Definition of Investment: Gatekeeper to Investment Treaty Arbitration

By Paul B. Maslo[1]

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Introduction

In order for a transaction to be covered by an international investment agreement (“IIA”), such as a bilateral investment treaty (“BIT”), it must qualify as an “investment.” For example, the BIT between the United States and Rwanda specifies that it only applies to investors of the other party (i.e., a party that has made an investment) and covered investments.[2] Accordingly, whether a transaction qualifies as an investment can mean the difference between having to litigate a breach of contract claim against a foreign government in the host country’s courts and bringing a claim under a governing IIA and having the dispute settled by an international arbitration tribunal in a neutral forum.

The question of what constitutes an “investment” is largely dependent upon how the term is defined in the IIA at issue. But, even with the most explicit definition, the tribunal still exercises a fair amount of discretion. To illustrate the bounds of this discretion in determining whether something constitutes an investment, it is useful to consider three recent arbitration decisions, which also highlight the importance of including specific investment-related language in IIAs.

Inmaris Perestroika Sailing Maritime Services GMBH and Others v. Ukraine

In Inmaris, Inmaris Perestroika Sailing Maritime Services and related German entities contracted with the Kerch Maritime Technological Institute, a Ukrainian-owned educational institution, to turn the ship Khersones – used by the Ukraine to educate cadets for the national fishery fleet – into a touring vessel.[3] Under the terms of the agreement, Inmaris agreed to cover all operating expenses in exchange for the exclusive right to retain all the income generated from the touring activities.[4] Because the Khersones was in need of repair, and the parties could not afford to pay for the work, Inmaris and Kerch entered into another agreement to create an investment fund to solicit money which could be used to make the renovations.[5] The money would then be repaid from the funds generated by operating the Khersones under a bareboat charter lease agreement.[6] The reconstructed Khersones sailed from 2000-2004 without incident.[7] In 2005, following the Ukraine’s change of government, the Ministry refused to allow the Khersones to sail, or to sign the annual accounts, unless Inmaris agreed to pay it 50,000 Euros.[8] Inmaris refused and brought a claim under the Germany-Ukraine BIT.

As a threshold matter, the tribunal was called upon to consider whether the bareboat charter contract met the definition of investment under the BIT, which was defined in Article 1(1) to include “[c]laims to money which has been used to create a material or intangible value or claims to any performance having an economic value.”[9] Inmaris argued that the agreement constituted a source of “claims to performance,” thus satisfying the definition of investment under the terms of the BIT.[10] The Ukraine countered that the agreement was “fictitious” – entered into with no intention to create any legal consequences – because the parties did not intend to actually operate the vessel as a lease (i.e., they proceeded exactly as they did under the initial contract), and the agreement did not qualify as an investment.[11] The tribunal disagreed, finding that the financing arrangement and reconstruction of the vessel, which made it more marketable and seaworthy, were legal consequences of the agreement, as was the fact that the payment mechanism identified in the contract was actually used by the parties.[12] As such, the tribunal held that the bareboat charter gave rise to claims to performance and was therefore an investment under the BIT.[13] It also is important to note the tribunal’s finding that in a situation where there are numerous interrelated agreements, “[i]t is not necessary to parse each component part of the overall transaction and examine where each, standing alone, would satisfy the definitional requirements of the BIT.” [14] Instead, one must look at whether “the transaction as a whole meets those requirements.”[15] “[T]he question is whether these arrangements can properly be considered to be part of an integrated, unitary operation that comprises an investment over which this Tribunal has jurisdiction.”[16]

