As a result, the arbitral tribunal will have to look at the existence of an investment pursuant to the applicable definition of "investment" as well as the existence of a "dispute" in connection with the investment. In bifurcated proceedings, the prima facie test2 has often been applied to determine the jurisdiction ratione materiae of arbitral tribunals.3
For arbitral tribunals to assume jurisdiction ratione materiae, there must be an investment.4 Many respondent States have contested the jurisdiction ratione materiae of an arbitral tribunal.4 It is now generally accepted that there is no uniform definition of the term "investment" as suggested by the Salini test.5 Rather, the applicable definition depends on the provisions of the underlying investment agreement. For examples of investment treaty practice defining "investment," see Definition of investment.
Article 26(1) of the Energy Charter Treaty illustrates the above. Pursuant to said provision, ECT tribunals have jurisdiction ratione materiae to hear “[d]isputes (…) relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation (…)”. Hence, all disputes brought before an ECT tribunal must "relate to an investment" of a national of an ECT contracting State in the territory of another ECT contracting State. The term "investment" is defined in Article 1(6) of the Energy Charter Treaty.
In a similar vein, Article 25(1) of the ICSID Convention provides that “[t]he jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment”. In ICSID arbitrations, arbitral tribunals frequently address proprio motu both the definition of an investment in the underlying agreement as well as the definition contained in the ICSID Convention.6 See Double barrelled / Two-fold test.
The existence of a dispute is a crucial aspect for an arbitral tribunal to assume jurisdiction. Generally, a dispute can be defined as “a disagreement on a point of law or fact, a conflict of legal views or of interests between two persons."7 According to the ICJ’s established caselaw, the existence of a dispute must be subject to objective determination.8 Similar definitions have been expressed by arbitral tribunals in investment disputes.9 For further discussion on the crystallisation of the dispute and its legal nature, see Dispute existence, Sections III and IV.
Furthermore, arbitral tribunals must assess whether there is a link between the dispute and the investment.10 Treaties, including the ICSID Convention, have expressed this concept through formulations such as "arising (directly) out of"11 an investment or "relating to" an investment.12 For further discussion on tribunals' interpretation of directness, see Dispute existence, Section V.
Furthermore, investment tribunals may exercise jurisdiction ratione materiae for contractual claims if these claims fall within the scope of the applicable investment treaty.13 See further Treaty claim / Contract claim.
Many arbitral tribunals have denied jurisdiction ratione materiae due to the unlawfulness of the underlying investment, often due to the requirement in the underlying investment agreement that the investment be made in accordance with law. In this regard, a crucial aspect of the lawfulness analysis is the wording of the relevant BIT provision.
In Fraport v. Philippines, the tribunal decided that “[b]ecause there is no "investment in accordance with law", the Tribunal lacks jurisdiction ratione materiae”.14 In the same vein, the tribunal in Inceysa Vallisoletana S.L. v. Republic of El Salvador,15 denied jurisdiction as the investment was made in a fraudulent manner, which was clearly unlawful under the laws of El Salvador.16 Similarly, the tribunal in Ioannis Kardassopoulos v. The Republic of Georgia addressed the lawfulness of the investment to analyse its jurisdiction ratione materiae.17
Some investment agreements exclude specific areas from their jurisdiction ratione materiae.19 This is possible under the States’ freedom of contract. For example, Article 21 of the Energy Charter Treaty excludes “taxation measures” from the scope of the ECT. Pursuant to Article 21(1) ECT, “nothing in this treaty shall create rights or impose obligations with respect to [t]axation [m]easures.” See further Taxation exclusions, Taxes and Treaty exclusions in general.
Moreover, some agreements emphasise the need for the dispute to be of a “legal” nature. Specifically in ICSID arbitration, if a claim is brought before an ICSID tribunal, it must respect the requirement of Article 25(1) of the ICSID Convention and relate to a “legal” dispute.20 Generally, most disputes can be construed and “formulated […] in terms of a legal right or obligation”.21 There have already been cases in which the investor has withdrawn its request for arbitration after ICSID questioned the lack of a legal basis of the dispute.22 For further discussions on the crystallisation of the dispute and its legal nature, see Dispute existence, Sections III and IV.
Another specificity of the ICSID framework as to jurisdiction ratione materiae can be found in Article 46 of the ICSID Convention.
Article 46 of the ICSID Convention allows an ICSID tribunal to hear other claims that arise directly out of the investment. These claims must of course also be within the tribunal’s jurisdiction under both the ICSID Convention and the underlying investment agreement. Article 46 does not constitute an extension of the jurisdictional scope but rather the possibility to avoid the institution of separate proceedings.23 “[T]he point of this Article was to obviate separate proceedings for incidental claims and to make it unnecessary for parties who have additional claims or counterclaims to start new procedures.”24 Such ancillary claims can concern third party contracts, interests claimed or procedural costs.25 See further Counterclaims.
Amado, J.D., and Others, Jurisdiction Ratione Materiae: The Substantive Rights, in Arbitrating the Conduct of International Investors, 2018.
Baumgartner, J., Jurisdiction Ratione Materiae, in Treaty Shopping in International Investment Law, 2016.
Reed, L., and Others, Protected Investment, in Ruiz-Fabri, H. (ed.), EiPro Max Planck Encyclopaedia of International Procedural Law, 2019.
Yannaca-Small, K., and Katsikis, D., The Meaning of “Investment” in Investment Treaty Arbitration, in Yannaca-Small, K. (ed.), Arbitration under International Investment Agreements – A Guide to the Key Issues, 2018, pp. 266-301.
Bischoff, J.A., and Happ, R., Ratione Materiae, in Bungenberg, M., and Others (eds.), International Investment Law, A Handbook, 2015, pp. 1-149.
Matringe, J., La notion d’investissement, in Charles Leben (ed.), Droit international des investissements et de l’arbitrage transnational, 2015, pp. 135-160.
Schreuer, C., Investments, International Protection, in Wolfrum, R. (ed.), Max Planck Encyclopaedia of Public International Law, 2013.
Schreuer, C. and Others, The ICSID Convention: A Commentary, 2009.
Douglas, Z., The International Law of Investment Claims, 2009.
Schreuer, C., What Is a Legal Dispute?, in Buffard, I., and Others (eds.). International Law between Universalism and Fragmentation, 2008.
Schreuer, C., Malintoppi, L., Reinisch, A. and Sinclair, A., Ancillary Claims, The ICSID Convention: A Commentary, Cambridge University Press, 2009, pp. 731-756.
Gaillard, E., Identify or Define? Reflections on the Evolution of the Concept of Investment in ICSID Practice, in Binder, C. et al. (eds.), International Investment Law for the 21st Century, 2009, pp. 403-416.
Rubins, N., The Notion of “Investment” in International Investment Arbitration, in Horn, N. (ed.), Arbitrating Foreign Investment Disputes, 2004, pp. 283-324.
Already registered ?