Portfolio Investment: Reconceptualising the Notion of Investment under the ICSID Convention

The Journal of World Investment & Trade 14 (2013) 286–319

© Koninklijke Brill NV, Leiden, 2013 DOI 10.1163/22119000-01402003

brill.com/jwit

The Journal of

World Investment & Trade

Law Economics Politics

Portfolio Investment: Reconceptualising the Notion of Investment under the

ICSID Convention

Michail DekastrosPhD Candidate, International Law, European University Institute, Florence

LLB (Athens); LLM (Cantab); scholar of the Foundation for Education and European Culture Attorney-at-law, Athens

Email: [email protected]

AbstractThe International Investment régime has been transformed to a vibrant and constantly evolving, yet incoherent system. A point of incoherence has been the notion of ‘investment’ under the ICSID Convention for which the case-law and doctrine have remained unsettled for long. Some Respondent States have been particularly resistant to a broad interpretation of the notion of ‘investment’ which would include portfolio investments in its ambit.Despite this trend, the aim of this article is to reconceptualise the problem and make the case for a more encompassing definition of ‘investment’. In Part II of the article, the case-law of ICSID tribunals will be analysed and it will be argued that the methodology they have followed to interpret the notion of ‘investment’ is erroneous. In Part III, it will be argued that the limita-tions that they have placed upon the definition of investment are not sanctioned under a proper interpretation of the Convention. In Chapter IV, a new conceptualisation of the notion of investment will be provided. This definition, anchored in International Law but being informed by economics, is more flexible and includes portfolio investment in its scope.

Keywordsinternational investment law; portfolio investment; ICSID Convention; notion of investment; bonds; economic notion of investment

I. Introduction

The International Centre for the Settlement of Investment Disputes (hereinaf-ter ‘ICSID’) is an institution created under the auspices of the World Bank in

* The author is deeply indebted to Professor Petros C. Mavroidis for his invaluable comments, continuing guidance and kind encouragement throughout the course of his doctoral research from which this study draws on. Furthermore, special thanks are owed to Mr Rónán Condon, Mr Berk Demirkol, Mr Michail Risvas, Mr Simon Paul and Mr Stavros-Evdokimos Pantazopoulos. Many of their helpful thoughts and suggestions found their way into the final article, whilst their support has been invaluable. Naturally I take sole responsibility for any errors remaining therein.

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1966 in order to facilitate the flow of private capital from the developed to the developing countries.1 The idea behind this institutional mechanism is that the element of political risk which, at the time, created an unfavourable investment climate in host countries could be reduced by creating an interna-tional procedural mechanism being an alternative to the judicial system of the host States.2 Initially, the consent to such an arbitral procedure was to be given by investment contracts concluded between host States and prospective investors, however, gradually that consent ended up being provided explicitly by host States to all investors originating in a certain State through so- called Bilateral Investment Treaties (hereinafter ‘BITs’) creating a phenome-non which has been described very accurately as international ‘arbitration without privity’.3

Defining investment under International Investment Law and for the purposes of determining the jurisdiction of arbitral tribunals has proven to be a never-ending struggle. However, in the marketplace, there seems to be a consensus about which transactions are considered as investments and the different types in which they are presented.

In general, when an investor makes an investment in an enterprise, this can take either the form of an equity or a debt. An equity investment, for example, shares of stock in a company, provides a proprietary interest to the relevant investor. Shares of stock are securities instruments that provide the investor with an ownership interest in the underlying investment from which he gains certain financial benefits.4 However, even for stock investments a further categorisation is needed that distinguishes different percentages of sharehold-ing. Governments and international organisations generally accept that an equity investment of less than 10 per cent is to be considered as a portfolio investment5 and, thus, it does not give the investor a right to participate in the control and management of the relevant enterprise.6

On the other hand, investment in debt is merely a claim to fixed payments of principal and interest at specified times. The archetypical example of invest-ment in debt is a bond. Bonds are defined as debt instruments, in which an interested party loans money to an entity (corporate or governmental) that

1) ‘Paper Prepared by the General Counsel of the World Bank and Transmitted to the Members of the Committee of the Whole, SID/63-2 (18 February 1963)’ in History of the ICSID Convention, vol 2 (1963) 73.2) ‘Note by the President of the Executive Directors, R 61-128 (28 December 1961)’ in History of the ICSID Convention, vol 2 (1968) 4-6.3) Jan Paulsson, ‘Arbitration without privity’ 10 ICSID Review 232.4) Jeswald W Salacuse, The law of investment treaties (Oxford University Press, USA 2010) 20.5) International Monetary Fund, IMF Balance of Payments Manual (1993) 86; United States Department of Commerce, Statistical Abstract of the United States (115th edn, 1995) 806-7.6) Salacuse (n 4) 20.

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borrows the funds for a defined period of time at certain interest rates promis-ing repayment of principal and interest on a pre-set ‘maturity’ date.7 In that sense, they are negotiable debt securities where the underlying transaction is a loan and the terms of the loan are set out in the securities.8 Clearly, an invest-ment in debt does not provide any ownership rights in the enterprise.

These two types of investment -shares below the threshold of 10% and bonds- are collectively referred to as ‘portfolio investments’9 and lie at the very heart of the modern international economic order.10

The integration of international financial markets over the past decades has given portfolio investment a prominent position at the heart of the inter-national financial system. Nowadays, it is very common that both sovereign and private investors would prefer for a myriad of reasons not to acquire any controlling stakes in foreign corporations (at least at the beginning of their investment) but rather to invest in shares and bonds (and to a large extent sovereign bonds),11 thus, performing portfolio investments. There has been significant controversy about whether these intangible financial flows actually qualify as protected investments under the International Investment régime. It has been argued in the past that, for several reasons,12 only foreign direct investment13 is or, in any case, should be protected by the ICSID and the BITs that have been concluded between States.14

7) See Abaclat and Others (case formerly known as Giovanna Beccara and Others) v The Argentine Republic ICSID Case No ARB/07/5 (Decision on Jurisdiction, 4 August 2011) [11]-[14]; Michael Waibel, Sovereign defaults before International courts and tribunals (CUP 2011) 13. 8) Phillip Wood, International loans, bonds, and securities regulation (Sweet & Maxwell 1995) 9. 9) Devashish Krishan, ‘A notion of ICSID investment’ in TJ Grierson Weiler (ed), Investment Treaty Arbitration: A Debate and Discussion (Juris Publishing, New York 2008) 71; IMF Communication to the WTO Working Group on the Relationship between Trade and Investment, WTO Doc WT/WGTI/W/61 (November 3, 1998).10) These type of investments were recorded at 23.2 trillion dollars at the end of 2004. See International Monetary Fund, IMF Committee on Balance of Payment Statistics: Annual Report (2005) [63].11) UNCTAD, World Investment Report 2008 – Transational Corporations and the Infrastructure Challenge (UNCTAD, 2008) 23.12) The most important of which is that there is controversy about whether they have a positive impact on the economy of the host State. See also infra notes 89, 90.13) ‘Direct investment is the category of international investment that reflects the objective of a resident entity in one economy obtaining a lasting interest in an enterprise resident in another economy…The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the investor on the management of the enterprise…The components of direct investment capital transactions are equity capital, reinvested earnings, and other capital associated with various intercompany debt transactions’, IMF Communication to WTO Working Group on the Relationship between Trade and Investment, WTO Doc. WT/WTGI/W/61 (November 3, 1998).14) Muthucumaraswamy Sornarajah, The international law on foreign investment (CUP 2010) 227 et seq.

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Nevertheless, it is submitted that the ascendancy of portfolio investment in such a prominent position in the international economic order cannot be ignored. Naturally, States have wide discretion not to include instruments through which portfolio investments materialise in the respective BITs they conclude;15 however, exclusion of this type of investment from the jurisdiction of the ICSID Convention is, it is submitted, especially nowadays, counterintuitive.

In the second part of this paper, the interpretation of the notion of ‘invest-ment’ by the jurisprudence of ICSID tribunals will be deconstructed and it will be argued that their approach is methodologically ‘weak’. In the third part of this article, it is submitted that, as a provisional conclusion, the substantive limitations developed by ICSID tribunals are not sanctioned under a proper reinterpretation of the ICSID Convention. Furthermore, in Part IV of this paper, it will be argued that there exists an inherent meaning of the term investment whose limits coincide with the limits of the linguistic term ‘invest-ment’ as it is used in the language of the marketplace. In that context, two new approaches to a proper definition of investment will be provided; one which is primarily informed by economics and another which is based on the traditional criteria that have been put forth, but which is constructed in a way that leads to a convergence of the two definitions. Ultimately, under both these approaches it will become evident that portfolio investment should be considered as a protected investment under the ICSID Convention.

II. Deconstructing The Jurisprudence of ICSID Tribunals

Article 25(1) of the ICSID Convention stipulates that the jurisdiction of the Centre shall extend to ‘any legal dispute’ between contracting States and Investors of other contracting States ‘arising directly out of an investment’.16

15) However, it should be noted that many BITs nowadays include a very wide definition of investment which encompasses ‘all assets’ or ‘any type of assets’ indicating that in practice BITs will not be a problem for an ICSID tribunal to assert jurisdiction over a dispute and that the Respondent States are much more likely to claim the ICSID Convention itself limits the juris-diction of arbitral tribunals. For a few BITs that contain such a wide asset-based definition see the Model Investment Treaties of France, Germany, Malaysia, the United Kingdom, UNCTAD, ‘International Investment Agreements Compendium’ <http://www.unctadxi.org/templates/DocSearch____779.aspx>.16) Article 25, Convention on the Settlement of Investment Disputes between States and Nationals of Other States, (March 18, 1965) 575 UNTS 159 (‘the ICSID Convention’). The ICSID Convention and the Regulations and Rules adopted pursuant to it are reprinted in ICSID Convention, Regulations and Rules, Doc ICSID/15 (Apr. 2006) and also available on the ICSID website, <www.worldbank.org/icsid>.

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It appears, then, that there are four requirements for the legitimate exercise of jurisdiction, namely the existence of a dispute,17 the legal nature of that dispute, the existence of an investment and lastly, a dispute arising directly out of that investment.18 The notion of investment is not defined in the Convention itself leading to a series of conflicting arbitral awards which have provided, more or less, different definitions of the term. Respondent States have consist-ently challenged the jurisdiction of investment tribunals by raising multiple preliminary objections concerning the jurisdiction and admissibility of invest-ment claims. One of the most common objections of this kind challenges the nature of a transaction as a protected investment under ICSID. As a response to this trend, arbitral tribunals have attempted to clarify the meaning and the scope of the term over the years. However, their failure to come up with a consistent approach on the matter has generated significant disharmony in the jurisprudence. Three schools of thought regarding this issue can be identi-fied and, in the following subchapters, they will be analysed with the aim of exposing the flaws in their reasoning.