The tribunal also considered whether payments made and the returns on various payments expected by Inmaris qualified as investments under the BIT. Regarding its decision that payments made for the repair and operation of the ship do not qualify as investments, the tribunal opined that the “Claimants appear to be confusing the concept of an ‘investment’ that is protected by the BIT (and that is subject to arbitration under the ICSID Convention) with the layman’s financial or economic notion of an ‘investment’ as money expended in expectation of a return.”[17] The tribunal reasoned that “the investment that must be identified for purposes of establishing the Tribunal’s jurisdiction is of a specific kind. Article 1(1) of the BIT provides that ‘[t]he term ‘investment’ shall comprise all kinds of assets. . . .’ Thus, it is necessary to identify an ‘asset’ to constitute an investment that is protected by the Treaty (provided all other jurisdictional requirements are met).”[18] While “[t]he payments identified by the Claimants may reflect the contributions they made to obtain, or in furtherance of, investments,” the tribunal found that the “payment streams themselves are not necessarily ‘investments’ covered by the Treaty.” [19] Therefore, the tribunal determined that “[i]t is the asset acquired by an investor, typically as a result of such payments, that is the investment — be it tangible, such as an enterprise or real property, or intangible, such as claims to money or claims to performance (as here).”[20]

While none of the examples of investments provided in the BIT covered the expected return of an asset, the tribunal found “as a practical matter such returns are potentially the result of holding an asset. However, at least in the context of expected returns that are grounded in contract, one can fairly readily characterize expectations of payment as ‘claims to money’ or ‘claims to performance.’”[21] The case is not as clear for expected returns that are not directly premised on a contractual right: “One typically speaks of the returns expected from an investment, rather than of expected returns as an investment as such.”[22] In this case, the BIT explicitly provided that returns from an investment enjoy the same protection as the investment itself.[23] This would be a hotly-contested issue if investment returns were not expressly covered by the BIT. Also of importance – especially considering the prevalence of complex corporate ownership structures in today’s business world – is the Inmaris tribunal’s decision that owners of investor companies “also qualify as investors by virtue of that ownership.”[24]

Alasdair Ross Anderson v. Republic of Costa Rica

The timely decision in Anderson, which addressed whether funds deposited in a Ponzi scheme constitute an “investment” under the Canada-Costa Rica BIT, is considered next.[25] In Anderson, over one hundred Canadian residents invested in a Ponzi scheme that was run by two Costa Ricans. When the truth came to light, the bilked investors brought claims against Costa Rica under the BIT, alleging that “Costa Rica, by failing to provide proper vigilance and governmental regulatory supervision over the national financial system, had injured their investments in violation of the BIT provisions regarding full protection and security, fair and equitable treatment, due process of law, and protection against expropriation.”[26]

As a threshold matter, the tribunal had to determine whether the claimants’ deposits into the Ponzi scheme constituted an investment under the BIT. The BIT defined investment as “any kind of asset owned or controlled either directly, or indirectly through an enterprise or natural person of a third State, by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the latter’s laws.”[27] Based on a common dictionary definition of “asset” as “anything of value,” the tribunal reasoned that the deposit of funds into the scheme, which promised to pay principal and interest, qualified as an asset.[28] In evaluating the second part of the definition of investment, the tribunal reached the opposite conclusion and determined that the claimants did not own and control their assets in accordance with the laws of Costa Rica. As such, the tribunal held that it lacked jurisdiction to hear the claims against Costa Rica under the BIT.

In reaching this conclusion the tribunal reasoned that “[n]ot all BITs contain a requirement that investments subject to treaty protection be ‘made’ or ‘owned’ in accordance with the law of the host country.” [29] The tribunal opined that “[t]he fact that the Contracting Parties to the Canada-Costa Rica BIT specifically included such a provision is a clear indication of the importance that they attached to the legality of investments made by investors of the other Party and their intention that their laws with respect to investments be strictly followed.” [30] Moreover, the tribunal found such a result to be supported by public policy considerations: “The assurance of legality with respect to investment has important, indeed crucial, consequences for the public welfare and economic well-being of any country.”[31]

