Regulatory Expropriation

1
Swiss Invest Forum 7 March 2008
WHAT CONSTITUTES AN INVESTMENT?
Dr Veijo Heiskanen LALIVE
2
Definition of investment

• No universally agreed definition
• ICSID Convention no definition
• BITs no uniform approach
• Case law competing doctrines
• Economics/finance meaning of the term depends
  on the context

3
ICSID

• Definition of investment left intentionally
  open
• Art. 25(1)
• the jurisdiction of the Centre shall extend to
  any legal dispute arising directly out of an
  investment
• In one instance ICSID refused to register a claim
  arising out of a sales transaction

4
BITs

• Swiss Model BIT Article 1(2)
• A broad definition including moveable
  immoveable property and any rights in rem shares
  and other kinds of participation in companies
  claims to money or performance intellectual
  property (incl. know-how and goodwill)
  concessions under public law

5
BITs (contd)

• US Model BIT Article 1
• General criteria commitment of capital or other
  resources expectation of gain or profit
  assumption of risk
• Examples enterprise shares, stock equity
  bonds, loans other debt instruments futures,
  options derivatives turnkey other similar
  contracts IP rights conferred by law all types
  of property and property rights

6
Doctrine

• Objective approach
• General criteria certain duration certain
  expectation of profit return assumption of
  risk contribution to the economic development of
  the host State
• Subjective approach
• No pre-established criteria depends on what the
  parties have agreed

7
Case law

• Fedax v. Venezuela
• Promissory notes qualified as investment
• Focus on general criteria
• CSOB v. Slovakia
• Loan agreement an investment as an integral part
  of an overall operation
• Focus on the terms of the BIT agreement

8
Case law (contd)

• Salini v. Morocco
• Highway construction project qualified as an
  investment
• Focus on general criteria
• Mihaly v. Sri Lanka
• Pre-investment development expenditures not an
  investment

9
Case law (contd)

• SGS v. Pakistan
• Provision of certification inspection services
• Focus on the terms of the BIT
• SGS v. Philippines
• Idem
• Petrobart v. Kyrgyz Republic
• Money claim under sales contract an investment
• Focus on the terms of the Energy Charter Treaty

10
Conclusion

• Competing approaches
• General criteria v. contextual approach
• Contextual approach gaining ground
• Sales contracts more likely to be seen as
  investments if no longer ongoing (capitalization
  of claims)