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20 J. Int'l Arb. 189 (2003)
Mihaly Arbitration, The

handle is hein.kluwer/jia0020 and id is 201 raw text is: Journal of International Arbitration 20(2): 189-197, 2003.
C 2003 Kluwer Law International. Printed in The Netherlands.
The Mihaly Arbitration
Pre-Investment Expenditure as a Basis for ICSID Jurisdiction
Robert N. HORNICK*
In the Mihaly arbitration,1 an ICSID tribunal constituted under the U.S.-Sri
Lanka bilateral investment treaty2 has held that pre-investment expenditures are not
investment within the meaning of Article 25 of the ICSID Convention,3 and that
therefore the tribunal lacked subject matter jurisdiction of the dispute submitted to it.
This is the first time that an ICSID tribunal has addressed the subject of pre-investment
expenditures, and is one of only a handful of ICSID awards in which subject matter
jurisdiction has been found wanting.
This article discusses the tribunal's reasons for its award-an award likely to be of
considerable interest to investors and host governments alike. It also discusses the
tribunal's no less interesting decision with respect to personal jurisdiction, including
related dicta concerning international partnerships and the assignment of claims by
nationals of non-ICSID Member States to nationals of ICSID Member States.
I.   KEY FACTS
The claimant, Mihaly International Corporation (Mihaly U.S.), was a
Californian corporation, claiming in its capacity as undisclosed principal and/or
assignee and/or partner of Mihaly International Canada Ltd. (Mihaly Canada), a
Canadian corporation sharing the Mihaly name but lacking common ownership. In
1993, Mihaly Canada, on behalf of a consortium of proposed investors, entered into a
letter of intent with the Government of Sri Lanka to negotiate the necessary
agreements for development of a 300 megawatt power station in Sri Lanka on a
build-own-transfer (BOT) basis. The letter prescribed various principles under which
negotiations should proceed, specified a period of exclusivity in which the government
would not negotiate with any other potential investor, and established milestones to be
achieved during the negotiating period. The letter also stated that the project and
contract details were subject to Cabinet approval, that it was a statement of
intention, and that it did not constitute an obligation binding on any party. The
* Partner, Morgan, Lewis & Bockius LLP. Mr. Hornick represented Sri Lanka in the case under discussion.
5 Mihaly International Corp. v. Democratic Socialist Republic of Sri Lanka (ICSID Case No. ARB/00/2),
17 ICSID REvIEW 142 (Spring 2002) (hereinafter the award). The award and concurring opinion are also
posted on the ICSID website at <http://www.worldbank.org/icsid/cases/awards.htm>. The tribunal was
comprised of Sompong Sucharitkul (President), Hon. Andrew Rogers and David Suratgar.
2 Treaty Concerning the Reciprocal Encouragement and Protection of Investments, Sept. 20, 1991,
U.S.-Sri Lanka S. TREATY Doc. No. 102-25 (1992).
1 Convention on the Settlement of Investment Disputes between States and Nationals of Other States,
Washington, March 18, 1965, T.I.A.S. 6090, 575 U.N.T.S. 159.
Copyright © 2007 by Kluwer Law International. All rights reserved.
No claim asserted to original government works.

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