Microinvestment disputes.

Author:Bechky, Perry S.
Position:IV. Application of Salini's Development Prong to Microinvestment Disputes through VI. Conclusion, with footnotes, p.1043-1072

    1. Surveying the Landscape of Microinvestment Disputes

      Salini's impact on two recent microinvestment disputes-Mitchell v. Congo and Malaysian Historical Salvors v. Malaysia--is detailed below. (159) First, however, this section will survey briefly the landscape of other (arguable) microinvestment disputes. (160)

      ICSID tribunals decided several microinvestment disputes before Salini. In these cases, the size of the investment did not figure prominently in the jurisdictional analysis. (161) Maffezini v. Kingdom of Spain illustrates how adherence to a party-centric approach to Article 25 simplifies the jurisdictional analysis. (162) In that case, Spain raised various jurisdictional objections. After noting that Maffezini's contributions to the Spanish company qualified as investments under the Argentina-Spain BIT, the tribunal commented simply, "These provisions complement and are consistent with the requirements of Article 25 of the Convention." (163)

      Several microinvestment disputes have been brought to investor-state arbitration outside ICSID. (164) These cases are not subject to Article 25, but this solution to the Salini problem is imperfect at best and may vanish altogether. (165)

      Last, in Abaclat v. Argentina, ICSID addressed a "mass claims" case that joined the claims of many microinvestors. (166) Argentine government bonds had been sold widely to retail customers in Italy, with the result that Argentina owed "$13.5 billion owned by Italian [retail] bondholders (approximately 600,000 persons)." (167) After Argentina defaulted on its sovereign debt in 2001, more than 180,000 of these retail bondholders, including many individuals, joined together in a single ICSID case. (168) Most of the claimants qualified individually as microinvestors, as the total debt amounted to only about $22,500 per bondholder. Yet, the claimants' strategy of acting together in a mass claims proceeding plainly distinguishes Abaclat from a microinvestment dispute. Their strategy raises new questions about ICSID's willingness and ability to decide mass claims. If successful in Abaclat, mass collaboration may help some future claimants manage certain difficulties that commonly trouble microinvestors (such as the cost of arbitration relative to the amount in dispute), (169) but mass claims will remain radically distinct from microinvestment disputes, and many microinvestors will continue to find themselves without the option of collaborating with masses of co-claimants.

    2. Mitchell v. Democratic Republic of the Congo

      Patrick Mitchell owned Mitchell & Associates, a small law firm in the Democratic Republic of the Congo (Congo). On March 5, 1999, Congolese authorities sealed the firm's premises, seized documents and other items, and detained two attorneys. The premises remained sealed and the attorneys remained imprisoned for more than eight months. (170) With these actions, Congo effectively put Mitchell & Associates out of business. (171)

      Mitchell, a U.S. citizen, brought an ICSID claim under the BIT between the United States and Congo. The ICSID tribunal ruled that "Mitchell has been the victim of an expropriation" in violation of the BIT. It awarded him $750,000 plus interest. The tribunal also ordered Congo to pay $95,000 as a contribution to Mitchell's share of the tribunal's fees and costs. (172)

      Congo had objected to the tribunal's jurisdiction, arguing, inter alia, that Mitchell had not made an investment within the meaning of Article 25. The tribunal "received ample information" to determine whether Mitchell's activities in Congo qualified as an investment. (173) The tribunal concluded that Mitchell

      transferred into Congo money and other assets which constituted the foundations for his professional activities .... Together with the returns on the initial investments, which also qualify as investments...., these activities and the economic value associated therewith qualify as an investment within the meaning of the BIT and the ICSID Convention. (174) The tribunal further considered that Mitchell's "movable property," his "right to 'know-how' and 'goodwill,"' and his "right to exercise [his] activities" in Congo all qualified as investment. (175) The tribunal thus laid emphasis on the bits and pieces of Mitchell & Associates without adequate attention to the whole as a going concern. The fault is shared with the BIT itself: its definition of investment omits an express reference to any "enterprise," and although the tribunal could have construed the definition's broad, exemplary language to include an enterprise, (176) the United States has achieved greater clarity in later treaties. (177)