Furthermore, the tribunal concluded that if the transaction by which the money was acquired was illegal then the claimants’ acquisition of the asset resulting from the transaction was also not legal.[32] In coming to this determination, the tribunal rejected the claimants’ argument that the tribunal should only consider whether the “ownership rights in their claim to be paid the agreed-upon interest and principal were legal obligations under Costa Rican law.”[33] In doing so, the tribunal determined that “[i]n order to determine whether the ownership of a property is in accordance with the law of a particular country, one must of necessity examine how the possession or ownership of that property was acquired and in particular whether the process by which that possession or ownership was acquired complied with all of the prevailing laws.”[34] Applying that line of reasoning to the facts at hand, the tribunal held that “it is clear that the transaction by which the Claimants obtained ownership of their assets (i.e., their claim to be paid interest and principal . . .) did not comply with the requirements of the Organic Law of the Central Bank of Costa Rica.”[35] The tribunal also noted that its definition was supported by public policy concerns reflecting a country’s “fundamental interest in securing respect for its laws” and the need to encourage investors to “exercise due diligence before committing funds to any particular investment proposal.”[36]

Chevron-Texaco v. Ecuador

In Chevron-Texaco, the claimants were entitled to explore oil reserves in Ecuador under a series of agreements between them and the Ecuadorian government.[37] In return, Chevron-Texaco was required to sell a certain amount of their production to the Ecuadorian government at a special reduced price (i.e., well below the market price) to help Ecuador meet domestic consumption needs.[38] Once they satisfied this obligation, however, Chevron-Texaco could sell the remainder of their production on the international market at prevailing market prices.[39] A single exception to this arrangement allowed the government to purchase additional oil – beyond that needed to meet domestic demand – at the market price.[40] The Ecuadorian government breached these agreements by requiring Chevron-Texaco to provide it with more oil than was necessary to meet domestic demand at the reduced price, which it sold on the international market for a profit.[41] Chevron-Texaco filed claims for breach of contract, but the cases languished for over thirteen years due to prejudicial delays imposed by the Ecuadorian courts.[42] They filed this arbitration under the United States-Ecuador BIT to resolve the dispute.

Ecuador contended that “the lawsuits cannot be fit under BIT Article I(1)(a)(iii), ‘claims to money or claims to performance having economic value, and associated with an investment.’ Under that article, the lawsuits qualify as ‘claims’ but are not associated with any ‘investment’ because the investments that they would potentially relate to ceased to exist before the entry into force of the treaty” (i.e., the BIT entered into force several years after the lawsuits were filed, settlement agreements were concluded, concession agreements had expired, and Chevron Texaco’s withdrawal from Ecuador).[43] Ecuador also claimed that the “lawsuits cannot be fit under the heading of ‘rights conferred by law or contract’ under Article I(1)(a)(v) of the BIT . . . [because] [a]ll the true ‘rights’ that the Claimants may have held definitively ended with the expiry of the Concession Agreements, [Chevron-Texaco’s] withdrawal from Ecuador, and the numerous Settlement Agreements signed between the Parties.”[44] Ecuador also rejected Chevron-Texaco’s “lifespan” theory based on Mondev (i.e., that an investment qualifies for protection as it proceeds in time and potentially changes form until it is wound up).[45]

Chevron-Texaco asserted that they “still possessed legal and contractual rights, whose enforcement was being sought through the claims pending in the seven court cases,” and were still “undertaking and continuing to undertake several projects associated with the winding up of its investment” (e.g., completing a substantial environmental investigation and remediation project) at the time the BIT entered into force.[46] Moreover, they stressed that the definition of investment in Article I (1) (a) of the BIT was very broad and that “investment must be viewed holistically and not as discrete transactions or components.”[47] Relying on Mondev, in which the tribunal held that “once an investment exists it is protected throughout its lifespan by an investment treaty that enters into force at any time before the ultimate conclusion of the investment,” as well as provisions of the BIT that supported this view, such as “Article I(3) which protects alterations in the form of the investment and Article II(3)(b) which protects investments throughout their ‘management, operation, maintenance, use, enjoyment, acquisition, expansion or disposal,’” Chevron-Texaco argued that its investment still qualified for protection under the BIT.[48]

