During an initial phase, the recourse to ICSID witnessed a gradual increase of cases which followed the traditional pattern of filing arbitration requests stemming from agreements concluded between the foreign investor and the authorities of the host state, which contained an arbitration clause attributing jurisdiction to panels of arbitrators chosen in conformity with and operating under the ICSID Rules.

Throughout that initial phase, all claims pleaded were nothing but contractual claims generally based on alleged violations of the vested rights contractually granted by the host state's authorities to the foreign investor.

Such uniformity in ICSID's jurisdictional practice ended with the emergence of two other different types of requests:

Under a domestic legislation text; or

Under the provision of a given BIT.

The evolution towards 'arbitration without privacy' started with SPP's recourse to ICSID invoking an article of the Egyptian Investment Law No. 43 of 1974 granting, as incentive encouraging the foreign investor, the option to settle his dispute through arbitration, either:

Through habitual agreed upon channels, such as ICC arbitration;

Under the provisions of the BIT existing between Egypt and the foreign state to which the foreign investor belongs by his nationality; or

Ultimately under the ICSID convention whenever applicable.

In that particular case, SPP had previously acted in conformity with the first option through recourse to the ICC in Paris, but the arbitral award[Page43:] rendered in 1982 against the Government of Egypt was subsequently annulled by the Paris Court of Appeal which construed the words: 'approved, agreed and ratified' preceding the signature of the Minister of Tourism on the last page of the Agreement between SPP/Middle East and EGOTH, the public sector company wholly owned by the government, as an exercise of the Minister's powers in his capacity as 'Ministre de Tutelle' of EGOTH, and not as a cabinet member acting on behalf of the Egyptian Government. Taking into account that the BIT between Egypt and the United Kingdom in force since 1976 did not include Hong Kong - where SPP was incorporated

- among the territories benefiting from the provisions of the said BIT, the ingeniosity of SPP's Lawyers led them to seize ICSID in exercise of the third available option under Law No. 43 of 1974. They lodged SPP's request of arbitration in acceptance of that legislative offer, thus invoking the existence of the consent required under a new form to be tested for the first time.

It may be interesting in this respect to emphasize that SPP's recourse to ICSID was started at a time when the ruling of the Paris Court of Appeal was still pending in front of the French Court of Cassation, and the ICSID Tribunal decided to suspend the proceedings in deference to that parallel type of arbitration.

Thus, confirming the non-exclusive character of the ICSID arbitration.

We are going to focus later on the nature of the claims adjudicated by the ICSID Tribunal in the SPP case, but the saga of that case, apart from the ICC arbitration, continued through three successive rulings rendered by the ICSID Tribunal, an ill-fated recourse to an ad hoc annulment committee and finally an amicable settlement. The lessons to be learned from that unique experience deserve an entire book, with an appendix dealing with the tragic sister experience brought equally under the free zones section of the Egyptian Investment Law No. 43 of 1974 by Manufacturer Hanover Bank, in which an extremely interesting Award was rendered, but kept unpublished. This Award illustrates the extreme damage that could have been caused by domestic bureaucrats if the situation was not contained in extremis by an amicable settlement.

I permitted myself to provide as introduction to the subject under consideration the historical background of the above-mentioned two cases brought against[Page44:] Egypt in the ICSID fora, because I do believe that the lawyers who were aware of what happened then in the mid-eights were capable at a later stage to guide their clients in paving the road during the following phase of development after having the gate wide open in front of cases exclusively based on invoking provisions of a given BIT.

Unlike the Egypt-United Kingdom BIT where Hong Kong was not among the territories covered, the Sri Lanka-United Kingdom BIT included those entities incorporated in Hong Kong (which was by then still a British Colony). Hence, the AAPL v. Sri Lanka arbitration became the first ICSID case filed under a BIT provision forming an offer accepted by the foreign investor through the filing of claims arising thereunder.

The particularity of that first BIT case resides in the fact that the request lodged against the Government of Sri Lanka related exclusively to treaty claims, since there was no contract at all to relay upon between the Hong Kong investors who established a shrimp farming enterprise for exportation to Japan. The cause of action was the failure of the authorities to provide the physical security required according to the standards prescribed under the BIT, as well as under general public international law.

What happened was the destruction of the investors' installation and the massacre of a considerable number of the workers trained to operate the destroyed premises. These actions were attributed to the governmental forces in pursuit of the Tamil rebels.

The majority Award rendered in that case was the first exercise under ICSID system dealing with exclusively BIT treaty claims; i.e., irrelated to any alleged contractual claims.

The subsequent development was easily predictable in the light of the fact that the Government of Sri Lanka, in respect of its international law obligations, and its able lawyers, raised no jurisdictional objection against the BIT treaty claims, and no annulment request was lodged against the majority award, in spite of a strongly worded dissenting opinion considering the majority ruling as constituting 'bad law'.

Within the context of ICSID case law pertaining to the dichotomy between 'contract claims' and 'treaty claims', it would seem more appropriate to deal with the cases in three separate groups: [Page45:]

The cases where jurisdiction was based on domestic legislative rules;

The cases involving claims having as cause of action violation of obligations stemming from a state contract signed by the Government itself; and

The cases emerging with regard to the state's responsibility in relation to a contract concluded with a public entity and claimed to be affected by certain governmental measures.

Each of these categories will be treated separately under the following three sections.

However, it has to be noted, the rapid growth in the number of cases filed during the last decade under the ICSID system per se with regard to direct recourse by invoking a given BIT, following the pattern inaugurated by the AAPL/ Sri Lanka case. In the present study, we are not going to include the other sources of inflation caused by the emergence of NAFTA cases under the Additional facilities.

The cases based on assuming jurisdiction under a domestic legislative text

As referred to above, the Award of May 20, 1992, rendered by the ICSID Tribunal in the SPP case against Egypt established for the first time, the international law bases for a state's responsibility without invoking the provisions of a given BIT.

The case under consideration relates to the State's decision to terminate the pyramids Oasis project which encountered political opposition and became the subject of a parliamentary inquiry. The approval of the project by the Investment Authority was withdrawn as a result of a Decree which declared the pyramids plateau within the public domain, since it contains antiquities, and accordingly expropriated as being land d'utilité publique.

