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A. INVESTMENT

I. Introductory note

There is no single and finite definition of what constitutes foreign investment. 1 The absence
of a common or finite legal scope of the concept of foreign investment is due to the fact that
the meaning of the term investment varies according to the object and purpose of different
investment instruments which contain it.2 As such, the proliferation of different sources
results to the multiplicity of the definitions of an investment under international investment
law.3 Different instruments and arbitral practice recognize a large variety of operations to
constitute an investment.4 The Arbitration Institute of the Stockholm Chamber of Commerce,
in Petrobart v. Kyrgyz Republic5 aptly opined that there is no uniform definition of the term
investment, but the meaning of investment varies. The term investment must therefore be
interpreted in the context of each particular treaty in which the term is used pursuant to
Article 31 (1) of the Vienna Convention on the Law of Treaties.6

This concept of investment serves generally to circumscribe the scope of protection accorded
under investment treaties and the jurisdiction of investment arbitration tribunals. 7 This paper
thus discusses the diversity of understanding, interpretation and application of the concept
within the two foregoing confines of its relevance in international investment law.

II. Scope of protection – investment agreements

Earlier agreements which were aiming at the gradual liberalisation of capital movements
adopted a narrow approach and preferred to enumerate the transactions covered by these
agreements.8 However, contemporary multilateral and bilateral investment treaties and trade
agreements with investment chapters include a broad definition of investment. Most of these
definitions are open ended and cover both direct and portfolio investment. Their approach is
1
Catherine Yannaca-Small, Arbitration under International Investment Agreements: A Guide to the Key Issues
(Oxford University Press 2010) p. 266-301 (Yannaca)
2
Campbell Mclachlan, International Investment Arbitration: Substantive Principles. (2nd edn., Oup 2015).
3
ibid, Yannaca
4
ibid, Yannaca
5
Petrobart v. Kyrgyz Republic, Stockholm Chamber Case No. 126/2003, Final Award, 29 March 2005.
6
ibid, para. 69-70
7
August Reinisch and Christoph Schreuer, International Protection of Investments (Cambridge University Press
2020).
8
See, for example, Organisation for Economic Co-operation and Development (OECD) Code of Liberation of
Capital Movements, available at: https://www.oecd.org/daf/inv/investment-policy/Code-Capital-Movements-
EN.pdf; OECD Benchmark Definition of Foreign Investment (Draft) – 4th Edition,
DAF/INV/STAT(2006)2/REV. 3, 2007

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to give the term “investment” a broad, non-exclusive definition, recognising that investment
forms are constantly evolving.9

This broad scope is reflected in multinational and regional investment agreements. Article 1
(6) of the Energy Charter Treaty (ECT)10 defines investment as “every kind of asset” and
refers to any investment associated with an economic activity in the energy sector. Article
1139 of the North American Free Trade Agreement (NAFTA) 11 provides for a broad business
activity related, exhaustive list of assets, with specific exclusions. Investments under the
NAFTA include inter alia, portfolio investment, and partnership and other interests.

Different bilateral investment agreements (BITs), while adopting assets-based approach, have
different scopes of what constitutes an investment. The broad formula which refers to “every
kind of asset” has become a standard definition in most BITs 12 which contain a general
statement followed by a non-exhaustive list of categories of covered investments directly or
indirectly controlled by investors of either Party.13 Other BITs adopt a negative definition of
an investment – the provide for specific exclusions.14 Others require assets to adhere to
specific characteristics.15 The latter category is inspired by the test (Salini test) developed in
the case of Salini Costruttori S.P.A. and Italstrade S.P.A. v. Marocco 16

9
Catherine Yannaca-Small, ‘Definition of Investor and Investment in International Investment Agreements’ in
‘International Investment Law: Understanding Concepts and Tracking Innovations’ (2008) pg. 49 (Catherine)
10
Energy Charter Treaty of 1994, 2080 UNTS 100, 10 ICSID Rev—Foreign Investment L J 258, entered into
force, 16 April 1998
11
North American Free Trade Agreement (NAFTA) of 1994, entered in force 1 January 1994, available at:
https://www.trade.gov/north-american-free-trade-agreement-nafta#:~:text=The%20North%20American
%20Free%20Trade%20Agreement%20(NAFTA)%2C%20which%20was,U.S.%2DMexico%20bilateral
%20commercial%20relationship.
12
R. Dolzer and M. Stevens, Bilateral Investment Treaties (Martinus Nijhoff Publishers, 1995)
13
ibid, Catherine, pg. 50. See, Article 1.2 of the Agreement Between The Belgium-Luxembourg Economic
Union, On The One Hand, And ................................ On The Other Hand, On The Reciprocal Promotion And
Protection Of Investments, available at: https://edit.wti.org/app.php/document/show/54fd8446-5eea-4381-80d4-
afdf772727ac ; Article 1.2 of the Agreement Between The Government Of The Republic Of Korea And The
Government Of Japan For The Liberalisation, Promotion And Protection Of Investment of 2003, available at:
https://edit.wti.org/document/show/716ab61a-bcd0-4855-9f4e-a1931a3808fc
14
See, Article 1 of the Agreement Between The Government Of The United Mexican States And The
Government Of The Hellenic Republic On The Promotion And Reciprocal Protection Of Investments of 2000,
available at: https://edit.wti.org/app.php/document/show/f2e7f8f9-79f7-4145-8ea1-930417bc2187; Article 1 of
the Canadian Model Foreign Investment Promotion and Protection Agreement (FIPA) (2021) available at:
https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2820/download
15
See, Article 1 of the Treaty Between The Government Of The United States Of America And The
Government Of [Country] Concerning The Encouragement And Reciprocal Protection Of Investment, (2004,
US Model BIT)
16
Salini Costruttori S.P.A. and Italstrade S.P.A. v. Marocco ICSID Case No. ARB/00/4, Decision on
Jurisdiction, 23 July 2001. The Salini test has three characterists: a) duration; b) assumption of risk; and c) a
contribution of capital.

