Issue: Jurisdiction Rationae Personae

In this part, the tribunal addressed on the issue of Rationae Personae, i.e., whether the claimants
can be classified as investors. The other related issues were what are the condition under which
a physical person or a juridical personal can be benefited from the protection of the BIT and
whether corporation established under the Italian Law which do not have legal personality
benefit from such protection and capacity?

To prove its case, the respondent state argued that the claimants are not investors because they
have not made any investment in the territory of the host state and the security entitlement
acquired by the claimants through multiple intermediaries only establishes that they are only
remotely connected with the underwriters and the underlying bonds.

Physical Person

The Tribunal held that its jurisdiction rationae personae derives from Article 1(2) of BIT and
Additional Protocol to the BIT, Article 25 of the ISCID Convention. 1 Hence, in case there is an
investment dispute arising out of the BIT, the tribunal has jurisdiction rationae personae over any
person, who is entitled to claim protection under the BIT and who has the capacity to be a party
to the present arbitration.

With regard to the investors, the nationality requirement is understood to be two-fold i.e., (i) the
investor must possess the nationality of a Contracting State, and (ii) not simultaneously possess
the nationality of the Host State. Additionally, there must be an investment which falls within the
scope of the BIT.

The respondents objection is based on the remote connection between the security entitlement
and the original underwriters and underlying bonds. The tribunal while rejecting such objection
held that not only the bond themselves, but also any security entitlement held in those bonds
constitute an investment under Article 1 of BIT and Article 25 of the ICSID Convention.2

Juridical Person
1 Abaclat, ICSID Case No. ARB/07/5, 410.

2 Abaclat, ICSID Case No. ARB/07/5, 358.

With regard to juridical person, Article 1(2) (b) of the BIT requires that the concerned juridical
person must be (i) an Italian corporation i.e. having incorporated under the Italian Law and
having its office in the territory of Italy and has made an investment, which falls within the scope
of the BIT.

The respondent state contended that the concept of corporation set forth in Article 1(2)(b) BIT
applies only to corporations possessing legal personality under Italian law. In contrast, the
claimants contended that possessing legal personality under the Italian law in not a prerequisite
to qualify as juridical person within in the meaning of investors under 1(2)(b) BIT which
expressly includes foundations and association, independent of whether their liability is limited
or not.

However, the tribunal which rejecting this contention held that protection under Article 1(2)(b)
BIT and Article 25 ICSID Convention is not limited to entities with legal capacity but is
extended to entities which enjoy limited civil capacity and are capable of making an investment
under the BIT. Further, referring to Article 36 of the Italian Civil Code,3 tribunal held that whilst
non- recognized entities lack legal personality, they never the less have the procedural capacity to
stand in court and to be represented by their president or director.4

Even though juridical person is not defined in the ICSID Convention, the requirement of
specific legal personality is not expressly stated in the Convention. 5 Thus, the Convention does
not provide a clear yes or no answer and it all depends on the scope rationae personae of the
relevant BIT.6

Abuse of Rights by TFA

3 Abaclat, ICSID Case No. ARB/07/5, 397-398; Independent Legal Opinion of Prof.
Nicola Picardi of 24 April 2009 229.

4 Abaclat, ICSID Case No. ARB/07/5, 417

5 CHRISTOPH SCHREUER, The ICSID Convention: A Commentary, Cambridge

University Press, 2nd edition, 2009, Ad Art. 25 18 and references quoted therein.

6 See Consorzio Groupement L.E.S.I.-DIPENTA v. Peoples Democratic Republic of

Algeria (ICSID Case No. ARB/03/08), Award of 10 January 2005, 37
The Tribunal was asked decide whether there was an abuse of rights by TFA when it initiated
proceedings against the Host State. The Respondent contented that TFA is pursuing the hidden
interest of the claimants by initiating proceedings against the respondent and thus amounts to
abuse of power by TFA. The Tribunals power should be exercised only for those purposes which
have been consented by the Contracting Parties to the ICSID Convention.

The Tribunal ruled that abuse of power is a general principle of good faith with is applicable to
International Law well as Investment Law.7 So the question was whether such standards have
been met.

The tribunal established two aspects for invoking a breach of good faith principle in treaty
claims:

Material good faith The context and the way in which investment was made and for
which the investors are seeking protection under the BIT
Procedural Good Faith The context and the way in which a treaty claim is initiated
seeking protection.

The tribunals in the past have taken different and conflicting approaches. 8 They have either
examined it under the question of Tribunals Jurisdiction or in the context of legality of such

7 HERSCH LAUTERPACHT, Development of International Law by the International

Court, London, 1958, p. 164; Mobil Corporation and others v. Bolivarian Republic of
Venezuela (ICSID Case No. ARB/07/27), Decision on Jurisdiction of 10 June 2010,
169 et seq. (hereinafter Mobil); Chevron Corporation and Texaco Petroleum
Company v. The Republic of Ecuador (UNCITRAL, PCA Case No. 34877), Interim
Award of 1 December 2008, 125-149, 141 (hereinafter Chevron); Phoenix
Action Ltd v.The Czech Republic (ICSID Case No. ARB/06/5), Award of 15 April 2009,
107 (hereinafter Phoenix); Aguas del Tunari S.A. v. Republic of Bolivia (ICSID
Case No. ARB/02/3), Decision on Respondents Objections to Jurisdiction of 21
October 2005, 321 (hereinafter Aguas del Tunari); Tokios Tokels v.Ukraine
(ICSID Case No. ARB/02/18), Decision on Jurisdiction of 29 April 2004, 56
(hereinafter Tokios Tokels). Comp. with Rompetrol, 115.

8 Compare for example Mobil and Phoenix, where the issue was considered one
hindering jurisdiction, with Rompetrol, Aguas del Tunari and Chevron, where the
tribunals touched upon the issue at the jurisdictional phase but considered it had its
place at the stage of the merits.
investment. With regard to the Respondents contention that the claimants did not acquire the
investment in good faith to due to alleged breach of selling restriction and other obligation by the
Italian Banks, the tribunal has already held that such investment have been made in accordance
of applicable laws under the question of whether there is a legal dispute relating to an
investment. The Tribunal while applying the principle of severability of the arbitration clause
held that, even if the investment was considered to be invalid, it does not per se invalidates the
jurisdiction of the Tribunal to decide on its validity.

With regard to the Respondents contention that there was an abuse of right by TFA and there
exist a conflict of interest between the interest of the TFA and the claimants whom TFA is
representing, the Tribunal held that even in the presence of such abuse the Tribunal will have
jurisdiction because the Tribunal is only concerned with the rights ICSID seeks to protect, i.e.,
rights of the investors. In the present arbitration, the alleged abuse of rights does not concern
Claimants rights as arising out of the BIT.