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M. Peter Tzeng


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

I. Definition


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

II. Background


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.4 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.5


Risk is always one of the criteria considered by tribunals when determining the existence of an investment. It is one of the four criteria of the Salini test,6 and one of the three criteria of the modified Salini test most frequently applied by tribunals today.7 Risk also appears as a criterion for the definition of “investment” in some investment treaties.8

III. Content


Some tribunals have adopted a very broad understanding of the criterion of risk. 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 interpreted the criterion or risk 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 In light of this jurisprudence, it would be difficult to think of an economic transaction that does not involve some sort of risk.


Other tribunals, however, have adopted a narrower understanding of “risk”. These tribunals have accorded significant weight only to so-called “investment risks”, that is, risks particular to investments.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 criterion of “risk” is interrelated with other criteria considered by tribunals in determining the existence of an investment. For example, the KT Asia v. Kazakhstan tribunal noted that the absence of an investor’s contribution (one of the other universally accepted objective criteria) implies the absence of risk.16 In addition, some tribunals have considered the expectation of profit (a criterion that is not universally accepted) to be an element of the criterion of “risk”.17 This is because, as the Electrabel v. Hungary tribunal explained, “every investment runs the risk of reaping no profit at all”.18

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