The ICSID Convention and the Vienna Convention live a complicated relationship. The Vienna Convention plays (or is meant to play) a key role in the way the ICSID Convention is construed. To date, no ICSID tribunal has ever denied that the general rule of interpretation embodied in Article 31(1) of the Vienna Convention governs the interpretation of the ICSID Convention. In fact, most ICSID tribunals called to interpret the ICSID Convention have made recourse to the general rule of interpretation on the basis of its customary international law status. However, despite the deference given to it, the general rule of interpretation has been constantly misapplied or disregarded by ICSID tribunals. An example of such misapplication or disregard is the Salini test.
The Salini test, named after the decision on jurisdiction rendered in the case Salini Costruttori S.p.A. and Italstrade S.p.A. v. Morocco, emerged in the debate over the meaning of the term ‘investment’ for the purposes of Article 25(1) of the ICSID Convention. The debate had been triggered by the lack of a definition of the term ‘investment’ in the ICSID Convention and the suggestion that the lack of a definition was intended to confer discretion on the disputing parties to decide for themselves whether the dispute arises or not out of an investment. In the decision on jurisdiction, the Salini tribunal rejected the idea that it was up to the disputing parties to determine the content of the term ‘investment’. Instead, the Salini tribunal listed four elements that would shape a purported notion of investment within the meaning of the ICSID Convention: ‘contributions, a certain duration of performance of the contract and a participation in the risks of the transaction [and] the contribution to the economic development of the host State of the investment as an additional condition’. Since then, the Salini test has been applied by an overwhelming majority of ICSID tribunals that were required to decide whether a dispute complied with Article 25(1) of the ICSID Convention.
The Inconsistency of the Salini Test with the Vienna Convention’s General Rule of Interpretation
Pursuant to the general rule of interpretation, the terms of a treaty must be interpreted in accordance with their ordinary meaning. A special meaning can be only given to a term if it is established that the parties intended to do so (Article 31(4) of the Vienna Convention). The object and purpose of the treaty can only be used to establish the ordinary meaning of a term and not to confer a meaning on the term that goes beyond its ordinary meaning. As a single rule, Article 31(1) of the Vienna Convention provides that ‘[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms […] in the light of its object and purpose’ and not that the terms of a treaty shall be interpreted in the light of its object and purpose. The object and purpose, therefore, cannot be used by the interpreter to disregard the ordinary meaning in order to confer a special meaning on a term of the treaty. It is not a gateway to teleological constructions that go beyond the text of the treaty.
Article 31(1) of the Vienna Convention is based on Article 27(1) of the International Law Commission’s Draft Articles on the Law of Treaties (1966). In the work for the codification of the rules on the law of treaties existing in customary international law, the International Law Commission took the position in favour of the so-called textual approach, which found support in decisions of the Permanent Court of International Justice and of the International Court of Justice. For the textual approach, treaty interpretation should be primarily based on the text of the treaty as the main source of the intention of the parties. The textual approach admits very limited recourse to elements extraneous to the text of the treaty, such as the preparatory works of treaties, only allowed in cases in which the text of the treaty is not conclusive. The textual approach also rejects teleological constructions that go beyond the text of the treaty and that contradict the ordinary meaning of the terms of the treaty. For the textual approach, the object and purpose of a treaty can only be used to determine the ordinary meaning of a term as second step where there is more than one possible ordinary meaning.
The inconsistency of the Salini test with the general rule of interpretation lies in the fact that the Salini test confers on the term ‘investment’ a special meaning that contradicts its ordinary meaning. If we look at the ordinary meaning of investment in the three official languages of the ICSID Convention (English, French and Spanish), we will not find any definition in which the term ‘investment’ is defined by duration, exposure to risk or contribution to economic development. A transaction or activity will be an investment regardless of its duration, the risk to which it is exposed, and its contribution to the economic development. Likewise, a transaction or activity will not be an investment just because of its duration, because of the risk to which it is exposed, or because of its contribution to the economic development. All these elements are irrelevant.
The dissociation of the Salini test from the ordinary meaning of the term ‘investment’ can be explained to a certain extent by the opinion expressed by certain ICSID tribunals (as discussed below) according to which the jurisdiction of the Centre is not available to disputes arising out of any investment. According to these ICSID tribunals, the notion of investment within the meaning of the ICSID Convention limits the jurisdiction of the Centre to certain investments only, so-called protected investments, which are those investments that deserve the protection afforded by the ICSID Convention according to its purported object and purpose. Accordingly, it is a teleological interpretation of the term ‘investment’ in disregard of its ordinary meaning.