A. The ‘restrictive’ approach

One first response to the increasing anxiety of States over the scope of the jurisdiction of arbitral tribunals is the development of a so-called ‘restrictive’ approach to the notion of investment. The case which formed the foundation of this approach was the ‘Salini’ award in 2003.19 In that case the tribunal had to determine whether a public works contract was considered an investment and, to address this question, it introduced a four-element test for a transac-tion to qualify as an investment (contribution, certain duration of perfor-mance of the contract, participation in the risks of the transaction, contribution to the economic development of the host state)20 which would from then on be called the ‘Salini-test’.21

17) For the classical definition of a dispute see Mavrommatis Palestine Concessions (Greece v Great Britain) Judgement of 30 August 1924, [1924] PCIJ (Ser A) No 2 PCIJ, 11 which defines a dispute as a ‘[…] a disagreement on a point of law or fact, a conflict of legal views or of interest between or of interests between of two persons.’18) Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka ICSID Case No ARB/00/2 (Award, 15 March 2002) [31].19) Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco ICSID Case No ARB/00/4 (Decision on Jurisdiction, 23 July 2001).20) Ibid [52].21) The tribunal was not the first one to formulate these criteria; this was done in the ‘Fedax’ award in 1999, however, that award merely provided a description of the typical characteristics of an investment rather than elevate them to jurisdictional preconditions. See Fedax NV v Venezuela ICSID Case No ARB/96/03 (Award on Jurisdiction, 11 February 1997) [43].

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Salini incorporated a series of descriptive characteristics of an investment provided by Christoph Schreuer22 and other prominent scholars,23 merged them24 and transformed them into a precondition for the valid exercise of jurisdiction by ICSID tribunals.

This approach is based on the idea that there exists an ‘objective’25 or ‘autonomous’26 legal definition of the notion of investment and that under no circumstances should the jurisdictional precondition of the existence of an investment be waived or altered through the States’ consent. Accordingly, the fact that the Parties to the ICSID Convention never provided for a definition of the term ‘investment’ does not mean that they implicitly authorised the Parties to any given dispute to provide their own definition of investment through the relevant BITs;27 thus, they are not free to expand the jurisdiction of ICSID bilaterally by consent.28

22) Christoph H Schreuer, The ICSID Convention : a commentary on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (CUP ed, CUP 2009), art 25, at [122].23) Messrs, Carreau, Flory and Juillard provided some criteria (contribution, duration, risk) when discussing the economic notion of investment and they subsequently clarified that ‘there exists not a singular but a multiplicity of legal translations for the economic notion of invest-ment’, Dominique Carreau, Patrick Juillard and Thiébaut Flory, Droit international économique (Librairie générale de droit et de jurisprudence 1990) 560-570; Georges Delaume suggested a more flexible test based on the Preamble of the Convention, ‘contribution to the host state’s development’, Georges R Delaume, Le Centre international pour le règlement de différends relatifs au investissements (CIRDI) (Editions techniques 1982) 775, 801.24) Emmanuel Gaillard, ‘Identify or define? Reflections on the evolution of the concept of investment in ICSID practice’ in Christina Binder and others (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (OUP 2009) 406.25) Michael Waibel, ‘Opening Pandora’s Box: Sovereign Bonds in International Arbi-tration’(2007)’ 101 American Journal of International Law 711, 722-732; Walid B Hamida, ‘Two Nebulous ICSID Features The Notion of Investment and the Scope of Annulment Control - Ad Hoc Committees Decision in Patrick Mitchell v. Democratic Republic of Congo’ (2007) 24 Journal of International Arbitation 287, 290; Rudolf Dolzer and Christoph H Schreuer, Principles of International Investment Law (OUP, New York 2008) 61.26) Bartum Legum and Caline Mouawad, ‘The meaning of ‘investment’ in the ICSID Convention’ in Peter H F Bekker, Rudolf Dolzer and Michael Waibel (eds), Making Transnational Law Work in the Global Economy: Essays in Honour of Detlev Vagts (CUP 2010) 327.27) Krishan (n 9) 61; See also Noah Rubins, ‘The notion of ‘investment’in international invest-ment arbitration’ in Norbert Horn and Stefan Kroll (eds), Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects (Kluwer Law International, The Hague 2004) 283-324, 289 who argues that the drafters of the Convention introduced a separate objective limitation to the notion of investment in order to exactly bar investors from exerting pressure on smaller States to provide a very wide consent on the disputes that can be arbitrated by the Centre.28) David A R Williams and Simon Foote, ‘Recent developments in the approach to identifying an ‘investment’ pursuant to Article 25(1) of the ICSID Convention’ in Chester Brown and Kate Miles (eds), Evolution in Investment Treaty Law and Arbitration (CUP 2011) 45. See also Hochtief AG v The Argentine Republic ICSID Case No ARB/07/31 (Decision on Jurisdiction, 24 October 2011) [92] which stated that ‘[i]f a tribunal is established by or under a treaty made by States, its

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This line of reasoning has been adopted by several arbitral tribunals29 despite the fact that some of them seem to disagree on whether there are three, four,30 five31 or even six32 binding criteria that have to be fulfilled cumu-latively. The crux of the argument, as the Tribunal in Joy Mining Machinery Limited v. Arab Republic of Egypt has explicitly stated, is that if the Parties could define investment through bilateral consent then Article 25(1) ‘would be turned into a meaningless concept’.33

A similar but less strict approach has also been followed by the decisions in Malaysian Historic Salvors34 and in Mitchell v. Democratic Republic of Congo35 with some nuances. The Malaysian Historic Salvors tribunal analysed the previous jurisprudence of ICSID tribunals, identified two divergent lines of reasoning (the ‘typical characteristics approach’ and the ‘restrictive’ app-roach)36 but concluded that the difference between the two approaches is mostly academic and that:

If any of these hallmarks are absent, the tribunal will hesitate (and probably decline) to make a finding of ‘investment’. However, even if they are all present, a tribunal will still

jurisdiction is fixed by that treaty. Its jurisdiction can be altered by the agreement of the States Parties to treaty; but it cannot be altered by the parties to disputes who present themselves to the tribunal. So, for example, the ICJ could not hear a claim from an individual claimant against a State, even if the “Respondent” State agreed to appear before the Court and defend the claim. If the Court purported to hear the case, it would not be functioning as “the ICJ” under the ICJ Statute.’29) Consortium Groupement LESI-Dipenta v People’s Republic of Algeria ICSID Case No ARB/03/8 (Award, 10 January 2005) [13]; LESI, SpA and Astaldi, SpA v People’s Republic of Algeria ICSID Case No ARB/05/3 (Decision on Jurisdiction, 12 July 2006) [72]; Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Islamic Republic of Pakistan ICSID Case No ARB/03/29 (Decision on Jurisdiction, 14 November 2005) [130]; Jan de Nul NV and Dredging International NV v Arab Republic of Egypt ICSID Case No ARB/04/13 (Decision on Jurisdiction, 16 June 2006) [91]; Saipem SpA v People’s Republic of Bangladesh ICSID Case No ARB/05/07 (Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007) [99]; Ioannis Kardassopoulos v Georgia ICSID Case No ARB/05/18 (Decision on Jurisdiction, 6 July 2007) [116]; Victor Pey Casado and President Allende Foundation v Republic of Chile ICSID Case No ARB/98/2 (Award, 8 May 2008) [232].30) Salini (n 19).31) RSM Production Corporation v Grenada ICSID Case No ARB/05/14 (Award, 13 March 2009).32) Phoenix Action Ltd v The Czech Republic ICSID Case No ARB/06/5 (Award, 15 April 2009) [114]; 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, 27 September 2012) [199].33) Joy Mining Machinery Limited v Arab Republic of Egypt ICSID Case No ARB/03/11 (Award, 6 August 2004) [50].34) Malaysian Historical Salvors, Sdn, Bhd v Malaysia ICSID Case No ARB/05/10 (Award on Jurisdiction, 17 May 2007).35) Mitchell v Democratic Republic of Congo ICSID Case No ARB/99/7 (Decision on Annulment, 1 November 2006).36) Malysian Historical Salvors ( Jurisdiction) (n 34) [70].

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examine the nature and degree of their presence in order to determine whether, on a holistic assessment, it is satisfied that there is an ICSID ‘investment’.37

It would appear on first sight that this reasoning is less strict, however, the underlying conceptualisation of the problem is similar; the list of criteria is not merely a list of typical features but they are, at least if taken as a whole, mandatory legal requirements;38 if all of them are absent, jurisdiction has to be declined. That was implicitly recognised by the Annulment Committee which expressly stated that the tribunal wrongly elevated the ‘Salini’ criteria to jurisdictional conditions and wrongly excluded ICSID protection from small contributions.39

This conceptualisation of the term ‘investment’ has led to the implementa-tion by some tribunals of a so-called ‘double-barrelled’40 or ‘double keyhole’41 or ‘dual test’;42 tribunals first determine whether the investment from which the dispute arises would satisfy the jurisdictional definition of investment under ICSID and then whether it would also satisfy the definition of invest-ment contained in the relevant BIT. The situation is not that clear-cut of course, since many tribunals have used these criteria in a more flexible manner without explicitly stating that all the conditions have to be fulfilled cumulatively.43 It is undeniable, though, that the repeated invocation of these criteria has set a trend and, according to Schreuer, this has created the perception that they are mandatory standards as opposed to indicative or prescriptive criteria of investments.44

The problem with this approach is that it follows a highly disputed method-ology in order to invent limitations to the term investment which have not been agreed by the Parties to the ICSID Convention. It interprets restrictively the silence of the Treaty without providing a convincing reason to do so and without following any consistent legal interpretative methodology. In effect, it completely dissociates the economic notion of investment from the legal one; it subsumes several descriptive criteria which have been put forward in the

37) Ibid [106].38) Schreuer (n 22) [133].39) Malaysian Historical Salvors v Malaysia ICSID Case No ARB/05/10 (Decision on the Application for Annulment, 16 April 2009) [80]; Small contributions would also include contributions of historical or cultural nature since the case in hand concerned a salvage contract for the recovery historical artefacts.40) Malysian Historical Salvors ( Jurisdiction) (n 34) [55].41) Aguas del Tunari SA v Republic of Bolivia ICSID Case No ARB/02/3 (Decision on Respondent’s Objection to Jurisdiction, 21 October 2005) [278].42) Schreuer (n 22) [117].43) Richard Happ and Noah Rubins, Digest of ICSID Awards and Decisions, 2003-2007 (OUP 2009) 341-342.44) Schreuer (n 22) 159.

