THE AUTHOR:
Reza Eftekhar, Senior Legal Adviser atthe Iran-United States Claims Tribunal (“IUSCT”)
The definition of the term “investment” has traditionally been one of the most controversial issues in investment treaty arbitrations. From our current standpoint, the debate regarding the interpretation of “investment” remains actively ongoing. This is evident, inter alia, from the divided jurisprudence, where certain arbitral tribunals support the existence of an objective meaning for “investment” (e.g., Discovery Global v. Slovakia, paras 337-339), while other adjudicatory forums reject the presence of inherent characteristics of an investment (e.g., Ustay v. Libya, paras 94-98).
The newer generation of investment treaties and more recent trade/economic treaties with investment chapters, concluded mostly in the 2010s and afterwards, tend to offer specific standards for identifying an “investment”. Investment treaty tribunals owing their jurisdiction to these treaties, therefore, do not encounter the hurdle of identifying the concrete elements of an “investment”. However, the older generation investment treaties lack an actual definition of “investment” and fail to present an adjudicatory body with concrete yardsticks to identify a protected “investment”. These older treaties constitute the great majority of the investment treaty population and function as the legal basis in most investment treaty disputes. These older treaties will continue to be relevant for the foreseeable future, even if states decide to terminate them due to the so-called “sunset clauses” they often contain. Consequently, the controversy over the definition of “investment” remains ongoing. As was observed previously (pp 245-6, 275), rather than defining an “investment”, what the “definitions” provisions in such investment treaties basically do instead is to enumerate the legal materialisation of an investment (e.g., rights to moveable and immoveable property) or the forms that an investment may take (e.g., shares in a company).
For its part, Article 25 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (“ICSID Convention”), a key controlling jurisdictional instrument in investment treaty disputes under the auspices of ICSID, neither defines “investment” nor sets forth any benchmarks to discern an “investment” operation.
Therefore, at the inception of investment treaty arbitrations (i.e., 1987, when the first investment treaty claim was lodged in AAPL v. Sri Lanka), there was no systematic definition of “investment” in either the ICSID Convention or the consent instruments (i.e., investment treaties). This situation persisted for at least another decade.
Against this background, in July 2001, an investment treaty tribunal, acting under the Italy-Morocco BIT (1990), rendered its high-profile Decision on Jurisdiction in Salini v. Morocco. In that decision, the tribunal offered the following criteria for the identification of “investment” within the meaning of Article 25 of the ICSID Convention:
[…] contributions, a certain duration of performance of the contract […] a participation in the risks of the transaction [and] […] contribution to the economic development of the host State […] (52).
Very soon afterwards, the now time-honoured terms “Salini test” and “Salini criteria” emerged in the international arbitration community as convenient shorthand forms to refer to the criteria for “investment” set out in the Salini Decision. This designation continues to be relevant (see here paras 328-330).
Given the significant role of the Salini tribunal in establishing criteria for the definition of “investment”, such a designation is justified to some extent. However, upon closer examination of academic writing and jurisprudence prior to the Salini Decision, it becomes evident that Salini was by no means particularly unique as a groundbreaking departure from previous interpretations of “investment”. As noted in L.E.S.I. v. Algeria, the “[Salini] decision is by no means unique: on the contrary, it is part of a current of jurisprudence that accepts, fairly broadly, what can constitute an investment […]” (para 13(ii)).
Quite interestingly, apparently, on the same day of the Salini Decision, a tribunal with the same composition, similarly acting under the Italy-Morocco BIT, set forth what was literally replicated in the Salini Decision. In RFCC Consortium v. Morocco, in resolving the parties’ dispute over the scope and definition of “investment”, the tribunal held that: “[t]he doctrine generally considers that an investment entails contributions, a certain duration of performance of the contract and a participation in the risks of the transaction” (para 60, translation from French by Damien Charlotin). Noting the ICSID Convention’s Preamble, this tribunal added the benchmark of contribution to the recipient state’s economic development as a further criterion.
Damien Charlotin plausibly speculates on why Salini, rather than RFCC, became famous for the objective definition of “investment”: “Why the latter decision and not the former became one of the most cited authorities on this topic is anyone’s guess, but is probably due to the fact that the decision in Salini was soon translated into English and published by Mr. Gaillard’s firm Shearman & Sterling.”
Upon further study, it becomes clear that neither the Salini tribunal nor the RFCC tribunal marked the starting point of this long analytical journey. Both these decisions refer to a 1999 article written by the late Professor Gaillard. In this article, Professor Gaillard, drawing on criteria adopted in the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA) (1985), enumerates three required elements for constituting an “investment”: contribution, duration, and participation in the risks of the transaction (E Gaillard, Centre International pour le Règlement des Différends Relatifs aux Investissements (CIRDI), Chronique des Sentences Arbitrales, 278 JDI 292 (1999)). However, even this article was not the starting point in this analytical discourse.
In his first-ever extensive commentary on Article 25(1) of the ICSID Convention published in 1996, Professor Schreuer sought to offer a definition of “investment” incorporated in that provision. In this article, Professor Schreuer meticulously identified the existing case law and literature on the interpretation of Article 25 and focused deeply on the travaux préparatoires of the Convention. Adopting an empirical approach, he identified five characteristics “typical” to “most of the operations” that had been handled by ICSID proceedings as “investments” until then:
- A certain duration of the enterprise;
- A certain regularity of profit and return;
- An assumption of risk;
- A substantial commitment by the investor; and
- Some significance for the host State’s development (para 122).
