Journal of International Arbitration 26(1): 1–23, 2009.

© 2009 Kluwer Law International. Printed in The Netherlands.

“Investment” and “Investor” in Energy Charter

Treaty Arbitration: Uncertain Jurisdiction
“Investment” and “Investor” in Energy Charter Treaty Arbitration: Uncertain Jurisdiction

Anna Turinov*
Journal of International Arbitration

Michael

Moser

Dominique

Establishing investor status is a precondition for substantive protections, and a key jurisdictional issue in
Journal of International Arbitration
Hascher
2009 Volume 26 Issue xxx

arbitration, of investor-state disputes under the Energy Charter Treaty (ECT). This article argues that the
differences in the ways the term “investment” is interpreted in arbitration under the ICSID Convention and
in international commercial arbitration are to a large extent preserved in arbitration under the Energy Charter
Treaty. In ICSID arbitration, which preserves many elements of state sovereignty, tribunals have set a higher
threshold for “investment.” In international commercial arbitration, on the other hand, the Arbitration Institute
of the Stockholm Chamber of Commerce (SCC) has interpreted the term more broadly, thus capturing more
investor activities in the energy sector of the host states. Moreover, both types of arbitral procedure available
under the Energy Charter Treaty continue to have their respective advantages and disadvantages. However,
given the changing role of states in the global energy sector, this traditional divide may become less clear.

1. Introduction
Investment in the energy sector has undergone significant transformation in the last
two decades. Western states’ reliance on imported oil and gas has increased. At the same
time, privatization, liberalization, and deregulation became the dominant view in the
energy-producing states,1 leading those states to adopt guarantees against discrimination,
expropriation without compensation, unjustified restrictions on the transfer of funds, and
breaches of investment contracts by the host states. The Energy Charter Treaty (ECT),2
a Multilateral Investment Treaty (MIT) instrument concluded in 1994, is a unique
framework for such energy cooperation between investors and the host states. The
ECT is designed to promote energy security through the operation of more open and
competitive energy markets3 primarily between the states of the European Union and the
former Eastern bloc.
Similar to many bilateral investment treaties (BITs), ECT investors can enforce
substantive guarantees against the host states by seeking arbitration under the International
Centre for Settlement of Investment Disputes (ICSID) Convention4 or international
commercial arbitration. The jurisdictional question in investment arbitration often turns

* Law Clerk at the Federal Court of Appeal, Ottawa, Canada; B.A. Hons (McGill), M.A. (University of British
Columbia), LL.B. (University of British Columbia). The author wishes to thank Henri C. Alvarez, Q.C. and Tina
Cicchetti of Fasken Martineau DuMoulin, L.L.P. for their valuable feedback.
1
Thomas W.Wälde, The Role of Arbitration in the Globalisation of Energy Markets: Perspective in the Year 2000 Ogel
(2008).
2
Energy Charter Treaty, Final Act, December 17, 1994, 2080 U.N.T.S. 100 (No. 36116), 33 I.L.M. 360
[hereinafter “ECT”].
3
Energy Charter Secretariat, 1994 Treaty, available at <www.encharter.org>.
4
Convention on the Settlement of Investment Disputes Between States and Nationals of Other Countries,
March 18, 1965, 575 U.N.T.S. 159 & 1639 U.N.T.S. 409, 4 I.L.M. 532 [hereinafter “ICSID Convention”].
2 journal of international arbitration

on the meaning of “investor” and “investment.” In the former case, the contracting states
raise a jurisdictional objection that the claimant was not an investor of another contract-
ing state, and therefore had no standing to commence a dispute. In the latter case, the
contracting states often attempt to exclude specific sectors of economic activity from the
subject matter of investment.5 Although usually raised as separate objections, the two
terms are often interlinked.
This article argues that the interpretation of “investment” is of primary importance
to the investor’s ability to get protection in two distinct kinds of arbitration, namely
ICSID arbitration and international commercial arbitration. Important differences remain
in the ways “investment” is interpreted by each respective arbitral tribunal. The ICSID
Convention sets a higher threshold for what constitutes an “investment.” International
commercial arbitration tribunals, on the other hand, adopt a broader interpretation of
“investment,” thus capturing more investor activities. Nonetheless, this article concludes
by observing that the traditional divide between “investment” in ICSID and in commercial
arbitration is becoming increasingly less clear.
The article is divided as follows. Part II provides a brief overview of the ECT. Part
III discusses the differences between the sources, which inform interpretation of “invest-
ment” and “investor” in the ECT, namely the ICSID Convention and international
commercial arbitration. Part IV discusses the differences in the approaches adopted by
ICSID tribunals and commercial tribunals in ECT disputes. Part V evaluates the respec-
tive merits of each arbitral procedure and highlights some implications for the future.

2. Overview of the ECT

2.1. Context of the ECT
The ECT is a product of the post-Cold War era. The resulting fundamental changes
in European and world politics brought about unprecedented interest in energy cooper-
ation between the West and the states of the former Soviet Union.6 The dissolution of the
U.S.S.R. was perceived as a risk to a once centrally-owned energy transit system covering
Central Asia and Eastern Europe. At the same time, the newly opened resources in the
Caspian region presented the energy-hungry European Union with an opportunity to
strengthen energy security.
The exploitation of these resources would require substantial investments from the
West leading to the European Energy Charter, a political declaration signed by fifty-six
states in 1991. The purpose of the Charter was to promote creation of conditions that
would stimulate the flow of private investment and participation of private investors on a
non-discriminatory basis, while confirming the principle of respect for state sovereignty

5
Marc Lalonde, The Evolving Definition of Arbitration and Arbitrability, ICCA Congress Series No. 9, 189, 194
(Albert Jan van den Berg ed. 1999).
6
Graham Coop, The Energy Charter Treaty: More than a MIT, in Investment Arbitration and the Energy
Charter Treaty 3 (Clarisse Ribeiro ed., 2006).
 “investment” and “investor” in energy charter treaty arbitration 3

over natural resources and the importance of environmentally sound energy policies.
Further, the Charter stressed the need for a binding international legal framework for
energy cooperation. The Charter led to the signing of the legally binding ECT in Lisbon
in 1994 and its entry into force on April 16, 1998.7
The ECT originated largely as a product of EU external, political, economic, and
energy policy. It reflects the EU internal debates on energy, and is therefore more linked
to the EU integration and external relations, than to other BITs.8 Although the United
States, Canada, Australia, and Japan signed the original Charter in 1991, the United
States and Canada never became parties to the 1994 ECT, and Australia has yet to ratify
the Treaty.
The ECT is the first multilateral investment agreement and is the world’s largest
MIT. It is much larger than other MITs such as the North American Free Trade Agree-
ment (NAFTA),9 ASEAN Agreement for the Promotion of Protection of Investments,10
and the Colonia and Buenos Aires Investments Protocols of MERCOSUR.11 The ECT
is the equivalent of, and replaces the need for, around 2,000 BITs in the energy sector
between some fifty-two contracting parties, both those in transition and OECD mem-
bers.12 The ECT has been signed or acceded to by fifty-one states plus the European
Community; the total number of its signatories is therefore fifty-two. As of 2007, the
ECT had been ratified by forty-eight members.13

2.2. Investment framework of the ECT

The ECT extends protection to four pillars: trade, transit, energy efficiency, and
investment. The substantive investment obligations are set out in Part III entitled Invest-
ment Protection and Promotion. These obligations include minimum international