In the absence of BIT provisions to be relied upon, the ICSID Tribunal in its majority Award decided that:

"Clearly, as a matter of international law, the Respondent was entitled to cancel a tourist development project situated on its own territory for the purpose of protecting antiquities. This prerogative is an unquestionable attribute of sovereignty. The decision to cancel the[Page46:] project constituted a lawful exercise of the right of eminent domain. The right was exercised for a public purpose, namely, the preservation and protection of antiquities, in the area. Nor have the Claimants challenged the Respondent's right to cancel the project. Rather, they claim that the cancellation amounted to an expropriation of their investment for which they are entitled to compensation under both Egyptian Law and International Law." (Para.158)

As the ICSID Tribunal's ruling in that case did not invoke any 'BIT Claims' in the proper sense, it equally was not called to directly adjudicate or pronounce on 'Contractual Claims' subject to its determination.

The Tribunal was called upon, within its jurisdiction, to evaluate the compensation due as a result of lawful expropriation, to decide on the value of the contractual rights lost as a result of the measures undertaken by the Egyptian Government.

The SPP-ICSID Tribunal was in a position to state in this respect the rule under general international customary law, by emphasizing that:

"There is considerable authority for the proposition that contract rights are entitled to the protection of international law and that the taking of such rights involve an obligation to make compensation thereof… It has long been recognized that the contractual rights may be indirectly expropriated. In the Judgement of the PCIJ-certain German Interests in Polish Upper Silesia (Series A, No. 7, 1962 at p.44) [it was stated that] Poland had also 'expropriated the contractual rights' of the operating company." (Para.164)

The Tribunal was keen, subsequently, to stress that it was not facing what can be characterized as 'Contractual Claims' by declaring:

"While the claimants maintain that they are entitled to compensation for the 'repudiation and taking' of their contract rights, they do not claim damages for the breach of contract. Rather they characterize their claims as follows:

The claim hereby is not for damages for breach of contract. It is for compensation on account of the losses occasioned to it by the state's exercise of its sovereign powers, which destroyed its property rights including its contract rights." (Para.182) [Page47:]

The exclusion of 'claims for breach of contract' under this first category of ICSID case was confirmed in the other arbitration known as Tradex against the Republic of Albania.

In its Decision on Jurisdiction dated December 24, 1996, the ICSID Tribunal agreed with both parties that any claim raised against the State-Owned company, T.B. Torovitse, which relate to obligations stemming from the joint venture agreement, would be outside its jurisdiction. But, on the other hand, it ruled that it has jurisdiction over the other kind of claim raised by Tradex against the Republic of Albania concerning acts of expropriation allegedly committed by Albania vis-à-vis Tradex's investment.

Accordingly, only the 'Investment Law Claims' were adjoined to the merits, with the exclusion of the clearly distinguished 'Contract Claims' falling outside the scope of ICSID's jurisdiction. Thus, totally in line with the previous precedent established by the SPP final award adjudicated. To the best of our knowledge, no other case based on a domestic investment law provisions was pursued and thereafter, hence, the conclusion limiting ICSID jurisdiction to claims violating the legislatively secured guarantees granted to the foreign investor remains undisputed.

Cases involving claims stemming from bit violations pertaining to state contracts signed by the government itself

To the best of our knowledge, the two SGS cases against Pakistan on the one hand, and the Philippines on the other hand, are particularly illustrative of this second category marked, in its true inherent nature, by two distinctive features:

The direct involvement of the state as such, represented by a Minister member of the cabinet and acting on behalf of the Government; and

That the Agreement concluded with the foreign investor relates to entrusting the foreign entity with a state public function that the governmental authorities should have undertaken otherwise.

The two SGS cases brought under the Swiss-Pakistan BIT, on the one hand, and the Swiss-Philippines BIT on the other hand, have in common two other ancillary characteristics which are: [Page48:]

The existence in the BIT in question of what is called an 'umbrella clause' converting the State's breach of its contractual obligations into a violation of BIT.

The wording of the said 'umbrella clause' differs from one case to the other, with the necessary implication that the interpretation thereof may lead to different conclusions.

For example, Art.11 of the Swiss/Pakistan BIT provides that:

"Either Contracting party shall constantly guarantee the observance

of the commitments it has entered into with respect to the investments

of the investors of the other contracting party."

Art.X(2) of the Swiss/Philippines BIT adopted a different formulation which reads :

"Each Contracting party shall observe any obligation it has assumed

with regard to specific investments in its territory by investors of the

contracting party."

The Agreements concluded between the contracting state and the foreign investors for undertaking the tasks entrusted to the foreign entity normally include, like ordinary business contracts, a choice-of-forum clause which can be the recourse to domestic courts, to local arbitration or to arbitration under an international institution such as the ICC or a regional centre administering the UNCITRAL Arbitration Rules.

In the Agreement of SGS with the government of Pakistan, Art.11 stated:

"Any dispute, controversy or claim arising out of, or relating to this Agreement, or breach, termination or invalidity thereof, shall as far as it is possible, be settled amicably. Failing such amicable settlement, any such dispute shall be settled by arbitration in accordance with the Arbitration Act of the Territory as presently in force. The place of arbitration shall be Islamabad, Pakistan and the language to be used in the arbitration proceedings shall be the English Language."

The choice-of-forum clause agreed upon in the SGS Agreement with the State of Philippines opted for a different solution by stipulating in Art.12 that: [Page49:]

"All actions concerning disputes in connection with the obligations

of either party to this Agreement shall be filed at the Regional Trial

Courts of Makati or Manila".

The legal effects of such different contractually agreed upon choice-of-forum clauses could not be the same, particularly in view of their implications with regard to concurring recourses to ICSID arbitration as it will be seen hereafter within the study of the lessons deriving from the comparison between the ruling of SGS's two sister cases against Pakistan and the Philippines.

Both SGS cases are similar with regard to the activities, the said company basically agreed to undertake on behalf of the two States (Pakistan and the Philippines) to provide 'pre-shipment inspection' services with respect to goods to be exported from certain countries to either state (Pakistan or the Philippines as the case may be). The objective of such pre-inspection was to ensure that the goods were classified properly for custom duty purposes and to increase the efficiency of the custom revenues collection.

However, the two cases have a number of basic differences which can be summarized as follows:

No termination took place in the SGS-Philippines case, contrary to what happened in the SGS-Pakistan case where the Agreement was claimed to be unlawfully terminated in a manner that constitutes breaches of both the Agreement and of the BIT obligations.

