Posts Tagged ‘Arbitration award’

Although Oscar Wilde cannot certainly have been aware of the developments which International Investment Law would follow a century after his death, his The Importance of Being Earnest comes to mind every time an arbitral award emphasizes that a dispute involving an actual investment is indeed necessary for an investment treaty to be enforced by an investment tribunal… So is the case with the award recently rendered on the dispute between Grupo Francisco Hernando Contreras and the Equatorial Republic.

In effect, before analysing the substantial legal issues which arise from a given case, arbitral tribunals must proceed to asses if they have jurisdiction to judge it; that is to say, if they have been legally given the power to “say the law” (jurisdictio) in that specific case. If the evaluation of jurisdiction is composed of several elements, the existence of a real investment is obviously fundamental. 

However, the very notion of investment or “protected investment” has proven highly problematic in the ICSID case law throughout the last decades. Even though a 2001 tribunal tried to lay out a fourfold test (which would require a financial contribution, a certain duration of it, the taking of risk and a contribution to the host country’s development) whose conditions should be met in order to be qualified as a “protected investment”, and which has since been known as the “Salini test”, the issue remains thorny. Whereas some tribunals, such as the one in the Phoenix Action case, have extended those criteria to up to 6 (thus including conformity to the internal law and good faith on the investor’s side), others, such as the one in the Saba Fakes dispute, have considered that the first 3 (therefore excluding the development condition) were largely sufficient and even overlapped.

The present case came to be known by a tribunal constituted outside ICSID framework, since Equatorial Guinea has not signed the Washington Convention that created it. The case arose from a dispute regarding a real estate project, confronting Equatorial Guinea to a Spanish investor who invoked that the government of that country had breached the Spain-Equatorial Guinea Bilateral Investment Treaty (BIT). Much to the investor’s dismay, the tribunal declined its jurisdiction precisely on the grounds that the economic operation at stake did not constitute a “protected investment”, both because the company was not appropriately incorporated, if incorporated at all, according to the internal law of Equatorial Guinea, and because it did not have “enough magnitude” to be considered as such.

At least two lessons can therefore be drawn from this case. Firstly, the debate on the appropriate perspective and the specific conditions according to which investment tribunals address what is an investment or a “protected investment” remains open. Secondly, the fact that this dispute was settled outside the ICSID legal framework shows that this discussion is a general one and its effects might thus spill out of the specific context of the concept of the “investment” referred to in the article 25(1) of the Washington Convention.

Nevertheless, it must be noted that one of the three members of the tribunal dissented from his colleagues’ view, as he considered that there actually was an investment whose specific size and details should have been dealt with while addressing the substantial issues involved, that is to say after having accepted the tribunals jurisdiction.

Both the award and the dissenting opinion can be found here.