Lawful investment

Standard Chartered Bank v Tanzania, Award, ICSID Case No ARB/10/12; IIC 581
(2012)
2 November 2012
-existence of active contribution of the investor to the investment to constitute as an investment
by the investor (BIT of UK and Tanzania)
-Rather, for an investment to be of an investor in the present context, some activity of investing is
needed, which implicates the claimants control over the investment or an action of transferring something
of value (money, know-how, contacts, or expertise) from one treaty-country to the other.
-passive ownership lang yung claimant

PHOENIX ACTION, LTD. v. THE CZECH REPUBLIC

Respondent (ICSID Case No. ARB/06/5)
-The Tribunal is of the view that if the sole purpose of an economic transaction is to pursue an
ICSID claim, without any intent to perform any economic activity in the host country, such
transaction cannot be considered as a protected investment.
To summarize all the requirements for an investment to benefit from the international
protection of ICSID, the Tribunal considers that the following six elements have to be
taken into account:
1 a contribution in money or other assets;
2 a certain duration;
3 an element of risk;
4 an operation made in order to develop an economic activity in the host State;
5 assets invested in accordance with the laws of the host State;
6 assets invested bona fide.
A. A CONTRIBUTION IN MONEY OR OTHER ASSETS?
-The question of the low price paid by Claimant for the acquisition of the shares, whose payment
the Tribunal considers acknowledged by the submitted bank accounts, has been extensively
discussed between the parties. The Tribunal considers that the existence of a nominal price for
the acquisition of an investment raises necessarily some doubts about the existence of an
investment and requires an in depth inquiry into the circumstances of the transaction at stake.
If there is indeed a real intent to develop economic activities on that basis, the existence of a
nominal price is not a bar to a finding that there exists an investment.85
B.

A CERTAIN DURATION?

The Respondent does not per se deny the duration of the alleged investment, but argues
that since the investment itself is inexistent, it can have no duration. According to it, (t)he
duration criterion generally requires that the investment project be carried out over

a period of at least two years. Phoenix, however, never intended to carry out a business project at
all.90
125. The Tribunal is therefore not convinced that this element of duration constitutes a bar to
the qualification of the purchase of BP and BG as an apparent investment, if all other elements of
the definition of an investment are satisfied.
It appears to the Tribunal that if the money paid in 2002 could be considered as having given rise
to an investment, the mere fact that Phoenix had not sold its shares in BP and BG before January
2008 shows that the operation in which the Claimant engaged had a certain duration.

C. AN ELEMENT OF RISK?
In general, in buying companies in bad shape, an investor certainly assumes a certain risk, the
risk not to be able to revitalize the corporation, if such was the intent. It is common practice in
international business for certain businessmen to buy bankrupt companies for a token price and
to try to transform them into profitable going concerns. On its face, the purchase of a bankrupt
company, for a small price, still carries a risk: namely that the investor loses the amount he has
paid, because the company has to be liquidated and no cash is left to satisfy the shareholders.
The Tribunal does not consider that it should deny the existence of what looks like an investment
based on the alleged absence of a risk in the operation performed by Phoenix.

D. AN OPERATION MADE IN ORDER TO DEVELOP AN ECONOMIC ACTIVITY IN THE HOST

STATE?
The development of economic activities must have been foreseen or intended, but need not
necessarily be successful, especially when the problems an investor faces in the development of
its activities come from the host States actions. It is true that an investment that has come to a
standstill, because of the host States actions97
, would still qualify as an investment, otherwise the international protection of foreign
investment provided by the BITs would be emptied of its purpose. The Tribunal is therefore
inclined to accept that, although there were no significant activities performed by the Czech
companies owned by Phoenix since it acquired them, this alone would not be sufficient to
disqualify the operation as an investment, provided that, and this caveat is fundamental, the
Claimant had really the intention to engage in economic activities, and made good faith efforts to
do so and that its failure to do so was a consequence of the States interference. Thus the Tribunal
needs to analyze more thoroughly the different facets of the operations in which Phoenix has
engaged.
The Tribunal concurs with ICSID precedents which, subject to minor variations, have relied on the socalled Salini test. Such test identifies the following elements as indicative of an "investment" for
purposes of the ICSID Convention: (i) a contribution, (ii) a certain duration over which the project is
implemented, (iii) a sharing of operational risks, and (iv) a contribution to the host States development,
being understood that these elements may be closely interrelated, should be examined in their totality and
will normally depend on the circumstances of each case.