7
Id. at 4–5.
8
Thomas W. Wälde, International Investment Under the 1994 Energy Charter Treaty, in The Energy Charter
Treaty: An East-West Gateway for Investment and Trade 251, 254– 57 (Thomas W. Wälde ed., 1996).
9
North American Free Trade Agreement Between the Government of Canada, the Government of Mexico
and the Government of the United States, December 17, 1992, Can. T.S. 1994 No. 2, 32 I.L.M. 289 (entered into
force January 1, 1994), Chapter 11, available at <www.nafta-sec-alena.org> (NAFTA).
10
An Agreement for the Promotion and Protection of Investments Between ASEAN Nations, December 15,
1987, 27 I.L.M. 612.
11
Protocol of Colonia for the Promotion and Reciprocal Protection of Investments Within MERCOSUR,
Colonia do Sacramento, January 17, 1994, concluded under the Asuncion Treaty establishing MERCOSUR, March
26, 1991, 30 I.L.M. 1041 (1991); Buenos Aires Protocol on the Protection and Promotion of Investments made by
Countries that are not Parties to MERCOSUR, August 8, 1994, concluded under the Asuncion Treaty establishing
MERCOSUR, March 26, 1991, 30 I.L.M. 1041.
12
Wälde, supra note 8, at 260.
13
Charter Signatories which have deposited instruments of ratification, approval of, or accession to the Treaty
are Georgia, Slovakia Latvia, Uzbekistan, Czech Republic, Moldova, Kazakhstan, Switzerland, Bulgaria, Tajikistan,
Kyrgyzstan, Turkmenistan, Romania, Greece, Slovenia, Luxembourg, Croatia, Liechtenstein, Austria, Denmark, Fin-
land, Germany, Italy, Netherlands, Portugal, Spain, Sweden, United Kingdom, European Community, Azerbaijan,
Cyprus, Armenia, Albania, Macedonia, Hungary, Estonia, Belgium, Lithuania, Ukraine, Ireland, France, Mongolia,
Turkey, Poland, Bosnia-Herzegovina, Malta, Japan. Charter Signatories which have signed the ECT but have not yet
deposited instruments of ratification, approval of, or accession to the Treaty are Australia, Belarus, Iceland, Norway,
and Russian Federation. Note that Belarus and Russian Federation apply the Treaty provisionally. See Energy Charter
Secretariat, supra note 3.
4 journal of international arbitration

standard of investor treatment,14 protection against discrimination, examination in good

faith of investor requests,15 compensation for expropriation and other losses such as those
caused by armed conflict, state of national emergency, civil disturbance, or other similar
event,16 unjustified restrictions on the transfer of funds, and breaches of investment
contracts.17
Article 10, the umbrella clause of the ECT, emphasizes “pacta sunt servanda,” the
principle of good faith requiring each contracting party to observe any investment-
related obligation. At the same time, the so-called “denial of benefits” clause of the ECT
allows the contracting parties to limit the benefits of the Treaty. Article 17(1) provides
that:
Each contracting party reserves the right to deny the advantages of this Part to:
(1) a legal entity if citizens or nationals of a third state own or control such entity and if that
entity has no substantial business activities in the Area of the contracting party in which it is
organized …18
Complaints against ECT host states in respect of breach of substantive obligations
can be launched by the investors through an integrated and efficient procedure. This pro-
cedure is set out in Article 26 of Part V of the Treaty, which governs dispute settlement.
Where investors decide to proceed to arbitration, they are given the option to choose
ICSID arbitration, including the ICSID Additional Facility for the Administration of
Proceedings.19 The investors are given a further option to choose among two kinds of
international commercial arbitration: institutional arbitration under the auspices of the
Arbitration Institute of Stockholm Chamber of Commerce (SCC), and ad hoc arbitra-
tion under the Arbitration Rules of the United Nations Commission on International
Trade Law (UNCITRAL).20 There are currently eighteen reported cases that have
been brought by investors to international arbitration using these various options.21 An
investor, however, is limited to the disciplines contained within Part III of the ECT.
Non-compliance with obligations under three other pillars is excluded from investment
arbitration and is subject to the state-to-state dispute settlement mechanism.22

14
ECT, supra note 2, art. 10.
15
Id. art. 11.
16
Id. arts 12–13.
17
Id. art. 14.
18
Id. art. 17.
19
ICSID Additional Facility Rules, September 27, 1978, 21 I.L.M. 1443 (1982), authorize the ICSID Secre-
tariat to administer certain categories of proceedings between states and nationals of other states that fall outside the
ICSID Convention. These are (i) fact-finding proceedings; (ii) conciliation or arbitration proceedings for the settle-
ment of investment disputes between parties one of which is not a contracting state or a national of a contracting
state; and (iii) conciliation and arbitration proceedings between parties at least one of which is a contracting state or
a national of a contracting state for the settlement of disputes that do not arise directly out of an investment, provided
that the underlying transaction is not an ordinary commercial transaction.
20
Arbitration Rules of the United Nations Commission on International Trade Law, June 21, 1985, U.N. Doc.
A/40/17, Annex I, 24 I.L.M. 1302 [hereinafter “UNCITRAL Rules”].
21
Energy Charter Secretariat, supra note 3.
22
ECT, supra note 2, art. 27.
 “investment” and “investor” in energy charter treaty arbitration 5

The ECT is notable for going beyond BIT practices in its emphasis on extensive
state responsibility for subnational authorities and enterprises toward investors.23 Further,
as a treaty with focus on investment in the energy sector, the ECT imposes a number of
environmental obligations on the contracting parties, including explicit reference to sus-
tainable development.24 Finally, the ECT is not a stand-alone treaty. Most of its terms are
borrowed from other instruments of international economic law such as NAFTA and
various BITs, and need to be constructed in alignment with the emerging jurisprudence
of these treaties.25

3. Informative Sources of “Investment” in the ECT: The ICSID Convention and

International Commercial Arbitration
3.1. Two competing paradigms of protected “Investment”
It has been suggested that the definitions of “investment” and “investor” for the pur-
poses of jurisdiction under the ECT are of secondary significance because jurisprudence
has been close to establishing relative clarity.26 Most recent jurisprudence, however, indi-
cates that the issue is far from settled and remains of primary significance because of the
important differences in the way “investment” is interpreted in ICSID arbitration and
international commercial arbitration.
Investor-state arbitration is positioned somewhere between international commer-
cial arbitration and an incipient form of international, quasi-judicial review of regulatory
and administrative conduct by nation-states. Two paradigms compete for understanding of
investment arbitration. A traditional, state-centred public international law view, exempli-
fied to some extent by ICSID arbitration, will tend to read the relevant treaties in favour
of greater control of governments. A more modern approach more akin to the concept
of commercial arbitration will favour greater respect for individual rights against states.27
The two approaches will not necessarily accommodate the same types of “investment,”
and these differences are important to take into consideration in investor choice of an
arbitral procedure.

3.1.1. Investment in ICSID Arbitration

The paradigm of investment arbitration exemplified by the 1965 ICSID Convention
is reflected in a growing body of academic writing that analyzes the effect of investment

23
Id. art. 23.
24
Id. art. 19.
25
Thomas W. Wälde, Investment Arbitration Under the Energy Charter Treaty: An Overview of Selected Key Issues
Based on Recent Litigation Experience, 1 Transn’l Dispute Management 6 (No. 2, 2004).
26
Id. at 33.
27
Todd Weiler and Thomas W. Wälde, Investment Arbitration Under the Energy Charter Treaty in the Light of New
NAFTA Precedents: Towards a Global Code of Conduct for Economic Regulation , 1 Transn’l Dispute Management
(No. 1, 2004).
6 journal of international arbitration

treaties as bestowing upon eligible individuals or private entities the status of a subject
of international public law.28 Such view calls for a more restrictive interpretation of
“investment,” to the possible exclusion of ordinary commercial and contractual activities.
The ICSID Convention and the 1967 OECD Draft Convention on the Protection
of Foreign Property29 were inspired by the classical economic definition of foreign direct
investment (FDI), which preserved many elements of state sovereignty. FDI was under-
stood as the investor’s material and permanent presence in the economy of the host
state.30 Recognizing the absence of recourse in public international law against political
risks that such investments faced in the host states,31 the ICSID Convention created a
new arbitral forum for the resolution of disputes between investors and state. As a result,
many states began concluding treaties for the promotion and protection of investment
known today as BITs.
BITs, and subsequently the MITs, have introduced two important things. First, they
contain the co-called “investment chapters,” which create substantive obligations of the
states vis-à-vis investors. Secondly, in addition to a state-to-state mechanism for settlement
of disputes relating to investment, the treaties create an arbitral procedure, which gives
investors direct recourse against a host state to enforce these substantive obligations.32
In both ICSID arbitration and international commercial arbitration, jurisdiction is
established by consent of the parties to arbitration of disputes arising out of investment.
In both kinds of arbitration, the investor’s activity at issue must constitute an “investment”
in a subjective sense under an applicable BIT. Unlike commercial arbitration, ICSID
imposes an additional requirement. The activity must constitute an “investment” in an
objective sense under the ICSID Convention, an approach now well established in
investor-state jurisprudence.33 This second requirement imposes an arguably higher
jurisdictional threshold.
In ICISD arbitration, unlike commercial arbitration, subjective consent of the state
to arbitration is not established exclusively through an arbitration agreement in state con-
tracts. In addition to such arbitration agreements, travaux préparatoires of the ICSID Con-
vention also made it clear that consent of the state to arbitration could be established
through the provisions of an investment law.34 The Convention does not require that the
consent of both parties be expressed in a single contractual document. Thus, consent can