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literature, takes them out of their context and creates a new, very restrictive and inflexible legal definition of investment.

B. The ‘consensual’ approach

On the other hand, a diametrically opposed understanding has been put forth by commentators and several arbitral tribunals. This understanding is mostly based on an interpretation of a Report by the Executive Directors of the ICSID Convention.

The Report of the Executive Directors of the Convention provided an expla-nation for the lack of any definition:

No attempt was made to define the term ‘investment’ given the essential requirement of consent by the parties, and the mechanism through which Contracting Parties can make known in advance, if they so desire, the classes of disputes which they would or would not consider submitting to the Centre (Article25(4)).45

Therefore, this statement has been interpreted as suggesting that the term ‘investment’ is a requirement which is controlled by the consent of the Parties to the arbitration. If the Parties have agreed through the relevant agreement which provides consent to the tribunal46 to characterise a certain transaction as an investment, that agreement controls the constitution of an ICSID investment for the purposes of Article 25(1).47 Several arbitral tribunals have followed this approach attaching exclusive, or at the very least primary, impor-tance to the consent of the Parties.48

However, we have to be cautious, if not sceptical, of this approach. It is widely accepted that ‘an international tribunal established by a multilat-eral treaty cannot regard the question of its jurisdiction as a question

45) Report of the Executive Directors on the Convention on the Settlement if Investment Disputes between States and Nationals of other States (18 March 1965) reproduced in ICSID, ICSID Convention, Regulation and Rules (ICSID/15/Rev 1, January 2003 (2003) 35 [27].46) The relevant agreement is not necessarily a BIT but the relevant consent could be provided through an investment contract or even a domestic investment law instrument.47) Krishan (n 9) 65.48) Azurix Corporation v. The Argentine Republic ICSID Case No ARB/01/12 (Decision on Jurisdiction, 8 December 2003) [59]-[65]; AES Corporation v The Argentine Republic ICSID Case No ARB/02/17 (Decision on Jurisdiction, 26 April 2005) [58]-[61]; IBM World Trade Corporation v Republic of Ecuador ICSID Case No ARB /02/10 (Decision on Jurisdiction and Competence, 22 December 2003) [11]-[18]; Lanco International Inc. v The Argentine Republic ICSID Case No ARB/97/6 (Preliminary Decision on Jurisdiction, 8 December 1998) [10]-[16]; Camuzzi International S.A v The Argentine Republic ICSID Case No ARB/03/2 (Decision on Objections to Jurisdiction, 11 May 2005); Generation Ukraine Inc. v Ukraine ICSID Case No ARB/00/9 (Award, 16 September 2003), sec 8.1-9.3; Mihaly v Sri Lanka (n 18) [375]-[381]; SAUR International v La Republique Argentine Affaire CIRDI No ARB/04/4 (Decision aux Exceptions à la Juridiction, 27 Février 2006) [82].

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inter-parties’.49 Therefore, this approach could only mean that the consent provided by the Parties is merely the primary source of interpretation when the tribunal constructs the scope of the term investment; the Parties cannot limit or expand the multilateral consent provided by all the Parties to the ICSID Convention.50

More importantly, this approach provides a wrong answer to a wrongly posed question; BITs usually provide a list of assets that are to be covered by the BIT. In that sense, they just describe the legal form an investment should have in order to benefit from the protection of the BITs and do not provide a comprehensive definition of the notion of investment. The parties -through the BIT- agree on an indicative list of what assets could constitute an invest-ment and they do not provide its definition. Thus, there could be no overlap or conflict between Article 25(1) ICSID and any BIT. Abaclat accurately pointed this out and explained that the two definitions are complementary;51 for a transaction to be protected it has to carry the economic characteristics of an investment under ICSID and be in a legal form that the parties have agreed to protect through the BIT.

Partly for the above mentioned reasons this approach seems to be losing momentum. In that context, more recent awards have been trying to achieve what seems to be a compromise between the ‘restrictive’ approach and the ‘consensual approach’.

C. The ‘typical characteristics’ approach

Between the two extremes that were presented, there seems to have emerged an intermediate approach. According to this understanding, the jurispruden-tial criteria that have been developed for the clarification of the notion of ‘investment’ under Article 25(1) should not be considered as mandatory legal requirements but rather as descriptive criteria; in that capacity, these would only assist the arbitrators decide if the transaction in question is indeed an investment. Thus, the absence of some of them would not necessarily render the transaction outside the scope of application of the ICSID Convention. Accordingly, in principle, the term investment has some ‘outer limits’ and the Parties cannot include any transaction they see fit within those limits simply

49) Lord McNair, Individual Opinion, Anglo-Iranian Oil Company case (United Kingdom v. Iran) [1952] ICJ Rep 93; See also Chittharanjan F. Amerasinghe, Jurisdiction of international tribunals (Martinus Nijhoff Publishers, The Hague 2003) 100; K V S K Nathan, ‘Submissions to the International Centre for Settlement of Investment Disputes in Breach of the Convention’ 12 Journal of International Arbitation 27, 40.50) Krishan (n 9) 65.51) Abaclat v Argentina (n 7) [349] et seq.; Malicorp Limited v The Arab Republic of Egypt ICSID Case No ARB/08/18 (Award, 7 February 2011) [110].

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through their consent.52 In a variation on this reasoning, the definition of investment contained in the relevant BIT could be one -if not the primary- factor that the tribunals will have to take into account when deciding rationae materiae jurisdiction. Several tribunals have followed this approach53 and some of their decisions will be discussed in order to demonstrate the evolution of this approach through time.

This approach was clarified in the CSOB v. Slovakia54 case. The tribunal stated that the mere description of the transaction in question as an ‘invest-ment’ in the parties’ consolidation agreement was insufficient to satisfy Article 25(1); however, the tribunal continued by saying that the parties’ consent constitutes ‘a strong presumption that they considered their transac-tion to be an investment within the meaning of the ICSID Convention’55 and that the elements that have been suggested as delineating the definition ‘are not a formal prerequisite for the finding that a transaction constitutes an investment’.56

In MCI v. Republic of Ecuador,57 where the transaction in question con-cerned intangible assets such as accounts receivable and an operating permit, the tribunal held that the Fedax/Salini criteria are to be understood as ‘mere examples and not necessarily as elements that are required for [the investment’s] existence’.58

The Biwater v. Tanzania59 award also held that the ‘Salini criteria […] are not fixed or mandatory as a matter of law’60 and that ‘a more flexible approach to the meaning of “investment” is appropriate which takes into account the features identified in Salini, but along with all the circumstances of the

52) Krishan (n 9) 65.53) Fedax (n 21) [18]-[43]; Tradex Hellas v Albania ICSID Case No ARB/94/2 (Award, 29 April 1999) [86]-[90]; PSEG Global Inc., The North American Coal Corporation, and Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v Republic of Turkey ICSID Case No ARB/02/05 (Decision of Jurisdiction, 4 June 2004) [66]-[105]; Continental Casualty Company v The Argentine Republic ICSID Case No ARB/03/9 (Decision of Jurisdiction, 22 February 2006) [70] et seq.; Enron Corporation and Ponderosa Assets, L.P v The Argentine Republic ICSID Case No ARB/01/3 (Decision on Jurisdiction, 14 January 2004), [42] et seq.; SGS Société Générale de Surveillance S.A. v Republic of Philippines ICSID Case No ARB/02/6 (Decision on Jurisdiction, 29 January 2004) [99]-[112]; also implicitly Millicom International Operations B.V. and Sentel GSMSA v The Republic of Senegal ICSID Case No ARB/08/20 (Decision on Jurisdiction, 16 July 2010) [78]-[80].54) Ceskoslovenska obchodni banca, a.s v Slovak Republic ICSID Case No ARB/97/4 (Decision on Jurisdiction, 24 May 1999).55) Ibid [66].56) Ibid [90].57) MCI v Republic of Ecuador ICSID Case No ARB/03/06 (Award, 31 July 2007).58) Ibid [165].59) Biwater Gauff v United Republic of Tanzania ICSID Case No ARB/05/22 (Award, 24 July 2008).60) Ibid [312]-[316].

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case…’.61 Interestingly, it also explicitly noted that one of these circumstances of the case to be taken into account is the nature of the instrument containing the relevant consent to ICSID.62

This particular conceptualisation of the problem has been applied by the Annulment Committee in the Malaysian Historic Salvors case. The majority of the Committee held that the tribunal failed to attach any weight to the definition of investment contained in the relevant BIT and that the tribunal erroneously elevated the ‘Salini’ criteria to jurisdictional conditions thereby excluding small contributions ab initio and in principle.63 It is worth highlight-ing the particular importance the Committee ascribed to the definition of investment in the relevant BIT:

It cannot be accepted that the Government of Malaysia and the United Kingdom concluded a treaty providing for arbitration of disputes arising under it in respect of investments so comprehensively described, with the intention that the only arbitral recourse provided… could be rendered nugatory by a restrictive definition of a deliber-ately undefined term of the ICSID Convention, namely, ‘investment’, as it is found in the provision of Article 25(1).64

The Committee based its reasoning on the idea that the Parties to the ICSID Convention could have reached a definition of the term during the negotia-tions but they refrained from doing so; thus, the history of the Convention makes it clear that the consent of the parties to the dispute should be the primary factor to be taken into account when delimiting the arbitral tribunal’s jurisdiction;65 however, it also acknowledged that some ‘outer limits’ to the Centre’s jurisdiction have to be recognised and, by analysing the travaux préparatoires of the Convention came to the conclusion that a mere sales con-tract would fall outside the jurisdiction of ICSID;66 thus, an investment is any transaction that is not a mere sale.67

This trend had been reiterated in the Inmaris v. Ukraine decision on jurisdic-tion.68 The dispute concerned several contracts to renovate and operate a ship owned by the Ukrainian Government for the dual purpose of a tourist venture and to train Ukrainian merchant marine sailors. On the issue of whether the

61) Ibid [312]-[316].62) Ibid [312]-[316].63) Malaysian Historic Salvors v Malaysia (Annulment) (n 39) [80].64) Ibid [62].65) Ibid [70].66) ‘It appears to have been assumed by the Convention’s drafters that use of the term “invest-ment” excluded a simple sale and like transient commercial transactions from the jurisdiction of the Centre’ ibid [69].67) Ibid [72].68) Inmaris Perestroika Sailing Maritime Services GmbH v Ukraine ICSID Case No ARB/08/8 (Decision on Jurisdiction, 8 March 2010).