Such approach has been used for example in the recent55

-Salini

Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision
on Jurisdiction, July 23, 2001

Sedelmayer v. Russian Federation - It must be presupposed, however, that investments are made
within the frame of a commercial activity and that investments are, in principle, aiming at creating a
further economic value.58 Sedelmayer v. Russian Federation, (Germany/Union of the Soviet Socialist Republics
BIT), ad hoc arbitration under the Stockholm Chamber of Commerce arbitration rules, Award, July 7, 1998, 224

FET:
Arbitrary
HRI report release without consultation with CAM
Ruritania allowed the competitors to take advantage of the HRI report to the prejudice
of CAM
The MAB act was enacted without consultation with the claimant
The video tape of the detention of CAM executive in connection with a baseless
allegation
[t]he minimum standard of treatment of fair and equitable treatment is infringed by conduct
attributable to the state and harmful to the claimant if the conduct is arbitrary, grossly unfair,
unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial
prejudice, or involves a lack of due process leading to an outcome which offends judicial
propriety as might be the case with a manifest failure of natural justice in judicial
proceedings or a complete lack of transparency and candour in an administrative process. 44
(- Waste Management Inc. vs Mexico April 30, 2004)

Transparency
- THe interim report was not revealed to CAM
the idea that all legal requirements for the purpose of initiating, completing and successfully
operating investments made, or intended to be made, under the Agreement should be
capable of being readily known to all affected investors of another party. There should be no
room for doubt or uncertainty in such matters.
(Metalclad Corporation v Mexico, Award, 25 August 2000 (ICSID Case No ARB (AF)/97/1) (2001) 40 ILM

Moreover, the tribunal in Tecmed also required a proportionality test which

weighs 1) the reasonableness of a measure to its goal, 2) the deprivation of
the economic rights, and 3) the legitimate expectations of the investor. There
must be a reasonable relationship of proportionality between the charge or
weight imposed to the foreign investor and the aim sought by the
expropriatory measure. This weight is valued by the degree of the
deprivation and whether the deprivation was compensated.132

the foreign investor expects the host State to act in a consistent manner, free from ambiguity and
totally transparently in its relation with foreign investor, so that it may know beforehand any and
all rules and regulations that will govern its investments, as well as the goals of the relevant
policies and administrative practices or directives, to be able to plan its investment and comply
with such regulations. (Tecmed vs. Mexico, ICSID AF Award, 2003, para. 154)
3. Denial of justice and due process
Compliance with the most basic due process requirements is necessary to avoid a denial of justice.
Denial of justice is traditionally defined as any gross misadministration of justice by domestic courts resulting
from the ill-functioning of the States judicial system (Focarelli, 2009). It is generally recognized that only
gross or manifest instances of injustice are considered a denial of justice and that a simple error,
misinterpretation or misapplication of domestic law is not per se a denial of justice. 79 While it is commonly
emphasized that any attempt accurately and exhaustively to define the forms of denial of justice is bound to
fail, the following are likely to be considered a denial of justice:
(a) Denial of access to justice and the refusal of courts to decide;
(b) Unreasonable delay in proceedings;
(c) Lack of a courts independence from the legislative and the executive branches of the State; 81
(d) Failure to execute final judgments or arbitral awards;
(e) Corruption of a judge;
(f) Discrimination against the foreign litigant;
(g) Breach of fundamental due process guarantees, such as a failure to give notice of the proceedings and
failure to provide an opportunity to be heard.
Page- 99 unctad
Focarelli (2009). See, for example, Pantechniki v. Albania, ICSID Case
No. ARB/07/21, Award, 30 July 2009, paras. 96-97; Jan de Nul v Egypt,
Award, 6 November 2008, paras. 255259.