Professor Schreuer’s fivefold criteria were later echoed in the 1997 Decision on Objections to Jurisdiction in Fedax v. Venezuela (para 43), which referred to these criteria approvingly, making the latter the first investment treaty tribunal that dealt with the meaning and scope of “investment” relatively comprehensively. The fact that Fedax was the first tribunal that addressed this issue quite extensively is unsurprising given that, as noted by Christoph Schreuer, up to that time, “the question whether the dispute at hand did, in fact, arise from an investment ha[d] not created problems” (para 94) since the facts of the cases registered before ICSID tribunals “squarely fit the concept of investment” (para 94).
Even though the Fedax tribunal preceded Salini and RFCC in setting forth the (slightly different) criteria for identifying an “investment”, there seem to be only scant references in the jurisprudence to the objective definition of “investment” as the “Fedax test”. Rare examples from academic writings can be found here and here. This is even though in the first case, after Fedax, where the issue of the existence of an “investment” arose (i.e., CSOB v. Slovak Republic, para 78), the respondent readily relied on the yardsticks referred to by Fedax. The CSOB tribunal, too, referred to these criteria without treating them as “formal prerequisites” of an “investment” (paras 64, 76, 88, 90).
While the “investment” criteria introduced in Fedax were by reference to Professor Schreuer’s 1996 treatise, for which he should undoubtedly be given substantial credit, it would not be accurate to ascribe the provenance of these criteria entirely to him.
Indeed, the criteria established by Professor Schreuer were not arbitrarily devised. They seem to have been informed by the travaux préparatoires of the ICSID Convention, commentary on certain ICSID-related instruments, and certain prior ICSID awards and decisions, all of which Professor Schreuer diligently studied for his scholarly writing.
Beginning with the Convention’s travaux préparatoires, unlike its finalised text, Article 30 of the First Draft of the Washington Convention had offered the following definition of “investment”:
[A]ny contribution of money or other asset of economic value for an indefinite period or, if the period be defined, for not less than five years […] (p 116).
This definition highlights two elements subsequently featured in Professor Schreuer’s five criteria: “commitment of resources” and “duration”.
Turning to commentary on certain ICSID-related instruments, the 1978 ICSID Additional Facility Rules anticipated utilising ICSID’s facilities for certain disputes that do not squarely fall within the jurisdiction of the Centre, such as cases where the dispute does not arise directly out of an “investment”. Nevertheless, Article 4(3) of these Rules clarified that the Secretary-General may approve the registration of a dispute only if he is satisfied that the underlying transaction has features which distinguish it from an “ordinary commercial transaction”. In specifying arrangements that are distinguishable from an “ordinary commercial transaction”, in its comments, ICSID’s Administrative Council highlighted certain features of such economic operations such as “long-term relationships”, “commitment of substantial resources”, and “special importance to the economy of the State party” (pp 5-6). These are three criteria that align with the ones emphasised by Professor Schreuer.
Finally, earlier ICSID cases also highlighted certain benchmarks of the objective definition of an “investment”. For instance, the criteria of “commitment of substantial capital”, one of the key features appearing in Professor Schreuer’s scholarly article, was emphasised by the Kaiser Bauxite and LETCO tribunals.
It is arguable that a consideration of these materials inspired Professor Schreuer in formulating the five characteristics he enumerated for a typical “investment”.
Takeaways from This Study
Apart from the historical interest in discerning the provenance of the objective benchmarks for “investment”, and the comparative analysis one can conduct by comparing the Salini test with earlier tests put forward by other tribunals, commentators, and official documents, there is another significant interest in dissecting the roots of the definition of this key term.
Attributing the definition of “investment” to a single investment treaty tribunal (i.e., the Salini tribunal) would likely create resistance and opposition from other investment treaty tribunals. The Biwater Gauff Award exemplifies such a situation. This Award contains one of the sharpest criticisms against the applicability of the Salini test. The tribunal said that: “Given that the Convention was not drafted with a strict, objective, definition of “investment”, it is doubtful that arbitral tribunals sitting in individual cases should impose one such definition which would be applicable in all cases and for all purposes” (para 313).
Indeed, other investment treaty arbitrators would consider the adoption of the Salini test as blindly following an arbitrary definition of the term set forth by another one-off tribunal like themselves. This, in the eyes of some, tends to infringe upon the interpretive autonomy of another arbitral tribunal.
However, when one highlights the collaborative nature of legal jurisprudence of the whole international investment law system up to July 2001 and thinks of that in terms of a lineage of legal doctrines and precedents that has only been honed and refined by the members of the Salini tribunal, there would be less disinclination towards the adoption of benchmarks introduced for the identification of an “investment”.
ABOUT THE AUTHOR
Dr. Reza Eftekhar is a Senior Legal Adviser at the IUSCT. He deals with public international law and contractual interstate arbitrations in this capacity. He is also a practitioner in international investment and commercial arbitrations. He has written widely on international commercial and investment treaty arbitration and has been a speaker at numerous seminars on these subjects. He is the author of the book entitled “The Role of the Domestic Law of the Host State in Determining the Jurisdiction ratione materiae of Investment Treaty Tribunals: The Partial Revival of the Localisation Theory? (Brill 2021). He holds a Ph.D. in International Dispute Settlement from Leiden University.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