The tribunal agreed with Chevron-Texaco: “[O]nce an investment is established, the BIT intends to close any possible gaps in the protection of that investment as it proceeds in time and potentially changes form. Once an investment is established, it continues to exist and be protected until its ultimate ‘disposal’ has been completed – that is, until it has been wound up.”[49] The tribunal found that Chevron-Texaco’s “investments were and are not yet fully wound up because of ongoing claims for money arising directly out of their oil extraction and production activities under their contracts with Ecuador and its state-owned oil company.”[50] Consistent with the holding in Mondev, the tribunal held that “the Claimants’ investments have not ceased to exist: their lawsuits continued their original investment through the entry into force of the BIT and to the date of commencement of this arbitration” (i.e., they continued “to hold subsisting interests in their original investment, but in a different form”).[51]

Conclusion

These decisions illustrate the important gatekeeper role that the definition of investment plays in investment treaty arbitration and the possible ramifications for investor and host countries if loose language is employed in the governing IIA.

 

 

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[1] Mr. Maslo is an associate in the New York office of the law firm King & Spalding.

[2] Article 2.1(a), (b).

[3] Inmaris Perestroika Sailing Maritime Services GMBH and Others v. Ukraine, ICSID Case No. ARB/08/8 (March 8, 2010). Members of the Tribunal: Dr. Stanimir A.

Alexandrov, President; Prof. Bernardo Cremades; and Mr. Noah Rubins. Secretary of the Tribunal: Ms. Aïssatou Diop.

[4] Id. at 11.

[5] Id. at 12.

[6] Id..

[7] Id. at 18.

[8] Id. at 18-19.

[9] Id. at 25.

[10] Id.

[11] Id. at 23, 29.

[12] Id. at 29, 31, 36.

[13] Id. at 36.

[14] Id. at 40.

[15] Id.

[16] Id. at 43.

[17] Id. at 45.

[18] Id.

[19] Id.

[20] Id.

[21] Id. at 46-47.

[22] Id. at 47 (emphasis in original).

[23] Id. at 47.

[24] Id. at 49.

[25] Alasdair Ross Anderson v. Republic of Costa Rica, ICSID Case No. ARB/07/3 (May 19, 2010). Members of the Tribunal: Dr. Sandra Morelli Rico, President; Prof. Jeswald W. Salacuse, Arbitrator; and Prof. Raúl E. Vinuesa, Arbitrator. Secretary of the Tribunal: Natalí Sequeira.

[26] Id. at 8.

[27] Id. at 17.

[28] Id. at 19.

[29] Id. at 20.

[30] Id.

[31] Id.

[32] Id. at 21.

[33] Id. at 22.

[34] Id. at 22.

[35] Id. at 22.

[36] Id. at 23.

[37] Chevron-Texaco v. Ecuador, Partial Award on the Merits, UNCITRAL Arbitration Rules (March 30, 2010) at 21. Members of the Tribunal: The Honorable Charles N. Brower; Prof. Albert Jan van den Berg; and Prof. Karl-Heinz Böckstiegel, Chairman. Secretary: Brooks Daly (PCA).

[38] Id.

[39] Id.

[40] Id.

[41] Id.

[42] Id. at 22.

[43] Chevron-Texaco (2008) at 84.

[44] Id. at 85.

[45] Id. at 86.

[46] Id. at 88.

[47] Id. at 88-89.

[48] Id. at 89-90.

[49] Id. at 96.

[50] Id.

[51] Id.

Copyright 2009 The Regents of the University of California. All rights reserved.