In the SGS-Pakistan relationships, SGS initiated as of 12 January 1998 a commercial claim for wrongful termination of the Agreement in the Courts of Switzerland which went through all three stages, starting with the Court of First Instance of Geneva, the Court of Appeal of Geneva and finally the Swiss Federal Tribunal. These Swiss judicial proceedings unfolded over a period of some twenty-two months with no success to SGS. In September 2000, the Pakistani Government applied to a Court in Islamabad to start an arbitration case against SGS. Almost eleven months thereafter, SGS submitted a request for filing an ICSID arbitration against Pakistan under the Swiss-Pakistan BIT.

In the SGS-Philippines case, there had been no recourse to any local Court by either party, as well as no parallel domestic arbitration. [Page50:]

In the SGS-Pakistan ICSID proceedings SGS raised not only 'treaty claims' and 'contract claims', but equally what is called 'defamation claims'. In the SGS-Philippines case there is no such category of claims.

In the light of the above-stated similarities and dissimilarities between the two sister arbitrations, the SGS-Pakistan ICSID Tribunal arrived, in its Decision of August 6, 2003, to the following conclusions:

" ….in the circumstances of this case, we do not believe that transmutation of SGS's contract claims into BIT claims has occurred. Accordingly, we must here address the issue of whether we have jurisdiction to determine claims grounded solely on contract, that is, contract claims which do not include any element of, or amount to, violation of a substantive BIT standard." (Para.156)

"By any objective reading, Art.11.1 of the PSI Agreement encompasses, at a minimum, contractual and other non-treaty disputes arising out of the PSI Agreement, including its alleged unlawful termination." (Para.160)

"We do not see anything in Art.9 or in any other provision of the BIT

that can be read as vesting this Tribunal with jurisdiction over claims

resting ex hypothesi exclusively on contract."

Both Claimant and Respondent have already submitted their respective claims founded solely on the PSI Agreement to the PSI Agreement arbitrator.

"…we believe that Art.11.1 of the PSI Agreement is a valid forum selection clause so far as concerns the claimant's contract claims which do not also amount to BIT claims, and it is a clause that this Tribunal should respect."

(Para.161)

"We conclude that the Tribunal has no jurisdiction with respect to claims submitted by SGS and based on alleged breaches of the PSI Agreement which do not also constitute or amount to breaches of the substantive standards of the BIT." (Para.162)

Without going into the extensive analysis of the reasons upon which the SGS-Pakistan Tribunal rejected SGS's submission that Art.11 of the Swiss-Pakistan BIT transforms purely contractual claims into BIT claims, it is sufficient within the limited scope of the present paper to note the following two relevant arguments: [Page51:]

In reliance on the specific wording of Art.11 of the Swiss-Pakistan BIT pertaining to the failure to 'constantly guarantee the observance of commitments', this would apply, according to what the Tribunal indicated in Para.172, when faced with actions, though not amounting to 'denial of justice', which represent certain gravity such as:

'taking action that materially impedes the ability of an investor to prosecute its claims before an international arbitral tribunal'; or

Refusal to go to such arbitration at all and leaving the investor with 'only the option of going before the ordinary courts of the contracting party'.

In the absence of clear and persuasive evidence about the intention behind the adoption of Art.11 in its final wording, it should not be interpreted extensively, but in dubio mitius. (Paras.171 and 173)

The SGS-Pakistan Tribunal's Decision of August 6, 2003, arrived at three conclusions:

Not seeking to determine the contractual claims asserted under the PSI Agreement;

Going ahead with the determination of only the BIT claims of SGS; and

The refusal to grant the request for a stay of the ICSID proceedings. (Paras.186-187)

The above-stated results look contrary to the ruling of the SGS-Philippines Tribunal in its Decision of January 29, 2004.

As previously mentioned, there has been no pending prior recourse to local Courts in Switzerland or in the Philippines, or to domestic arbitration, since no termination of the Pre-Shipment Inspection Agreement (referred to as CISS) existed. The relationships between the Government of the Philippines and SGS suffered no interruption from 1986 onwards, and the new Agreement entered into on 23 August 1991 and approved by the President of the Philippines, went on with two subsequent amendments and further extension uptil 31 March 2000.

The only dispute submitted to the SGS-Philippines ICSID Tribunal relates to certain monetary claims pending after the discontinuance of SGS's services in 2000 which were subject to various attempts for amicable settlement, but no agreement was reached on the quantum of the said monetary outstanding claims, in spite of the fact that most of the unpaid sums were conceded to be payable by the Philippines Bureau of Customs. [Page52:]

SGS's cause of action in front of the ICSID Tribunal was the allegation that, in refusing to pay the amount claimed, the Philippines Government was in breach of Art.IV(1), Art.IV(2), Art.VI(1) and Art.X(2) of the Swiss-Philippines BIT.

Faced with arguments and counter-arguments similar to those advanced in the sister case of SGS-Pakistan, the SGS-Philippines ICSID Tribunal, as explicitly declared in Paras.92 to 94 of its Decision of 29 January 2004, focused on the issues to be treated which mainly included the following headings:

"Whether the so-called 'umbrella clause' (Art.X(2) of the BIT) gives

the Tribunal jurisdiction over essentially contractual claims against

the Respondent State";

"Whether the general description of a 'dispute concerning an invest

ment' (Art.VIII(1) of the BIT) encompasses claims of an essentially

contractual character";

"Whether the Tribunal has jurisdiction over [SGS] claims as claims

for breach of treaty [obligations] under Art.IV and/or Art.VI of the

BIT";

"Whether the Tribunal can or should exercise jurisdiction in the present case, notwithstanding the exclusive jurisdiction clause, Art.12 of the CISS Agreement, requiring contractual disputes to be referred to the Courts of the Philippines"; and

"Whether the effect of Art.12 of CISS Agreement… May better

be regarded as concerned with the admissibility of the claim than

jurisdiction in the strict sense".

