Definition of Investment

The concept of investment (See Ownership of investment, Pre-investment expenditure) typically determines the range of economic operations to which a number of heterogeneous instruments apply.¹ These include foreign investment laws, investment protection treaties and such diverse multilateral treaties as the ICSID Convention,² the MIGA Convention³ and the TRIMS.⁴

The concept of investment, most debated in practice, serves to circumscribe the scope of protection accorded under investment treaties and the jurisdiction of investment arbitration tribunals.⁵ Different instruments and arbitral practice recognize a large variety of operations to constitute an investment.⁶ However, there is no generally accepted definition of investment.⁷

Over 98% of investment protection treaties contain a definition of investment.⁸ The overwhelming majority of them (more than 90%) define investment by a non-exhaustive list of protected “assets” (asset-based definition), including movable and immovable property, shares, intellectual property rights, claims to money, etc.⁹ Other treaties require for an asset to be linked to an “enterprise” in order to qualify for protection (enterprise-based definition)¹⁰ or, more rarely, contain an exhaustive list of protected assets.¹¹

Some recent treaties also require assets to exhibit certain characteristics, such as a certain duration, assumption of risk and commitment of capital in order to qualify as an investment (inspired by the Salini test).¹²

In addition, certain treaties exclude specific types of assets from their definition of investment, most commonly ordinary commercial transactions,¹³ sovereign debt instruments¹⁴ and/or portfolio investments.¹⁵

Close to 80% of investment laws contain an asset or enterprise based definition of investment. Certain of them mirror the type of definitions typically found in investment treaties.¹⁶ However, most depart from that model and the structure, level of detail of provisions and scope of operations covered varies greatly.

In addition, the concept of investment circumscribes also the jurisdiction of ICSID tribunals. Under the ICSID Convention, tribunals are competent to decide disputes which arise “directly out of an investment,”¹⁷ and the term is not defined (see further Jurisdiction ratione materiae). Most ICSID tribunals require putative investments to fulfil the requirements of both the controlling investment treaty and the ICSID Convention (double key-hole approach).¹⁸ They have also construed “investment” under the Convention as having an autonomous meaning as compared to treaty definitions.¹⁹ See Salini Test.

At the backdrop of broad treaty language, many investment tribunals have imputed an objective meaning to the term investment to distinguish it from ordinary commercial operations and have required that it exhibit certain inherent characteristics.²⁰ A list of necessary characteristics that an operation must exhibit to qualify as an investment was first articulated in the ICSID Salini v Morocco case²¹ and is now referred to as the Salini test. The relevance of individual characteristics, their specific contours and the legal nature of the test remain debated,²² including whether the Salini test should be applied in the context of ICSID proceedings only.²³ Three of the original Salini characteristics can be said to form the core elements of the test currently in use: (i) duration; (ii) assumption of risk; and (iii) a contribution of capital.²⁴ Tribunals have also sometimes required an operation to contribute significantly to the host State’s development.²⁵

To the contrary, some tribunals consider the investment treaty language to be the only proper source of definition of the term “investment.”²⁶ The Report of the Executive Directors on the ICSID Convention confirms that “[n]o 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 known in advance, if they so desire, the classes of disputes which they would or would not consider submitting to the Centre”.²⁷

Not every asset from a broader operation needs to qualify as an investment on its own, as long as the underlying operation analysed as a whole would qualify as such.²⁸

Clauses defining investment should not be confused with those which contain a definition of “investor” or with clauses that determine whether an investment is “covered” under a particular treaty (such as clauses that require an investment to be “made in accordance with the host State’s laws,”²⁹ and/or “in the territory” of that State and/or that it be “held”/“made” by a qualifying investor).³⁰

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.

McLachlan, C. and Others, International Investment Arbitration: Substantive Principles, 2nd ed., 2017.

Baumgartner, J., Treaty Shopping in International Investment Law, 2016.

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 Leben, C. (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.

Gilles, A., La definition de l’investissement international, 2012.

United Nations Conference on Trade and Development, UNCTAD Series on Issues in International Investment Agreements II – Scope and Definition, 2011.

Schreuer, C. and Others, The ICSID Convention: A Commentary, 2009.

Douglas, Z., The International Law of Investment Claims, 2009.

Gaillard, E., Identify or Define? Reflections on the Evolution of the Concept of Investment in ICSID Practice, in Binder, C. and Others (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.