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Inmaris Perestroika Sailing Maritime Services GMBH and Others v. Ukraine

In Inmaris, Inmaris Perestroika Sailing Maritime Services and related German entities contracted with the Kerch Maritime Technological Institute, a Ukrainian-owned educational institution, to turn the ship Khersones – used by the Ukraine to educate cadets for the national fishery fleet – into a touring vessel.[3] Under the terms of the agreement, Inmaris agreed to cover all operating expenses in exchange for the exclusive right to retain all the income generated from the touring activities.[4] Because the Khersones was in need of repair, and the parties could not afford to pay for the work, Inmaris and Kerch entered into another agreement to create an investment fund to solicit money which could be used to make the renovations.[5] The money would then be repaid from the funds generated by operating the Khersones under a bareboat charter lease agreement.[6] The reconstructed Khersones sailed from 2000-2004 without incident.[7] In 2005, following the Ukraine’s change of government, the Ministry refused to allow the Khersones to sail, or to sign the annual accounts, unless Inmaris agreed to pay it 50,000 Euros.[8] Inmaris refused and brought a claim under the Germany-Ukraine BIT.

As a threshold matter, the tribunal was called upon to consider whether the bareboat charter contract met the definition of investment under the BIT, which was defined in Article 1(1) to include “[c]laims to money which has been used to create a material or intangible value or claims to any performance having an economic value.”[9] Inmaris argued that the agreement constituted a source of “claims to performance,” thus satisfying the definition of investment under the terms of the BIT.[10] The Ukraine countered that the agreement was “fictitious” – entered into with no intention to create any legal consequences – because the parties did not intend to actually operate the vessel as a lease (i.e., they proceeded exactly as they did under the initial contract), and the agreement did not qualify as an investment.[11] The tribunal disagreed, finding that the financing arrangement and reconstruction of the vessel, which made it more marketable and seaworthy, were legal consequences of the agreement, as was the fact that the payment mechanism identified in the contract was actually used by the parties.[12] As such, the tribunal held that the bareboat charter gave rise to claims to performance and was therefore an investment under the BIT.[13] It also is important to note the tribunal’s finding that in a situation where there are numerous interrelated agreements, “[i]t is not necessary to parse each component part of the overall transaction and examine where each, standing alone, would satisfy the definitional requirements of the BIT.” [14] Instead, one must look at whether “the transaction as a whole meets those requirements.”[15] “[T]he question is whether these arrangements can properly be considered to be part of an integrated, unitary operation that comprises an investment over which this Tribunal has jurisdiction.”[16]

The tribunal also considered whether payments made and the returns on various payments expected by Inmaris qualified as investments under the BIT. Regarding its decision that payments made for the repair and operation of the ship do not qualify as investments, the tribunal opined that the “Claimants appear to be confusing the concept of an ‘investment’ that is protected by the BIT (and that is subject to arbitration under the ICSID Convention) with the layman’s financial or economic notion of an ‘investment’ as money expended in expectation of a return.”[17] The tribunal reasoned that “the investment that must be identified for purposes of establishing the Tribunal’s jurisdiction is of a specific kind. Article 1(1) of the BIT provides that ‘[t]he term ‘investment’ shall comprise all kinds of assets. . . .’ Thus, it is necessary to identify an ‘asset’ to constitute an investment that is protected by the Treaty (provided all other jurisdictional requirements are met).”[18] While “[t]he payments identified by the Claimants may reflect the contributions they made to obtain, or in furtherance of, investments,” the tribunal found that the “payment streams themselves are not necessarily ‘investments’ covered by the Treaty.” [19] Therefore, the tribunal determined that “[i]t is the asset acquired by an investor, typically as a result of such payments, that is the investment — be it tangible, such as an enterprise or real property, or intangible, such as claims to money or claims to performance (as here).”[20]

