Microinvestment disputes.

• Author: Bechky, Perry S.
• Position: I. Introduction through III. ICSID, Development, and Salini's Development Prong, p.1043-1072

ABSTRACT

Salini v. Morocco sparked one of the liveliest controversies in the dynamic field of international investment disputes. Salini held that the word "investment" in the Convention establishing the International Centre for Settlement of Investment Disputes (ICSID), although undefined, has an objective meaning that limits the ability of member states to submit disputes to ICSID arbitration. The Salini debate is central to this field because it shapes the nature, purpose, and volume of ICSID arbitration--and also determines who gets to decide those matters. In particular, Salini's decision to include "a contribution to development" as an element of its objective definition of investment transformed development promotion from a generalized goal of ICSID as an institution into a jurisdictional requirement for each case.

This Article introduces the concept of a microinvestment dispute, which focuses attention on small investments giving rise to ICSID cases. The microinvestment lens reveals the failings of Salini's contribution-to-development prong. By conditioning ICSID jurisdiction on an individualized showing of such a contribution, this prong disproportionately burdens microinvestors, inhibiting their access to ICSID despite the fact that the drafters of the ICSID Convention specifically rejected a minimum size requirement. In so doing, the development prong also limits ICSID's value to those who need it most. In the name of promoting development, Salini may well undercut it.

In addition, this Article also offers a "third way" alternative to both Salini's objectivity and pure subjectivity. This alternative--bounded deference--draws on the principles of autonomy, consent, and good faith to strike a better balance between states and arbitral tribunals.

TABLE OF CONTENTS I. INTRODUCTION II. ICSID AND ITS JURISDICTION A. A Brief Introduction to ICSID B. ICSID Jurisdiction and the Case for Bounded Deference III. ICSID, DEVELOPMENT, AND SALINI'S DEVELOPMENT PRONG A. Development as ICSID's Object and Purpose B. Salini's Development Prong IV. APPLICATION OF SALINI'S DEVELOPMENT PRONG TO MICROINVESTMENT DISPUTES A. Surveying the Landscape of Microinvestment Disputes B. Mitchell v. Democratic Republic of the Congo C. Malaysian Historical Salvors v. Malaysia V. A MICROINVESTMENT CRITIQUE VI. CONCLUSION I. INTRODUCTION

"[A]fter all, [a] person's a person, no matter how small." --Horton the Elephant. (1)

Is an investment an investment, no matter how small? In the context of international investment disputes, this question matters because the jurisdiction of the International Centre for Settlement of Investment Disputes (ICSID or the Centre) hinges on the meaning of investment. (2)

Nothing in the text of the ICSID Convention excludes small investments (or small claims) from the Centre's jurisdiction or otherwise discriminates against small investments. (3) Indeed, the negotiating history reveals the conscious rejection of proposals excluding small disputes and small investments from the Centre's reach. (4)

Article 25(1) of the ICSID Convention gives ICSID jurisdiction over "any legal dispute arising directly out of an investment, between a Contracting State ... and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre." (5) Yet the Convention omits any definition of investment.

Through 2000, "there ha[d] been almost no cases where the notion of investment within the meaning of Article 25 of the Convention was raised." (6) In 2001, in Salini v. Morocco, an ICSID tribunal held that the "investment requirement" has objective content limiting ICSID jurisdiction. (7) The tribunal added:

The doctrine generally considers that investment infers: [i] contributions, [ii] a certain duration of performance of the contract and [iii] a participation in the risks of the transaction .... In reading the Convention's preamble, one may add [iv] the contribution to the economic development of the host State of the investment as an additional condition. (8) The tribunal in Salini went on to note, "In reality, these various elements may be interdependent" and they "should be assessed globally even if, for the sake of reasoning, the Tribunal considers them individually here." (9) The tribunal then determined that the claimant satisfied each of the four elements and "[c]onsequently ... consider[ed]" that the claimant had made an investment within the meaning of Article 25. (10) Notwithstanding Salini's call for sensitivity in examining the elements "globally," later tribunals have generally attributed to Salini the creation of a four-part "test." (11) Some tribunals have followed "the Salini test," (12) other tribunals have rejected it, (13) while still others have suggested modifying it into three-, (14) five-, (15) and six-part tests. (16) Some tribunals have changed one or more of the Salini criteria, insisting, for example, that the investor must contribute "substantial" assets or must make a "significant" contribution to the development of the host state. (17) Some tribunals have returned to the idea of a global assessment--sometimes to expand access to ICSID, sometimes to restrict it. (18) The Salini test thus remains at the center of a lively debate between objectivists and subjectivists, and among the former. (19) This debate is crucial to shaping ICSID's docket and, more, its character. (20)

This Article problematizes Salini and especially its fourth prong, which requires an investment to "contribut[e] to the economic development of the host State" as a condition of access to ICSID arbitration. (21) It does this by focusing on Salini's impact on microinvestment disputes, a concept introduced here. (22) Criticism of the development prong is not new--indeed, Christoph Schreuer has called this "the most controversial" part of Salini. (23) Yet, the microinvestment lens reveals new problems with the development prong: it imposes a backdoor size requirement that inhibits access to ICSID by microinvestors who may have the greatest need for such access, thereby harming ICSID's ability to fulfill its objectives, including development promotion. This article thus critiques Salini's fourth prong from the perspectives of text, negotiating history, teleology, and such fundamental policies as access to justice and contribution to development itself.

In keeping with Article 25, a microinvestment dispute is a legal dispute arising directly out of a microinvestment, between a state and a foreign investor. A microinvestment, in turn, is an investment worth less than $5 million (24) made by an individual, a microenterprise, or a small or medium enterprise (SME). (25) This definition focuses on claims arising from microinvestments, not on small claims per se, which may arise from investments of any size. The point is to identify cases that are, despite their small size, genuinely important to the business concerned. The importance of a dispute about an investment--and hence the investor's need for access to ICSID--is a function of the size of the claim relative to the value of the investment. Simply put, a large company is better able than a small company to bear a loss of the same amount. (26) While a loss of $5 million would give rise to "bet the company" litigation for many companies, the same loss only gives rise to an "ordinary business dispute" for larger companies. Where a smaller company may have urgent need in a $5 million case for the effectiveness and neutrality promised by international arbitration, a larger company may be willing to litigate it in domestic court or even write off the loss altogether in the pursuit of other, larger business dealings with the country concerned. (27) This is why the definition of microinvestment dispute excludes claims by large businesses. (28) In principle, then, the definition is tied to the size of both the investment and the investor, not to the amount in controversy. In practice, however, data about the size of the investment and the investor is often unavailable, and the amount in controversy...