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transactions in question constitute investments, the tribunal explicitly disagreed with the use of the ‘Salini’ criteria as a ‘compulsory, limiting defini-tion of investment under the ICSID Convention’.69 On the contrary, the tribu-nal reasoned that, if the Parties to the dispute have provided a definition of investment through the relevant BIT, this means that they have agreed on the kinds of economic activity that is to be protected and that they believe that this activity constitutes an ‘investment’ within the meaning of the ICSID Convention as well. Thus, ‘[t]hat judgment by States that are both Parties to the BIT and Contracting States to the Convention, should be given considera-ble weight and deference [a] tribunal would have to have compelling reasons to disregard such a mutually agreed definition of investment’.70 Pursuant to this approach, the consent provided through the BIT ought to have primary importance in the determination of a protected investment since it would establish a prima facie rebuttable presumption that the transaction in ques-tion falls within the limits of the ICSID Convention. More importantly, however, the tribunal noted that the ‘Salini’ test could be utilised in identifying a transaction that even though falls under the BIT definition of investment, nevertheless, it is so broad that would normally not ‘be characterised as an investment under any reasonable definition’.71

The problem with the ‘typical’ characteristics approach is that there is no persuasive authority on why these characteristics are the only ones to be taken into account when deciding whether a transaction is actually an investment. Even though the application of these criteria in a more flexible manner is welcome since it produces more reasonable results, from a methodological perspective it is rather ‘weak’. Furthermore, that line of reasoning within this school of thought that suggests that the consent provided through the BIT should be the primary factor to be taken into account is equally troubling despite the fact that it has gained some ascendancy recently.72 A proper conceptualisation of the term cannot merely be a middle ground between the ‘objective’ and the ‘consensual’ approach as the recent trend suggests; these approaches cannot have a common ground since they depart from the same assumption, that the dichotomy concerning the term ‘investment’ shall be overcome by giving preference to, or at least balancing the ICSID Convention against the relevant BIT. This is not a very intuitive approach and there are some arbitral awards which seem to also hint in that direction with Abaclat being the most recent and important one.73 This is perhaps even more

69) Ibid [129].70) Ibid [130].71) Ibid [131].72) Williams and Foote (n 28) 63.73) Abaclat v Argentina n (7) [349] et seq.

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problematic from a positive legal perspective, as it is truly incomprehensible why this consent would establish a rebuttable presumption. Indeed, consent of the Parties is the single most important element that has to be analysed by investments tribunals. However, the aforementioned approach seems to favour one type of consent (contained in the BIT) over another (contained in the ICSID Convention) without making a compelling case or examining whether the scope of application of the two instruments of consent actually overlaps.74 Unfortunately, it appears that the vast majority of tribunals regards the consent provided through the BIT as a relevant factor in the determination of their jurisdiction.

For all these reasons, it is submitted that these three approaches and their variations developed by arbitral tribunals are rather unhelpful in determining the meaning of the notion of ‘investment’ under the ICSID Convention. Therefore, in the next section, a reinterpretation of Article 25(1) will be attempted having as a guide the customary rules of interpretation under International Law.

III. Reinterpreting Article 25(1) ICSID

In this section it will be argued that the aforementioned methodology of ICSID tribunals is not substantiated under a proper interpretation of the Convention, and that a new approach to the conceptualisation of the notion of investment is needed in order to overcome this stalemate. The criteria developed by ICSID tribunals in order to determine the nature of a transaction as an investment have a limiting effect on the jurisdiction of ICSID. This is irrespective of whether they are to be perceived as ‘objective’ or merely ‘typical’ characteristics of an investment. However, it is submitted, that any such limitation is not supported under a proper interpretation of the ICSID Convention following the well established customary rules of interpretation under international law.

It is uncontested that the Vienna Convention on the Law of Treaties (here-inafter ‘VCLT’)75 reflects to a very large extent customary rules of international law. More specifically, the ICJ,76 the WTO Appellate Body,77 authoritative

74) See infra Chapters III)D and IV.75) Vienna Convention on the Law of Treaties (adopted 22 May 1969, entered into force 27 January 1980) 1155 UNTS 331.76) Case concerning the Territorial Dispute (Libyan Arab Jamahiriya v Chad) [1994] ICJ Rep 6 [41]; La Grand (Germany v United States) [2001] ICJ Rep 466 [99]; Sovereignty over Palau Ligitan and Pulau Sipadan (Indonesia v. Malaysia) (Judgment) [2002] ICJ Rep 625, 645, at [37].77) AB Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R (29 April 1996) 16.

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academics78 and the United Nations International Law Commission (ILC)79 have explicitly confirmed that the rules governing the interpretation of trea-ties under the VCLT have crystallised into customary law. In the context of investment law, the Annulment Committee in the Malaysian Historic Salvors case also arrived at the same conclusion.80 Therefore, when interpreting Article 25(1) of the ICSID Convention we have to look into Articles 31-33 of the VCLT for guidance.

Article 31 VCLT provides that the primary means of interpretation of an international law provision ought to be the ordinary meaning of the term, the context and the object and purpose of the treaty ‘at the time when or after it received authentic expression in the text’81 and these criteria should be applied as part of ‘single combined operation’ that should not be ‘mechanically subdi-vided into rigid components’.82 If needed, recourse to supplementary means of interpretation is warranted. Therefore, in order to accurately interpret the term investment we shall look into these different interpretative elements.

Legum and Mouwad have conducted a very thorough analysis of the term ‘investment’ following the well established rules and principles of interpreta-tion according to the VCLT.83 Their focus is on the primary means of interpre-tation where they arrive at the following conclusions:

A. Ordinary meaning

The two authors provide a dictionary definition of the term ‘investment’ contemporaneous to the drafting of the ICSID Convention84 (they compare with French and Spanish definitions of the same era)85 which clearly indicates

78) Ian Sinclair, ‘Vienna Conference on the Law of Treaties’ 19 International and Comparative Law Quarterly 47, 65-66.79) Reports of the Commission to the General Assembly, (1966) 2 Yearbook of International Law Commission 187 (hereinafter ‘ILC Commentaries’).80) Malaysian Historic Salvors v Malaysia (Annulment) (n 39) [56].81) ILC Commentaries (n 79) 220.82) China – Measures affecting trading rights and distribution services for certain publications and audiovisual entertainment products WTO Appellate Body, WT/DS363/AB/R (21 December 2009) [348]; European Communities – Customs Classification of Frozen Boneless Chicken Cuts WTO Appellate Body, WT/DS269/AB/R, WT/DS286/AB/R (30 May 2005) [176].83) Legum and Mouawad (n 26) 339-356.84) ‘1: an expenditure of money for income or profit or to purchase something of intrinsic value: capital outlay…2: the commitment of funds with a view to minimizing risk and safe-guarding capital while earning a return- contrasted with speculation 3: the commitment of something other than money to a long-term interest or project’, Webster’s Third New International Dictionary (Webster-Merriam, 1971), 1190 cited in Legum and Mouawad (n 26) 339.85) ‘INVESTIR: placer des fonds./Investir des capiteux dans une enterprise… INVESTIS-SEMENT: Nouveau moyen de production./Placement des fonds’, Petit Larousse Illustré (Paris: Librarie Larousse 1968), 555; ‘Inversión: acción y efecto de invertir… invertir: hablando

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that, even then, the definition of investment was capacious enough to encom-pass all sorts of portfolio investment such as bonds, IP rights86 and generally intangible property such as stocks and security entitlements, a view also recently endorsed by the Ambiente Ufficio v. Argentina decision.87

B. Object and purpose

The Preamble to the Convention strongly suggests that its object and purpose is the increasing ‘need for international cooperation for economic develop-ment, and the role of private international investment therein’. These qualifi-cations do not seem to prima facie limit the scope of the term investment;88 it has been argued, though, that not all kind of investments in a wide sense would be beneficial to the host state and, thus, this should be a decisive factor in the determination of a protected investment.89

It is submitted, however, that this latter approach is based on the erroneous idea that only foreign direct investment is beneficial to the economy of the host State and that portfolio investment is actually harmful because of its volatility and because it could easily flee the country in a time of crisis.90 This proposition does not stand to criticism. Any economic transaction consti-tuting an investment (either direct or portfolio) by definition contributes to the economic development of the host State;91 any contrary proposition

[de caudales- empearlos en aplicaciones productivas’, Diccionario General Ilustrado de la Lengua Española (SPES, Barcelona 1953).86) UNCTAD, International Investment Agreements: Key Issues (2004) 115-116.87) Ambiente Ufficio S.P.A and Others (Case formerly known as Giordano Alpi and Others) v The Argentine Republic ICSID Case No ARB/08/9 (Decision on Jurisdiction and Admissibility, 8 February 2013) [456].88) Contra Schreuer (n 22) 124-125 who contends that the ‘only possible indication of an objec-tive meaning that can be gleaned from the Convention is contained in the Preamble’s first sentence…’; Engela C Schlemmer, ‘Investment, investor, nationality and shareholders’ in Peter Muchlinski, Federico Ortino and Christoph H Schreuer (eds), The Oxford Handbook of International Investment Law (OUP 2008) 49, 64-65.89) Schreuer (n 22) 124; See also Fedax (n 21) where the tribunal states that all economic assets can be included in the definition of investment except ‘volatile capital’ with its ‘short term’, ‘quick gains’ and ‘immediate’ departure from the home country.90) Ibid; Rubins (n 27) 297.91) Report of the Executive Directors (n 45) [9]-[12]; Report of a Group of Eminent Persons, The Impact of Multinational Corporations on the Development Process and on International Relations, UN Doc E/500/Add 1, Part 1, (1974) 13 ILM 800, where it was stated that ‘[t]he creation of an institution designed to facilitate the settlement of disputes between States and foreign investors can be a major step towards promoting an atmosphere of mutual confidence and thus stimulating a larger flow of private international investment into these countries which wish to attract it… adherence to the [ICSID] Convention by a country would provide additional induce-ment and stimulate a larger flow of private international investment into its territories, which is the primary purpose of the Convention’.

