Mihaly International Corporation v. Democratic Socialist Republic of Sri Lanka
ICSID · Investment (ICSID and treaty) · Sri Lanka · 15 Mar 2002
Why it matters
This case is a landmark on the definition of 'investment' under the ICSID Convention. The tribunal held that pre-investment expenditures, without the host state's consent to the investment, do not qualify as an 'investment' for jurisdictional purposes. It also clarified that a claim under ICSID is not freely assignable, and that a Canadian company cannot circumvent the Convention's nationality requirements by assigning its claim to a US entity. The decision set an important precedent on the objective meaning of investment and the limits of consent.
Summary
Mihaly International Corporation (USA) filed an ICSID claim against Sri Lanka under the US-Sri Lanka BIT, seeking reimbursement for expenditures incurred in developing a proposed power project that never materialized. The project was to be built on a BOT basis. Mihaly USA argued that its pre-investment expenditures (development costs) constituted an 'investment' under the ICSID Convention. Sri Lanka objected to jurisdiction on two grounds: (1) ratione personae, arguing that the real claimant was a Canadian affiliate (Mihaly Canada) and that Canada was not an ICSID Contracting State; and (2) ratione materiae, arguing that no 'investment' existed because no final contract was signed and the host state had not consented to the investment. The tribunal first dismissed the personal jurisdiction objection, finding that Mihaly USA had standing in its own name. However, it sustained the subject-matter jurisdiction objection. The tribunal held that the term 'investment' in Article 25(1) of the ICSID Convention has an objective meaning, and that pre-investment expenditures, without the host state's consent to the investment, do not constitute an 'investment'. The letters of intent, agreement, and extension issued by Sri Lanka were non-binding and did not signify acceptance of the expenditures as an investment. The tribunal also rejected the assignment theory, stating that a claim under ICSID is not freely assignable and that Mihaly Canada's inability to invoke the Convention could not be cured by assignment to a US entity. Consequently, the tribunal found it lacked jurisdiction and dismissed the claim. The decision is significant for establishing that pre-investment costs are not automatically 'investments' and that host state consent is crucial.
The detail
Parties: Mihaly International Corporation v. Democratic Socialist Republic of Sri Lanka
Case number: ICSID Case No. ARB/00/2
Outcome: Tribunal dismissed the claim for lack of jurisdiction ratione materiae; each party bears its own costs.
Applicable law: ICSID Convention; US-Sri Lanka BIT (1991); Vienna Convention on the Law of Treaties
Issues in play: The definition of 'investment' under Article 25(1) of the ICSID Convention and the US-Sri Lanka BIT; whether pre-investment expenditures can constitute an investment; assignment of claims and nationality requirements.
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