28
Henri C. Alvarez & Dierk Ullrich, Guided by an Invisible Hand: Public Policy under Chapter 11 of the
North American Free Trade Agreement, address at the 8th IBA International Arbitration Day Conference, March 18,
2005, at 11.
29
OECD Draft Convention on the Protection of Foreign Property, October 12, 1967, 7 I.L.M. 117 (1968).
Although the OECD Convention was never adopted, it served as an example for the first European investment
treaties.
30
Bruno Poulain, L’investissement international: définition ou définitions?, in Les aspects nouveaux du droit des
investissements internationaux [New Aspects of International Investment Law] 123, 126 (Philip Kahn &
Thomas W. Wälde eds., 2007).
31
Christoph Schreuer, The ICSID Convention: A Commentary 124 (2001).
32
A. Redfern & M. Hunter, Law and Practice of International Commercial Arbitration paras. 11– 03,
11–04 (4th ed. 2004).
33
Poulain, supra note 30, at 125–27.
34
Redfern & Hunter, supra note 32, para. 11– 03.
 “investment” and “investor” in energy charter treaty arbitration 7

be found in the host state’s investment protection legislation providing for submission of
disputes arising out of certain classes of investment to the ICSID jurisdiction.35
Consent to arbitration of investment disputes in an objective sense is established
pursuant to Article 25(1) of the ICSID Convention. Unlike BITs and most domestic
investment protection legislation, the ICSID Convention does not contain a definition of
“investment.” The travaux préparatoires of the Convention show that the omission was
intended by the Treaty drafters to leave it with a great degree of flexibility in the evolution
of international investment.36 Article 25(1) only states that:
The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment,
between a Contracting State (or any constituent subdivision or agency of a Contracting State des-
ignated to the Centre by that State) and a national of another Contracting State, which the parties to
the dispute consent in writing to submit to the Centre. When the parties have given their consent,
no party may withdraw its consent unilaterally.37
The objective criteria of “investment” for the purposes of Article 25(1) of the ICSID
Convention were most explicitly articulated in Salini v. Morocco.38 These criteria, known
as the Salini test, include regularity of profits and returns, contribution made by investor
in performance of the activity, duration of a contract, investor participation in the risks of
the transaction, and contribution to economic development of the host state.39 ICSID
tribunals would look for the presence of all criteria, but adopt an empirical approach in
determining whether there is an “investment.”40 In those cases, where the evidence in
support of one or more of the criteria is weak, a tribunal may approach the issue globally
and determine whether other evidence in support of the other criteria can offset this
weakness.41 All criteria have to be present; however, the extent to which the criteria are
met will depend on each specific case.42
The restrictive approach of ICSID toward “investment” is most clearly seen in the
area of disputes over contractual rights in sale of goods and services. The decisions on
jurisdiction in those disputes demonstrate that the purpose of the BITs and the ICSID
Convention is not to protect foreign property rights per se.43 For example, in Joy Min-
ing,44 an ICSID tribunal declined jurisdiction in a dispute arising out of a contract for the
provision of mining equipment and related services backed by a letter of guarantee

35
ICSID, Report of the Executive Directors of the International Bank for Reconstruction and Development on the Conven-
tion on the Settlement of Investment Disputes Between States and Nationals of Other States, in ICSID Convention, Regu-
lations and Rules, ICSID/15, 37, para. 24 (2006).
36
Redfern & Hunter, supra note 32, para. 11–09; Poulain, supra note 30, at 127–28.
37
ICSID Convention, supra note 4, art. 25(1) (emphasis added).
38
Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Deci-
sion on Jurisdiction, July 23, 2001, 42 I.L.M. 609 (2003) paras. 44 and 63 [hereinafter “Salini”].
39
Id. paras. 50–58.
40
Id. paras. 105–06.
41
Malaysian Historical Salvors S.D.N., B.H.D. v. Government of Malaysia, ICSID Case No. ARB/05/10,
Award on Jurisdiction, May 17, 2007 [hereinafter “M.H.S. v. Malaysia”].
42
Id. para. 70.
43
Walid Ben Hamida, Two Nebulous ICSID Features:The Notion of Investment and the Scope of Annulment Control.
Ad Hoc Committee’s Decision in Patrick Mitchell v. Democratic Republic of Congo, 24 J. Int’l Arb. 287, 293 (2007).
44
Joy Mining Machinery Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction,
July 30, 2004, 44 I.L.M. 73 (2005) para. 53 [hereinafter “Joy Mining”].
8 journal of international arbitration

between a U.K. investor and an Egyptian state entity. The tribunal held that the contract
was not an “investment” for the purposes of Article 25(1) of the ICSID Convention.
Rather, it was an ordinary sales contract for the supply of goods. The contract made no
reference to investment. No steps were taken to qualify it as an investment under the
Egyptian mechanisms or to take advantage of any of the incentives offered by Egypt to
foreign investors.The duration of commitment was not significant.The contract was sub-
ject to ordinary commercial risk. The contract could not be compared with the concept
of “contrats de développement économique” or even contracts entailing the concession
of public services.45
Similarly, in M.H.S. v. Malaysia, the tribunal declined jurisdiction in a dispute arising
out of a contract for the salvage operation of a nineteenth century vessel. The operation,
largely for archaeological and historical purposes, did not constitute an “investment.” The
long-term contract failed to satisfy the duration criteria in a qualitative sense because the
claimant could have performed it in less than two years. The risks assumed by the claim-
ant were only normal commercial risks. The contribution to economic development of
Malaysia was not significant.46
Further, the restrictive approach of the ICSID Convention is substantiated by the
tribunals’ emphasis on contribution of an investment activity to economic development
of the host state. In Mitchell v. Congo,47 the tribunal emphasized that such contribution
was an essential, fundamental, and unquestionable (although not a sufficient) criterion of
the investment.48 The claimant, a U.S. investor, successfully established violation of certain
obligations in respect of property of, and services provided by, a law firm under the
United States-Democratic Republic of Congo (DRC) BIT. The DRC applied for the
annulment of an award with the ICSID ad hoc Committee, arguing that there was no
investment. The ad hoc Committee agreed that a law firm was an uncommon operation
from the standpoint of the concept of “investment.” The claimant would have to demon-
strate concrete assistance to the DRC by providing legal services in a regular manner such
as bringing investors into the DRC.49 There was a further danger that such award might
open the door for abuse of granting investor status to any law firm established in a foreign
country, thereby enabling it to take advantage of the ICSID arbitration system.
However, ICSID tribunals have not been entirely consistent in this restrictive
approach toward “investment.” The Salini decision, where the objective criteria of
“investment” were articulated, established a clearly lower threshold for “investment” than

45
Id. paras. 55–57.
46
M.H.S. v. Malaysia, supra note 41, paras. 110–12, 144.
47
Patrick Mitchell v. Democratic Republic of Congo, ICSID Case No. ARB/99/7, Decision on Annulment
of the Award, November 1, 2006, available at <http://ita.law.uvic.ca/documents/mitchellannulment.pdf> [hereinaf-
ter “Mitchell v. Congo”].
48
Id. paras. 30–33. This criterion was first added in Fedax N.V. v. Republic of Venezuela, ICSID Case No. Arb/
96/3, Decision on Objections to Jurisdiction, July 11, 1997, 5 ICSID Rep. 186 (2002), and subsequently affirmed
in Salini. See also Ceskoslovenska Obchodni Banka A.S. v. Slovak Republic, ICSID Case No. ARB/97/4, Decision
on Objections to Jurisdiction, May 24, 1999, 14 ICSID Rev. 251 (1999).
49
Mitchell v. Congo, supra note 47, para. 39.
 “investment” and “investor” in energy charter treaty arbitration 9

might have been considered in the past.50 The dispute in Salini arose out of a two-year
construction contract between an Italian construction company and a Moroccan state
entity with a modest participation in the risk. In contrast to the previous disputes involv-
ing contractual claims, the tribunal recognized this contract as an “investment.”
Moreover, contrary to the arguments raised by some respondent states, ICSID tri-
bunals have declined on a number of occasions to read additional restrictive criteria into
the definition of “investment” in Article 25(1) of the ICSID Convention. Thus, the con-
trol of a subsidiary by way of majority shareholding is not a requirement of Article 25(1)
of the ICSID Convention.51 Nor does Article 25(1) of the ICSID Convention require
that the capital originate from sources outside the host state. Thus, a wholly-owned sub-
sidiary of a foreign investor operating in the host state may constitute an investment.52
Overall, the established Salini criteria have been applied liberally, and those decisions
where ICSID had no jurisdiction due to the absence of an “investment” are in practice
rare.53