Having the benefit of carefully considering the Decision rendered by the ICSID Tribunal in SGS-Pakistan case, the SGS-Philippines Tribunal arrived at the following conclusions:

?After lengthy discussions of the arguments expressed by the SGS-Pakistan Tribunal, and taking into account the particularity of the text of Art.X(2) of the Swiss-Philippines BIT (Paras.114-126), the Decision of 29 January 2004, indicated that the said Art.X(2) 'does not convert non-binding domestic blandishments into binding international law', nor does it 'convert questions of contract law into questions of treaty law', nor does[Page53:] it 'change the proper law of the CISS Agreement from the law of the Philippines to international Law'. Consequently, 'the basic obligation on the State... to pay what is due under the contract, which is an obligation assumed with regard to the specific investment… does not mean that the determination of how much money the Philippines is obliged to pay becomes a treaty matter. The extent of the obligation is still governed by the contract, and it can only be determined by reference to the terms of the contract.' (Paras.126-127)

In other words, 'Art.X(2) makes it a breach of the BIT for the Host State to fail to observe binding commitments, including contractual commitment, which it has assumed with regard to specific investments. But it does not convert the issue of the extent or content of such obligations into an issue of international law.' (Para.128)

Contrary to what was decided by the SGS-Pakistan Tribunal, the SGS-

Philippines Tribunal was of the opinion that the phrase 'disputes with respect to investments' as appearing in Art.VIII(2) of the Swiss-Philippines BIT, as well as the phrase 'legal dispute arising directly out of an investment' in Art.25(1) of the ICSID Convention 'naturally includes contractual disputes' (Para.132 (d)). Hence, the SGS-Philippines Tribunal concluded that 'in principle (and apart from the exclusive jurisdiction clause in the CISS Agreement) it was open to SGS to refer the present dispute, as a contractual dispute, to ICSID arbitration under Art.VIII(2) of the BIT.' (Para.135)

With regard to the existence of a BIT claim which can be determined independently from the contractual issues subject to an exclusive choice-of-forum clause the SGS-Philippines Tribunal adopted as a starting point the following assertion:

"Provided the facts as alleged by the Claimant and as appearing from the initial pleadings fairly raise questions of breach of one or more provisions of the BIT, the Tribunal has jurisdiction to determine the claim." (Para.157)

Taking into consideration that the unresolved issues pending in the SGS-Philippines case were limited to the determination of the amount of money owed under the CISS Agreement and still payable, the Tribunal stated: [Page54:]

"On the material presented by the Claimant no case of expropriation has been raised. Whatever debt the Philippine may owe to SGS still exists; whatever right to interest for late payment SGS had it still has. There has been no Law or decree enacted by the Philippines attempting to expropriate or annul the debt, nor any action tantamount to an expropriation… a mere refusal to pay a debt is not an expropriation of property, at least where remedies exists in respect of such a refusal. A fortiori a refusal to pay is not an expropriation where there is an unresolved dispute as to the amount payable." (Para.161)

However, with regard to Art.IV (fair and equitable treatment), the Tribunal emphasized:

"Whatever the scope of the Art.IV standard may turn out to be-and that is a matter for the merits-an unjustified refusal to pay sums admittedly payable under an award or a contract at least raises arguable issues under Art.IV. … (T)here being an unresolved dispute as to the amount payable, for the Tribunal to decide on the claim in isolation from a decision by the chosen forum under the CISS Agreement, is inappropriate and premature." (Para.162)

Hence, the SGS-Phillipines Tribunal held that:

"(I)t has jurisdiction over SGS's claim under Art.X(2) and Art.IV of the BIT, but that in respect of both provisions, SGS's Claim is premature and must award the determination of the amount payable in accordance with the contractually-agreed process." (Para.163)

??Concerning the controversial issue of the choice of 'forum clause' mutually agreed in Art.12 of the CISS Agreement, the SGS-Philippines Tribunal did not hesitate to declare that: [Page55:]

Prima facie Art.12 is a binding obligation, incumbent on both parties, to resort exclusively to one of the named Regional Trial Courts in order to resolve any disputes 'in connection with the obligations of either party to this Agreement'. It is clear that the substance of SGS's claim, via a claim to payment for services supplied under the Agreement, falls within the scope of Art.12. (Para.137)

After stating the basic principle according to which 'a binding exclusive jurisdiction clause in a contract should be respected unless overridden by another valid provision' (Para.138), the majority Decision finds appropriate to declare that:

"The BIT did not purport to override the exclusive jurisdiction clause in the CISS Agreement, or to give SGS an alternative route for the resolution of contractual claims which it was bound to submit to the Philippines courts under that Agreement." (Para.143)

Since the Majority was of the opinion that it has been faced in the SGS-Philippines case with a valid and applicable exclusive jurisdiction clause, affecting the substance of SGS's claim, the two arbitrators forming the Majority came to the conclusion that the legal effect resulting from that situation does not relate to the Tribunal's jurisdiction but more precisely to the admissibility of the claim.

The analysis of the established jurisprudence of the mixed arbitral tribunals led the Majority to distinguish between:

The Jurisdiction of the Tribunal which 'is determined by the combination of the BIT and the ICSID convention'; and

The other issue related to the parties' prerogative 'to rely on a contract as the basis of its claim when the contract refers that claim exclusively to another forum', which 'is more naturally considered as a matter of admissibility than jurisdiction'. (Para.154)

In the light of the above-stated considerations, the SGS-Philippines Tribunal arrived, inter alia, at the following rulings:

"Under Art.X(2) of the BIT, the Respondent is required to observe the obligation to pay sums properly due and owing under the CISS Agreement; but this obligation is dependent on the amounts owing being definitively acknowledged or determined in accordance with the CISS Agreement." (Para.169-(2))

"Under Art.VIII(2) of the BIT, the Tribunal has jurisdiction with respect to a claim arising under the CISS Agreement, even though it may not involve any breach of the substantive standards of the BIT." (Para.169-(3))

"But such a contractual claim, brought in breach of the exclusive jurisdiction clause embodied in Art.12 of the CISS Agreement is inadmissible, since Art.12 is not waived or over-ridden by Art.VIII(2) of the BIT or by Art.26 of the ICSID convention." (Para.169-(4)) [Page56:]

"No claim for breach of Art.VI of the BIT (pertaining to expropriation) can be sustained on the facts as presented by the Claimant." (Para.169-(5))

"SGS is bound by the terms of the exclusive jurisdiction clause, Art.12 of the CISS Agreement, in order to establish the quantum or content of the obligation which, under Art.X(2) of the BIT, the Philippines is required to observe." (Para.170)

"Within the context of the SGS-Philippines case, the Tribunal is precisely faced with the situation where the Philippines' responsibility under Art.(X)2 and IV of the BIT-a matter which does fall within its jurisdiction-is subject to the factual predicate of determination by the Regional Trial court of the amount owing by the Respondent." (Para.174)

"Justice would be best served if the Tribunal were to stay the present proceedings pending determination of the amount payable, either by agreement between the parties or by the Philippine Courts in accordance with Art.12 of the CISS Agreement." (Para.175)

Responsibility in relation to contracts concluded between a public entity and a foreign investor

The bulk of ICSID's recent BIT arbitrations falls precisely in this third category characterized by the fact that the underlying contract is not concluded with the State represented by the Government itself for the purpose of entrusting a foreign investor with one of he State's basic functions, such as pre-inspection of imported goods in view of adequately assessing the custom duties to be collected by the fiscal authorities.

