Salini, Et Al. v. Morocco

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    SALINI COSTRUTORRI S.P.A. AND ITALSTRADE S.P.A. v . KINGDOM OF MOROCCOCASE NO. ARB/00/4, 23 July 2001, 42 ILM 609

    PERTINENT FACTS:

    With regard to the Bilateral Treaty of the Parties, the Petitioner Italian companies consider that the

    contract at issue is an investment within the meaning of Articles 1(c) and (e) in the said document. Thedispute arose out of the non-performance of the said contract by the Respondent Kingdom of Morocco. Thecontract, therefore, gives the Italian companies a right of an economic nature and the right to damages. TheKingdom of Morocco, in defense, alleges that, considered in isolation, these provisions dilute the notion ofinvestment into a broader notion of economic rights. Articles 1(c) and (e) should, therefore, be read inconjunction with paragraph 1 of Article 1, which refers to the laws and regulations of the host State of theinvestment. Therefore, it is Moroccan law that should define the notion of investment. According to them,the transaction in question should be characterized as a contract for services.

    ISSUE:

    Do the Italian companies satisfy the elements of investment within the meaning of the Bilateral

    Treaty and the Washington Convention?RULING:

    YES.

    The contract concluded between ADM and the Italian companies is an investment withinthe meaning of the Bilateral Treaty. The option of choosing the forum contained in Article 8.2 couldbe exercised in favor of arbitral proceedings under the auspices of ICSID.

    The protection of investments is the basis for the option of choosing the forum stipulated in Article8.2 of the Bilateral Treaty. This article, therefore, seeks to define the investments that come under theprotection of the Bilateral Treaty, to wit:

    Article 1 of the Bilateral Treaty provides that:

    Pursuant to the present Agreement,

    1. The term investment designates all categories of assets invested, after the coming into force of present agreement, by a natural or legal person, including the Government of a Contracting Party on tterritory of the other Contracting Party, in accordance with the laws and regulations of thaforementioned party. In particular, but in no way exclusively, the term investment includes:

    c.) capitalized debts, including reinvested income, as well as rights to anycontractual benefit having an economic value;d.) copyright, trademark, patents, technical methods and other intellectual andindustrial property rights, know-how, commercial secrets, commercial brands and

    goodwill;e.) any right of an economic nature conferred by law or by contract, and any licenseor concession granted in compliance with the laws and regulations in force,including the right of prospecting, extraction and exploitation of natural resources.

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    g.) the elements mentioned in (c), (d) and (e) above must be the object of contractsapproved by the competent authority.

    The parties, therefore, agreed upon a number of non-exhaustive hypotheses that they consider to be

    investments.

    The construction contract creates a right to a contractual benefit having an economic value for theContractor, mentioned in Article 1(c). The Contractor also benefits from a right of an economic nature conferred []by contract dealt with by Article 1(e). Moreover, the Respondent does not deny that the rights of theItalian companies are of the same nature as those referred to in (c) and (e) of Article 1.

    The tribunal cannot follow the Kingdom of Morocco in its view that paragraph 1 of Article 1 refersto the law of the host State for the definition of investment. In focusing on the categories of invested ass ets()in accordance with the laws and regulations of the aforementioned party, this provision refers to the validity of theinvestment and not to its definition. More specifically, it seeks to prevent the Bilateral Treaty from protectinginvestments that should not be protected, particularly because they would be illegal. Yet, in the present case,

    the Claimants took part in the tender process in conformity with the legal rules applicable to invitations totender. At the end of this procedure, they also won the bid and concluded the corresponding contract forservices in conformity with the laws in force at that time. Thus, whether one looks to the pre-contractualstage or that corresponding to the performance of the contract for services, it has never been shown that theItalian companies infringed the laws and regulations of the Kingdom of Morocco.

    To be considered as investments, the rights enumerated under letters (c) and (e) must be theobject of contracts approved by the competent authorityunder the terms of Article 1(g). The Bilateral Treaty does notindicate who the competent authority is, this being likely to vary according to the contract in question. Thecompetent authority is determined according to the laws and regulations of the State on the territory of whichthe investments are made ( cf. Article 1, paragraph 1). The Tribunal considers that the contract in question wasindeed the object of an authorization from the competent authority because: (1) the allocation of the contractto the Italian companies occurred in accordance with the rules and procedure fixed by the President of ADM,acting in virtue of the powers conferred on him by the Board of Directors of this company, and (2) thedifferent stages leading to the signature of the construction contract involved various interventions by theauthorities concerned.

    As a result, the Tribunal considers the condition of Article 1 (g) is satisfied.

    Insofar as the option of jurisdiction has been exercised in favor of ICSID, the rights indispute must also constitute an investment pursuant to Article 25 of the Washington Convention.

    The Arbitral Tribunal, therefore, is of the opinion that its jurisdiction depends upon the existence ofan investment within the meaning of the Bilateral Treaty as well as that of the Convention, inaccordance with the case law, to wit:

    The jurisdiction of the Centre shall extendto any legal dispute arising directly out of relation to an investment, betweena Contracting State (or any constituent subdivision or agency of a Contracting State designated to that Centre by tState) and a national charter of another Contracting State, which the Parties to the dispute consent in writing to submto the Centre.

    There is no definition given by the Convention. The two Parties recalled that such a definition had seemedunnecessary to the representatives of the States that negotiated it. Indeed, as indicated in the Report of theExecutive Directors on the Convention:

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    No attempt was made to define the term investment given the essential requirement of consent by the parties, andmechanism through which the Contracting States can make known in advance , if they so desire, the classes of dispwhich they would or would not consider submitting to the Centre (article 25(4)).

