Case Overview

In Toto Costruzioni Generali v. Lebanon, the dispute arose from a December 11, 1997 contract between the Italian claimant, Toto Costruzioni Generali S.p.A., and the Lebanese Conseil Exécutif des Grands Projets (CEGP), later succeeded by the Council for Development and Reconstruction (CDR). The contract involved the construction of the "Hadath Highway-Syrian Border-Saoufar-Mdeirej Section" of the Arab Highway, a major infrastructure project linking Beirut to Damascus. The Claimant alleged that Lebanon's actions and omissions—including severe delays in the expropriation of necessary land parcels, the failure to promptly remove Syrian troops from the construction site, and detrimental changes to the regulatory framework—caused significant delays and additional costs. The Claimant sought over USD 10 million in damages, asserting that Lebanon breached its obligations under the Italy-Lebanon BIT (1997).

Procedural History

The Claimant filed a Request for Arbitration with ICSID on March 19, 2007, which was formally registered on July 3, 2007. The Tribunal was constituted on October 30, 2007, comprising Professor Hans van Houtte as President, Mr. Alberto Feliciani, and Mr. Fadi Moghaizel. Following a bifurcated proceeding, the Tribunal issued a Decision on Jurisdiction on September 11, 2009. In February 2012, Mr. Feliciani resigned from the Tribunal and was subsequently replaced by Judge Stephen M. Schwebel, who was appointed by the Chairman of the ICSID Administrative Council. The reconstituted Tribunal issued its final Award on June 7, 2012.

Key Issues and Positions

Jurisdiction

During the jurisdictional phase, Lebanon argued that the highway construction project did not qualify as an "investment" under the ICSID Convention, asserting it was a standard commercial contract lacking the requisite investment risk. Lebanon further contended that the claims were purely contractual and subject to the exclusive jurisdiction of Lebanese courts, and that the dispute arose before the BIT entered into force. The Claimant maintained that its project met all criteria for an investment and that the alleged contractual breaches also constituted substantive breaches of the BIT.

Merits

On the merits, the Claimant argued that Lebanon breached the BIT's standards of fair and equitable treatment (FET), full protection and security (FPS), and the obligation to promote and protect investments. Specifically, the Claimant cited late expropriations of land, the failure to remove Syrian troops and obstructing landowners from the construction site, faulty design standards, and changes in the regulatory framework (including tax and customs duties increases). Lebanon contended that the Claimant was responsible for the delays due to its proposed design variations, that the State acted diligently to remove the troops and landowners, and that the regulatory changes were a legitimate exercise of sovereign power.

Tribunal/Court Reasoning and Holdings

Jurisdiction

In its 2009 Decision, the Tribunal found that the construction project qualified as an "investment" under both the BIT and the ICSID Convention. The Tribunal affirmed its jurisdiction ratione temporis, determining that the dispute formally crystallized after the BIT entered into force. However, the Tribunal declined jurisdiction over purely contractual claims, indirect expropriation claims, and umbrella clause claims. It upheld jurisdiction solely to hear claims regarding delays in expropriation, failure to remove Syrian troops, and changes in the regulatory framework, as these involved the exercise of sovereign authority.

Merits

In its 2012 Award, the Tribunal dismissed all of the Claimant's merits claims. Regarding the late expropriations, the Tribunal found that the delays were largely attributable to the Claimant's own proposed design variations, which required new expropriations, and that Lebanon finalized the expropriations within a reasonable time. Concerning the Syrian troops and obstructing landowners, the Tribunal held that Lebanon did not act negligently or capriciously; the State took adequate measures to obtain the evacuation of the foreign troops and requested police assistance to remove obstructing owners. The Tribunal noted that the BIT's FPS standard does not provide a strict warranty against any disturbance. Finally, regarding the regulatory framework, the Tribunal ruled that in the absence of a stabilization clause, Lebanon's modifications to taxes and customs duties were a legitimate exercise of sovereign legislative power and did not drastically or discriminatorily alter the investment's essential features.

Costs

The Tribunal determined that because Lebanon's jurisdictional objections were partially rejected but the Claimant's merits claims were ultimately dismissed, the costs and expenses of the arbitration should be shared equally by the parties, with each party bearing its own legal fees and expenses.

Disposition / Relief

In its Award dispatched on June 7, 2012, the Tribunal declared that Lebanon did not breach its obligations under the BIT. Accordingly, all substantive claims of the Claimant were dismissed in their entirety. The parties were ordered to bear the costs of the arbitration in equal shares and to bear their own legal fees. Judge Stephen M. Schwebel appended a concurring opinion to the Award, noting that while he did not necessarily share the majority's interpretation of the umbrella clause or international jurisprudence, he agreed with the essential fact-finding that did not establish Lebanon's liability. Mr. Alberto Feliciani had previously appended a dissenting opinion to the Decision on Jurisdiction.