Salini Costruttori S.P.A. and Italstrade S.P.A. v. Kingdom of Morocco: A Case Analysis

Introduction

The body of legal guidelines controlling interactions between nations, international organizations, and other players in the global system is known as public international law, commonly referred to as international law. It is a subset of law that governs how states and other international players engage with one another in an effort to foster international harmony, stability, and cooperation. A wide range of legal topics are covered by public international law, including the use of force, human rights, trade and investment, environment among other things. It is based on a number of sources, including customs, common law, treaties and conventions, case laws, and broad legal ideas accepted by civilized nations. Many methods, including international courts and tribunals, diplomatic and political channels, and economic sanctions, are used to implement public international law and legally bind nations. States and other international players are required to abide by its principles and regulations, which have a significant impact on how international relations and global governance are shaped.

As a constantly developing topic of study, public international law gives us a wealth of opportunities to learn about and apply a wide variety of treaties, conventions, international customs, and specialized areas of law, such as International Contract Law and Investment Treaties. When it comes to the interpretation and application of investment treaties, the Salini case is a major investment arbitration case that raises several important issues. An important investment arbitration case, Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, can be considered as an example of the huge ambit of Public International Law and the case dealt with the interpretation and application of international investment agreements.

The dispute arose when the Moroccan government refused the Italian investors’ claims for compensation. The latter then filed a request for arbitration through the arbitration provisions of the Italy-Morocco Bilateral Investment Treaty (BIT). This case emphasizes the need for lucid, straight forward, and unambiguous wording in investment treaties, as well as the difficulties that occur when interpreting them.

This paper provides a thorough examination of the case by discussing the relevant legal issues, the final ruling made by the tribunal, the emerging jurisprudence through the case, and its analysis.

Brief Summary of the case

Facts

The case pertains to a construction contract entered into by two Italian enterprises, Salini Costruttori S.p.A and Italstrade S.p.A (hereinafter “Salini”), and the State-administered Societe Nationale des Autoroutes du Maroc (hereinafter “ADM”). The contract was for constructing a part of a highway connecting Rabat and Fes in Morocco. When the project was finished in 1999, Salini sought compensation from ADM’s Engineer, who entirely rejected the claims. Subsequently, Salini directed its claims to the Minister of Infrastructure of the Moroccan government, yet received no response. In May 2000, invoking the International Centre for Settlement of Investment Disputes (hereinafter “ICSID”) arbitration provision embedded in Article 8 of the 1990 Bilateral Investment Treaty[1] (hereinafter “BIT”) between Italy and Morocco, aimed at mutual encouragement and protection of investments, Salini formally requested for arbitration.

The Arbitral Tribunal, consisting of Dr. Robert Briner (President), Bernado Cremades, and Professor Ibrahim Fadlallah, was tasked with addressing the objections raised by the Kingdom of Morocco concerning the admissibility of the claim and the jurisdiction of ICSID. Morocco contended that the dispute was premature because the Claimant had not fulfilled the BIT’s Article 8 requirement for amicable settlement discussions over six months before proceeding to arbitration. Morocco additionally contended that Salini relinquished its right to invoke claims under the BIT by entering into an agreement that conferred jurisdiction to domestic courts under Moroccan administrative law. Morocco also maintained that the Tribunal lacked ratione personae jurisdiction, arguing that ADM’s conduct could not be imputed to the Moroccan State. Lastly, Morocco argued that the Tribunal lacked subject-matter jurisdiction, as the highway construction contract, according to Moroccan law referenced by the BIT, was categorized not as an investment but as a contrat d’entreprise (service contract).

The admissibility of the claim did not present intricate issues and was resolved by the Tribunal based on factual circumstances of the case. Salini had genuinely endeavoured to resolve the dispute through the Minister of Infrastructure, who was concurrently serving as the Minister and the Chairman of ADM. The initiation of the arbitration request occurred no less than eight months following these efforts, thereby adhering to the six-month cooling-off period mandated by Article 8 of the BIT.

