Risk as a Criterion For the Existence of an "Investment"

Risk is one of the universally accepted objective criteria for determining the existence of an investment.

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”.¹ Most ICSID tribunals² have held that this provision establishes an independent requirement for their jurisdiction under the ICSID Convention: in particular, the alleged investment must constitute an “investment” under Article 25(1).³

The Convention, however, does not contain a definition of “investment”. ICSID tribunals thus generally apply the Salini test, or a modified version thereof, to determine whether an alleged investment constitutes an “investment” under Article 25(1) of the ICSID Convention. Some non-ICSID tribunals have also applied the Salini test, or a modified version thereof, to determine whether an alleged investment constitutes an “investment” under the applicable investment treaty.⁴

Risk is one of the criteria regularly considered by tribunals when determining the existence of an investment. It is one of the four criteria of the Salini test,⁵ and one of the three criteria of the modified Salini test most frequently applied by tribunals today.⁶ Risk also appears as a criterion for the definition of “investment” in some investment treaties.⁷ It should be noted, however, that some tribunals have considered that the existence of risk is not absolutely necessary for an investment to exist.⁸

Some tribunals have adopted a relatively broad understanding of the risk criterion. For example, the Salini v. Morocco tribunal considered that the investor had assumed the requisite risk because, among other reasons, there was a risk that Moroccan law could have changed, which could have led to an increase in the cost of labour.⁹

The tribunal also included in its list of risks taken by the investor “any unforeseeable incident that could not be considered as force majeure”.¹⁰ Another tribunal that appeared to interpret the risk criterion broadly was the Fedax v. Venezuela tribunal, which went so far as to say that “the very existence of a dispute” constituted evidence of risk.¹¹

Other tribunals, however, have adopted a narrower understanding of the criterion. These tribunals have accorded significant weight only to so-called “investment risks”, (i.e., risks particular to investments), as opposed to “commercial risks” or “sovereign risks”.¹² For example, the Joy Mining v. Egypt tribunal ascribed little weight to the risk assumed by the investor in concluding a contract for the supply of a mining system because the risk was “not different from that involved in any commercial contract”.¹³ As another example, the Romak v. Uzbekistan tribunal did not find the conclusion of a contract for the supply of wheat to satisfy the criterion of risk because the risk assumed was “the ordinary commercial or business risk assumed by all those who enter into a contractual relationship”.¹⁴

And as a more recent example, the Seo Jin Hae v. Republic of Korea tribunal, in a case where the alleged investment was the claimant’s purchase of real estate, accorded minimal weight to the risks of the property declining in value, being expropriated, and being subject to Korean laws because these risks were “inherent in the purchase of any asset”.¹⁵

Some tribunals have noted that the risk criterion is interrelated with other criteria considered by tribunals in determining the existence of an investment.¹⁶ For example, the KT Asia v. Kazakhstan tribunal noted that the absence of an investor’s contribution (one of the other widely accepted criteria) implies the absence of risk.¹⁷ In addition, the Alapli Elektrik v. Turkey and M.F. v. Czech Republic tribunals held that the existence of the requisite risk may depend on the duration (another widely accepted criterion) of the investment.¹⁸

In addition, some tribunals have considered the expectation of profit (a criterion that is not universally accepted) to be an element of the risk criterion.¹⁹ This is because, as the Electrabel v. Hungary tribunal explained, “every investment runs the risk of reaping no profit at all”.²⁰

Bischoff, J.A. and Wühler, M., The Notion of Investment, in Mbengue, M.M. and Schacherer, S. (eds.), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA), Springer, 2019. 

Gaillard, E. and Banifatemi, Y., The Long March towards a Jurisprudence Constance on the Notion of Investment, in Kinnear, M. (ed.), Building International Investment Law, The First 50 Years of ICSID, Wolters Kluwer, 2015.

Manciaux, S., The Notion of Investment: New Controversies, The Journal of World Investment & Trade, Vol. 9, Issue 6, 2008.