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negates decades of economic thought and if it is to be suggested otherwise, some serious economic evidence would have to be produced.92

C. Context

The only relevant context that we could reliably look into is again the Preamble of the Convention and the Report of the Executive Directors of the World Bank mentioned earlier.93 The Preamble, as explained above, suggests a fairly wide and flexible meaning of the term investment and, implic-itly, one which is capable of evolving according to the development and dispute resolution needs of the State.94 As for the Report, admittedly, it mentions that the term ‘investment’ should be informed by the terms of the consent of the disputing Parties to submit the dispute to ICSID Arbitration.95 However, it is rather clear that consent was not envisaged as an instrument that would expand ICSID’s jurisdiction as has been interpreted by some tribunals following the aforementioned ‘consensual’ approach; it is rather a reference to appease some States which were a bit sceptical on the very wide definition of investment which was ultimately adopted and an additional safeguard to the inbuilt opt-out system provided in Article 25(4) of the Convention.96

92) Krishan (n 9) 74.93) There seems to be some disagreement about whether the Report constitutes context or travaux préparatoires. Amerasinghe suggests that they should be considered as part of the travaux to which the Parties subscribe to when ratifying the Convention. See Amerasinghe (n 49) 301. On the contrary, Legum and Mouawad make the more compelling argument that, since the Report was created after the ratification of the Convention, it resembles more to an ‘agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty’ or an instrument along the same lines according to Art. 31(2) VCLT and as such it should be considered as context, See Legum and Mouawad (n 26) 342-345. This reasoning is regarded as being more plausible and as such the Report is examined as relevant context to the ICSID Convention.94) Legum and Mouawad (n 26) 341.95) ‘[C]onsent of the Parties is the cornerstone of the jurisdiction of the Centre’ and ‘No attempt was made to define the term “investment” given the essential requirement of consent by the parties, and the mechanism through which Contracting States can make know in advance, if they so desire, the classes of disputes which they would or would not consider sub-mitting to the Centre’, Report of the Executive Directors’ (n 45) [23], [27].96) This Article provides a procedure through which the member States can exclude certain classes of disputes from the jurisdiction of the Centre. Any Contracting State may, at the time of ratification, acceptance or approval of this Convention or at any time thereafter, notify the Centre of the class or classes of disputes which it would or would not consider submitting to the jurisdiction of the Centre. The Secretary General shall forthwith transmit such notification to all Contracting Convention States. Such notification shall not constitute the consent required by paragraph (1).

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D. Subsequent Practice

Another important primary source of interpretation is the subsequent practice of States that can be deemed ‘agreed, shared and consistent’ accord-ing to Article 31(3)(b) VCLT,97 the importance of which has been examined to some extent also in the context of international investment law.98 However, it is rather doubtful whether this could be of help in the examination of the problem.99 It has been suggested that the parties to the several BITs that provide a wide definition of investment, when providing for exclusive ICSID arbitration though them,100 must have intended for these provisions to be effective according to well established principles of interpretation;101 it would be absurd to assume that there is a conflict between the definition of invest-ment as contained in the two different treaties since the conferral of ICSID arbitration would be rendered meaningless. Therefore, the argument goes, such BITs can be regarded as reflecting subsequent practice in the application of the ICSID Convention which indicates that these State Parties to ICSID have subsequently agreed on a broader jurisdiction over ‘investment’ disputes.102

However, this seems rather dubious since, it is submitted, the scope of application of the two treaties differs. As has been correctly observed by the Abaclat decision:

If it is obvious that the definition of Article 1(1) BIT and the criteria developed by a number of arbitral tribunals with regard to Article 25 ICSID Convention do not coincide, this is so because they can be said to focus each on a different aspect of the investment, i.e., they each look at the investment from a different perspective. The two perspectives can be viewed to be complementary, and to merely reflect a two-folded approach of the BIT and the ICSID Convention towards investment: At first, it is about encouraging investments, i.e., creating the frame conditions to encourage foreign investors to make certain contribu-tions, and once such contributions are made, it is about protecting the fruits and value generated by these contributions.103

This view has been reaffirmed by the Malicorp v Egypt tribunal which further elaborated on this position:

97) ILC Commentaries (n 79) 221.98) Anthea Roberts, ‘Rethinking the Interpretation of Investment Treaties. The Dual Role of

States’ 104 AJIL 179.99) Contra Legum and Mouawad (n 26) 345-349.

100) Legum and Mouawad indicatively mention the model BITs of Burundi, France, Germany, Malaysia and United Kingdom that provide a wide definition of investment while conferring exclusive jurisdiction to ICSID, ibid 347.101) On the principle of effectiveness see Territorial Dispute (Libya v. Chad) [1994] ICJ Rep 6 [51]; Anglo-Iranian Oil (n 49) 105; Corfu Channel Case (United Kingdom v. Albania) [1949] ICJ Rep 4, 24.102) Legum and Mouawad (n 26) 347.103) Abaclat v Argentina (n 7) [349].

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At first blush, the two definitions do not overlap since they come from different perspectives. In the opinion of the Arbitral Tribunal these two aspects are in reality complementary. Indeed, the notion of investment must be understood from the perspec-tive of the objectives sought by the Agreement and the ICSID Convention. They are there to ‘promote’ investments, that is to say, to create the conditions that will encourage foreign nationals to make contributions and provide services in the host country, but also, and to that end, to ‘protect’ the fruits of such contributions and services. These objectives come from the Preamble to the ICSID Convention, which acknowledges, on the one hand, ‘the role […] of international private investments’ in ‘international coop-eration for economic development’, but which in parallel enshrines the need to develop appropriate mechanisms for dispute resolution. The objective of the Agreement is also to pursue ‘the encouragement and reciprocal protection […] of such investments’ for the ‘stimulation of business initiative’ and to ‘increase prosperity in both States’ (preamble). The two aspects are thus complementary. There must be ‘active’ economic contributions, as is confirmed by the etymology of the word ‘invest’, but such contribu-tions must ‘passively’ have generated the economic assets the instruments are designed to protect.104

Therefore, and as will be further argued later on,105 the possibility of a conflict between the limits of the notion of ‘investment’ between ICSID Art. 25(1) and any BIT is inconceivable; the notion of ‘investment’ in ICSID is by definition at least as encompassing as any other definition in any BIT.

Therefore, BITs cannot be considered as subsequent state practice that has modified the meaning of investment under ICSID since there seems to be no overlap between the definition of ‘investment’ under ICSID and the indicative list of assets that constitute investments under some BITs.

E. Preparatory Works

Assuming arguendo that the term ‘investment’ still remains ‘ambiguous or obscure’106 or leads to a ‘manifestly absurd or unreasonable result’107 then recourse to supplementary means of interpretation such as the preparatory works of the treaty is justified. Arguably, given the very extensive debate that has been going on for years concerning the definition of investment, such a recourse would not be unreasonable. Mortenson has undertaken an extensive historical analysis of the travaux préparatoires of the Convention108 in order to examine the widespread hypothesis that the drafters of the Convention simply failed to define the term investment because of a process malfunction despite

104) Malicorp Limited v The Arab Republic of Egypt (n 51) [110].105) See infra chapter IV.106) Article 32(a), VCLT (n 75).107) Article 32(b), ibid.108) Julian D Mortenson, ‘The Meaning of Investment’: ICSID’s Travaux and the Domain of International Investment Law’ 51 Harvard International Law Journal 257.

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their expressed intentions109 and, thus, implicitly delegated the task of devel-oping the appropriate limitations to arbitral tribunals.110 Mortenson produces the very compelling argument, backed up by extensive historical documenta-tion, that the failure to define investment was an explicit choice for a very broad jurisdictional threshold; any contrary proposals to limit that definition were explicitly considered and rejected during the drafting operation. The quid pro quo of such an agreement was the inbuilt opt-out system provided in Art. 25(4) ICSID designed to appease developing States’ concerns about this broad definition111 and was based on a proposal submitted by the United Kingdom. According to the proposal, any definition of the term investment in the Convention would be deleted, thus, only allowing a very wide enforceable limit on the very outer margins of the concept;112 the agreement was described at the time as allowing ‘each Contracting State [to], in effect, write its own definition of “investment”’.113 Furthermore, there is strong evidence some that some additional limiting criteria which have been accepted nowadays by some arbitral tribunals had, at the time, been proposed and rejected during the negotiations. A proposal to set a minimum threshold to keep ‘small or frivolous’ claims out of the system failed;114 even an explicit exclusion of commercial disputes contained in the first Draft of the treaty circulated by the World Bank was similarly rejected with a wide consensus when concerns that it would turn into a slippery slope excluding all economic activity were voiced.115 More importantly for the purposes of this paper, there had been explicit proposals to eliminate the application of the Convention to bonds, loans and capital flow in general (all constituting types of portfolio

109) See e.g. Sebastien Manciaux, ‘The Notion of Investment: New Controversies’ 6 Journal of World Investment and Trade 801; David M. Sassoon, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of Other States’ 1 Israel Law Review 27.110) See Joel P Trachtman, ‘The Domain of WTO Dispute Resolution’ 40 Harvard International Law Journal 333 who advances an analogous argument about the WTO Dispute Settlement Body.111) Mortenson (n 108) 280; World Bank General Counsel Aron Broches, ‘Regional Consultative Meetings of Legal Experts: Chairman’s Report on Issues Raised and Suggestions Made (July 9, 1964)’ in History of the Convention on Settlement of Investment Disputes Between States and Nationals of Other States vol 2 (1968) 831; ‘Report of the Chairman of the Legal Committee on Settlement of Investment Disputes (Dec 23, 1964)’ in History of the Convention on Settlement of Investment Disputes Between States and Nationals of Other States vol 2 (1968) 936.112) Mortenson (n 108) 290.113) ‘Memorandum of the Meeting of the Committee of the Whole (Feb 16, 1965)’ in History of the Convention on Settlement of Investment Disputes Between States and Nationals of Other States, vol 2 (1968), 972.114) Ibid, 115; See also Mortenson (n 108) 297, at footnote 211.115) ‘Consultative Meeting of Legal Experts, Bangkok (Apr. 27–May 1, 1964)’ in History of the Convention on Settlement of Investment Disputes Between States and Nationals of Other States (1968) 493.

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investment) but they all failed.116 All these evidence leads us to the conclusion that the drafters of the Convention did not intend to impose any specific limitations on the notion of ‘investment’ under ICSID –certainly not the limits that have been imposed nowadays by ICSID tribunals117– but had rather envisaged the jurisdictional limits of Art 25 lying at the ‘outer margins of economic activity’.118

IV. A New Conceptualisation of the Term ‘Investment’

The aforementioned analysis of the primary and supplementary means of interpretation leads naturally to the provisional conclusion that the conceptu-alisation of the term ‘investment’ under Article 25(1) ICSID is fundamentally flawed and, as a consequence overly limited. Thus, this article will attempt to provide a new, wider conceptualisation of this term which will be in conform-ity with the aforementioned analysis and, as a consequence, include portfolio investment in its ambit.