Accordingly, the so-called 'umbrella clauses' tend to lose their relevance, since it can hardly be conceived that specific commitments could be granted by the host state to provide particular guarantees to foreign investors entering into ordinary economic transactions with public entities, whether wholly owned or partially owned by the government. At the same time, within the ambit of this third category, the contractual obligations assumed by the public enterprises can be clearly distinguished from the cause of action stemming from the state's intervention through sovereign measures affecting the contractual balance agreed upon between the parties thereto. [Page57:]

To remain within reasonable research limits, special emphasis should be devoted to the two leading cases where decisions had been recently rendered by ad hoc annulment committees, which are the Wena Hotel decision of February 5, 2002, and the Vivendi Decision of July 3, 2002 equally. Once the basic principles established with regard to these two cases are analyzed, the study of what materialized in four other important cases can demonstrate in which direction the ICSID case law is moving. The cases in question are: Salini together with the Italian Consortium RFCC on the one hand, and the Enron together with Joy Mining, on the other hand.

In order to understand fully the relevance of the Wena Hotels case against the Egyptian Government, the following essential elements about the dispute should be taken into consideration.

Two leases were concluded on April 1, 1991, covering one Hotel in Cairo and another one in Luxor. The leases were not concluded with the Government itself, but with the State-owned Company EHC. When disputes erupted between Wena and EHC in respect of their mutual obligations under the leases, each accusing the other of failure to comply with the agreed terms of the contract, these contractual disputes were submitted to domestic arbitration in Egypt and adjudicated by local arbitrators according to the chosen applicable Egyptian Law.

The ICSID Arbitration dealt with a totally different subject-matter, as it is clear from the Arbitral Award dated December 8, 2000, that the ICSID Tribunal found that Egypt breached its obligations under Art.2(2) of the Egypt-United Kingdom BIT, by failing to accord Wena's investments in Egypt fair and equitable treatment and to provide full protection and security thereto. At the same time, Egypt's actions amounted, according to the Tribunal, to an expropriation without prompt, adequate and effective compensation in violation of Art.5 of the BIT.

The ad hoc Committee seized by virtue of Egypt's application for the annulment of the ICSID Tribunal's Award made it clear in Para.48 of its Decision that the contractual dispute under the leases which are governed by Egyptian Law is not the dispute brought to arbitration under the ICSID Convention and the BIT (referred to as the IPPA).

In a subsequent paragraph, the ad hoc Committee emphasized that the two kinds of disputes remain separate in spite of the fact that 'the ultimate[Page58:] result is the compensation of the investor for the wrongdoings that have affected its business' (Para.49). It approved the Tribunal in attesting that: 'it is not necessary to determine the truth of these conflicting serious disagreements about their respective obligations under the leases.' (Para.85).

Accordingly, the ad hoc Committee arrived in Para.86 at a formulation of its conclusions in this respect under the following terms:

"(T)he Tribunal declared irrelevant to consider the rights and obligations of the parties to the leases for reaching a decision on the dispute submitted to it. The Award confirms that Wena had been expropriated and lost its investment and this irrespective of the particular contractual relationship between Wena and EHC. The explanation thus given for not determining the respective obligations of Wena and EHC under the leases is sufficient to understand the premises on which the Tribunal's decision is based in this respect."

In other words, the Wena Hotels ad hoc Committee clearly endorsed the exclusion of 'contractual claims' from ICSID jurisdiction which is confined to alleged 'treaty claims'.

In its Decision of July 3, 2002, the ad hoc Vivendi Committee provided the other ruling which has to be regarded as the Authority upon which future ICSID case law pertaining to this category of contracts concluded with public entities should be guided.

A comprehensive understanding of this Decision requires taking notice of the following factors:

The ICSID Case lodged against the Argentine Republic related to certain acts which caused the termination of the thirty-year concession contract previously granted by the Province of Tucuman to the Claimants. The acts in question were alleged to justify accusing the Argentine Republic of violating its obligations under the BIT concluded with France.

In its Award of 21 November 2000, the ICSID Arbitral Tribunal distinguished:

- The so-called 'Tucuman claims' which are nothing but the contractual claims subject to the provisions of Art.16/4 of the Concession Agreement granting competence to the administrative courts in that Province; and[Page59:]

- The different 'federal claims', which are characterized by the Claimants as arising under the BIT and not contractual claims under the Concession Agreement. In other words, claims which are ex hypothesi not based on the Concession Agreement but having a cause of action under the BIT. (Paras.45 and 51)

The ad hoc Committee annulled the Arbitral Award within the limits of the issues related to the 'Tucuman claims', establishing the rules indicated hereinafter:

"In the Committee's view, a claim by CAA against the Province of Tucuman for breach of concession contract, brought before the contentious administrative Courts of Tucuman, would prima facie fall within Art.8(2) and constitute a final choice-of-forum and jurisdiction, if that claim was coexisting with a dispute relating to investments under the BIT." (Para.55)

"A State may breach a treaty without breaching a contract, and vice versa." (Para.95)

"In accordance with this general principle (which is undoubtedly declaratory of general international law), whether there has been a breach of the BIT and whether there has been a breach of contract are different questions. Each of these claims will be determined by reference to its own proper or applicable law-in the case of the concession contract, by the proper law of the contract." (Para.96)

? In ascertaining the impact of a choice-of-forum clause on both categories of the claims under consideration, the ad hoc Vivendi Committee ruled that:

"In a case where the essential basis of a claim brought before an international tribunal is a breach of contract, the tribunal will give effect to any valid choice of forum clause in the contract." (Para.98)

"Where the fundamental basis of the Claim is a treaty laying down an independent standard by which the conduct of the parties is to be judged, the existence of an exclusive jurisdiction clause in a contract between the claimant and the respondent state or one of its subdivisions cannot operate as a bar to the application of the treaty standard." (Para.101) [Page60:]

"(T)he Committee does not understand how, if there had been a breach of the BIT … (a question of international law) the existence of Art.16(4) of the concession contract could have prevented its characterization as such. A State cannot rely on the exclusive jurisdiction clause in a contract to avoid the characterization of its conduct as internationally unlawful under a treaty." (Para.103)

? In its concluding findings, the ad hoc Vivendi Committee emphasized that:

"(I)t is one thing to exercise contractual jurisdiction (arguably exclusively vested in the administrative tribunals of Tucuman by virtue of the concession Contract) and another to take into account the terms of a contract in determining whether there has been a breach of a distinct standard by international law, such as that reflected in Art.3 of the BIT." (Para.105)

"(I)t is clear … that the Tribunal declaimed to decide key aspects of

the Claimant's BIT claims on the ground that they involved issues of

contractual performance or non-performance." (Para.108)

"Under Art.8(4) of the BIT, the Tribunal had jurisdiction to base its decision upon the concession contract, at least so far as necessary in order to determine whether there had been a breach of the substantive standards of the BIT."

"(W)hether particular conduct involves a breach of a treaty is not

determined by asking whether the conduct purportedly involves an

exercise of contractual rights." (Para.110)

"(T)he conduct alleged by Claimants, if established, could have breached the BIT…. It was open to Claimants to claim, and they did claim, that these acts taken together, or some of them, amounted to a breach of Art.3 and/or Art.5 of BIT." (Para.112)

"A treaty cause of action is not the same as a contractual cause of action; it requires a clear showing of conduct which is in the circumstances contrary to the relevant treaty standard." (Para.113)

The above statements pronounced by the ad hoc Vivendi Committee provide valuable guidelines about the distinction and interplay between 'treaty claims' and 'contract claims'. [Page61:]

The question which remains to be investigated relates to testing the said guidelines in the light of the four other cases that we suggest to study in the following pages.

For reasons which remain unexplained, much attention was given to the Salini Decision on jurisdiction rendered on 23 July 2001, but the Decision rendered a week earlier (on July 16, 2001) by the same ICSID Tribunal in the sister case of the Italian Consortium RFCC passed almost unnoticed. The two cases were filed against the Kingdom of Morocco, with regard to contracts concluded with La Société Nationale des Autoroutes du Maroc, referred to as ADM, for the construction of certain portions of Moroccan Highways. Faced with certain difficulties, the Italian Parties seized ICSID with claims directed against the State of Morocco under the Italian-Moroccan BIT.

It has to be recalled that the ICSID Tribunal declared at the jurisdictional phase that it has jurisdiction over the claims of the Italian Parties:

"pour connaître (les demandes), telles qu'elles sont formulées, étant précisé qu'il n'est pas compétent pour connaître des manquements éventuels au seul contract conclu entre (les Parties italiennes) et ADM et qui ne constituent pas en même temps une violation de l'Accord bilatéral (BIT)."

The Salini case having been subsequently settled amicably, the focus should be turned presently on the sister case (Consortium RFCC) in which an award on merits was rendered on December 22, 2003.

At the jurisdictional phase, the ICSID Tribunal clearly indicated, concerning the offer contained in the Italian-Moroccan BIT, that:

"L'article 8 oblige l'Etat à respecter l'offre de compétence à un contrat qui le lierait directement. L'Offre de compétence a raison des violations de l'accord bilatéral et de tout manquement à un contrat qui le lierait directement. L'offre de compétence de l'Article 8 ne s'étend pas par contre aux violations d'un contrat auquel une entité autre que l'Etat est nommément partie." (Para.61)

The distinction between 'contracts binding directly on the State' and 'contracts of which an entity other than the State is the named Party' could not have been made more explicitly. [Page62:]

Four passages later, the ICSID Tribunal declared without the slightest ambiguity:

"Le Tribunal se déclare compétent pour connaître des demandes des sociétés italiennes, telles qu'elles sont formulées, étant précisé qu'il n'est pas compétent pour connaître des manquements éventuels au seul contrat conclu entre les sociétés italiennes et ADM et qui ne constituent pas en même temps une violation de l'Accord bilatéral." (Para.64)

The lack of jurisdiction over claims pertaining to purely contractual claims stemming from an agreement to which the State is not directly a contracting party, was newly asserted in the Arbitral Award rendered on December 22, 2003 in the Consortium RFCC case, in commenting on the previous decision in the following manner:

"Il résulte du dispositif, très clair, de la décision sur la compétence que le Tribunal s'est déclaré compétent ratione materiae pour statuer sur les demandes formulées par le Consortium, dans la seule mesure où elles seraient fondées sur des violations de l'Accord bilatéral à la charge de l'Etat.

"En d'autres termes, l'allégation d'une violation de l'Accord bilatéral constitue une condition nécessaire de la compétence du Tribunal. Il s'ensuit que, lorsque les demandes sont fondées sur des violations alléguées du contrat, le Tribunal n'entrera en matière sur de telles demandes que s'il est soutenu que ces prétendus manquements contractuels constituent en même temps une violation de l'accord bilatéral à la charge de l'Etat.

"La violation effective de l'Accord bilatéral sera ensuite une condition

de l'accueil au fond des demandes formulées." (Para.29)

In application of that rule, the ICSID Award rendered on merits in the Consortum RFCC case arrived at the following conclusions:

"Le Tribunal considére qu'il n'existe pas de principe d'assimilation

nécessaire des violations contractuelles aux violations d'un traité

bilatéral d'investissement." (Para.38) [Page63:]

"Il résulte de la décision sur la compétence qu'il n'entre dans la compétence du Tribunal de statuer sur les manquements au contrat liant le demandeur à ADM que si ces manquements sont constitutifs de violation de l'Accord bilatéral italo-marocain.