    The tribunal notes that there have been almost no cases where the notion of investment within themeaning of Article 25 of the Convention was raised. However, it would be inaccurate to consider that the

    requirement that a dispute be in direct relation to an investment is diluted by the consent of the ContractingParties. To the contrary, ICSID case law and legal authors agree that the investment requirement must berespected as an objective condition of the jurisdiction of the Centre ( cf. in particular, the commentary by E.Gaillard, in JDI 1991, p. 278 et seq., who cites the award rendered in 1975 in the Alcoa Minerals vs. Jamaica caseas well as several other authors). The criteria for characterization are derived from cases in which thetransaction giving rise to the dispute was considered to be an investment without there ever being a realdiscussion of the issue in almost all cases.

    The doctrine generally considers that the investment infers: contributions, certain durationof performance of the contract and a participation in the risks of the transaction. In reading theConventions preamble, one may add the contribution to the economic development of the hostState of the investment as an additional condition. In reality, these various elements may be

    interdependent. Thus, the risks of the transaction may depend on the contributions and the durationof performance of the contract. As a result, these various criteria should be assessed globally even if,for the sake of reasoning, the Tribunal considers them individually here. The Italian companies havesatisfied the said elements since: (1) they made contributions in money, in kind, and in industry, as set out andassessed in their written submissions, and (2) The transaction complies with the minimal length of timeupheld by the doctrine, which is from 2 to 5 years, when it extended its duration of work from 32 months to36 months.

    Consequently, the Tribunal considers that the contract concluded between ADM and the Italiancompanies constitutes an investment pursuant to Articles 1 and 8 of the Bilateral Treaty concluded betweenthe Kingdom of Morocco and Italy, as well as Article 25 of the Washington Convention.

    IMPREGILO S.p.A. v ISLAMIC REPUBLIC OF PAKISTAN

    On 19 December 1995, two Contracts (the Contracts) were concluded between Impregilo (acting on behalfof GBC) and the Pakistan Water and Pow er Development Authority (WAPDA or the Employer).Construction began in early 1996 but completion was delayed due to obstacles created by the Respondent andto unforeseen conditions discovered over the course of the work. The Engineer rejected most of GBCsclaims for extensions of time, as well as its claims for payment of additional costs. As a result, WAPDArefused to compensate GBC for most of those costs.

    According to Impregilos Request, jurisdiction over this dispute is established by Article 25 (1) of the ICSIDConvention and by Article 9 of the BIT between Italy and Pakistan signed on 19 July 1997, which entered

    into force on 22 June 2001.

    With respect to jurisdiction ratione personae, it is an investor of Italy for the purposes of the BIT. It is alsoa national of another Contracting State for the purposes of the ICSID Convention. As Leader of the Joint

    Venture, Impregilo is entitled to represent GBC in all matters relating to the Contracts.

    WAPDA is an instrumentality of the Government of Pakistan and exercises governmental authority. It istherefore part of the Government of Pakistan. The Islamic Republic of Pakistan is both a Contracting Party

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    to the BIT and a Contracting State under Article 25 (1) of the ICSID Convention. It is thus a properRespondent in this case.

    On the merits, Impregilo claims that Pakistan has violated Article 2(2) of the BIT. Impregilo also claims thatPakistan has violated Article 5(1) of the BIT

    Aside from alleged breaches of the Treaty, Impregilo also complains of breaches of the Contracts. It submitsthat the Tribunal has jurisdiction to consider such claims under Article 9 of the BIT which covers anydisputes without exception, between the Parties

    Relief sought: As a result of these alleged breaches of the BIT and the Contracts, the Respondent has causeddamages of approximately US$ 450 million. Impregilo seeks compensation for the entirety of the damages,including interest.

    Held:

    Tribunal unanimously decides:

    That it has no jurisdiction ratione materiae over Impregilos claims based on the alleged breaches of theContracts.

    That with respect to the other Treaty Claims, including the Treaty Claims relating to the frustration of thedispute resolution mechanism, the Tribunal will determine its jurisdiction when considering the merits.

    That the provisions of the BIT do not bind Pakistan in relation to any act that took place, or any situationthat ceased to exist, before 22 June 2001 and the jurisdiction of the Tribunal ratione temporis is limitedaccordingly.

    Methanex vs US

    Facts:

    Methanex sued the United States government because of the law in California that bans methanol as one ofthe components of gas. Methanex is one of the largest supplier of methanol thus the said law was inflictingdamage on the future profits of Methanex. California banned the said substance because it merges easily in

    water, moves rapidly upon it and cannot be removed easily. Methanex argued that California had theseproblems even before, the complainant further stated that the government is doing a restrictive measurerather than having alternate solutions for its problems.

    One of the issues that was put forward in this case was that NAFTAs Chapter 11 secretive arbitralproceedings. Wherein some of its clauses are subjected to several different interpretations thus not makingthe intention of the United States as a party in the NAFTA known or clear. The articles in question 1101,1102, 1105 and 2101 of the NAFTA all pertain to the jurisdiction of US to the materials used by foreigncorporations that have branches within the United States territory.

    Ruling on the said issue:

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    The United States application before the International Court of Justice was filed in 1987. According to the wishes of the parties, the case was submitted to and decided by a Chamber of the Court under Article 26(2)of the Statute of the Court.