3.1.2. Investment in International Commercial Arbitration

The second paradigm in investor-state dispute resolution is exemplified by interna-
tional commercial arbitration. Such disputes are handled by institutional arbitration such
as the International Chamber of Commerce and the SCC, or ad hoc arbitration under
the UNCITRAL Arbitration Rules. This paradigm emphasizes relative immunity of
investor rights for protection of contract, property, and arbitral enforcement of such
rights by governments in reliance on traditional powers of sovereignty.54 In this paradigm
of arbitration, “investment” would extend to a broader range of commercial and contrac-
tual rights than in ICSID arbitration.
International commercial arbitration was designed for the settlement of international
contractual disputes between two private parties. In such arbitration, jurisdiction of a tri-
bunal is established only in a subjective sense by the parties’ consent to arbitrate disputes,
which arises out of their commercial and contractual obligations.55 Consent is the funda-
mental requirement of commercial arbitration. Unlike ICSID arbitration, largely driven
by investors, dispute settlement in international commercial arbitration derives from con-
sent of both parties. Such consent is found in the arbitration agreement, which must be
valid and in writing, according to the requirements found in both domestic law and
international treaties, namely the New York Convention56 and the UNCITRAL Model

50
Wälde, supra note 25, at 34.
51
CMS Gas Transmission Co. v. Republic of Argentina, ICSID Case No. ARB/01/8, Decision on Jurisdiction,
July 17, 2003, 42 I.L.M. 788 (2003), paras. 55–56, 58.
52
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, April 29, 2004, 20
ICSID Rev. 205, paras. 76–77, 80–82 (2005) [hereinafter “Tokios Tokelés”].
53
Poulain, supra note 30, at 130.
54
Weiler and Wälde, supra note 27.
55
Redfern & Hunter, supra note 32, paras. 1– 06, 1–11.
56
United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York,
June 10, 1958, T.I.A.S. No. 6997, 330 U.N.T.S. 38, art. II(1) and (2) [hereinafter “New York Convention”].
10 journal of international arbitration

Law.57 The arbitration agreement can be spelt out in the main contract, as an arbitration
clause, or in a separate agreement.
Where commercial parties are an investor and a state, subjective consent of these
parties to arbitrate disputes relating to “investment” is found in the text of an applicable
BIT.58 An agreement in the form of a BIT is entered into by the state on the investors’
behalf; it is not a contract between a specific investor and the host state. In the BIT, the
contracting party is consenting to honour its obligations to all investors in respect of their
investments, and to submit disputes arising out of investment to one of the international
commercial fora such as an ad hoc UNCITRAL tribunal or the institutional arbitration
in Stockholm.
Unlike the ICSID Convention, which does not define “investment,” most of the
recent investment treaties contain a somewhat elaborate, yet non-exhaustive, definition of
“investment.” For example, in the ECT, the term “investment” is defined in Article 1(6)
as:
every kind of asset, owned or controlled directly or indirectly by an Investor and includes:
(a) tangible and intangible, and movable and immovable, property, and any property rights such
as leases, mortgages, liens, and pledges;
(b) a company or business enterprise, or shares, stock, or other forms of equity participation in a
company or business enterprise, and bonds and other debt of a company or business enter-
prise;
(c) claims to money and claims to performance pursuant to contract having an economic value
and associated with an Investment;
(d) intellectual Property;
(e) returns;
(f ) any right conferred by law or contract or by virtue of any licenses and permits granted pursu-
ant to law to undertake any Economic Activity in the Energy Sector.59
“Economic Activity in the Energy Sector” is defined in Article 1(5) as:
an economic activity concerning the exploration, extraction, refining, production, storage, land
transport, transmission, distribution, trade, marketing, or sale of Energy Materials and Products
except those included in Annex NI, or concerning the distribution of heat to multiple premises.60
These definitions cover a broader range of “investment” activities than those normally
recognized by ICSID. Examples of “economic activity in the energy sector” listed in the
Understandings to the Final Act of the European Energy Charter Conference61 include both
traditional activities associated with the energy industry such as exploration, construction,
and operation of power generation facilities, and commercial activities such as marketing
and sale of and trade in energy material and product, as well as research, consulting, planning,

57
Model Law on International Commercial Arbitration as adopted by the United Nations Commission on
International Trade Law, June 21, 1985, 24 I.L.M. 1302 (1985), art. 7(2) [hereinafter “UNCITRAL Model Law”].
58
Poulain, supra note 30, at 127–28.
59
ECT, supra note 2, art. 1(6) (emphasis added).
60
Id. art. 1(5).
61
Id. Understandings of the Final Act of the European Energy Charter Conference.
 “investment” and “investor” in energy charter treaty arbitration 11

management, and design activities related to the activities above.62 Such extension of
“investment” to assets associated with an economic activity in the energy sector may indicate
less restrictive sectoral protections of the ECT; in the future, the definition may provide
a basis for protection of otherwise uncovered assets such as petrochemical facilities within
an oil refinery complex, or maritime transportation associated with energy investment.63 For
example, in Petrobart v. Kyrgyz Republic, discussed in more detail below, the Stockholm
tribunal found that a gas delivery contract between the investor corporation and the
state-owned entity was an investment relating to economic activity in the energy sector.64
Further, unlike ICSID arbitration, a self-contained system governed exclusively by
the ICSID Convention, international commercial arbitration is usually governed by the
national law of the seat of arbitration or lex arbitri. The choice of the seat is important
because the conduct of arbitration will be subject to the national courts of the seat of
arbitration.65 The national courts can review and set aside the decision on jurisdictional
grounds for lack of “investment” or “investor.” The ICSID decisions are, on the other
hand, final. They can be reviewed or annulled on very limited grounds by way of an
internal ICSID procedure through an ad hoc Committee.66
Overall, ICSID arbitration and international commercial arbitration were designed
for different purposes, and their respective approaches to “investment” are becoming
increasingly difficult to reconcile. The ICSID Convention, as indicated, was premised on
the classic concept of “investment,” which has since evolved and is no longer limited to
FDI. Investment is now understood as direct and indirect investment and modern con-
tractual and other transactions with economic value.67 Given this evolution, international
commercial arbitration can prima facie accommodate a broader range of investments.
Nonetheless, recently, ICSID tribunals and commercial tribunals have shown some con-
vergence in the type of activities recognized as protected “investment.” While preserving
state sovereignty in the overall investment framework, the ICSID model appears to move
slowly, yet steadily, along the continuum toward the private, rather than a state-centred,
model of dispute resolution.68

3.2. Protected investors

Similar to the concept of “investment,” the concept of “investor” has evolved as a
result of increased capital mobility and complex corporate ownership through shareholding

62
Id. Part IV art. 2.
63
Emmanuel Gaillard, Investments and Investors Covered by the Energy Charter Treaty, in Investment Arbitration
and the Energy Charter Treaty 54, 66 (Clarisse Ribeiro ed., 2006) (discussing Craig Bamberger, Jahn Linehan, &
Thomas Wälde, The Energy Charter Treaty, in Energy Law in Europe: National, EU and International Law and
Institutions 171, para. 4.16 (Roggenkamp et al. eds., 2001)).
64
Petrobart, infra note 98.
65
Redfern & Hunter, supra note 32, paras. 2– 01–2– 08, 7– 09.
66
ICSID Convention, supra note 4, arts. 50–52.
67
Antonio Parra, The Scope of New Investment Laws and International Instruments, in Economic Development,
Foreign Investment and the Law 27, 35 (Robert Pritchard ed., 1996).
68
Weiler and Wälde, supra note 27.
12 journal of international arbitration

and subsidiaries. Unlike “investment,” “investor” has been, in general, interpreted broadly
in both ICSID arbitration and commercial arbitration. Article 25(2)(b) of the ICSID
Convention defines the term “investor” as:

(a) any natural person who had the nationality of a contracting state other than the State
party to the dispute on the date on which the parties consented to submit such
dispute to conciliation or arbitration as well as on the date on which the request
was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article
36, but does not include any person who on either date also had the nationality
of the contracting state party to the dispute; and
(b) any juridical person which had the nationality of a contracting state other than the State
party to the dispute on the date on which the parties consented to submit such
dispute to conciliation or arbitration and any juridical person which had the
nationality of the contracting state party to the dispute on that date and which,
because of foreign control, the parties have agreed should be treated as a national of
another contracting state for the purposes of this Convention. (emphasis added)

The ICSID Convention does not define the method for determining the nationality
of juridical entities. The Convention leaves this task to the reasonable discretion of the
contracting parties by reference to the definition found in an applicable treaty.69 Thus, in
both kinds of arbitration, the interpretation of “investor” is guided almost exclusively by
the text of a BIT.
BITs can be divided into two groups according to the way in which they define
“investor.” In the first group of treaties, “investor” is defined broadly as a legal entity
organized in accordance with the law applicable in a contracting state. In the second
group of treaties, both incorporation and direct or indirect control by the investor must
be present.70
In the first group of treaties, the trend among investment treaty arbitration tribunals
has been to follow the formal test of corporate nationality of the investor, such as the
place of the company’s incorporation or siège social. The ECT belongs to this first group
of treaties. “Investor” is defined in Article 1(7) of the ECT as follows:

(a) with respect to a Contracting party:

(i) a natural person with citizenship or nationality of, or who is permanently
residing in that Contracting Party in accordance with its applicable law;
(ii) a company or other organization organized in accordance with the law
applicable in that Contracting Party;

69
See Aron Broches, The Convention on the Settlement of Investment Disputes Between States and Nationals of Other
States, 136 Recueil des Cours 331, 359–60 (1972-II).
70
Stephen Jagusch & Anthony Sinclair, The Limits of Protection for Investments and Investors Under the Energy Char-
ter Treaty, in Investment Arbitration and the Energy Charter Treaty 73, 90–91 (Clarisse Ribeiro ed., 2006).
 “investment” and “investor” in energy charter treaty arbitration 13

(b) with respect to a “third state,” a natural person, company or other organization
which fulfils, mutatis mutandis, the conditions specified in subparagraph (a) for
a Contracting Party.71

Tribunals, in general, have routinely refrained from engaging in substantive investi-

gations that would require them to lift the corporate veil and enquire into a company’s
control or the extent of its commercial or other substantial links with the other contract-
ing state.72 For example, in A.D.C. v. Republic of Hungary,73 the claimants were Cyprus-
based companies established by Canadian investors to supply most of the capital to build
a new terminal at the Budapest airport under the Hungary-Cyprus BIT. The respondent
contended that the claimants were not “investors” because they had no “the genuine
link” with Cyprus, the capital did not originate in Cyprus, and the claimants were con-
trolled by the Canadian companies. The tribunal held that the BIT merely required an
entity to be a legal person incorporated in compliance with the law of Cyprus. Given the
unambiguous language in the Convention and the BIT, the tribunal declined to consider
factors such as genuine link, origin of capital, and control.74
In Tokios Tokelés v. Ukraine, incorporation in conformity with the laws and regula-
tions of a home state was sufficient for the claimant to qualify as an “investor” within the
meaning of the BIT. Article 25 of the ICSID Convention left the task of defining “inves-
tor” to the discretion of the contracting parties, which was found in the definition of
“investor” in the BIT.75 All the documents provided by the claimant, such as the statute
of incorporation, the registration certificate, and financial statements, pointed to the
address in Lithuania.76
A similar approach is adopted in international commercial arbitration involving
investors and states. In Saluka Investments B.V. v. Czech Republic,77 an UNCITRAL case,
the claimant was a Netherlands company with a parent corporation Nomura Europe, a
subsidiary of Nomura Japan. The respondent argued that Saluka was a mere shell of
Nomura Japan, a country with which the respondent had no BIT. The tribunal held that
the claimant’s lawful constitution under the laws of the Netherlands sufficed for the
claimant to seek the protections of the Netherlands-Czech Republic BIT, and declined
to look behind the corporate veil of the Nomura companies.78
In the second group of treaties, both incorporation and direct or indirect control by
the investor must be present. Such language suggests a more restrictive approach than the
siège social approach. However, in practice, arbitral tribunals have adopted an equally broad

71
ECT, supra note 2, art. 1(7).
72
Jagusch & Sinclair, supra note 70, at 89.
73
A.D.C. Affiliate Ltd. & A.D.C. & A.D.M.C. Management Ltd. v. Republic of Hungary, ICSID Case No.
ARB/03/16, Award, October 2, 2006, 46 I.L.M. 40 (2007).
74
Id. paras. 357, 359–62.
75
Tokios Tokelés, supra note 52, paras. 24, 29.
76
Id. paras. 38, 43.
77
Saluka Investments B.V. v. Czech Republic, UNCITRAL Partial Award, March 17, 2006 (Permanent Court
of Arbitration), available at <http://ita.law.uvic.ca/documents/Saluka-PartialawardFinal.pdf>.
78
Id. paras. 222–43.
14 journal of international arbitration

interpretation in examining whether an entity is controlled directly or indirectly by an

investor of a contracting state. In Aguas del Tunari v. Bolivia,79 the claimant was a water
consortium, in which a Luxembourg entity held 55% of the shares. The Luxembourg
entity, in turn, was controlled by the Dutch companies by way of a 100% shareholding.
The respondent argued that the claimant was not a Netherlands investor because it was
not “controlled” by a Dutch entity; therefore, it could not avail itself of protections under
the Netherlands-Bolivia BIT. The tribunal disagreed, stating that “control” under the
BIT meant a legal capacity of one entity to control another entity, not actual day-to-day
control. Such legal capacity could be determined, inter alia, by the percentage of shares
held, legal rights found in an instrument or agreement, or a combination thereof.80
In Camuzzi International S.A. v. Argentine Republic,81 the tribunal held that direct or
indirect control was not limited to protection of the controlling or majority shareholders.
The definition of “investor” contemplated minority shareholders, indirect shareholders,
and those with over 50% in the companies receiving capital intended for investment.
Such interpretation was consistent with the objective of providing protection to real
investors.82 Thus, in both groups of treaties, ICSID and international commercial arbitral
tribunals interpret “investor” broadly consistent with the protective philosophy of invest-
ment in the international economic regime.

4. “Investment” and “Investor” in the ECT

The privatization, liberalization, and reintegration in the global energy sector have
transformed traditional energy investments into a variety of activities in oil and gas-
producing states. The boundaries between the traditional, restrictively-defined
investment activities recognized by ICSID and commercial activities are being ostensibly
eroded. The model of investment which emerged during the wave of nationalizations in
the 1970s and early 1980s, characterized by vertically integrated, state-owned monopolies
and concession agreements, is disappearing. Privatization is advanced in most oil and
gas-producing countries and is considered in many of the remaining ones.83 While many
activities in the energy sector remain traditional activities premised on the classic notion of
FDI, with the new production networks organized in a horizontal manner by contract,84
the host states increasingly act in a commercial, rather than sovereign, capacity
through the state-owned and controlled entities. The ECT jurisprudence to date has been
relatively consistent with the divide between ICSID arbitration and international

79
Aguas del Tunari v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on the Respondent’s Objec-
tions to Jurisdiction, October 21, 2005, available at <http://ita.law.uvic.ca/documents/mitchellannulment.pdf>.
80
Id. paras. 319–23.
81
Camuzzi Int’l S.A. v. Argentine Republic, ICSID Case No. ARB/03/2, Decision on Objections to Jurisdic-
tion, May 11, 2005, available at <http://ita.law.uvic.ca/documents/camuzzi-en.pdf >.
82
Id. para. 81.
83
Wälde, supra note 1, at 7.
84
Id. at 6–7.
 “investment” and “investor” in energy charter treaty arbitration 15

commercial arbitration discussed in Part III above.Yet, with the significant transformations
in the energy sector, this divide may become increasingly less clear.