While none of the examples of investments provided in the BIT covered the expected return of an asset, the tribunal found “as a practical matter such returns are potentially the result of holding an asset. However, at least in the context of expected returns that are grounded in contract, one can fairly readily characterize expectations of payment as ‘claims to money’ or ‘claims to performance.’”[21] The case is not as clear for expected returns that are not directly premised on a contractual right: “One typically speaks of the returns expected from an investment, rather than of expected returns as an investment as such.”[22] In this case, the BIT explicitly provided that returns from an investment enjoy the same protection as the investment itself.[23] This would be a hotly-contested issue if investment returns were not expressly covered by the BIT. Also of importance – especially considering the prevalence of complex corporate ownership structures in today’s business world – is the Inmaris tribunal’s decision that owners of investor companies “also qualify as investors by virtue of that ownership.”[24]

Alasdair Ross Anderson v. Republic of Costa Rica

The timely decision in Anderson, which addressed whether funds deposited in a Ponzi scheme constitute an “investment” under the Canada-Costa Rica BIT, is considered next.[25] In Anderson, over one hundred Canadian residents invested in a Ponzi scheme that was run by two Costa Ricans. When the truth came to light, the bilked investors brought claims against Costa Rica under the BIT, alleging that “Costa Rica, by failing to provide proper vigilance and governmental regulatory supervision over the national financial system, had injured their investments in violation of the BIT provisions regarding full protection and security, fair and equitable treatment, due process of law, and protection against expropriation.”[26]

As a threshold matter, the tribunal had to determine whether the claimants’ deposits into the Ponzi scheme constituted an investment under the BIT. The BIT defined investment as “any kind of asset owned or controlled either directly, or indirectly through an enterprise or natural person of a third State, by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the latter’s laws.”[27] Based on a common dictionary definition of “asset” as “anything of value,” the tribunal reasoned that the deposit of funds into the scheme, which promised to pay principal and interest, qualified as an asset.[28] In evaluating the second part of the definition of investment, the tribunal reached the opposite conclusion and determined that the claimants did not own and control their assets in accordance with the laws of Costa Rica. As such, the tribunal held that it lacked jurisdiction to hear the claims against Costa Rica under the BIT.

In reaching this conclusion the tribunal reasoned that “[n]ot all BITs contain a requirement that investments subject to treaty protection be ‘made’ or ‘owned’ in accordance with the law of the host country.” [29] The tribunal opined that “[t]he fact that the Contracting Parties to the Canada-Costa Rica BIT specifically included such a provision is a clear indication of the importance that they attached to the legality of investments made by investors of the other Party and their intention that their laws with respect to investments be strictly followed.” [30] Moreover, the tribunal found such a result to be supported by public policy considerations: “The assurance of legality with respect to investment has important, indeed crucial, consequences for the public welfare and economic well-being of any country.”[31]

Furthermore, the tribunal concluded that if the transaction by which the money was acquired was illegal then the claimants’ acquisition of the asset resulting from the transaction was also not legal.[32] In coming to this determination, the tribunal rejected the claimants’ argument that the tribunal should only consider whether the “ownership rights in their claim to be paid the agreed-upon interest and principal were legal obligations under Costa Rican law.”[33] In doing so, the tribunal determined that “[i]n order to determine whether the ownership of a property is in accordance with the law of a particular country, one must of necessity examine how the possession or ownership of that property was acquired and in particular whether the process by which that possession or ownership was acquired complied with all of the prevailing laws.”[34] Applying that line of reasoning to the facts at hand, the tribunal held that “it is clear that the transaction by which the Claimants obtained ownership of their assets (i.e., their claim to be paid interest and principal . . .) did not comply with the requirements of the Organic Law of the Central Bank of Costa Rica.”[35] The tribunal also noted that its definition was supported by public policy concerns reflecting a country’s “fundamental interest in securing respect for its laws” and the need to encourage investors to “exercise due diligence before committing funds to any particular investment proposal.”[36]