Or, l'examen auquel s'est livré le Tribunal a montré que les faits

allégués par le demandeur, à les supposer établis, ne constituent pas

des manquements à l'Accord bilatéral à la charge du défendeur. En

conclusion, les demandes du Consortium seront rejetées."

(Paras.110-111)

During the current year 2004, the issue under consideration became sufficiently mature for formulating tentative conclusions due to the constitution of two ICSID Tribunals presided by the same eminent Latin American Jurist.

The Decision rendered on January 14, 2004 in the ICSID Case No. ARB/01/3 (Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic) enriched the debate by stating a number of rules of great practical importance with regard to new issues related to participation by foreign investors in the privatization process and what constitutes treaty rights in this respect. The main aspects of the lessons to be retained from this Decision can be summarized in the following quotations:

"In the present case the participation of the Claimants was specifically sought and that they are thus included within the consent to arbitration given by the Argentine Republic. The Claimants cannot be considered to be only remotely connected to the legal arrangements governing the privatization, they are beyond any doubt the owners of the investment made and their rights are protected under the Treaty as clearly established treaty-rights and not merely contractual rights related to some intermediary. The fact that the investment was made through CIESA and related companies does not in any way alter this conclusion.

The Tribunal accordingly decides that the claim in the present case is admissible under the Bilateral Investment Treaty or, stated in another way, that the Claimants have jus standi under this Treaty in their capacity as protected investors." (Paras.56 and 57)

"The Claimants have satisfied the requirement of having a present

interest to bring action under the Treaty, particularly in view of the

fact that it has been alleged that the tax assessments resulted in the[Page64:] violation of specific provisions and standards of treatment established in the Treaty. These allegations can only be considered at the merits phase of the case, but prima facie they are sufficient to justify the exercise of the right of action by the Claimants.

Accordingly, the Tribunal upholds jurisdiction to consider the matter on the merits as far as this objection is concerned." (Para.67)

"In their (the Claimants') view, even if the Transfer Agreement had a choice-of-forum they still have an option under the Treaty to resort to arbitration because the actual claim does not relate to contractual performance but to the violation of the investors' rights under the Treaty.

The Tribunal is mindful of the various ICSID decisions that have recently discussed this very issue, particularly those in Lanco, Compania de Aguas del Aconguija (Vivendi-Award and Annulment), Wena, CMS and Salini. In all these cases the tribunals have upheld jurisdiction under the Convention to address violations of contracts which, at the same time, constitute a breach of the pertinent bilateral investment treaty. The Tribunal will not repeat those considerations." (Paras.90 and 91)

"The indemnity clause is no doubt a contractual provision that relates to tax indemnification of the investors, together with other parties to the Transfer Agreement, if certain conditions are met. The present dispute concerns tax assessments by the Provinces that in the opinion of the Claimants trigger the operation of that clause. Should this be so, then the breach of the clause becomes instantly a violation of the Treaty rights. … There is no practical way in this context to separate the operation of the indemnity clause from the treaty rights ..." (Para.93)

"This Tribunal is mindful of the various decisions of ICSID Tribunals also discussing this very issue, particularly Compania de Aguas del Aconquija (Vivendi), Genin, and Olguin.

In all these cases the difference between the violation of a contract and the violation of a treaty, as well as the different effects that such violations might entail, have been admitted, not ignoring of course that the violation of a legal rule will always have similar negative effects irrespective of its nature. It has accordingly been held that[Page65:] even if there was recourse to local courts for breach of contract this would not prevent resorting to ICSID arbitration for violation of treaty rights, or that in any event, as held in Benvenuti & Bonfant, any situation of lis pendens would require identity of the parties. Neither will these considerations be repeated here." (Para.97)

"The fact that they have been adversely affected by the tax measures complained of is sufficient for the Tribunal to consider that the Claim, as far as this matter is concerned, is within its jurisdiction to examine such claim on the merits under the provisions of the Bilateral Investment Treaty." (Para.99)

On August 6, 2004, an Award on Jurisdiction was rendered in ICSID Case No. ARB/03/11 (Joy Mining Machinery Limited v. The Arab Republic of Egypt) by an ICSID Tribunal chaired by the same eminent jurist who presided the Enron Tribunal.

The dispute in the case under consideration arose from a "Contract for the Provision of Long Wall Mining Systems and Supporting Equipment for the Abu Tartur Phosphate Mining Project" executed on April 26, 1998 between Joy Mining Machinery Limited (hereinafter referred to as Joy) and the General Organization for Industrial and Mining Projects (hereinafter referred to as IMC).

Disagreements emerged among the two Parties about the performance of the equipment supplied by Joy for which it received full payment. The non-release by IMC of the Bank Guarantees submitted by Joy triggered the recourse to ICSID under the Egypt-United Kingdom BIT in force since February 24, 1976. Joy claimed that the Contract is an investment under the Treaty and that the decisions by IMC and Egypt not to release the guarantees are in violation of the Treaty.

The Government of Egypt objected to the jurisdiction of the ICSID Tribunal invoking three reasons:

(i) the existence of a forum selection clause in the Contract that should be respected with regard to all contractual claims;

(ii) the absence of any Treaty breaches that can be attributed to the Egyptian Government; and

(iii) that certain conditions required under Art.25 and Art.26 of the ICSID Convention and the Treaty are not fulfilled, in particular the requirement of an investment. [Page66:]

In arriving at the unanimous Award which decided that "The Center lacks jurisdiction and the Tribunal lacks competence to consider the claims made by Joy", the following salient findings have to be emphasized:

The Tribunal cast new light on the prima facie test which normally requires an ICSID tribunal to be only satisfied that if the facts or the contentions alleged by the Claimants are ultimately proven true, they would be capable of constituting a violation of the Treaty. The Joy-Egypt ICSID Tribunal, after recalling that the prima facie text has been applied in a number of ICSID cases, including Maffezini, CMS, Azurix, SGS-Pakistan and Salini-Marocco, noted the following:

"As a prima facie approach to jurisdictional decisions this is no doubt a useful rule. If, as in the present case, the parties have such divergent views about the meaning of the dispute in the light of the Contract and the Treaty, it would not be appropriate for the Tribunal to rely only on the assumption that the contentions presented by the Claimant are correct. The Tribunal necessarily has to examine the contentions in a broader perspective, including the view expressed by the Respondent, so as to reach a jurisdictional determination. This is the procedure the Tribunal will adopt." (Para.30)