4.1. ICSID arbitration and the ECT: PLAMA V. BULGARIA and

IOANNAIS KARDASSOPOULOS V. GEORGIA
Two ECT disputes have been brought to ICSID arbitration to date, Plama Consor-
tium v. Bulgaria85 and Ioannis Kardassopoulos v. Georgia.86 The Plama dispute resulted in an
award on the merits in favour of the Cyprus investor. At present, the tribunal has ren-
dered an award on jurisdiction in Ioannis Kardassopoulos v. Georgia, while an award on the
merits is pending.
In Plama, the tribunal found that an oil refinery was an “investment” under both the
ICSID Convention and the ECT. Plama, a Cyprus company, purchased 96.78% of the
shares in a Bulgarian company, which owned an oil refinery. Plama alleged that various
branches of the Bulgarian government deliberately created numerous problems for its
investment. These actions and omissions allegedly caused material damage to the investor
in violation of both the ECT and the Bulgaria-Cyprus BIT.87
Bulgaria raised two main objections. First, it contended that there was no “invest-
ment” under Article 1(6) of the ECT because Plama had materially misrepresented or
wilfully failed to disclose its true ownership to the Bulgarian authorities in violation of
Bulgarian law. Accordingly, the transaction was null and void under Bulgarian law, and
Plama had never made any valid investment.88
Bulgaria further contended that consent to submit a dispute to ICSID was limited
to disputes between a contracting state and a national of another contracting state. When,
on the basis of Article 17(1), a contracting party rightfully denies the advantages of Part
III to a legal entity, the ECT does not apply to that entity. Bulgaria denied the advantages
of the ECT to the claimant, citing the lack of evidence as to ownership and control by a
national of an ECT party. According to Bulgaria, Plama was a “mailbox company” with
no substantial business activities in Cyprus, where it was incorporated. Thus, Plama was
not a covered investor for the purposes of the ECT, and could not submit a dispute to
the ICSID under Article 26(1) of the ECT.89
On the first objection, the tribunal held that the issue of “misrepresentation” related
to the merits, rather than jurisdiction, of the case. The definition of “investment” under
Article 1(6) referred to the investment made by Plama, and it was irrelevant who owned
or controlled Plama at any material time. The broad definition extending to “any right

85
Plama Consortium Ltd. (Cyprus) v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on
Jurisdiction, October 28, 2005, 44 I.L.M. 717 (2005) [hereinafter “Plama”].
86
Ioannis Kardassopoulos (Greece) v. Republic of Georgia, ICSID Case No. ARB/05/18, Decision on
Jurisdiction, July 6, 2007, available at <www.encharter.org/fileadmin/user_upload/document/Kardassopoulos.pdf>
[hereinafter “Ioannis Kardassopoulos”].
87
Id. paras. 19–21.
88
Id. para. 126.
89
Id. paras. 29–33.
16 journal of international arbitration

conferred by law or contract” would be satisfied by a contractual or property right even

if it were later defeated on the merits. Plama presented two temporary endorsed share-
holding certificates showing transfers of shares of Nova Plama to Plama. The shares
representing 96.78% of Nova Plama’s capital qualified as investments at this stage.90
On the second objection, the tribunal held that the “denial of benefits” clause in
Article 17 of the ECT did not operate to determine whether the claimant was an
“investor” for the purposes of jurisdiction. It was not a denial of all benefits to protected
investors under the treaty. Rather, Article 17 related to the treaty’s substantive protections,
and to those conditions under which a contracting state may deny investment benefits to
an otherwise protected investor, including standing to initiate a dispute. Plama was a
“mailbox company.” However, it was lawfully incorporated under the laws of Cyprus as
required by the formal corporate nationality test applicable to the group of treaties such
as the ECT, where “investor” is defined broadly as a legal entity organized in accordance
with the law applicable in a contracting state. Therefore, Article 17 could not impede
the operation of Article 26 of the ECT.91 This point establishes the broad nature of the
coverage accorded by the ECT, as defined by Article 1(6) and (7), thus illustrating the
Treaty’s protective philosophy in the area of energy investments.92
The second ICSID award on jurisdiction, Ioannis Kardassopoulos v. Georgia, provides
an interesting discussion on the application of the Salini criteria in the ECT context. The
claimant, a national of Greece, had a 25% interest in an investment vehicle called GTI.
GTI was created to develop an oil and gas concession pursuant to a joint venture agree-
ment ( JVA) with two state-owned oil companies.The claimant also held a 50% beneficial
interest in Tramex Panama, a company established to carry out the joint venture. Georgia
then passed a decree, which resulted in cancellation of a number of rights held by the
claimant. A government commission established to study compensation for losses
incurred in the process concluded that Georgia was not liable for any claims. The com-
mission held that both entities, although state-owned, were independent legal entities
with capacity to unilaterally make binding decisions in commercial transactions.93 The
claimant launched complaints under both the ECT and the Greece-Georgia BIT.
On application of the Salini criteria, the tribunal found that the claimant’s economic
activities in connection with the joint venture constituted an “investment.”94 GTI’s eco-
nomic activities were a financial contribution to Georgia. In terms of duration, the JVA
contemplated an “initial term” of twenty-five years, while the concession was for a
period of thirty years. GTI’s actual activities in Georgia lasted for approximately three
years, well within the minimum temporal requirement recognized by other tribunals.The
claimant’s investment was intended to contribute to Georgia’s economic development.
Finally, the risk component was satisfied in light of the political and economic climate

90
Id. paras. 125, 128–29.
91
Id. paras. 148–49.
92
Gaillard, supra note 63, at 73.
93
Ioannis Kardassopoulos, supra note 86, paras. 20– 41.
94
Id. paras. 113, 116.
 “investment” and “investor” in energy charter treaty arbitration 17

prevailing throughout the period of the investment.95 The tribunal further found that it
had jurisdiction under the ECT. The definition of investment in Article 1(6) referred to
both direct and indirect ownership and control of investments. Both the claimant’s ben-
eficial interest in Tramex Panama and indirect interest in GTI qualified as protected
investments.96

4.2. Stockholm arbitration and the ECT: NYKOMB V. REPUBLIC OF LATVIA and
PETROBART V. KYRGYZ REPUBLIC
To date, the ECT has produced two decisions under the auspices of the SCC,
Nykomb v. Republic of Latvia97 and Petrobart v. Kyrgyz Republic.98 In both decisions, the
Stockholm tribunal adopted a broad definition of “investment” in Article 1(6) of the
ECT, finding that it had jurisdiction over the dispute.
In Nykomb, the Swedish investor built, financed, and operated an environmentally
friendly power generation plant in Latvia. The investment was made through a local
subsidiary, Windau in which Nykomb took 100% of equity. The plan was followed by
an electricity production and supply contract between the subsidiary and the state-owned
company, Latvenegro. The contract was supported by guaranteed public subsidies,
specifically, the Double Tariff resolution. The resolution was part of the government’s
policy to attract investors to the electricity sector and minimize dependence on cheaper
energy imports from Russia.99 The resolution was subsequently contested by a group of
members of the Latvian Parliament before the Latvian courts, which ruled that in
adopting the Double Tariff resolution, the government exceeded its powers. As a result,
Nykomb’s investment was no longer economically viable.100 The issue of jurisdiction in
Nykomb was uncontroversial because the respondent did not contest “investment.” The
tribunal held that the claimant’s acquisition of shares in, and its giving of credits to,
Windau constituted investments within the meaning of the ECT.101
The scope of “investment” became the object of greater scrutiny in Petrobart. Petro-
bart, a company registered in Gibraltar, entered a gas condensate delivery contract with a
Kyrgyz state-owned company. The state company only paid Petrobart for two of the five
invoices upon delivery. As a result, Petrobart took legal action against the state company
in order to obtain payment for the remaining invoices in the local court. Although Petrobart

