Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka, ICSID Case No. ARB/87/3

New
Short Name:

AAPL v. Sri Lanka

Case type:
International Investment Agreement (Investor–State)
Seat of Arbitration:
Investment treaty:
Sri Lanka-United Kingdom BIT
Applicable legal instruments:
Sri Lanka-United Kingdom BIT
Economic sector:
Agriculture, forestry and fishing
Outcome:
In Favour of Claimant(s)
Amount of damages:
US $460,000
Other remedy:
Sri Lanka shall pay USD 54,972.40, covering one-third of AAPL’s case preparation costs, and additionally bear 60% of arbitrators’ fees and Centre facility charges, with the remaining 40% borne by AAPL.
See case mapped on Investor-State LawGuide

Available documents

Notice: We are currently performing maintenance to improve the italaw portal. The site remains fully accessible. Thank you for your patience.
15 Jun 1990
Dissenting Opinion of Samuel K.B. Asante
Document Details:
PARTICIPANTS
Dissenting Opinion of Samuel K.B. Asante
Participants listed for this document only; this may not include all participants involved in the entire case.
Claimant appointee
Claimant appointee:
Berthold Goldman
Respondent appointee
Respondent appointee:
Samuel K.B. Asante
Tribunal/Panel chair
Chair/President:
Ahmed Sadek El-Kosheri
Arbitrator(s)
Sole Arbitrator
ICSID Annulment Committee president
ICSID Annulment Committee members
WTO Appellate Body members
WTO Appellate Body chair
Judges
Claimant's counsel
Respondent's counsel
Other counsel
Claimant's expert
Respondent's expert
Claimant's witness
Respondent's witness
Other witnesses
Tribunal secretary
Tribunal assistant
Country
Print reporter
Entities
Sri Lanka, Asian Agricultural Products
Document Summary
Dissenting Opinion of Samuel K.B. Asante
This summary note is machine-generated. Always consult the original materials.

This document is the Dissenting Opinion of Arbitrator Samuel K.B. Asante, which concurs with the majority Tribunal's dismissal of the Claimant's principal submissions but fundamentally dissents from the ultimate finding of liability against the Respondent, Sri Lanka. The Dissent posits that the majority's own antecedent findings should have logically and legally compelled a complete dismissal of the claim *in toto*.

The Dissent's central legal argument rests on the principle of *lex specialis generalibus non derogant*. Arbitrator Asante contends that Article 4 of the Sri Lanka/United Kingdom BIT, which specifically addresses losses sustained during civil disturbances, constitutes the exclusive and exhaustive legal framework for the present dispute. The majority, having correctly found no liability under the specific exceptions in Article 4(2) (e.g., destruction not caused by combat action or necessity), erred by subsequently reverting to the general standard of "full protection and security" in Article 2(2) to establish a basis for liability. This approach, in the Dissent's view, contravenes settled principles of treaty interpretation.

Furthermore, the Dissent advances a rigorous critique of the majority's interpretation of the Most-Favoured-Nation (MFN) and national treatment standards in Article 4(1). It argues that these provisions do not create a freestanding, substantive obligation to compensate. Instead, they establish a contingent, comparative standard that is only triggered if the host State has, in fact, provided compensation to its own nationals or to nationals of a third State in similar circumstances. Absent any evidence of such compensation by Sri Lanka, the clause provides no independent basis for relief. The Dissent characterizes the majority's use of Article 4(1) to import a general due diligence obligation from customary international law as a fundamental misapplication of the MFN concept.

Finally, the Dissent challenges the majority's finding of a breach of the due diligence standard based on Sri Lanka's failure to take certain precautionary measures prior to its military operation. Arbitrator Asante argues that applying such a standard is legally and factually untenable in the context of a major counter-insurgency operation against a formidable armed insurrection. This grave national emergency, constituting a *force majeure* situation, warrants deference to the State's sovereign discretion in matters of national security. Consequently, the Dissent concludes that under a proper construction of the BIT and the applicable rules of customary international law, which generally presume non-responsibility for insurrection-related damages, no basis for liability exists and the claim should have been dismissed entirely.
27 Jun 1990
Final Award
Document Details:
PARTICIPANTS
Final Award
Participants listed for this document only; this may not include all participants involved in the entire case.
Claimant appointee
Claimant appointee:
Berthold Goldman
Respondent appointee
Respondent appointee:
Samuel K.B. Asante
Tribunal/Panel chair
Chair/President:
Ahmed Sadek El-Kosheri
Arbitrator(s)
Sole Arbitrator
ICSID Annulment Committee president
ICSID Annulment Committee members
WTO Appellate Body members
WTO Appellate Body chair
Judges
Claimant's counsel
Heribert Golson, Fulbright & Jawonki LLP (Norton Rose Fulbright), Heribert Golsong
Respondent's counsel
William Rand, Robert Homick, Paul Friedland, Evan Gray, Coudert Brothers, Robert Hornick, M.S Aziz, A. Rohan Perera
Other counsel
Claimant's expert
Respondent's expert
Claimant's witness
Deva Rodrigo, Victor Santiapillai
Respondent's witness
Other witnesses
Tribunal secretary
Bertrand P. Marchais
Tribunal assistant
Country
Print reporter
Entities
Coudert Brothers, Coopers & Lybrand, Fulbright & Jaworski, Sri Lanka, Asian Agricultural Products
Document Summary
Final Award
This summary note is machine-generated. Always consult the original materials.