The evident example of this approach is the requirement imposed by the fourth element of the Salini test, the economic development requirement, which is based on the first recital of the Preamble of the ICSID Convention (‘Considering the need for international cooperation for economic development, and the role of private international investment therein’). As asserted by the sole arbitrator in Malaysian Historical Salvors, SDN, BHD v. Malaysia, ‘taking a teleological approach to the interpretation of the ICSID Convention, a tribunal ought to interpret the word “investment” so as to encourage, facilitate and to promote cross-border economic cooperation and development’.
The use of a teleological construction of the term ‘investment’ by ICSID tribunals in interpreting the ICSID Convention is not limited to the economic development requirement, but it also applies to the requirements of duration and risk. These two requirements reflect the concepts of covered risk and eligible investments contained in the MIGA Convention, which the Salini test, intentionally or not, ended up importing into the ICSID Convention on the assumption that the ICSID Convention has a purported object and purpose according to which access to the jurisdiction of the Centre would be limited to certain investments only, the protected investments.
In Consortium Groupement L.E.S.I. – DIPENTA v. Algeria, the tribunal considered that the first three elements of the Salini test – contribution, duration and risk – were ‘consistent with the objective of the ICSID Convention’. The L.E.S.I. – DIPENTA tribunal explained that the third element of the purported notion of investment within the meaning of the ICSID Convention – risk – was ‘understandable, in light of the objectives of the Convention [because] [t]he idea was, indeed, to offer a particular guarantee of jurisdiction to firms seeking to invest in another country’. The reference to a ‘guarantee of jurisdiction’ in the L.E.S.I. – DIPENTA decision reveals the influence of the MIGA Convention on the Salini test.
The notion of protected investments was openly advocated in Phoenix Action, Ltd. v. Czech Republic. In deciding whether the dispute fulfilled the investment requirement of the ICSID Convention, the tribunal, while considering that ‘the interpretation of the ICSID Convention and of the BIT is governed by international law, including the customary principles of interpretation embodied in the Vienna Convention on the Law of Treaties and the general principles of international law’, argued that the ordinary meaning of the term ‘investment’ was not sufficient in order to determine whether the investment is a protected investment under the ICSID Convention in light of its object and purpose. According to the tribunal, ‘the factual analysis of the existence of an investment, relying on the ordinary meaning of the term ‘investment’, is insufficient to detect an economic operation which is objectively an investment, but which is not a protected investment because, for one reason or another, it is not the purpose of the multilateral or bilateral treaty of protection of investments to extend protection through international arbitration to such an investment’.
A similar position was taken in Casinos Austria International GmbH and Casinos Austria Aktiengesellschaft v. Argentina, where the tribunal considered that ‘the first three Salini criteria help to circumscribe the activities and assets of foreign nationals in host States that the ICSID Convention considers not only in need of protection against political risk, but also worthy of access to its specific dispute settlement mechanism’. Also in Nations Energy Inc., Electric Machinery Enterprises Inc. and Jaime Jurado v. Panama, the tribunal noted that ‘it is difficult to have a protected investment without the investor having made contributions that have some economic value for the country, given that it is precisely the making of such contributions that justify the protection granted by the State’ (free translation of the Spanish original). And in Karkey Karadeniz Elektrik Uretim A.S. v. Pakistan, the tribunal found it ‘appropriate to take into account the four elements set forth by the tribunal in the Salini v. Morocco case in order to identify an investment protected by the ICSID Convention’.
The notion of protected investment created by ICSID tribunals following the Salini test is not consistent with the general rule of interpretation. Even if ICSID tribunals consider that the ICSID Convention was not envisioned to allow access to international arbitration to disputes arising out of any type of investment, its object and purpose cannot be relied on to require the fulfilment of elements that are not part of the ordinary meaning of the term ‘investment’. The fulfilment of the investment requirement of Article 25(1) of the ICSID Convention must always be based on the ordinary meaning of the term ‘investment’ and not on a special meaning inferred by ICSID tribunals from the object and purpose of the ICSID Convention. As such, ICSID tribunals cannot require an investment to have a certain duration or be subject to risk in order to qualify as an investment under the ICSID Convention, nor can ICSID tribunals require the dispute to arise out of an investment that contributed to the economic development of the host State. Likewise, ICSID tribunals cannot extend the jurisdiction of the Centre and qualify a transaction or activity as an investment just because the transaction or activity had a certain duration or because it was exposed to risk, or because it contributed to the economic development of the host State.
In sum, the Salini test shows that, despite the deference given by ICSID tribunals to the general rule of interpretation, the Vienna Convention has been misapplied or disregarded by many of them. A paradox indeed.
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Roberto Castro de Figueiredo is an international advocate with expertise in commercial and investment arbitration, public international law, international intellectual property law and energy disputes. Admitted by the Brazilian and the Portuguese bar associations, Roberto advises and represents clients in arbitral and court proceedings and other means of dispute resolution, including mediation, expert determination and ICC DOCDEX. Roberto also sits as an arbitrator and acts as legal expert in different jurisdictions.