95
Id. para. 117.
96
Id. para. 124.
97
Nykomb Synergetics Technology Holding A.B. v. Republic of Latvia, SCC Case No. 16/2003, Arbitral
Award, December 16, 2003 (Arbitration Institute of the Stockholm Chamber of Commerce), available at
<www.encharter.org/fileadmin/user_upload/document/Nykomb.pdf> [hereinafter “Nykomb”].
98
Petrobart Ltd. v. Kyrgyz Republic, SCC Case No. 126/2003, Arbitral Award, March, 29, 2005 (Arbitration
Institute of the Stockholm Chamber of Commerce), available at <www.encharter.org/fileadmin/user_upload/
document/Petrobart.pdf> [hereinafter “Petrobart”].
99
Id. at 11–15.
100
Id. at 20–21.
101
Id. at 8.
18 journal of international arbitration

obtained a favourable judgment, the court stayed execution of the judgment upon a
request by the Kyrgyz government and later declared the state company bankrupt. Petro-
bart claimed, inter alia, that the respondent, by means of such actions, failed to provide it
with stable, equitable, favourable, and transparent conditions contrary to the Treaty.102 The
respondent contended that the contract at issue was not an “investment.” The respondent
further contended that as a company incorporated in Gibraltar, Petrobart was not an
“investor” under the ECT. Gibraltar was not a contracting party to the Treaty, and the
United Kingdom had not ratified the ECT on Gibraltar’s behalf.
The tribunal relied on Salini for the proposition that the term “investment” included
any contractual benefit of economic value and any right of an economic nature conferred
by law or by contract.103 Under Article 1(6)(f ), investment included “any right conferred
by law or contract or by virtue of any licenses and permits granted pursuant to law to
undertake any Economic Activity in the Energy Sector.” Economic Activity in the
Energy Sector in Article 1(5) included “economic activity concerning … sale of Energy
Materials and Products except those included in Annex NI.” The gas condensate, which
Petrobart sold, was without doubt energy materials and products. Thus, a right conferred
by contract to undertake an economic activity concerning the sale of gas condensate was
an investment according to the ECT.104
On the issue of “investor,” the tribunal found that the respondent raised the issue too
late in the proceeding and that the issue went beyond the specific questions that the par-
ties had agreed to address in the proceeding.105 Therefore, the ECT continued to apply
provisionally to Gibraltar, and the law of Gibraltar must in this context be regarded as part
of the law of a contracting party, namely the United Kingdom. Petrobart, therefore, sat-
isfied the condition of being an investor under Article 1(7)106 and was allowed to proceed
with the dispute. It subsequently succeeded on the merits and was awarded damages for
the unpaid invoices.107
It is, however, debatable whether a Gibraltar-incorporated company would have
qualified for investor status under the formal test of corporate nationality of investor had
the respondent’s jurisdictional objection reached the tribunal in a proper way. In any
event, the tribunal’s unwillingness to inquire further about the status of Gibraltar under
the ECT may be explained by political controversy between Spain and Gibraltar over the
constitutional status of Gibraltar.108

102
Id. at 25–30. Petrobart made its first claim under UNCITRAL. The UNCITRL tribunal declined jurisdic-
tion on the grounds that the claimant’s activity was a sales of goods contract and not an “investment” under the Kyr-
gyz Foreign Investment Law, which the tribunal had applied. Petrobart then proceeded with the Stockholm tribunal.
103
Id. at 72.
104
Id. at 72.
105
Id. at 61 n.77.
106
Id. at 61, 70, 77.
107
Id. at 85–87.
108
Fred Wennerholm, Arbitration Under the Energy Charter Treaty: SCC Award in Favour of Petrobart Prevails in Chal-
lenge Proceedings, Stockholm International Chamber of Commerce Newsletter (No. 1, 2007), available at
<www.sccinstitute.com/uk/Newsletters/>.
 “investment” and “investor” in energy charter treaty arbitration 19

5. Which Model of Arbitration is More Desirable Under the ECT?

5.1. Advantages of ICSID arbitration
Notwithstanding a higher jurisdiction threshold imposed by the ICSID Conven-
tion, ICSID arbitration has a number of advantages for both the ECT investors and the
host states.These advantages are the finality of ICSID decisions, protection of investments
against new forms of political risk, the link between economic development and invest-
ment in the ICSID Convention, and a public dimension of energy investments.
The first advantage of ICSID arbitration is the finality of its decisions, including the
decisions on jurisdiction. Unlike Stockholm or UNCITRAL arbitration, ICSID arbitra-
tion is not governed by lex arbitri and is therefore isolated from the national courts’ review
of the arbitral process. Once the investor has established ICSID jurisdiction in an objec-
tive sense under Article 25(1) of the Convention and in a subjective sense under Article
1(5) and (6) of the ECT, the issue of “investment” becomes settled. In Stockholm and
UNCITRAL arbitration, on the other hand, national courts retain a supervisory func-
tion over the arbitral process and can set aside the decision on procedural grounds for lack
of “investment” or “investor.”
For example, after Petrobart’s success in Stockholm, the Kyrgyz Republic sought to
have the award set aside in the Swedish Court of Appeal.The Republic reiterated that the
Stockholm tribunal lacked jurisdiction because Petrobart was not an “investor” of the
United Kingdom. The Republic further argued that the underlying contract in the dis-
pute was a Sale Purchase Agreement and did not qualify as an “investment” under the
ECT.109 Although the Court of Appeal dismissed the challenge, the case illustrates the
possibility of the national courts setting aside the award rendered in commercial arbitration.
Secondly, the ICSID Convention affords better protection to energy investments
and investors against new forms of political risk, than commercial arbitration. Traditional
disputes in the energy sector focused mainly on the breach of contractual obligations and
direct nationalization by the host states. The new form of risk in the post-socialist parties
to the ECT deals with powers exercised by regulatory agencies.110 Such powers include
the setting of tariffs in Nykomb, state interference with judicial process in Petrobart, inter-
ference by the legislative and judicial authorities to refuse or delay the adoption of inves-
tor activity in Plama, and the denial of compensation for financial losses suffered as a result
of the government decree in Ioannis Kardassopoulos v. Georgia. Additional hurdles in the
energy sector include access to reserves, excessive taxation, misuse of planning and per-
mitting, and environmental regulation disrupting the economic feasibility of invest-
ment.111 The ICSID Convention, whereby states consent to honour their obligations
toward investors, can therefore protect investments against measures that extend beyond
interference with contractual rights.
109
Republic of Kyrgyzstan v. Petrobart Ltd., Case No. T5208 (2007) (Svea Court of Appeal, Division 16, Stock-
holm) at 5–10, 4 Transn’l Dispute Management (No. 5, 2007) (English translation).
110
Wälde, supra note 1, at 9.
111
Id.
20 journal of international arbitration

Thirdly, the more restrictive interpretation of “investment” in ICSID arbitration can

ensure a sustained contribution by investors to the economic development of the ECT
host states, mostly post-socialist economies in transition. The goal of economic develop-
ment was intended by the drafters of the ICSID Convention. The Report of the Execu-
tive Directors on the ICSID Convention states that the Convention was “prompted by
the desire to strengthen the partnership between countries in the cause of economic
development” and that it was intended that “adherence to the Convention by a country
would provide additional inducement and stimulate a larger flow of private international
investment in its territories.”112
Such intent is further substantiated by the emphasis placed on the Salini criterion of
a durable investment contributing to the economic development by the ICSID ad hoc
Committee in Mitchell v. Congo. The ad hoc Committee stated:
(1) The Convention was concluded under the auspices of the International Bank for Reconstruc-
tion and Development itself; (2) the preamble to the Convention refers to “the need for interna-
tional cooperation for economic development, and the role of private international investment
therein,” i.e., contribution to development appears among “the basic principles,” “the purpose”
and the “aims” in the preamble to the Convention; (3) the parameter of contributing to the eco-
nomic development of the host state has always been taken into account, explicitly or implicitly
by ICSID arbitral tribunals in the context of their reasoning to qualify the protected investment;
and (4) the contribution to the economic development of the host state is “the only possible indi-
cation of an objective meaning” of the term “investment.”113
Moreover, the explicit preservation of state sovereignty over natural resources in the
text of the ECT114 may indicate intent to ensure the contribution of investment to eco-
nomic development. In the future, it would therefore not be improbable for an ICSID
tribunal to accept this rationale as applicable to the role of “investment” in the ECT host
states. This argument, however, has yet to be tested in practice. In Ioannis Kardassopoulos
v. Georgia, the only ECT case to date where the Salini criteria of investment have been
applied, the tribunal did not place particular emphasis on the criterion of contribution to
the economic development of the host state.
Finally, the environmental character of investments in the energy sector engages the
issue of public accountability by investors, thereby favouring a more public model of dis-
pute resolution. There are several observable international trends, such as technological
innovation toward cleaner sources of energy, political and cultural change of sentiment
from pro-globalization to national control over natural resources, and conflicting pres-
sures of non-governmental organizations (NGOs) and public opinion115 in both the
investing and the energy-producing states. These pressures should not be discounted
under the ECT and bargained away in an essentially private commercial arbitration process.