Hearings in the legislation of MAB act

- unstable legal framework for advertisement and sale
It is well established in public international law that a failure of the state to inform others of
the proposed changes in policy or to retreat from previously made assurances may lead to
an obligation to indemnify the party which placed reliance upon the pre-existing state of
affairs to its own detriment. ( Bin Cheng, General Principles of Law as applied by International Courts
and Tribunals (CUP, Cambridge 1994) 137-43. See also WM Reisman and MH Arsanjani, The Question
of Unilateral Governmental Statements as Applicable Law in Investment Disputes (2005) ICSID Rev- FILJ
328. )

Stability

In the tribunals view, FET entitled foreign investors to expect the host state to act in a
consistent manner, free from ambiguity and totally transparently in its relations with the foreign
investors, so that it may know beforehand any rules and regulations that will govern its
investments, as well as the goals of the relevant policies and administrative practices or
directives, to be able to plan its investment and comply with such regulation.
(Tcnicas Medioambientales Tecmed SA v Mexico, Award, 29 May 2003 (ARB(AF)/00/2) 10 ICSID Rep
130.)

Legitimate expectation
FBI - sales and production since its inception under the State property fund was
prosperous - cite the circumstances of FBI before the acquisition
- the traditional use of Reyhan
The tribunal did not deny the existence of the right to stability and predictability of the legal
environment but simply stressed that an expectation of stability ought to be reasonable and
based on specific assurances made by the host state to the investor. 143
AES Summit Generation Limited and AES-Tisza Erm Kft v Hungary,

The warranty in the SPA

It is commonly agreed that where a host states conduct creates reasonable and justifiable
expectations on the part of an investor to act in reliance on the said conduct, a failure by the
host state to honour those expectations may cause the investor or investment to suffer
damages.
(Thunderbird, Award (n 24) para 147. For arbitral decisions referring to elements of legitimate
expectations, such as assurances and reliance, see Tecmed (n 102) para 154 (FET construed as a
standard of treatment that does not affect the basic expectations that were taken into account by the
foreign investor to make the investment), CME Czech Republic BV v Czech Republic, Partial Award and
Separate Opinion, 13 September 2001 (Ad hocUNCITRAL Arbitration Rules) para 155 (finding the
government in breach of FET by evisceration of the arrangements in reliance upon which the foreign
investor was induced to invest), Waste Management (n 24) para 98 (noting that for a breach of FET to be
established it is relevant that the treatment is in breach of representations made by the host State which
were reasonably relied on by the claimant). See also Saluka (n 24) para 302 (holding that legitimate
expectations has become the dominant element of FET).

Expropriation
Deprive of the use of trademark to distinguish the FBI from competitors
The goodwill established by the trademark and the traditional bottle size was desecrated
The value of the trademark was diminished
It construed the expropriation standard in Article 1110 NAFTA as justifying the finding of
expropriation whenever the interference with the use of investment has the effect of
depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected
economic benefit of property. (Metalclad Corporation v Mexico, Award, 25 August 2000 (ICSID Case
No ARB (AF)/97/1) (2001) 40 ILM 36 )

As stated by the tribunal in Pope & Talbot, expropriation requires a substantial

deprivation.14 After having observed that it might sometimes be uncertain whether a
particular interference is expropriatory, the tribunal found that the proper test would be to
examine whether the challenged regulation is sufficiently restrictive to support a conclusion
that the property has been taken from the owner. 15 (Pope & Talbot Inc v Canada, Interim Award,
26 June 2000 (Ad hocUNCITRAL Arbitration Rules) para 102. )
Interference of how to use and utilize the trademark - strict labeling requirement
- the peculiarity of the trademark was lost
There are certain types of measures or state conduct that are considered a form of
expropriation because of their material impact on propertyOne may distinguish between:
(a) outright suppression or deprivation of the right of ownership, usually by its forced
transfer to public entities; (b) limitations and hampering with property, short of outright
suppression or deprivation, interfering with one or more key features, such as management,
enjoyment, transferability, which are considered as tantamount to expropriation, because of
their substantial impact on the effective right of property. Both of these types of measures
entail indemnification under relevant international treaties16 (Continental Casualty Company v
Argentina, Award, 5 September 2008 (ICSID Case No ARB/03/9) para 276. )
It is not necessary that the the whole trademark be taken away nor does it require that
the CAM lose the legal title or ownership as to the trademark

For instance, the tribunal in SD Myers expressly held that in some contexts and
circumstances it would be appropriate to view deprivation as amounting to an expropriation
even if it were partial. (SD Myers Inc v Canada, First Partial Award and Separate Opinion, 13
November 2000 (Ad hocUNCITRAL Arbitration Rules) para 283.)