With regard to the existence of an 'investment', the Tribunal focused on the identification of the dispute brought by Joy about its entitlement to have the bank guarantee released by IMC. In response to the question of whether or not bank guarantees are to be considered an investment, it has clearly indicated that:

"The Tribunal is not persuaded by the company's argument that this is an investment, as a bank guarantee is simply a contingent liability, to conclude that a contingent liability is an asset under Art.1(a) of the Treaty and hence a protected investment, would really go far beyond the concept of investment, even if broadly defined, as this and other treaties normally do." (Paras.44 and 45)

Turning to Joy's assertion that its claim falls within the category of 'claims to money or to any performance under contract having a financial value' (Art.1(a) (iii) of the BIT) or should be considered a 'pledge' (under Art.1(a) (i)), the Tribunal explained the reason why it was not persuaded by this argument by saying: [Page67:]

"Even if a claim to return of performance and related guarantees has a financial value, it cannot amount to recharacterizing as an investment dispute, a dispute which in essence concerns a contingent liability. The claim here is very different from that invoked in Fedax where the promissory notes held by the investor were the proceeds of an earlier credit transaction pursuant to which the State received value in exchange for its promise of future payment." (Para.47)

With regard to issue of assessing the global impact of the Contract as a whole in order to determine whether it could qualify as an investment under Art.25 of the ICSID Convention, the Tribunal envisaged the various activities envisaged under the Contract related to the supply of complex equipment before declaring:

"But it does not transform the Contract into an investment, any more than the procurement of highly sophisticated railway or aircraft equipment would, despite the fact that such equipment would require additional activities such as engineering and design, spare parts and incidental services.

The terms of the Contract are entirely normal commercial terms, including those governing the bank guarantees. No reference to investment is anywhere made and no steps were taken to qualify it as an investment under the Egyptian mechanisms for the authorization of foreign investments, nor were any steps taken to take advantage of any of the many incentives offered by that country to foreign investors.

Moreover, the Tribunal notes that the production and supply of the Kind of equipment involved in this case is a normal activity of the Company, not having required a particular development of production that could be assimilated to an investment on behalf of IMC's demands." (Paras.55 and 56)

As for the future prospects of a balanced relationship between ICSID and the institutions administering cases of international commercial arbitrations, the Tribunal expressed sound ideas by ascertaining:

"The Tribunal is also mindful that if a distinction is not drawn between ordinary sales contracts, even if complex, and an investment, the result would be that any sales or procurement contract involving a State agency would qualify as an investment. [Page68:]

International contracts are today a central feature of international trade and have stimulated far reaching developments in the governing law, among them the United Nations Convention on Contracts for the International Sale of Goods, and significant conceptual contributions. Yet, those contracts are not investment contracts, except in exceptional circumstances, and are to be kept separate and distinct for the sake of a stable legal order. Otherwise, what difference would there be with the many State contracts that are submitted every day to international arbitration in connection with contractual performance, at such bodies as the International Chamber of Commerce and the London Court of International Arbitration." (Para.58)

Though the Tribunal has consequently concluded that it lacks jurisdiction to consider the case because the claim falls outside both the Treaty and the Convention, it deemed appropriate to elaborate on the issue of the alleged 'Treaty-based claims', as well as the role of the forum selection clause contained in the Contract.

On the first issue related to the distinction between 'contract claims' and 'treaty-based claims', after recalling the ICSID recent case law in this respect, the Tribunal delivered its opinion by initially declaring:

"The Tribunal is mindful that any answer to this question must be case specific as every contract and many treaties are different. However, a basic general distinction can be made between commercial aspects of a dispute and other aspects involving the existence of some form of State interference with the operation of the contract involved." (Para.72)

Turning to the application of the so-called 'test of triple identity' (parties, object and cause of action) in the light of the circumstances of the Joy-Egypt case, the Tribunal emphasized:

"In the present case the situation is rendered somewhat simpler by the fact that a bank guarantee is clearly a commercial element of the contract. The Claimant's argument to the effect that non-release of the guarantee constitutes a violation of the Treaty is difficult to accept. In fact, the argument is not sustainable that a nationalization has taken place or that measures equivalent to an expropriation have been adopted by the Egyptian Government. Not only is there no taking of[Page69:] property involved in this matter, either directly or indirectly, but the guarantee is to be released as soon as the disputed performance under the Contract is settled. It is hardly possible to expropriate a contingent liability. Although normally a specific finding to this effect would pertain to the merits, in this case not even the prima facie test would be met. The same holds true in respect of the argument concerning free transfer of funds and fair and equitable treatment and full protection and security.

Disputes about the release of bank guarantees are a common occurrence in many jurisdictions and the fact that a State agency might be a party to the Contract involving a commercial transaction of this kind does not change its nature. It is still a commercial and contractual dispute to be settled as agreed to in the Contract, including the resort to arbitration if and when available. It is not transformed into an investment or an investment dispute." (Paras.79 and 80)

In concluding that there is no 'treaty-based claim', that all claims are 'Contractual', as well as that there has been no credible allegation about a possible 'Egyptian State interference with the Company's contract rights' (Para.82), the Tribunal turned to the effect of having a forum selection clause in the Contract expressly consented to by the parties at a time when the BIT was in force for twenty-two years before, and if Joy had wished to include ICSID arbitration in connection with what it considered to be an investment, it could and should have so indicated.

In this respect, the Tribunal endorsed the ruling adopted in the Vivendi Annulment Committee, according to which:

"In a case where the essential basis of a claim brought before an international tribunal is a breach of contract, the tribunal will give effect to any valid choice of forum clause in the Contract." (Para.90)

Commenting of that ruling, the Joy-Egypt ICSID Tribunal indicted:

"The rationale for his conclusion on contract-based claims and the validity of forum selection clauses is entirely logical." (Para.91) [Page70:]

By adopting such a clear position, and directing IMC 'to observe the Contract forum selection clause prescribing arbitration under the UNCITRAL Rules in the Cairo Regional Arbitration Centre' (Item C of the Tribunal's Decision), the Joy-Egypt ICSID Tribunal inaugurated a new promising era towards conciliating the legitimate expectations of both the foreign investors and the public authorities of the host Country under the BIT type of Consent to ICSID arbitration. [Page71:]