112
ICSID, Report of the Executive Directors, supra note 35, para. 27. See also Ben Hamida, supra note 43, at
294.
113
Mitchell v. Congo, supra note 47, at 31.
114
ECT, supra note 2, art. 18.
115
Wälde, supra note 1, at 11–12.
 “investment” and “investor” in energy charter treaty arbitration 21

5.2. Advantages of international commercial arbitration

The UNCITRAL Arbitration Rules (and the Stockholm Rules) were developed for
international commercial arbitration,116 and are better suited for disputes arising out of
commercial transactions. In the context of increased overlap between traditional invest-
ments and commercial activities in the oil and gas sector, this model has two main advan-
tages. First, the lower jurisdictional threshold of “investment” in the commercial
arbitration model captures a broader range of commercial and contractual rights than
ICSID arbitration. Secondly, commercial arbitration has the advantages of expedience,
confidentiality, and lower costs, and may be better suited for certain categories of investors.
First, unlike Article 25(1) of the ICSID Convention, neither the Stockholm Arbi-
tration Rules nor UNCITRAL Arbitration Rules require establishment of jurisdiction
based on a set of objective criteria. Under each of these two options, jurisdiction is estab-
lished by consent of the contracting parties as found in their agreement to arbitration of
disputes arising out of broad definition of investment in the energy sector117 in Article 26
of the ECT and in any contractual arrangement.
For example, Petrobart’s success at the SCC has been attributed to the broad lan-
guage of Article 1(5) and (6) of the ECT. Had Petrobart proceeded before an ICSID arbi-
tration tribunal, based on the jurisprudence and commentary to date, it would probably
not have qualified as an investment for the purposes of ICSID jurisdiction.118 It is possible
that such a claim would never have made it past the ICSID Secretariat’s screening proce-
dures and might never have been registered. In any case, ICSID arbitration was not an
option available to the claimant because the Kyrgyz Republic had not ratified the ICSID
Convention by the time of the proceedings.119
Nykomb, on the other hand, would have likely succeeded in establishing ICSID
jurisdiction under Article 25(1) and the Salini criteria had it been submitted to ICSID,
rather than to Stockholm. While the dispute arose over contractual guarantees of double
tariff, the underlying investment was a power generation plant. The plant was a long-
term investment. The environmentally friendly character of this state-of-the-art facility
and investor’s reliance on the state guarantees of public subsidies to pay double tariff for
the initial period of eight years would have most certainly satisfied the criteria of profit
and risk. The host state’s rationale to promote such investment in order to increase
domestic generating capacity and reduce reliance on energy imports suggests substantial
contribution to the economic development of Latvia. Moreover, the investment did not
“sink,” as is the case in most other investment treaty-based jurisprudence, but remained a
going concern through the whole dispute.120

116
Alvarez & Ullrich, supra note 28, at 11.
117
ECT, supra note 2, art. 1(5)–(6).
118
Jagusch & Sinclair, supra note 70, at 86.
119
Id. at 87.
120
Jonas Wetterfors, The First Investor-State Arbitration Award Under the 1994 Energy Charter Treaty: Nykomb
Synergetics Technology Holding AB, Sweden (“Nykomb”) v. The Republic of Latvia, Case Comment 1–2 (2005),
Hellström and Partners, available at <www.hpa.se/pdf/eng_energycharter.pdf>.
22 journal of international arbitration

Therefore, a dispute relating to a pure commercial contractual claim such as non-

payment in Petrobart may be better brought before a Stockholm or an ad hoc UNCI-
TRAL tribunal.121 Likewise, future claims relating to intellectual property or “tangible
and intangible, and movable and immovable property”122 under the ECT, similar to those
in the operation of a law firm in Mitchell v. Congo, are also better brought before one of
these three tribunals, rather than before ICSID. The mistake of going first to an ICSID
tribunal and being unsuccessful there for lack of an “investment” under Article 25(1) can
be corrected by resubmitting a dispute to another alternative venue of international com-
mercial arbitration. However, such practice has considerable costs.123
The second advantage of international commercial arbitration is its private, less
costly, and more expedient character. Such model is better suited for the smaller and middle-
sized investors such as the claimants in Petrobart, Plama, and Ioannis Kardassopoulos v. Georgia.
This category of investors is most vulnerable to the legislative, regulatory, and judicial
measures of the host states, while their claims are more often of a commercial and con-
tractual nature, unlike the more traditional investment activities of large multinational
corporations. Large multinationals have sufficient political and financial clout to challenge
the measures taken by the host states either before ICSID or by lobbying their national
governments to initiate complaints in the public for a, such as the state-to-state dispute
settlement mechanisms available under the ECT or the World Trade Organization (WTO).
Small entrepreneurs tend to know how to navigate through the host states through personal
relations. The middle-sized investors, however, lack both the influence of the multina-
tional corporations and the political acumen of small investors to reduce losses generated by
the confrontation with government agencies and protectionist interests in the host states.124
Thus, the lower jurisdictional threshold, costs, and expediency make international com-
mercial arbitration a better option for this group of investors in the ECT host states.

6. Conclusion: An Uncertain Future of Investment and Jurisdiction

Investment arbitration under the ECT continues to represent the two competing
paradigms of dispute settlement between investors and states in the international eco-
nomic regime. While both ICSID arbitration and international commercial arbitration
are grounded in the protective philosophy of international investment, the two paradigms
will not necessarily afford protection to the same type of “investment.” From the above
discussion, there is no clear answer as to which arbitration model works best for the dis-
putes under the ECT, as both ICSID arbitration and international commercial arbitration
have their respective merits.
These respective merits stem from the fact that ICSID arbitration and international
commercial arbitration have been developed to serve two different purposes. ICSID

121
Wälde, supra note 25, at 34.
122
ECT, supra note 2, art. 1(6)(a), (d).
123
Wälde, supra note 25, at 34.
124
Weiler and Wälde, supra note 27.
 “investment” and “investor” in energy charter treaty arbitration 23

arbitration was intended for the settlement of disputes arising out of investment between
investors and state entities. In this investor-driven model, the ECT parties’ consent to
arbitrate investment-related disputes is grounded in the ICSID Convention, in addition
to the Treaty. While the Convention drafters left “investment” undefined, the approach
adopted by ICSID remains to some extent grounded in the traditional, more restrictive
notion of “investment” somewhat akin to the concept of FDI. This paradigm can afford
greater protection to investments against new forms of political risk. It is further attractive
from the perspective of the host states due to the cause of promoting economic develop-
ment espoused by the ICSID Convention.
International commercial arbitration, on the other hand, was intended for contractual
disputes between two private, autonomous parties. It is premised on consent of the con-
tracting parties found in an arbitration clause of a contract, a separate arbitration agreement,
and an agreement to arbitration found in Article 26 of the ECT.This consent to arbitration
extends to disputes arising out of a broader range of modern investment activities found
in the text of the ECT. To some extent, UNCITRAL and Stockholm arbitration, driven
by consent of investors and states acting in a commercial capacity, makes more sense in the
context of the privatization and deregulation taking place in the oil and gas sector. The
broader interpretation of “investment” in international commercial arbitration has advantages
for those investors seeking protection of contractual, intellectual property, and other rights.
This interpretation is also consistent with the evolution in contemporary investment
activities, which have considerably evolved since the ICSID Convention was adopted.
At times, the differences between the more restrictive interpretation of “investment”
by ICSID tribunals and the broader interpretation by UNCITRAL or Stockholm tribu-
nals can be difficult to reconcile. Nonetheless, it is also apparent that the differences are
becoming increasingly blurred. As traditional distinctions between investment activities
and commercial activities in the energy sector are being eroded, it may no longer be pos-
sible to predict with certainty in which circumstances an ICSID tribunal would assume
jurisdiction over an ECT dispute. Beginning with the decision in Salini, discussed in Part
III above, the trend to interpret “investment” broadly is already seen in investment treaty
jurisprudence. Salini, although spelling out the present objective test of “investment,” rec-
ognized a purely commercial construction contract as a protected investment. The deci-
sion signalled the ostensible move by ICSID arbitration from the state-centred model
toward the model more akin to international commercial arbitration.
Some certainty, which is paramount in international arbitration, for the ECT inves-
tors may be lost in this process. However, it is significant that to date, twelve of the eight-
een disputes initiated by investors against the ECT states, both pending and concluded,
have been submitted to ICSID arbitration.125 Thus, despite some growing inconsistencies
in interpretation of “investment” for the purposes of jurisdiction, ICSID arbitration
remains the preferred procedure in investment arbitration under the ECT.
125
Of the six remaining disputes, three disputes, including Nykomb and Petrobart, have been submitted to SCC
arbitration; three disputes have been submitted to UNCITRAL arbitration. See Energy Charter Treaty Secretariat,
supra note 3.