Similarly, the issue of the Tribunal’s jurisdiction ratione personae did not present significant challenges. Morocco’s objection asserting that the defendant was ADM, a distinct entity from the Moroccan State, was ineffective since the arbitration was initiated against the Moroccan State under the BIT, not against ADM. Nonetheless, the Tribunal elected to address this issue, which pertained to the merits of the case and was extensively debated by the parties, by determining whether ADM’s actions could be attributed to the Moroccan State. The Tribunal perused the degree of control exerted by the Moroccan State over ADM, employing well-established criteria related to ADM’s structure and function. It was conclusively established that, despite being a private company, ADM was controlled and managed by the State, engaged in public service projects, and was subject to administrative regulations. This analysis adhered strictly to the applicable rules of international law regarding the attributability of the conduct of a State’s organs or entities exercising governmental authority[2], as codified by the International Law Commission.[3]

Issues

With respect to the two remaining issues – the definition of ‘investment’ and the interplay between forum selection clauses in the BIT and the underlying contract – the Salini decision established a ground breaking precedent in ICSID arbitration.[4]

The case brought up broader questions regarding the rights of investors to seek compensation for violations of investment agreements and the protection of foreign investors under international law. It also brought to light the difficulties that multinational contractors confront when attempting to carry out complicated infrastructure projects in developing nations. These difficulties include negotiating with local officials and adhering to the laws and regulations of international law.

Ratio of the Judgement

To determine whether it had subject-matter jurisdiction in the present case, the Tribunal referred to the definitions of investments in both the BIT and the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States[5] (the “Washington Convention”).

Under Article 1 of the BIT, investments are defined in a broad manner, encompassing “rights to any contractual benefits having an economic value”(Article 1(c)) and “any right of an economic nature conferred by law or by contract” (Article 1 (e)). Recognizing that the contract entered into by Salini established such economic rights, the Tribunal concluded that the contract constituted an ‘investment’ within the meaning of the BIT. The Tribunal astutely noted that the inclusion of “all categories of assets invested in accordance with the laws and regulations of the aforementioned party (Morocco)” in Article 1 of the BIT did not alter this conclusion. This reference to the host country’s legislation pertained solely to the validity of the investment rather than its definition.

Concerning Article 25 of the Washington Convention[6], which lacks a specific definition of investments, the Tribunal emphasized the nature of the activity rather than the specific type of contract being examined, and adopted the criteria delineated in scholarly literature for defining ‘investments’ as “the existence of contributions, a certain duration in the performance of the contract, and participation in the risks of the transaction”.[7]Additionally, the Tribunal incorporated the prerequisite outlined in the Convention’s Preamble that the transaction contributes to the economic advancement of the host State. By meticulously applying each of these benchmarks, the Tribunal concluded that the agreement undertaken by Salini could potentially meet the criteria for ‘investment’ as stipulated in Article 25 of the Washington Convention.

The crux of the second issue lies in determining whether, when the underlying contract directs the involved parties to the domestic legal jurisdictions of the host State, the investor retains the prerogative to bring forth its investment-related dispute before an ICSID tribunal, pursuant to a BIT that grants the investor the option of selecting the forum. Usually, BITs frequently provide investors with the choice between resorting to the judicial system of the host State or opting for an international forum like ICSID or United Nations Commission on International Trade Law arbitration.

Morocco’s stance asserted that according to the agreement, the administrative courts of Rabat held jurisdiction over the dispute between the parties, implying their waiver of the forum selection option under Article 8 of the BIT. Nonetheless, the Tribunal upheld the validity of the forum clause stipulated in the BIT, reasoning that “as the jurisdiction of the administrative courts cannot be chosen, the consent to ICSID jurisdiction above shall supersede the provisions of Article 52 of the Cahier des Clauses Administratives Générales, as this Article cannot be construed as a genuine extension of jurisdiction and falls outside the realm of the parties’ autonomy principle”.[8]

Critical analysis of the case

Before the Salini decision, ICSID Tribunals had either neglected to address the meaning of ‘investment’ in Article 25 of the Washington Convention altogether or had interpreted its meaning exclusively through the lens of the investment definition provided in the pertinent treaty between the disputing parties. The Fedax[9] and CSOB[10] Tribunals were the initial bodies to examine the meaning of ‘investment’ within the context of Article 25 itself. Nevertheless, they did not delve deeply into its interpretation, as they were content with their broad construction of the term as prescribed by Article 25.