Chevron-Texaco v. Ecuador

In Chevron-Texaco, the claimants were entitled to explore oil reserves in Ecuador under a series of agreements between them and the Ecuadorian government.[37] In return, Chevron-Texaco was required to sell a certain amount of their production to the Ecuadorian government at a special reduced price (i.e., well below the market price) to help Ecuador meet domestic consumption needs.[38] Once they satisfied this obligation, however, Chevron-Texaco could sell the remainder of their production on the international market at prevailing market prices.[39] A single exception to this arrangement allowed the government to purchase additional oil – beyond that needed to meet domestic demand – at the market price.[40] The Ecuadorian government breached these agreements by requiring Chevron-Texaco to provide it with more oil than was necessary to meet domestic demand at the reduced price, which it sold on the international market for a profit.[41] Chevron-Texaco filed claims for breach of contract, but the cases languished for over thirteen years due to prejudicial delays imposed by the Ecuadorian courts.[42] They filed this arbitration under the United States-Ecuador BIT to resolve the dispute.

Ecuador contended that “the lawsuits cannot be fit under BIT Article I(1)(a)(iii), ‘claims to money or claims to performance having economic value, and associated with an investment.’ Under that article, the lawsuits qualify as ‘claims’ but are not associated with any ‘investment’ because the investments that they would potentially relate to ceased to exist before the entry into force of the treaty” (i.e., the BIT entered into force several years after the lawsuits were filed, settlement agreements were concluded, concession agreements had expired, and Chevron Texaco’s withdrawal from Ecuador).[43] Ecuador also claimed that the “lawsuits cannot be fit under the heading of ‘rights conferred by law or contract’ under Article I(1)(a)(v) of the BIT . . . [because] [a]ll the true ‘rights’ that the Claimants may have held definitively ended with the expiry of the Concession Agreements, [Chevron-Texaco’s] withdrawal from Ecuador, and the numerous Settlement Agreements signed between the Parties.”[44] Ecuador also rejected Chevron-Texaco’s “lifespan” theory based on Mondev (i.e., that an investment qualifies for protection as it proceeds in time and potentially changes form until it is wound up).[45]

Chevron-Texaco asserted that they “still possessed legal and contractual rights, whose enforcement was being sought through the claims pending in the seven court cases,” and were still “undertaking and continuing to undertake several projects associated with the winding up of its investment” (e.g., completing a substantial environmental investigation and remediation project) at the time the BIT entered into force.[46] Moreover, they stressed that the definition of investment in Article I (1) (a) of the BIT was very broad and that “investment must be viewed holistically and not as discrete transactions or components.”[47] Relying on Mondev, in which the tribunal held that “once an investment exists it is protected throughout its lifespan by an investment treaty that enters into force at any time before the ultimate conclusion of the investment,” as well as provisions of the BIT that supported this view, such as “Article I(3) which protects alterations in the form of the investment and Article II(3)(b) which protects investments throughout their ‘management, operation, maintenance, use, enjoyment, acquisition, expansion or disposal,’” Chevron-Texaco argued that its investment still qualified for protection under the BIT.[48]

The tribunal agreed with Chevron-Texaco: “[O]nce an investment is established, the BIT intends to close any possible gaps in the protection of that investment as it proceeds in time and potentially changes form. Once an investment is established, it continues to exist and be protected until its ultimate ‘disposal’ has been completed – that is, until it has been wound up.”[49] The tribunal found that Chevron-Texaco’s “investments were and are not yet fully wound up because of ongoing claims for money arising directly out of their oil extraction and production activities under their contracts with Ecuador and its state-owned oil company.”[50] Consistent with the holding in Mondev, the tribunal held that “the Claimants’ investments have not ceased to exist: their lawsuits continued their original investment through the entry into force of the BIT and to the date of commencement of this arbitration” (i.e., they continued “to hold subsisting interests in their original investment, but in a different form”).[51]

Conclusion

These decisions illustrate the important gatekeeper role that the definition of investment plays in investment treaty arbitration and the possible ramifications for investor and host countries if loose language is employed in the governing IIA.