To determine its jurisdiction, an arbitral tribunal must have recourse to the applicable rules on its jurisdiction ratione materiae, ratione personae and ratione temporis. The ratione materiae requirement refers to the features and characteristics of the subject-matter of a dispute falling under the arbitral tribunal’s jurisdiction. Investment arbitration tribunals have a specialised subject matter jurisdiction: investment disputes. 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.
For arbitral tribunals to assume jurisdiction ratione materiae, there must be an investment. Many respondent States have contested the jurisdiction ratione materiae of an arbitral tribunal.1 It is now generally accepted that there is no uniform definition of the term ‘investment’ as suggested by the Salini test. Rather, the applicable definition depends on the provisions of the underlying investment agreement.
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 propio motu both the definition of an investment in the underlying agreement as well as the definition contained in the ICSID Convention.2 See Double barrelled / Two-fold test.
III. Dispute connected to the investment
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.”3 According to the ICJ’s established caselaw, the existence of a dispute must be subject to objective determination.4 Similar definitions have been expressed by arbitral tribunals in investment disputes.5
Nuclear Tests (New Zealand v. France), Judgment, 20 December 1974, para 58; Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v. Colombia), Judgment - Preliminary objections, 17 March 2016, para. 50; Application of the International Convention on the Elimination of All Forms of Racial Discrimination (Georgia v. Russian Federation), Judgment - Preliminary objections, 1 April 2011, para. 30; Obligations concerning Negotiations relating to Cessation of the Nuclear Arms Race and to Nuclear Disarmament (Marshall Islands v. India), Judgment - Jurisdiction of the Court and admissibility of the application, 5 October 2016, para. 36; Obligations concerning Negotiations relating to Cessation of the Nuclear Arms Race and to Nuclear Disarmament (Marshall Islands v. Pakistan), Judgment - Jurisdiction of the Court and admissibility of the application, 5 October 2016, para. 36; Obligations concerning Negotiations relating to Cessation of the Nuclear Arms Race and to Nuclear Disarmament (Marshall Islands v. United Kingdom), Judgment - Preliminary objections, 5 October 2016, para. 39.
Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction, 25 January 2000, para. 94; Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, paras. 106-107; Industria Nacional de Alimentos, S.A. and Indalsa Perú, S.A. (formerly Empresas Lucchetti, S.A. and Lucchetti Perú, S.A.) v. Republic of Peru, ICSID Case No. ARB/03/4, Award, 7 February 2005, para. 48; Impregilo S.p.A. v. Islamic Republic of Pakistan (II), ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005, paras. 302-303; AES Corporation v. Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005, para. 43; El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Decision on Jurisdiction, 27 April 2006, para. 61; Suez, Sociedad General de Aguas de Barcelona, S.A. and Interagua Servicios Integrales de Agua, S.A. v. Argentine Republic, ICSID Case No. ARB/03/17, Decision on Jurisdiction, 16 May 2006, para. 29; M.C.I. Power Group, L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6 , Award, 31 July 2007, para. 63.
IV. The legality of the investment
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”.8 In the same vein, the tribunal in Inceysa Vallisoletana S.L. v. Republic of El Salvador,9 denied jurisdiction as the investment was made in a fraudulent manner, which was clearly unlawful under the laws of El Salvador.10 Similarly, the tribunal in Ioannis Kardassopoulos v. The Republic of Georgia addressed the lawfulness of the investment to analyse its jurisdiction ratione materiae.11
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.
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.