public interest. Thus the question is not whether the Tribunal has jurisdiction: unless otherwise expressly provided, treaty jurisdiction is not abrogated by contract. The question is whether a party should be allowed to rely on a contract as the basis of its claim when the contract itself refers that claim exclusively to another forum. In the Tribunals view the answer is that it should not be allowed to do so, unless there are good reasons, such as force majeure, preventing the claimant from complying with its contract. This impediment, based as it is on the principle that a party to a contract cannot claim on that contract without itself complying with it, is more naturally considered as a matter of admissibility than jurisdiction.84 ) Conclusion on Article 12 of the CISS Agreement 155. To summarise, in the Tribunals view its jurisdiction is defined by reference to the BIT and the ICSID Convention. But the Tribunal should not exercise its jurisdiction over a contractual claim when the parties have already agreed on how such a claim is to be resolved, and have done so exclusively. SGS should not be able to approbate and reprobate in respect of the same contract: if it claims under the contract, it should comply with the contract in respect of the very matter which is the foundation of its claim. The Philippine courts are available to hear SGSs contract claim. Until the question of the scope or extent of the

Respondents obligation to pay is clarifiedwhether by agreement between the parties or by proceedings in the Philippine courts as provided for in Article 12 of the CISS Agreementa decision by this Tribunal on SGSs claim to payment would be premature.
Among the reasons that the SGS v. Philippines tribunal provided for its determination that the exclusive forum selection clause rendered the treaty claim inadmissible was the principle that a party to a contract cannot claim on that contract without itself complying with it. SGS v. Philippines (2004)