Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka
ICSID · Investment (ICSID and treaty) · Sri Lanka · 27 Jun 1990
Why it matters
This is the first ICSID case based solely on a treaty's arbitration clause (not a direct contract). It established that BITs can create direct investor-state arbitration without a separate agreement. The tribunal also clarified that the 'full protection and security' standard does not impose strict liability but requires due diligence, and that compensation for lost future profits requires proof of a going concern with demonstrated earning ability.
Summary
Asian Agricultural Products Ltd. (AAPL), a Hong Kong corporation, invested in Serendib Seafoods Ltd., a Sri Lankan shrimp farming company. On January 28, 1987, Sri Lankan security forces destroyed Serendib's farm during a counter-insurgency operation against Tamil rebels. AAPL claimed this violated the Sri Lanka/U.K. Bilateral Investment Treaty (BIT), which provides for 'full protection and security' and compensation for destruction not justified by combat. Sri Lanka argued the destruction was necessary combat action and that the company was failing. The ICSID tribunal, in its first case based solely on a treaty's arbitration clause, held that the BIT's 'full protection and security' standard requires due diligence, not strict liability. It found Sri Lanka liable under Article 4(2) for destruction not justified by combat necessity, but rejected AAPL's claim for lost future profits because Serendib had not demonstrated a proven ability to earn revenues as a going concern. The tribunal awarded US$460,000 for tangible assets plus 10% interest from July 9, 1987, and invited the parties to arrange transfer of AAPL's shares to Sri Lanka in exchange for assumption of a bank guarantee. The award was issued by a majority; one arbitrator dissented.
The detail
Parties: Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka
Case number: ICSID Case No. ARB/87/3
Outcome: Sri Lanka ordered to pay AAPL US$460,000 plus 10% interest from July 9, 1987; parties invited to arrange transfer of AAPL's shares in Serendib to Sri Lanka in exchange for assumption of bank guarantee liability.
Quantum: US$460,000
Applicable law: Sri Lanka/U.K. Bilateral Investment Treaty (1980); ICSID Convention; customary international law; Sri Lankan domestic law
Issues in play: The case involved interpretation of the 'full protection and security' standard under Article 2(2) of the BIT versus the 'due diligence' standard under customary international law, and the interaction between Article 2(2) and Article 4(2) concerning destruction during combat.
Read the full decision at italaw ↗
Locus Standi links to the source decision and publishes its own plain-language summary. It does not reproduce the text of the award.