Article 25(1) of the ICSID Convention states that “[t]he jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment”. The manner in which tribunals have applied this provision has gradually evolved and has been subject to considerable debate. The Salini Test has been at the heart of this debate.
Prior to the Salini Decision, ICSID tribunals had either not considered the meaning of investment in Article 25 at all, or considered its meaning under the definition of an investment in the applicable treaty between the parties. The Fedax[1] and CSOB[2] tribunals were the first tribunals to look at the meaning of an “investment” in Article 25 itself. They did not, however, explore the meaning in detail, as they were satisfied by their understanding that the definition of investment under Article 25 should be interpreted broadly.[3]
Salini Test
The Salini decision was not only groundbreaking due to the fact that it recognised that “the investment requirement must be respected as an objective condition of the jurisdiction of the Centre”[4]. The tribunal’s decision was also groundbreaking because it fully distinguished between the conditions for an investment under the applicable BIT and under Article 25 of the ICSID Convention. After it was satisfied that the conditions for an investment were met under the BIT, it then separately examined whether the conditions were met for an investment for the purposes of Article 25.
The Salini tribunal also introduced a definition for an investment under Article 25 of the ICSID Convention. This is known as the Salini Test: namely, that an investment should contain the following elements: contribution of money/assets (1), risk (2), duration (3) and a contribution to the host State’s economy (4). The requirement of the last element has been the most controversial.
Deductive vs. Intuitive Approach
The Salini methodology for defining an investment can be classified as largely a deductive approach. The tribunal had to be satisfied that all the requisite elements of an investment for the purposes of Article 25 had been met. This approach has been adopted by a number of tribunals following Salini, such as in Bayindir[5], Jan de Nul[6] , Kardassopoulos[7] and Quiborax[8] .
This approach is contrasted with the intuitive approach that was recently adopted by inter alia, the Philip Morris v. Uruguay[9] and Abaclat tribunals[10].
The Philip Morris tribunal stated that the criteria for an investment as stipulated by the Salini tribunal “are typical features of investments under the ICSID Convention, not ‘a set of mandatory legal requirements’. As such, they may assist in identifying or excluding in extreme cases the presence of an investment but they cannot defeat the broad and flexible concept of investment under the ICSID Convention to the extent it is not limited by the relevant treaty, as in the present case.”[11]
The intuitive approach essentially looks at the Salini criteria as providing nothing more than common features or characteristics of an investment, finding that the presence of some of these features or characteristics is sufficient to meet the broad definition of investment for the purposes of Article 25.
Controversial Criterion of Contribution to Host State Economy
As mentioned earlier, the most controversial criterion for an investment put forward by the Salini decision was the requirement of a contribution to the host State’s economy. It is important to note the following. The Salini tribunal had defined investment by combining two different approaches to the definition of investment. It combined the deductive approach of Professors Carreau, Flory and Juillard with the intuitive approach of Georges Delaume. The deductive approach it used focused on the risk, duration and contribution aspects of an investment. The intuitive approach it used focused on the importance of the contribution to the host State’s economy, mentioned in the preamble of the ICSID Convention. The Salini tribunal had combined these approaches by using the intuitive approach to add a 4th element to the definition of an investment.[12]
Interpreting the Preamble
The use of the preamble of the ICSID Convention to add a 4th element to the definition of an investment to limit the jurisdiction of tribunals might appear awkward. This is especially true given the fact that the preparatory works of the ICSID Convention do not indicate a desire for a narrow, restrictive interpretation of an investment[13]. Nonetheless, when analysing the Vienna Convention on the Law of Treaties(VCLT), one will realize that looking at the preamble is a logical step.
The VCLT recognizes a preamble as part of a treaty for the general rule of interpretation.[14] It recognizes preparatory works only as supplementary means of interpretation.[15] The VCLT stipulates that recourse can be made to supplementary means of interpretation such as preparatory works “only when the interpretation according to article 31:
- Leaves the meaning ambiguous or obscure; or
- Leads to a result which is manifestly absurd or unreasonable.”[16]
It was not the use of the preamble that subsequent tribunals have found issue with, but the manner in which it was interpreted. Tribunals following the Salini decision have namely interpreted the preamble differently:
“It is true that the Preamble to the ICSID Convention mentions the contribution to the economic development of the host State. However, this reference is presented as a consequence and not as a condition of the investment: by protecting investments, the Convention facilitates the development of the host State. This does not mean that the development of the host State is a constitutive element of the notion of investment. This is why, as was noted by certain arbitral tribunals, this fourth condition is in reality encompassed by the first three.”[17]
Arbitral case law has therefore mostly moved on from the fourth Salini criterion, distancing itself from the perceived artificial interpretation of the preamble by the Salini tribunal.
Three Criteria, Not Four
The general notion promulgated by recent arbitral tribunals is that ICSID jurisprudence points to three objective criteria:
“Article 25 of the ICSID Convention requires that the dispute arises directly from an investment, but provides no definition of investment. While there is incomplete unanimity between tribunals regarding the elements of an investment, there is a general consensus that the three objective criteria of (i) a contribution, (ii) a certain duration, and (iii) an element of risk are necessary elements of an investment.”[18]
The main criteria currently demanded by ICSID tribunals are therefore contribution, duration and risk. Some tribunals such as the Phoenix tribunal have added additional criteria such as good faith and conformity with the laws of the host State. These criteria were, however, only added because the particular case was concerned with abuse of process and the illegality of the process. The arbitral tribunal therefore added these conditions to ensure the integrity of the ICSID regime, on the basis that the ICSID should not be utilized for the protection of illegal investments.
Conclusion
The Salini Test has evolved. ICSID tribunals now use a more flexible approach to determining whether a particular investment falls within the meaning of Article 25. Hence, the Salini Test has only fully survived in the sense that tribunals now look at Article 25 as demanding an objective requirement for the definition of investment, separate from the definition required under the applicable BIT.
Apart from the impact on the objective analysis of Article 25, however, the Salini test has not fully survived. Many tribunals have not followed the strict deductive approach adopted by the Salini Tribunal. They have been content in merely finding elements common to an investment, present in the dispute at hand, to a sufficient magnitude. Specifically, they have not pedantically demanded that all elements of an investment that they have identified be met to a certain degree. Furthermore, while some tribunals have indeed pedantically required that particular identified elements must be met to a certain extent, they now generally just identify those elements as contribution, risk and duration.
[1] Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction.
[2] Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction.
[3] Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction, para. 22. Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction, para 76.
[4] Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, para 52.
[5] Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, Para. 130.
[6] Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction, Para. 91.
[7] Ioannis Kardassopoulos v. The Republic of Georgia, ICSID Case No. ARB/05/18
Decision on Jurisdiction, Para. 116.
[8] Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction, Para. 219.
[9] Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Decision on Jurisdiction, Para. 206.
[10] Decision on Jurisdiction and Admissibility, Para. 364.
[11] Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Decision on Jurisdiction, Para. 206.
[12] Building International Investment Law: The First 50 Years of ICSID, pg. 115-116.
[13] As examined by the Malaysian Historical Salvors ad Hoc Committee.
[14] Vienna Convention on the Law of Treaties (1969), article 31.
[15] Vienna Convention on the Law of Treaties (1969), article 32.
[16] Ibid.
[17] Victor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Para. 282; translated in Building International Investment Law: The First 50 Years of ICSID, p119.
[18] Electrabel S.A. v. The Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, Para. 5.43.
