Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines
ICSID · Investment (ICSID and treaty) · Philippines · 16 Aug 2007
Why it matters
This award is a landmark on the 'legality requirement' in investment treaty arbitration. The majority held that an investment made in violation of the host State's fundamental laws (here, the Anti-Dummy Law) is not protected under the BIT, even if the host State later expropriates. It set a strict standard: investors must comply with domestic law from the outset, or risk losing treaty protection entirely. The case also illustrates the tension between treaty protections and state sovereignty over foreign ownership restrictions.
Summary
Fraport, a German airport operator, invested in PIATCO, a Philippine company that held a concession to build and operate Terminal 3 at Manila's airport. The Philippines later expropriated the terminal and paid compensation. Fraport sued under the Germany-Philippines BIT, alleging expropriation and unfair treatment. The Philippines objected to jurisdiction, arguing that Fraport's investment violated the Philippine Anti-Dummy Law (ADL), which limits foreign ownership and control of public utilities. The Tribunal found that Fraport had entered into secret shareholder agreements that gave it effective control over PIATCO, a public utility, in violation of the ADL. Because the BIT requires investments to be made 'in accordance with the laws and regulations of the host State,' the Tribunal held that Fraport's investment was not protected. It dismissed the claims on the merits, without reaching the expropriation issue. The dissenting arbitrator argued that the legality requirement should be a merits issue, not a jurisdictional bar, and that the majority's approach was too harsh. The award is significant for establishing that non-compliance with host State law can defeat treaty protection entirely.
The detail
Parties: Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines
Case number: ICSID Case No. ARB/03/25
Outcome: The Tribunal upheld its jurisdiction but dismissed Fraport's claims on the merits because Fraport's investment was not made in accordance with Philippine law (the Anti-Dummy Law).
Applicable law: Germany-Philippines BIT (1997); Philippine Anti-Dummy Law; ICSID Convention
Issues in play: The BIT's requirement that investments be made 'in accordance with the laws and regulations of the host State' collided with the Philippine Anti-Dummy Law, which restricts foreign ownership and control of public utilities. The Tribunal had to decide whether Fraport's secret shareholder agreements violated the ADL and, if so, whether that deprived the Tribunal of jurisdiction.
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