As a preliminary observation, it should be mentioned that the issue of portfolio investment under ICSID, though under-researched, is not completely novel. There is some authority which supports the proposition that investment securities such as bonds or other intangible financial flows would be covered by the jurisdiction of ICSID investment tribunals.119 Several arbitral tribunals have expressly decided in favour of minority shareholdings being considered

116) Cf ‘Summary Proceedings of the Legal Committee Meeting (Nov 27, 1964, Morning)’ in History of the Convention on Settlement of Investment Disputes Between States and Nationals of Other States (1968) 709 (Philippines) (suggestion for the elimination of all claims based on capital flow); ‘Consultative Meeting of Legal Experts, Addis Ababa (Dec 16–20,1963)’ in History of the Convention on Settlement of Investment Disputes Between States and Nationals of Other States (1968) 261 (Burundi) (‘[A] foreign company which lent money to a State could not be regarded as an investor’); ibid 261 (Broches) (clarifying that the current draft covered loans); ‘Consultative Meeting of Legal Experts, Bangkok (Apr. 27–May 1, 1964)’ in History of the Convention on Settlement of Investment Disputes Between States and Nationals of Other States (1968), 474 (Australia) (stating that the Convention also covers ‘borrowing of cash by the host country from foreign private investors’).117) Contra Abaclat and Others (case formerly known as Giovanna Beccara and Others) v The Argentine Republic ICSID Case No ARB/07/05 (Dissenting Opinion of Prof Georges Abi-Saab, 28 October 2011) [46] and [53]-[55] who holds the view that the travaux préparatoires clearly support the position that the term ‘investment’ in the ICSID Convention has an objective meaning and that the main object of the Convention was to encourage the flow of Foreign Direct Investment (FDI) which is the ‘ideal form of investment’.118) Ambiente Uffcio v Argentina (n 87) [470].119) Regarding loans and other credit facilities such as promissory notes see Fedax (n 21) [19]; See also CSOB v Slovakia ( Jurisdiction) (n 54) [76]-[91]; Sempra Energy International v Argentine Republic ICSID Case No ARB/02/16 (Award, 28 September 2007) [214]-[216].

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as investments;120 however, investment treaty tribunals have yet to decide upon a case brought forth by minor shareholders (less than 10%) so there is no authority on the issue yet. The issue arose in Philippe Gruslin v Malaysia but the tribunal did not adjudicate on the matter.121 Also, in Enron v Argentina, the tribunal in an obiter dictum proclaimed that there should be a limit under which investors should be precluded from bringing forth claims.122 There is also some authority which supports the opposite conclusion.123

However, given the inconsistent case law and the divergent views in aca-demia a new more analytical approach should be followed when attempting to delineate this term.

If the aforementioned analysis of the term pursuant to the well established rules of interpretation is followed, it becomes evident that the parties deliber-ately chose not to limit the term ‘investment’ in order to facilitate further developments in the practice of states. This is exactly the function of Article 25(4) of the ICSID Convention which operates as a safeguard mechanism against these possible developments; it is there to give more ‘voice’ to the reluctant members124 of the future. Very recently, the tribunal in Ambiente Ufficio v. Argentina also sided with this approach when stating that:

[t[his [mechanism] was a concession to the proponents of the non-definition approach, implying that the Convention would impose no, or very weak, limits as to the jurisdiction ratione materiae of the Centre regarding the question whether a certain economic opera-tion would qualify as an investment under Art. 25 of the ICSID Convention.125

This of course does not mean that the notion of ‘investment’ is limitless. Inves-tment, as any other word, has a core meaning. This view has been expressly

120) CMS Gas Transmission Company v. Republic of Argentina ICSID Case No ARB/01/8 (Decision on Objections to Jurisdiction, 17 July 2003) (unpublished) cited in Rubins (n 27) 318 which stated that “shareholders have a protected right of their own arising from their investment”; Lanco v Argentina ( Jurisdiction) (n 48) [10], [12]-[15]; CME Czech Republic B.V. (The Netherlands) v The Czech Republic UNCITRAL, Partial Award, 13 September 2001 392; LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v Argentine Republic ICSID Case No ARB/02/1, (Decision on Objections to Jurisdiction, 30 April 2004) [50], [63]; Enron Creditors Recovery Corporation ( formerly Enron Corporation) and Ponderosa Assets, L.P. v Argentine Republic ICSID Case No ARB/01/3 (Decision on Jurisdiction, Ancillary Claim, 2 August 2004) [27]-[39], [46]; El Paso Energy International Company v Argentine Republic ICSID Case No ARB/03/15 (Decision on Jurisdiction, 27 April 2006) [138]; Kardassopoulos v Georgia (n 29) [124]; Hochtief AG v The Argentine Republic (n 28) [115]-[119].121) Philippe Gruslin v The State of Malaysia ICSID Case No ARB/99/3 (Award, 27 November 2000).122) Enron v Argentina ( Jurisdiction) (n 53).123) Campbell McLachlan, Laurence Shore and Matthew Weiniger, International Investment Arbitration: Substantive Principles (OUP 2007) 193.124) I use here by analogy the argument set forth by Joseph Weiler when analysing the institu-tional structure of the European Communities. Joseph H. H. Weiler, ‘The transformation of Europe’ Yale Law Journal 2403.125) Ambiente Uffcio v Argentina (n 87) [450].

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voiced in the Romak v. Uzbekistan126 award. It is very appropriate to consider this case since it recognised that the term ‘investment’ has an inherent meaning in the context of an UNCITRAL arbitration where any hypothetical limitations of Article 25 ICSID would not come into play. The tribunal has stated that:

[it] considers that the term ‘investments’ under the BIT has an inherent meaning (irrespective of whether the investor resorts to ICSID or UNCITRAL arbitral proceedings) entailing a contribution that extends over certain period of time and that involves some risk. The arbitral tribunal is further comforted in its analysis by the reasoning adopted by other arbitral tribunals…which consistently incorporates contribution, duration and risk as hallmarks of an ‘investment’.127

In principle, this means that not any right having an economic value (assuming it is provided for in the BIT) would be covered by the definition of investment.128 It is the form and nature of the investment activity, not simply the area of economic activity covered, that is the key issue in terms of the reach of ICSID’s jurisdiction under Article 25.129

This analysis still begs the question though. Even if it is to be admitted that the term ‘investment’ has an inherent or core meaning, how do we identify that meaning when attempting to resolve a dispute? In this article, it is submit-ted, that the primary focus should be the ordinary meaning of the term itself. Since, as we established, no limiting conditions on the term ‘investment’ can be identified through a proper interpretation of the term, then the focus should be shifted to the linguistic meaning of the term itself. What is the proper conception of the concept of investment? The outer limits of the term for the purposes of the ICSID Convention, it is submitted, coincide with the outer limits of word itself.

However, as Wittgenstein observed, ‘the meaning of a word is its use in the language’.130 Therefore, in order to properly conceptualise the term, we need to investigate into its modern use in the language. Arguably, when the Convention was concluded, several types of modern-day investment through sophisticated financial instruments and international markets were not even envisaged. At the time, thus, direct investment was the primary if not the only form of investment that people envisaged when using the term. Nevertheless, the

126) Romak S.A v The Republic of Uzbekistan PCA Case No AA280 (Award, 26 November 2009).127) Ibid [207].128) Zachary Douglas, The International Law of Investment Claims, vol 1 (CUP 2009) 164; Contra Mortenson (n 108) 300-301 who argues that ‘the best understanding of the term investment is the simplest: is the thing in question a plausibly economic activity or asset?’.129) McLachlan, Shore and Weiniger (n 123) [6.06]-[6.07].130) Ludwig Wittgenstein, Philosophical Investigations (PI) (Peter M S Hacker and Joachim Schulte eds, P M S Hacker and J Schulte trs, 4th edn, Wiley-Blackwell, Oxford 2009) Sect 43.

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economy has massively evolved since and portfolio investment has attained a central role in modern economics.

This evolution, though, should not be a deterring factor when attempting to identify the limits of the term ‘investment’; as the ICJ has relatively recently observed:

there are situations in which the parties’ intent upon conclusion of the treaty was, or may have been, to give the terms used -or some of them- a meaning or content capable of evolving, not one fixed once and for all, so as to make allowance for, among other things, developments in international law. In such instances it is indeed in order to respect the parties’ common intention at the time the treaty was concluded, not to depart from it, that account should be taken of the meaning acquired by the terms in question upon each occasion on which the treaty is to be applied.131

We could not have thought of a more appropriate situation than this to apply the principle of evolutionary interpretation as has been recognised by the ICJ. It is quite reasonable to think that parties did not explicitly define the term ‘investment’ at the time exactly because they expected it to evolve over time. Indeed, the phenomenon of investment had not been studied that extensively at the time and perhaps this is one of the reasons the Parties did not specifi-cally define the term. This seems to have been recognised by an investment tribunal as well which has described leaving investment undefined as ‘preserv-ing its integrity and flexibility and allowing for future progressive development of international law on the topic of investment’.132

Therefore, the thesis that is advanced in this article that the term ‘invest-ment’ under Article 25 of the ICSID Convention is not limitless but has indeed a core meaning. This meaning should at any given time coincide with the use of the term in the language, or, with the ordinary conceptualisation of the term by the people themselves. In that sense, the core meaning of the term ‘investment’ is properly conceptualised when contextualised. In the next chapter, two alternative methods to exactly determine this inherent meaning will be advanced.

A. A notion of ‘investment’ informed by economics

The first method suggested by this article in order to clarify the core meaning of the term investment is to use the tools that have been developed by the science of economics. The underlying assumption behind this method is that

131) Dispute Regarding Navigational and Related Matters (Costa Rica v. Nicaragua) (Judgment) [2009] ICJ Rep [63].132) Mihaly v Sri Lanka (n 18) [33].

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whatever is perceived as an investment by the marketplace is covered by Article 25 ICSID.