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Summarily, there are four basic definitional dimensions that most BITs take into
consideration: 1) the form of the investment; 2) the area of the investment’s economic
activity; 3) the time when the investment is made; and 4) the investor’s connection with the
other contracting state.17

II. Jurisdictional purposes

The concept of an ‘investment’ is also crucial for the establishment of the jurisdiction of
arbitral tribunals. Foreign investors are frequently given the choice to submit the investment
dispute to more than one dispute settlement mechanism.18 Jurisdictional questions relating to
the scope of arbitrable investment disputes may arise, no matter which forum of arbitration is
selected, since the jurisdiction of an arbitral tribunal under an applicable BIT relies on a
showing of the existence of an “investment.”19 Both within and outside, International Centre
for Settlement of Investment Dispute (ICSID) arbitration, investment tribunals have varying
interpretation of the concept of ‘investment’ when dealing with jurisdiction matters.

In the case Link-Trading v. Department for Customs of Republic of Moldova,20 the claimant
submitted to an ad hoc UNCITRAL arbitration a claim under the 1993 US-Republic of
Moldova BIT alleging to have suffered an indirect expropriation because of a change in the
rates of duties and VAT exemptions, the effect of which was to destroy the economic
viability of the claimant’s business consisting essentially of the duty-free import of consumer
products into the Free Economic Zone of Chisinau and their resale to Moldovan customers.
Since the BIT permits claims to expropriation to be brought to UNCITRAL arbitration if they
constitute an investment dispute within Article 1 (a) of the BIT hence it assumed jurisdiction.

In Petrobart v. Kyrgyz Republic,21 a case brought under the ECT under the auspices of the
Arbitration Institute of the Stockholm Chamber of Commerce, the arbitral tribunal had to
decide whether a contract for the sale of gas condensate, which did not involve any transfer
of money or property as capital in a business, qualified as an investment under the ECT. In a
previous action brought by Petrobart against the Kyrgyz Republic under Kyrgyz Foreign
Investment Law, an UNCITRAL Tribunal declined jurisdiction. The question before the

17
J.W. Salacuse and N.P. Sullivan, “Do BITs Really Work? An Evaluation of Bilateral Investment Treaties and
their Grand Bargain”, (2005) Harvard International Law Journal pg. 67
18
supra, Catherine, pg. 53
19
ibid, Catherine
20
Link-Trading v. Department for Customs of Republic of Moldova, UNCITRAL Arbitration, Award on
Jurisdiction, 6 February 2001.
21
supra, Petrobart

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Stockholm Tribunal was whether the sale of goods constituted an investment under the ECT.
The Tribunal found that a right conferred by contract to undertake an economic activity
concerning the sale of gas, including the right to be paid for such a sale, is an investment
according to the Treaty.

Investment disputes within the ICSID arbitration are of a special nature since the dispute
concerned must qualify for coverage not only under the bilateral or multilateral investment
treaty, but also under the ICSID Convention. 22 In order to accept jurisdiction under the ICSID
Convention, arbitral tribunals have to consider whether there is an “investment” under Article
25(1) of the Convention, as well as under the relevant investment agreement.

ICSID jurisprudence on the scope of this concept of investment has varied greatly according
to the specific circumstances of each case.23 In Salini v. Marocco24 the arbitral tribunal held
that a civil construction contract was an investment within the meaning of the Italy-Morocco
BIT since it created “a right to a contractual benefit having an economic value” covered by
Article 1(c) as well as a “right of economic nature conferred […] by contract” under Article
1(e). The tribunal observed that the investment requirement must be respected as an objective
condition of the jurisdiction of the Centre, which cannot be diluted by the consent of the
parties. In Liberian Eastern Timber Corporation (LETCO) v. Government of the Republic of
Liberia,25 amounts paid out to develop a concession and other undertakings based on a
concession agreement, were considered to qualify as an investment under the Convention.

Summarily, according to ICSID jurisprudence, there are five features of an investment under
the Convention: a) the project should have a certain duration; b) there should be a certain
regularity of profit and return; c) there is typically an element of risk for both sides; d) the
commitment involved would have to be substantial; d) the operation should be significant for
the host state’s development.26

22
A. Parra “Investments and Investors covered by the ECT and other investment protection treaties” in C.
Ribeiro (ed.), Investment Arbitration and the Energy Charter Treaty (Juris Publishing, 2006) pg. 51
23
See, PSEG Global Inc., The North American Coal Corporation, and Konya Ilgin Elektrik Üretimve Ticaret
Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5 Decision on Jurisdiction, 4 June 2004; M.C.I.
Power Group L.C. and New Turbine Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July
2007; L.E.S.I. S.p.A. et ASTALDI S.p.A. v. République Algérienne Démocratique et Populaire, Decision on
Jurisdiction, ICSID Case No. ARB/05/3, 12 July 2006
24
supra, Salini case
25
Liberian Eastern Timber Corporation (LETCO) v. Government of the Republic of Liberia, 1984, (1994), 2
ICSID Reports, para. 346
26
See, Christoph Schreuer and International Centre For Settlement Of Investment Disputes, The ICSID
Convention: A Commentary: A Commentary on the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (Cambridge University Press 2009) pg. 139-141.

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