      Congo also had argued that Mitchell's activities were not "a long-term operation," did not involve a "significant contribution of resources," and were "not of such importance for the State's economy that it distinguishes itself from an ordinary commercial transaction." (178) The tribunal rejected these contentions, finding that, while many investments possess these attributes, they are not necessary to qualify as an investment. The tribunal declared that the ICSID Convention "equally include[s] ... 'smaller investments' of shorter duration and with more limited benefit to the host State's economy...." (179)

      Congo requested that an ad hoc committee annul the tribunal award, contending that the tribunal manifestly exceeded its powers and failed to provide reasons for its decision. Congo argued, inter alia, that the tribunal lacked jurisdiction over the matter because Mitchell had not made an investment within the meaning of Article 25. Congo won. The ad hoc committee negated Mitchell's award and ordered him to pay $100,000 as a contribution to Congo's share of the committee's fees and costs. (180)

      The committee relied on the Salini test for its analysis. To avoid the possibility that member states might sign an investment treaty that "arbitrarily" defined business activities as investments, the committee stressed that "the [ICSID] Convention has supremacy over ... a BIT." (181) The committee staked out this position even though it conceded that the relevant language in the US-Congo BIT was "altogether usual and in no way exorbitant." (182) It held that Article 25 limits jurisdiction to investments with four interdependent characteristics, including "contribution to the economic development of the host country." (183) It regarded the development prong as "fundamental," "essential," and "unquestionable"--deeming it "doubtless covered" implicitly by ICSID decisions where it "had not been mentioned expressly." (184)

      The committee stated that the mandatory contribution to economic development need not be "sizable or successful.... It suffices for the operation to contribute in one way or another to the economic development of the host State, and this concept of economic development is, in any event, extremely broad but also variable depending on the case." (185) Nevertheless, the committee was unable to accept that Mitchell's small law firm made the kind of contribution to development it deemed necessary. It declared that the firm was not "readily recognizable" as an investment and was instead "a somewhat uncommon operation from the standpoint of the concept of investment," (186) noting this was the first ICSID case about a law firm. (187) It considered irrelevant the "minimal" funds contributed by Mitchell to start and operate his firm. (188) Thus, while the committee disclaimed any desire to discriminate against "smaller" investments, its whole analysis began from the premise that the law firm was not "readily recognizable" as an investment and that Mitchell's financial contribution was "minimal."

      The committee also excluded the firm's movable property, know-how, and goodwill from its analysis, deciding these only mattered if "the services of the 'Mitchell & Associates' firm ... constitute [an] investment within the meaning of the Convention and the [BIT]." (189) The committee thus considered that the firm's services had to make a contribution to development. (190) The committee added that this requirement could only be satisfied if the firm "had concretely assisted [Congo], for example by providing it with legal services in a regular manner or by specifically bringing investors." (191)

      The committee concluded that the tribunal had made a "particularly grave" error in failing to establish a link between the firm's services and Congo's development, because the absence of such a link %oils down to granting the qualification as investor to any ... law firm established in a foreign country." (192) But the committee failed to explain why every law firm should not qualify as an investment. Contrary to the committee's view, law firms do indeed share the characteristics typical of investment: they contribute assets for an indefinite duration and bear risk in the expectation of profit. They also hire and train employees, buy goods and services, pay taxes and fees, and otherwise generate economic activity. What they lack is physicality: the physical footprint is small, the equipment needed is small, bricks and mortar are largely absent. Most of the value of a law firm is invisible, lying in know-how and goodwill. This invisibility probably explains why the committee deemed that Mitchell's law firm was not "readily recognizable" as an investment. An investment in a small law firm, to be sure, does not look like an investment in a factory or power plant, but it is still an investment. The committee seems to have been deceived by appearances.

      Size also played an explicit role in the committee's reasoning, as when it dismissed Mitchell's financial contribution as "minimal." This was a mistake. The committee should have recognized that law is not a capital-intensive industry. Small law firms may be started by "hanging a shingle" on leased office space with some furniture and...

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