Without denying the possibility of a state being held responsible for a partial expropriation,
Kriebaum has argued that a deprivation should be deemed substantial in the case where an
investor has been deprived of a right which is capable of an economic exploitation
independently of the remainder of the investment. (Kriebaum (n 28) 83. Montt supports the idea
that the common denominator can be found in the capacity of an asset to be exploited independently of
the remainder of the investment. As he puts it, in establishing whether a deprivation is substantial only an
identifiable distinct part of an investment should be used as a reference unit (Montt (n 19) 270, emphasis
original). Thus, a concession contract is a separate investment that can be individually expropriated, but
bundles of rights within that contract are not autonomous and hence cannot be expropriated (ibid). )

The Chemtura v Canada tribunal acknowledged the fact that both an overall investment and
specific assets can be evaluated as part of an examination of whether a deprivation is
substantial enough to constitute an expropriation.
(Chemtura Corporation v Canada, Award, 2 August 2010 (Ad hocUNCITRAL Arbitration Rules) para 249.
The tribunal observed that [i]t would make little sense to state a percentage or a threshold that would
have to be met for a deprivation to be substantial as such modus operandi may not always be
appropriate. )

The Pope & Talbot tribunal held that the conduct of a host state would be expropriatory if it
involves detention of the investors employees, appropriation of the proceeds of the
companys business, interference with the management or shareholders activities,
preventing the investor from paying dividends or other actions ousting the investor from full
ownership and control.83
In contrast, the tribunal in Sempra v Argentina held that the substantial deprivation threshold
presupposed that the investor was no longer in control of its business operation or that the
value of the business was virtually annihilated. The tribunal established the existence of a
substantial deprivation by reference to both the loss by the investor of its rights of ownership
and control over the business and the economic loss reflected in the decrease of the
economic value of the business.
(Sempra Energy International v Argentina, Award, 18 September 2007 (ICSID Case No ARB/02/16) para
285. )
Similarly, in Occidental v Ecuador the existence of a substantial deprivation was determined
on the basis of the tribunals findings as to the effect of the disputed measures on both the
fundamental rights of ownership and the reasonably to be expected economic benefit.
(Occidental v Ecuador (n 36) para 88-89. See also LG&E v Argentina where in rejecting the claim of
expropriation, the tribunal discussed the substantiality of deprivation criterion by reference to both the
rights of ownership and the enjoyment and an economic value of an investment. )

In Bayindir v Pakistan, the tribunal considered a conduct-based analysis to be crucial in a

determination of whether an expropriation has occurred. 11 After identifying the assets that
were allegedly expropriated by the state in the exercise of its sovereign powers, the tribunal
held that, in order to establish the existence of an expropriation, analysis ought to focus on
the lack of public purpose, discrimination and a breach of due process, as well as an
absence of compensation and departure from general principles of treatment. ( 11 Bayindir
Insaat TurizmTicaretve Sanayi A v Pakistan, Award, 24 August 2009 (ICSID Case No ARB/03/29) para
446.)

Full Protection and Security

The foundations for this approach were laid in Saluka v. Czech

Republic.56 In the course of this decision the tribunal analysed the
balancing process involved in a claim based on breach of legitimate
expectations:
[Legitimate] expectations, in order for them to be protected,
must rise to the level of legitimacy and reasonableness in light
of the circumstances. [] No investor may reasonably expect
that the circumstances prevailing at the time the investment is
made remain totally unchanged. In order to determine whether
frustration of the foreign investors expectations was justified
and reasonable, the host States legitimate right subsequently
to regulate domestic matters in the public interest must be
taken into consideration as well. [] The determination of a
breach of Article 3.1 by the Czech Republic therefore requires a
weighing of the Claimants legitimate and reasonable
expectations on the one hand and the Respondents legitimate
regulatory interests on the other.[]
A foreign investor [] may in any case properly expect that the
Czech Republic implements its policies bona fide by conduct
that is, as far as it affects the investors investment, reasonably
justifiable by public policies and that such conduct does not
manifestly violate the requirements of consistency,
transparency, even-handedness and nondiscrimination. []
[T]he host State must never disregard the principles of
procedural propriety and due process and must grant the
investor freedom from coercion or harassment by its own
regulatory authorities.57 [Emphasis added]

Accordingly, the standard obliges the host State to adopt all reasonable measures to protect assets and
property from threats or attacks which may target particularly foreigners or certain groups of
foreigners.
OECD, Fair and Equitable Treatment Standard in International Investment Law, Working Papers on
International Investment, No. 2004/3 (2004)