Asian Agricultural Ltd v Republic of Sri Lanka 4 ICSID reports 245

Hong Kong corporation entered a joint venture with Sri Lankan government and private individuals to establish a company under Sri Lanka laws to cultivate and export shrimps to Japan. Insurgents occupied the area where the farm was located. The farm had offered the government to co-operate vetting the staff, but during military operations the farm was destroyed. Under 8.1 of the 1980 UK/SL Agreement for the Promotion and Protection of Investment the HK company brought a claim against SL claiming restitution. There was not previous agreement of applicable law, but the HK corporation argued that the parties’ mutual submission to the Treaty constituted an agreement that the such law was the treaty, as contemplated in 42(1) ICSID (applicable law: agreed, if not State law in dispute + IL as considered). HK corporation argued that the standard of due diligence of CIL had been substituted by a more strict liability given requirements of Most Favoured Nation provided in 3 of Treaty HK corporation argued given the circumstances the destruction did not amount to a ‘combat action’ and the requirement of ‘necessity of the situations’ was not met

(20) Choice of law process would normally materialize after the emergence of the dispute, by observing and construing the conduct of the parties throughout the arbitration proceedings, in the present case both parties acted in a manner that demonstrates their mutual agreement to consider the provisions of the UK/SL BIT as being the primary source of the applicable legal rules (24) the treaty applies as lex specialis within the limits required, the international or domestic legal relevant rules referred to as a supplementary source by virtue of 3,4 of the treaty itself (48) Quoting ELSI ‘constant protection and security does not mean property shall never in any circumstance be occupied or disturbed’, the Tribunal said that obligation to provide ‘protection and security’ cannot be constructed as creating ‘strict liability’. (54) For the same reasons the argument based on MFN clause was rejected