Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No. ARB/11/12
ICSID · Investment (ICSID and treaty) · Philippines · 10 Dec 2014
Why it matters
This award is a landmark on the 'legality requirement' in investment arbitration. It confirms that investments made in violation of the host state's law, particularly nationality restrictions like the Anti-Dummy Law, are not protected under the BIT. The decision reinforces the principle that investors must comply with domestic law at the time of investment, and that such compliance is a jurisdictional prerequisite. It also illustrates the consequences of failing to conduct proper due diligence on local law restrictions.
Summary
Fraport, a German airport operator, invested in the construction and operation of Terminal 3 at Ninoy Aquino International Airport in Manila through a series of Philippine companies, including PIATCO. The concession was awarded in 1997 under the Philippine BOT law. In 2002, the Philippine government declared the concession invalid, and the Supreme Court voided it ab initio in 2003. The government took possession of the terminal in 2004 and began operating it in 2008. Fraport initiated ICSID arbitration under the Germany-Philippines BIT, claiming expropriation and other treaty violations. The Philippines objected to jurisdiction, arguing that Fraport's investment violated the Anti-Dummy Law (ADL), which restricts foreign ownership and control in nationalized industries. The Tribunal found that Fraport, through shareholder agreements and management arrangements, effectively controlled PIATCO in violation of the ADL. Because the investment was not made in accordance with Philippine law, it was not protected under the BIT. The Tribunal dismissed all claims for lack of jurisdiction and ordered Fraport to pay US $5 million in costs. The award was not annulled.
The detail
Parties: Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No. ARB/11/12
Case number: italaw/cases/2852
Outcome: The Tribunal upheld Respondent's jurisdictional objection based on Fraport's violation of the Philippine Anti-Dummy Law, dismissed all claims for lack of jurisdiction, and ordered Fraport to pay US $5 million towards Respondent's costs.
Applicable law: Germany-Philippines BIT (1997); ICSID Convention; Philippine Anti-Dummy Law; Philippine BOT Law
Issues in play: The collision was between the BIT's protection of foreign investments and the Philippine Anti-Dummy Law, which restricts foreign ownership and control in certain sectors. The Tribunal had to decide whether Fraport's investment structure violated the ADL, thereby depriving the Tribunal of jurisdiction.
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