Authors:
Kunal Verma and Yugandhara Pawar Jha.
Date: 21.05.2020
The term jurisdiction in common parlance denotes the court or the tribunal’s authority to hear the case whereas in international arbitration the notion of jurisdiction is also equated with the competence of the tribunal, which is generally based on the consent of the parties and the same could also be true for the jurisdiction of international courts and tribunals. In practice, the jurisdictional objections concern the issue of whether the parties have consented to have the case decided by the tribunal at all. The jurisdictional limitations of the ICSID Convention (‘Convention’) can be found in the bare provisions of the Convention and the ICSID Arbitration Rules (‘Rules’). In particular the jurisdiction of the ICSID arbitration is governed by Article 25 of the ICSID Convention and further complemented by Articles 36(3) and 41 of the Convention respectively. The said provisions in the Convention are also complemented by Rule 41 (Preliminary Objections) and Rule 42(4) (Default) of the Rules. Notably, four key elements must be satisfied in order to establish jurisdiction under the Convention namely, the existence of a legal dispute; the legal dispute must be arising directly out of an investment; the investment must be between a Contracting State and a national of another Contracting State and lastly the necessity of consent in writing. In order to understand the jurisdictional limitations of the ICSID Convention, it is imperative to analyse the aforesaid four requirements in greater detail. The first two requirements encapsulate the jurisdiction rationae materiae i.e. the subject matter jurisdiction of the Centre. The Report of the Executive Directors on the Convention describes the first requirement as the existence of a disagreement concerning the scope of a legal right or obligation, or the nature or extent of the reparation to be made for breach of a legal obligation’. The International Court of Justice defines a dispute as a “disagreement on a point of law or fact” and in the same vein several ICSID tribunals have also adopted similar description of “disputes”. Such a requirement also presupposes a minimum threshold of communication between the disputing parties and the existence of a natural sequence of events leading to a dispute, however, failure to respond to a specific claim within a reasonable time would be sufficient to establish the existence of a dispute. An important distinction also needs to be drawn between ‘disputes’ and ‘divergences’ as there is a subtle difference in the degree of animosity in the situations. The timing of the disputes may also have an impact especially when the agreement specifies that it applies only to disputes that arise after the entry into force of the agreement. The tribunal in such a situation would determine when the dispute actually arose, and jurisdiction may not be available if the dispute arose before the investment treaty comes into force.
Furthermore, the Convention in Article 25(4) provides for the possibility of exclusion of certain types of disputes by the state vide a notification to the Centre. Such a notification is not a reservation to the Convention and it should not be construed as the expression of a state’s consent to jurisdiction nor does it limit the state’s ability to give consent with respect to a dispute falling into the list of excluded disputes. The Centre has received seven notifications under the aforesaid provisions as of date. In this regard, it is pertinent to observe that no published ICSID award appears to have denied jurisdiction on the ground of non-existence of a ‘legal dispute’.
The second requirement or limitation forming part of the jurisdiction rationae materiae of the Centre is the necessity for a claim to emanate directly out of an investment. Notably, the Convention does not categorically define investment and the tribunals ceased with the issue usually determine it using a set of criteria considered inherent to the notion of investment. An exposition of this position shall also address the issue of whether the Convention should define investment or not. Ordinarily, the states define investment in the International Investment Agreement i.e. in the Bilateral Investment Treaty or in the Investment Chapter contained in the Trade Agreement or through the procedure set out by the Convention or by expecting state consent to manage the jurisdiction of the Centre. However, successive arbitral panels realized the absence of an objective criteria setting out the contours of Centre’s authority and that consent alone could not qualify as an investment. The initial foundations of a workable test to determine whether something falls within the ambit of investment was laid down in Fedax N.V. vs. The Republic of Venezuela and was later crystallized and established by the arbitral tribunal in Salini et al v. Morocco, which propounded a set of objective criteria known as the Salini Test and today remains the leading case on the subject.
The aforesaid test defines an investment as having four vital elements: a contribution of money or assets to the host states economy; a certain duration of this contribution or commitment; the assumption of risk and the expectation of profit; and a contribution to the economic development of the host state. Several subsequent tribunals have dealt with this subject upholding the tests, albeit some appear to have taken a diverging position either by questioning the veracity or the relevance of the fourth prong i.e. a contribution to the economic development of the state or by adding a further element to the aforesaid catalogue such as the necessity of an investment being made in good faith. Some recent tribunals also highlight the need for greater flexibility in applying these criteria and the need for exempting the non-fulfilment of certain elements in justifying something as investment. The Salini catalogue has also come under attack in some recent cases where the tribunal expressed doubts about their relevance at the first place.
As regards the jurisdiction rationae personae of the Centre, it is noteworthy that the Convention categorically requires the dispute to be between the national of a Contracting State and a Contracting State or any constituent subdivision or agency of the state designated to the Centre by the State. The term national of a Contracting State includes both natural and juristic persons, however, persons with dual nationality are expressly excluded with the nationality of the Respondent State in the Convention whereas the Centre’s jurisdiction could extend to foreign-controlled juridical persons with the nationality of the State that is a party to the dispute, in the event of a specific agreement in this regard. Moreover, the Convention merely states the outer limits of who may be the national of a Contracting State and leaves the ultimate question of determining nationality to the Contracting State itself.
Furthermore, consent with regard to submission to ICSID arbitration forms another essential jurisdictional requirement of the Centre in addition to the foregoing jurisdictional limitations. Article 25 of the Convention categorically requires the consent of the parties to submit the dispute to the Centre. Notably, apart from the above-mentioned jurisdictional requirements, the primary requirement is the existence of an agreement referring the dispute to arbitration under the relevant set of rules. In investment arbitration, such an agreement is formed by the investor accepting the host state’s offer to arbitrate found in the dispute resolution clause of the relevant international investment agreement, which is traditionally done by filing a notice to arbitration. Additionally, the investor invoking a treaty-based arbitration also needs to demonstrate the existence of a prima facie case with respect to the breach of a treaty-based protection accorded to the investor as an additional requirement to establish jurisdiction before the tribunal.