In that context, the ordinary meaning of the term investment, its use in the language, strongly indicates that it should coincide with the economic notion of investment as has been elaborated by economists. Instead of allowing arbitral tribunals composed almost exclusively of lawyers to try and provide an abstract definition of what an investment is, we should rather use the economic terminology that has been developed over decades and use econo-mists as experts to clarify the meaning of these terms when applying the law. Krishan has suggested that the economic definition of investment as provided by the IMF should be utilised as the proper definition of investment;133 this definition is used by OECD, UNCTAD, World Bank and over 100 countries when reporting foreign investment data134 while it has been advocated as a possible definition in a multilateral treaty on investment that might be negotiated under the auspices of the World Trade Organization.135 The IMF, in short, views investment as any present expenditure (monetary or not) for the pro-duction of goods or services for future consumption136 and it also provides a very analytical asset-based descriptive list of what constitutes an investment

133) Krishan (n 9) 77-79.134) OECD Glossary of Foreign Direct Investment Terms and Definitions; OECD Benchmark Definition of Foreign Direct Investment, 3rd edn (1996); UNCTAD Expert Meeting on Capacity Building in the Area of FDI (December 12-14, 2005); See also IMF Committee on Balance of Payment Statistics Annual Report (2005) which indicates that 162 countries use the IMF definition.135) IMF Communication to the WTO Working Group on the Relationship between Trade and Investment, WTO Doc WT/WGTI/W/61 (November 3, 1998); See also Report of the Working Group on the Relationship between Trade and Investment to the General Council: Addendum, WTO Doc WT/WGTI/5/Add 1 (October 22,2001); Report of the Working Group on the Relationship between and Investment to the General Council, WTO Doc WT/WGTI/6 (December 9, 2002); Report of the Working Group on the Relationship between Trade and Investment to the General Council, WTO Doc WT/WTGI/7 (July 11, 2003); Communication from the European Community and its Member States: Concept Paper on the Definition of Investment, WTO Doc WT/WTGI/W/115 (April 16, 2002); Communication from Japan: Scope and Definition, WTO Doc WT/WTGI//W/111 (April 16, 2002); Negotiating Group on the Multilateral Agreement on Investment, MAI and the IMF Articles of Agreement (Note by the Chairman), OECD Doc DAGGE/MAI(96)22 (August 12, 1996).136) The Economist Dictionary of Economics (2003), 203 defines ‘investment’ as: ‘capital forma-tion (e.g. the production or maintenance of machinery or the construction of dwellings) that will produce a stream of goods and services for future consumption. Investment involves the sacrifice of current consumption and production of investment goods that are used to produce commodities and includes the accumulation of inventories. In the national accounts invest-ment is the sum of gross fixed capital formation and the physical change in inventories and work in progress… The theory of income determination shows how savings and investment are brought into equilibrium… In common usage, expenditure on the acquisition of financial or real assets. To the economist, this is not investment but simply a shift in savings from one form (cash) to another’. See also, entry on ‘Income’ at 43: ‘assets that are capable of generating income and that have themselves been produced…’.

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(which includes direct, portfolio and others). Given that, as we explained above, Article 25 ICSID is only limited by the inherent limitations of the word investment itself, the use of such a definition would be not just appropriate but most welcome. In any case, it is not obvious at all why, a country, for its Balance of Payments purposes, should consider a transaction as an invest-ment while that investment is not to be considered as an ICSID protected investment.137

Therefore, it is suggested that such an economic definition of investment would be optimal and under such a definition, portfolio investment would clearly not be excluded.

B. A notion of ‘investment’ under the traditional approach

However, given that arbitral tribunals might be reluctant in adopting a purely economic definition of investment, an attempt will be made to the next chapter to clarify the characteristics which are to some extent considered as indispensable at the moment for a transaction to be considered as an invest-ment. There seems to be a consensus among all ICSID tribunals that the notion of investment necessarily encapsulates three characteristics, contribution, duration and risk. However, even if we are to expect in principle that an investment under ICSID necessarily entails a contribution of some value that extends over some period of time and involves some risk that would still beg the question.

Therefore, in the next chapter the three criteria of contribution, duration and risk will be analysed and interpreted in a way which will prove that even a more traditional legal definition of ‘investment’, if constructed properly coincides in its effects with the economic one. The ultimate aim of this article though is to prove that, under the aforementioned definition, portfolio invest-ment in general and shares or bonds in particular are actually to be considered as protected investments under the ICSID Convention.

This analysis only concerns ICSID jurisdiction and shall be without preju-dice to the relevant BIT which provides with the second layer of consent needed for an ICSID tribunal to exercise jurisdiction over a dispute; after all, as we explained earlier, the two definitions of investment are complementary and the legal materialisation of the investment should also be covered by the relevant BIT.

Nevertheless, an analysis of the issue under the definition of the term ‘investment’ under Article 25(1) ICSID will follow using the main criteria that

137) Krishan (n 9) 80; See also generally Jean Tirole, Financial crises, liquidity, and the interna-tional monetary system, vol 6 (Princeton UP 2002).

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have been put forth by investment tribunals as a basis; it will be submitted that these types of portfolio investment would actually fall prima facie under the jurisdiction of an ICSID tribunal.

1. Contribution requirementThis seems to be the least troublesome criterion in relation to portfolio investment. It is rather clear that numerous bondholders and shareholders either through intermediaries or directly commit funds in order to purchase the relevant securities in the hope that these will provide them with the full amount of the principal plus the agreed interest upon maturity. While no tribunals have followed this reasoning in all its aspects, there is support for this specific interpretation of this requirement by some of them. The Annulment ad hoc Committee in the Malaysian Historic Salvors case expressly recognised that a contribution is merely ‘the commitment of money or other assets’.138 A suggestion by Schreuer that this contribution needs to be substantial139 is not supported by any reference to the Convention itself and, thus, has to be dismissed; in fact, an explicit proposal for a minimum threshold of claims was rejected during the negotiations of the Convention.140

Some commentators,141 along with some tribunals,142 have suggested that this ‘contribution’ requirement, if interpreted in the light of the Preamble of the Convention, should be read as requiring this commitment of funds to have some positive development to the economy of the host State. As we explained earlier this is a doubtful interpretation and in any case it is based on the economically dubious assumption that portfolio investment is not benefi-cial to the economy of the host state;143 this reference to the Preamble of the Convention is nothing but a mere acknowledgment of the fact that any invest-ment fosters economic development.144 In fact, during the severe financial crisis of 2008 in the United States it became very evident that portfolio invest-ment which was channelled in the financial system predominantly through Sovereign Wealth Funds assisted greatly in the stabilisation of several financial institutions.145

138) Malaysian Historic Salvors v Malaysia (Annulment) (n 39) [57].139) Schreuer (n 22) 372, at [122].140) History of the Convention on Settlement of Investment Disputes Between States and Nationals of Other States vol 2 (1968) 34.141) Schreuer (n 22) 372 although he considers this as just a typical characteristic of an invest-ment and not as a precondition for the exercise of jurisdiction.142) Jan de Nul v Egypt (n 29) [91]; Saipem v Bangladesh (n 29) [99]; Kardassopoulos v Georgia (n 29) [116].143) See supra chapter III)B).144) Gaillard (n 24) 414.145) OECD Investment Committee Report, ‘Report on sovereign wealth funds and recipient country politics’ (4 April 2008) <www.oecd.org/dataoecd/34/9/40408735.pdf> ; A few examples of SWF investments in 2007/8 are the purchase of 4.9% of Citigroup by the UAE Fund Abu

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In any case, since the State in question has decided to freely allow financial flows into its economy (by refraining from imposing capital movement restrictions) it would be absurd and should be estopped from claiming that these financial flows shall not be protected because they do not contribute to the development of its economy.146 Even if we are to accept arguendo such a proposition, it is apparent that it would be impossible to empirically prove or disprove the impact of a single investment in the economy of the whole State147 and it would be futile even to attempt to do so. The International Investment Régime is designed so as to afford a stable regulatory environment that in toto will promote investment and contribute to the economy of the host State. The LESI v. Algeria award implicitly recognised this profound under-standing when it stated that the development impact was too difficult to establish and is already implicit in the elements of contribution, duration and risk sharing.148

Therefore, we can safely assume that, since we have a transfer of funds from foreign individuals to the host State, this first requirement is fulfilled by portfolio investments and more specifically by equity and debt securities such as shares and bonds.

2. Duration requirementIt has been argued that the duration requirement is paramount since it allows the investment tribunals to distinguish between investments that would be protected by Article 25 ICSID and ordinary commercial transactions which shall not149 and there is some case law which has declined to exercise jurisdic-tion due to the short duration of an investment.150 Besides the fact that it is rather doubtful whether the sheer length of time can serve to qualify a con-tractual undertaking as an investment,151 there seems to be no support of such a limitation pursuant to the interpretation of the term investment that was submitted. Another argument in support of that view is the fact that an explicit

Dhabi Investment Authority-ADIA, the purchase of 9% of UBS AG by the Fund of the Singapore government, the purchase of 9.9% of Morgan Stanley by the China Investment Corporation and the investment of 6.2 billion dollars in Merrill Lynch by Singapore Temasek. Also see European Central Bank (ECB), Financial Stability Report (December 2007).146) On the application of the notion of estoppel in investment arbitration see A P Newcombe and L Paradell, Law and practice of investment treaties: standards of treatment (Kluwer Law International 2009) 526 et seq.147) Waibel, Sovereign defaults before International courts and tribunals (n 7) 234.148) LESI-Dipenta (n 29) [72]; For a similar approach, see also Mr Saba Fakes v Republic of Turkey ICSID Case No ARB/09/11 (Award, 14 July 2010) [111]; Victor Pey Casado v. Chile (n 29) [232].149) Bayindir v Pakistan (n 29) [132].150) Salini (n 19) [297].151) Jan Ove Voss, The Impact of Investment Treaties on Contracts between Host States and Foreign Investors (Martinus Nijhoff, Leiden 2011) 129.

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proposal to incorporate a five-year minimum duration requirement in the Convention itself was dropped in the final draft152 after a very heated debate.153 Thus, it is apparent that investment securities of any duration would qualify as investments from the moment the transfer of funds occurs.154

Nevertheless, it has been suggested that purchases of investment securities in the secondary markets and the subsequent endorsements of these instru-ment by new investors which can be extremely short-term should not qualify as investments since arguably they constitute mere speculation155 and in any case the draftsmen of the ICSID Convention had not conceived of modern secondary markets where transactions of bond and other debt securities can be completed in seconds.156 It is true that speculation has to be contrasted with an investment since a speculative transaction seeks to take advantage of a sudden rise in the market prices and does not actually aim in committing funds to the enterprise or state that has issued the relevant traded instruments. However, there are two points that can be raised in defence of the proposition that investment securities and shares should be considered as protected investments.

First, the fact that an investment security was purchased in the secondary market, does not mean that by definition the purpose of this transaction was merely speculative; it could have well been intended as a long-term commit-ment and the investor could have been aiming in retaining the relevant secu-rity until maturity. Therefore, unless the intent of the investor at the moment of the purchase can somehow be proven (something not only impractical but also impossible given the impersonal nature of these transactions), how could it be possibly proven that a certain transaction is to be considered speculative? An investment tribunal in the case of Saluka v. Czech Republic, although not in an ICSID context, expressly agreed with such an argument when it stated that:

[it] would [not] be correct to interpret Article 1 as excluding from the definition of ‘inves-tor’ those who purchase shares as part of what might be termed bare profit-making or profit-taking transactions. Most purchases of shares are made with the hope that, in one

152) ‘Draft Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, (Sept. 11, 1964)’ in History of the Convention on Settlement of Investment Disputes Between States and Nationals of Other States (1968) 621-623.153) ‘Consultative Meeting of Legal Experts, Geneva (Feb 17–22, 1964),’ in History of the Convention on Settlement of Investment Disputes Between States and Nationals of Other States (1968) 450 according to which Norway argued that ‘many thousands of short-term transaction would never be regarded as coming within [ICSID jurisdiction]’.154) Contra Abaclat - Dissenting Opinion of Abi-Saab (n 117) [118]-[119].155) ‘[Speculation’s] object is the chance of reaping a rapid advantage by a sudden rise in the market price of something which is bought merely in order to be held till it can be thus advantageously sold again’, Oxford English Dictionary (2nd edn, OUP 1989).156) Waibel, Sovereign defaults before International courts and tribunals (n 7) 235.