Procedural Background and Key Issues

This Final Award, rendered by a tribunal constituted under the auspices of the International Centre for Settlement of Investment Disputes (ICSID), resolves a dispute between Asian Agricultural Products Ltd. (AAPL), a Hong Kong corporation, and the Republic of Sri Lanka. The claim was brought under the 1980 Bilateral Investment Treaty (BIT) between the United Kingdom and Sri Lanka. The dispute arose from the destruction of AAPL's investment in a Sri Lankan shrimp farm, Serendib Seafoods Ltd., during a counter-insurgency military operation conducted by Sri Lankan security forces in January 1987.

The central legal issues concerned the standard of protection owed to the investment under the BIT. AAPL primarily argued that the "full protection and security" (FPS) clause in Article 2(2) of the BIT imposed a strict or absolute liability on the host state for the loss. In the alternative, AAPL contended that under Article 4(2) of the BIT, which addresses losses from destruction by state forces, compensation was due because the destruction was not caused in combat action or required by the necessity of the situation. Sri Lanka countered that the FPS standard merely incorporates the customary international law standard of "due diligence" and that it was not liable as the destruction occurred during a legitimate combat operation against insurgents.

Tribunal's Analysis on Liability

The Tribunal first established that the applicable law was the Sri Lanka/UK BIT as lex specialis, supplemented by rules of customary international law. In a significant finding, the Tribunal rejected AAPL's interpretation of the FPS clause as creating strict liability. Citing international jurisprudence, including the ICJ's decision in the *ELSI* case, the Tribunal held that the FPS standard is not an absolute guarantee against harm but rather an obligation on the host state to act with due diligence. The addition of the word "full" does not transform the nature of the obligation into one of strict liability, though it may imply a heightened standard of vigilance.

The Tribunal then found that the conditions for applying the specific remedy under Article 4(2) of the BIT were not met. It determined that the military operation qualified as "combat action" within the modern context of guerrilla warfare, and the Claimant had failed to prove that the destruction was not required by the necessity of the situation. Consequently, the claim under Article 4(2) was dismissed.

However, the Tribunal found Sri Lanka liable for a breach of its due diligence obligation under the general standard of protection derived from Articles 2(2) and 4(1) of the BIT. The Tribunal concluded that the Sri Lankan government, despite having an established channel of communication with the company's management and being aware of the impending military operation, failed to take reasonable precautionary measures to protect the investment. This omission, specifically the failure to seek the removal of any suspected insurgents from the farm prior to the operation, constituted a breach of the state's duty to provide protection and security.

Decision on Quantum and Costs

Having established liability, the Tribunal awarded AAPL compensation for the value of its investment. It assessed the value of the tangible assets at USD 460,000. The Tribunal rejected claims for intangible assets, such as goodwill and future profits (lucrum cessans), on the grounds that the shrimp farm was a new enterprise with no history of profitability, rendering such claims overly speculative. The Tribunal awarded interest on the principal sum at a rate of 10% per annum from the date of the request for arbitration until the date of payment. The costs of the arbitration were apportioned between the parties, with Sri Lanka bearing 60% of the Tribunal's fees and expenses.
Case Summary
Case Summary
This summary note is machine-generated. Always consult the original materials.

In its Final Award (June 27, 1990), the Tribunal addressed claims arising from the destruction of a shrimp farm owned by Serendib Seafoods Ltd. (a Sri Lankan company in which the Claimant, a Hong Kong entity, held a minority share) during a military operation by Sri Lankan security forces against rebel insurgents. This case is landmark for being the first ICSID arbitration based on a Bilateral Investment Treaty (BIT).

Jurisdiction and Standing The Tribunal affirmed its jurisdiction under the UK-Sri Lanka BIT. It held that the Claimant had standing to sue for the destruction of the local company’s assets, as the BIT's definition of "investment" encompassed shares held by a foreign investor in a local corporation.

Standard of Liability: Full Protection and Security The central legal dispute concerned the interpretation of "full protection and security" under Article 2(2) of the BIT. The Claimant argued this created a "strict liability" or "objective responsibility" standard. The Tribunal rejected this, ruling instead that "full protection and security" reflects the customary international law standard of "due diligence." It held that a State is not an insurer of foreign investments; rather, it is required to take reasonable measures to prevent harm that a "well-administered government" would be expected to take under similar circumstances.

Tribunal’s Reasoning on Merits Regarding the destruction of the farm, the Tribunal found that the Respondent failed to exercise due diligence. While acknowledging the State’s right to maintain law and order, the Tribunal concluded that the Respondent did not demonstrate that the destruction was an inevitable necessity of war. Specifically, the Respondent failed to provide evidence that it had taken adequate precautions to protect the investment or that the insurgents were using the farm in a manner that necessitated its total destruction without prior warning or evacuation of staff. Consequently, the Tribunal found a violation of the due diligence obligation.

Damages The Tribunal awarded compensation based on the "fair market value" of the investment at the time of the loss. However, it declined to award damages for lost future profits (lucrum cessans), citing the speculative nature of the farm’s projected earnings and the volatile security situation in Sri Lanka at the time.

Dissenting Opinion In his Dissenting Opinion (June 27, 1990), Dr. Samuel K.B. Asante disagreed with the majority’s factual findings and the application of the burden of proof. He argued that the Claimant failed to prove that the security forces—rather than the rebels—caused the destruction. He further contended that the majority’s standard of due diligence was applied too stringently, effectively shifting the burden of proof onto the State to justify its military necessity during an internal armed conflict.