The most contentious criterion for an investment proposed by the Salini decision was the requirement of a contribution to the host State’s economy. It is essential to understand that the Salini Tribunal defined ‘investment’ by merging two distinct approaches to the definition. It incorporated the deductive approach of Professors Carreau, Flory, and Julliard with the intuitive approach of Georges Delaume.[11] The deductive approach emphasized the aspects of risk, duration, and contribution. Conversely, the intuitive approach focused on the significance of the contribution to the host State’s economy, as highlighted in the Preamble of the Washington Convention. The Salini Tribunal integrated these approaches by employing the intuitive method to introduce a fourth element to the definition of an investment.

Emerging Jurisprudence

The Tribunal, in this case, established a set of criteria to define an investment under the ICSID Convention, which include the contribution of money or assets, the duration of the project, participation in the risks of the transaction, and contribution to the economic development of the host State. This test, often referred to as the “Salini test”, provides a framework for assessing whether an economic activity qualifies as an investment, even in the absence of a specific definition in the Washington Convention.

Through this case, the principle of attributing the actions of State-owned or State-controlled entities to the State became a key aspect of determining jurisdiction ratione personae. It underscores the importance of assessing the degree of state control and the nature of the entity’s functions on a case-to-case basis in order to establish State Responsibility.[12]The Tribunal has reiterated this principle of international law that a State cannot evade liability for the actions of its entities and organs by claiming legal separateness.

The Tribunal, in the present case, set a precedent for prioritizing forum selection clauses in BIT provisions, especially those related to dispute resolution, over conflicting and prejudicial clauses in contractual agreements. It ensured that the investors could rely on the protections of international law.

The Tribunal navigated the line between procedural formalism and substantive justice, ensuring that procedural requirements do not become mere technicalities that can unjustly obstruct access to arbitration.

Conclusion

The jurisdictional decision rendered in Salini v. Morocco on July 16, 2001, and communicated to the parties on July 2023, 2001, is particularly significant. It stands as the first ICSID precedent to characterize a construction contract as an ‘investment’ within the meaning of Article 25 of the Washington Convention and the pertinent Bilateral Investment Treaty.

The legal dispute between Salini Construttori S.P.A. and Italstrade S.P.A. and the Kingdom of Morocco demonstrates how critical it is to honour one’s contractual responsibilities and to behave in a manner that is consistent with international investment agreements. The case study brings to light the significance of efficient project management in the context of infrastructure projects, as well as the difficulties associated with carrying out such projects in developing nations. This lawsuit sets a precedent for preserving the rights of foreign investors and making sure that governments liveup to the commitments they make in investment agreements.

This article is authored by Mrunalini Mohapatra and Ananya Rout, students at National Law University Odisha, Cuttack. 

[1]Agreement Between The Government Of The Kingdom Of Morocco And The Government Of The Italian Republic On The Reciprocal Promotion And Protection of Investments (adopted 18 July 1990, entered into force 07 April 2000).

[2]ILC, ‘Responsibility of States for Internationally Wrongful Acts’ (12 December 2001) UN Doc A/56/49(Vol. I)/Corr.4.

[3]Ibid.

[4]Emmanuel Gaillard, “Introductory Note to ICSID: Salini Costruttori SPA and Italstrade SPA v. Kingdom of Morocco (Proceeding on Jurisdiction)” [2003] <https://www.jstor.org/stable/20694372> accessed 10 June, 2024.

[5] Convention on the Settlement of Investment Disputes between States and Nationals of Other States (entered into force 18 March 1965) 575 UNTS 159.

[6]Ibid.

[7]Emmanuel Gaillard, “Introductory Note to ICSID: Salini Costruttori SPA and Italstrade SPA v. Kingdom of Morocco (Proceeding on Jurisdiction)” [2003] <https://www.jstor.org/stable/20694372> accessed 10 June, 2024.

[8]Ibid.

[9]Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction.

[10]Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction.

[11]Claudia Frutos-Peterson, “Building International Investment Law: The First 50 Years of ICSID”[2016] pg. 115-116.

[12]ILC, ‘Responsibility of States for Internationally Wrongful Acts’ (12 December 2001) UN Doc A/56/49(Vol. I)/Corr.4.