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way or another, the result will in due course be a degree of profit on the transaction . . . Even if it were possible to know an investor’s true motivation in making its investment, nothing in Article 1 makes the investor’s motivation part of the definition of an investment.157

Second, exactly because the operation of these secondary markets had not been conceived at the time of the drafting of the Convention, we should exam-ine the overall operation of these instruments’ markets in a more accommo-dating way. A counter argument would be that irrespective of how long the investor has been holding the instrument, the operation (e.g. the bond issuance or the public listing of a company in a stock exchange) as a whole would actually constitute a long-term commitment.158 Some arbitral tribunals seem to also be cautiously siding with this argument. In Olguín v Paraguay, the submission of Paraguay that ‘speculative financial instruments’ shall not be considered as protected investments was not accepted159 while in Fedax, the tribunal highlighted exactly the fact that irrespective of who is the holder of a promissory note, the issuer enjoys ‘a continuous credit benefit until the time the note becomes due’.160 Furthermore, in Abaclat v Argentina, the majority also pointed out that when dealing with instruments of purely financial nature, we shall be looking at the economic operation as a whole in order to determine whether all of its aspects fulfil the criteria of the definition of investment.161 Very recently, the Ambiente Ufficio v. Argentina decision expressis verbis endorsed the aforementioned approach of the Abaclat tribunal.162

Pursuant to this approach, when the issuance of bonds or the trading of shares in stock exchanges is viewed as one economic operation, it becomes evident that they constitute long-term commitments of funds irrespective of how long each individual investor has been holding the traded instrument. Thus, even if we were to concede that a long term commitment of funds would be necessary for the fulfilment of this condition, it should be accepted that these financial instruments would actually fulfil it.

157) Saluka Investments BV (The Netherlands) v. The Czech Republic UNCITRAL/PCA (Partial Award, 17March 2006) [174] found at <http://www.pca-cpa.org/upload/files/SAL-CZ%20Partial%20Award%20170306.pdf>.158) Waibel, Sovereign defaults before International courts and tribunals (n 7) 235.159) Mr Eudoro Armando Olguín v Republic of Paraguay ICSID Case No ARB/98/5 (Final Award, 26 July 2001) [65].160) Fedax (n 21) [38], [40].161) Abaclat v Argentina (n 7) [376].162) ‘The tribunal would endorse the statement of the Abaclat tribunal in this regard that “whatever the nuances between bonds and security entitlements may be, they are part of one and the same economic operation and they make only sense together”’, Ambiente Uffcio v Argentina (n 87) [423].

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3. Risk requirementA further element that could be considered as a yardstick against which the existence of an investment should be judged is that of the assumption of risk. If the risk is placed primarily or exclusively within the host State, the project cannot be considered as an investment.163 The risk involved in the underlying transaction is what sanctions the investor’s right to protection through the Investment Treaty régime,164 the quid pro quo of the protection régime.

However, there is significant debate about what kind of risk the investor has to assume and which types of risk are appropriate to consider when investigat-ing whether a certain transaction constitutes an investment. The reason implicit in that understanding is that an investment should be distinguished from a mere sales contract and, thus, this should be reflected on the nature of the risk.165 Following this reasoning, some authors suggest that the cardinal factor which distinguishes between these two economic transactions is the difference between price and profits and, hence, the type of remuneration laid down by the company;166 in a mere sales transaction the seller receives funds from the delivery of the good while the investor derives his revenues from the operation of the delivered work.167 Therefore, the risk that we shall be looking for should not be the mere commercial risk which is present in any economic transaction168 let alone the legal risk of non-performance;169 it should be a specific risk linked to the remuneration resulting from the financial budget results of a project.170 This conception of risk largely reflects the typical char-acteristics of a direct investment which, as we have opined earlier on is largely outdated.

More importantly though, this proposed distinction is an inappropriate method to differentiate between sales transactions and investments. The assu-mption of risk necessarily accompanies any commitment of resources to the host State.171 This risk is merely the probability that expected returns from the commitment of funds will not be realised and is a combination of ordinary commercial risks, which are the possible negative effects derived from

163) Schreuer (n 22) 140.164) Rubins (n 27) 298.165) Sebastien Manciaux, ‘Investissements étrangers et arbitrage entre Etats et ressortissants d’autres Etats: 25 années d’activité du CIRDI’ (Université Dijon Bourgogne 1998) 33-34.166) Carreau, Juillard and Flory (n 23) 387, at [1117].167) Farouk Yala, ‘The Notion of “Investment” in ICSID Case Law: A Drifting Jurisdictional Requirement’ (2005) 22 Journal of International Arbitation 105, 113.168) Voss (n 151) 132.169) Emmanuel Gaillard, ‘Chronique des Sentences Arbitrales. Centre Internacional pour le Règlement des Différends Relatives aux Investissements (CIRDI)’ (1999) 126 Journal de Droit International 273, 292-293.170) Carreau, Juillard and Flory (n 23) 387, [1117].171) Douglas (n 128) 200.

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ordinary commercial activities, as well as the political risks that derive from political actions that might affect the investment.172 The economic risk is intrinsically linked to the political risk and both are necessarily linked to the temporal aspect of the commitment and to its location in a foreign territory.173 Thus, any commitment of funds structured around any transaction will entail these risks. Therefore, the nature of the risk as has been described by several tribunals should not be and cannot actually be the decisive distinguishing factor between a sales contract and an investment.

Zachary Douglas has rightfully observed that: ‘to the extent that an ordinary commercial transaction might not be an investment, that is because there might not be an acquisition of a property right in the host State memorialised by the contract, or because it does not entail the commitment of resources to the host State’.174 Several authors agree with this approach which highlights the acquisition of an asset,175 in other words a property right either tangible or intangible (in contrast to a contractual right) as the element that distinguishes an investment to a sales contract.

Therefore, since the element of risk in not the proper criterion to distin-guish an investment from a sales transaction then the whole basis on which this argument has been built on collapses. Indeed, arbitral tribunals have demonstrated a fairly liberal and flexible understanding of the element of risk176 going as far as suggesting that the very existence of a dispute as to the payment of the principal and interest would evidence the risk that the holder had taken177 and, thus, have not caused the unnecessary dismissal of cases.

However, since every investment necessarily demonstrates the element of risk, provided there is an actual commitment of funds in the territory of the host State, this criterion is rendered superfluous. Indeed, conceptually, risk is certainly an element indispensable to the notion of investment. However, it seems that this criterion will be fulfilled in virtually all cases where there is an actual transfer of funds in the territory of the host State.

In that context, it becomes evident that portfolio investment entails the ele-ment of risk, provided there has been actual transfer of funds and, thus, should be covered by Article 25 of the ICSID Convention.

172) Salacuse (n 4), 26.173) Manciaux, ‘The Notion of Investment: New Controversies’ (n 109) 14.174) Douglas (n 128) 201.175) Charles Oman, Les nouvelles formes d’investissement dans les pays en voie de développement (Etudes du Centre dedéveloppement de I’OCDE, 1984) who has stated that ‘[a]n investment can be defined as the creation or acquisition of assets from which revenues may be expected to come in the future.’176) Yala (n 167) 114; Voss (n 151) 134.177) Fedax (n 21) [40].

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C. The relationship between the two definitions

A thorough examination of this more traditional definition of investment reveals that, ultimately, the only relevant criterion for the characterisation of a transaction as an investment is the commitment of funds in the territory of the host State; a certain duration is largely unnecessary and the element of risk will always be present. A further qualification is that, in order to have a com-mitment of funds, this necessarily means that the funds shall be transformed into property rights (either over tangible or intangible assets) in the territory of the host State. The initial contribution, thus, takes the form of property rights which, exactly because they constitute the ‘fruits’178 of the initial contri-bution, merit the protection of the investment régime. This definition largely coincides with the economic definition that we provided earlier which defines investment as ‘present expenditure (monetary or not) for the production of goods or services for future consumption’. Therefore, it is submitted, that following these two very different paths we come to the same conclusion; this is hardly a surprise since ‘investment’ must have a core definition and it would be absurd to have one economic and one legal definition which differ in the absence of any explicit qualifications contained in the ICSID Convention.

However, a final caveat has to be made. There are some marginal situations where the two definitions would not overlap and that could be problematic. For instance, if we have a transfer of labour force in the territory of the home State in the context of the fulfilment of a contract obligation (e.g. in the case of a construction contract) then this would be characterised as an investment under the economic definition but not under the traditional legal one since the investor does not have a property right over the workers but only a contract claim for their performance.

Nevertheless, this article argues for the adoption of the economic notion of investment as the proper conceptualisation of the term ‘investment’ by ICSID tribunals. In any case, though, portfolio investment would be included under both these definitions and there is no reason why it should not be covered by the jurisdiction of ICSID tribunals in the absence of any contrary provision contained in the relevant BITs.

V. Conclusion

The current jurisprudence of ICSID concerning the understanding of the notion of ‘investment’ has been largely fragmented and inconsistent. In this

178) Malicorp Limited v The Arab Republic of Egypt (n 51) [110].

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paper, it has been submitted that the approaches followed so far are largely attributed to the fact that several States have pushed for a more limited jurisdiction of ICSID. However, they are not sanctioned under the ICSID Convention and the methodology they have followed is at least dubious.

Consequently, it has been suggested that no limitations to the term ‘invest-ment’ can be identified under a proper interpretation of the ICSID Convention. Therefore, the core meaning of the term ‘investment’ along with its outer limits should be found in the conceptualisation of the term by the market-place. In that context, two alternative methods to clarify this integrated conceptualisation of the term ‘investment’ have been put forth. The conclu-sion that is derived by both these different methodologies to conceptualise investment is that portfolio investment should be considered as a protected ‘investment’ under the ICSID Convention.

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Portfolio Investment: Reconceptualising the Notion of Investment under the ICSID Convention

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