Asian Agricultural Products Ltd v Sri Lanka

Year of the award: 1990
Forum: ICSID
Applicable investment treaty: Sri Lanka - United Kingdom BIT (1980)

Arbitrators
Dr Ahmed Sadek El-Kosheri - President
Prof Berthold Goldman
Dr Samuel Asante


Executive summary

The claimant, a Hong Kong corporation AAPL, owned 48.2% of Serendib, a Sri Lankan joint venture company that was formed to cultivate and export shrimp to Japan. Serendib made only two shipments of shrimp when in January 1987 its principal facility, a shrimp farm, was destroyed as a result of counter-insurgency operation of the Sri-Lankan Security Forces. As a result, Serendib went out of business and thus AAPL's investment was lost.

In July 1987 AAPL brought a dispute before an ICSID Tribunal claiming violations by Sri Lanka of the 1980 Sri Lanka-UK BIT (extended to Hong Kong) and requesting US$ 8 million in compensation. The Tribunal declined AAPL's claim under the general "full protection and security" standard but found merit in its claim under a specific BIT article providing for compensation for losses suffered by foreign investors as a consequence of an armed conflict or insurrection. This BIT article did not contain a specific standard of compensation; the Tribunal held that the full value of the lost investment had to be compensated.

To determine the full value of the investment, the Tribunal estimated the reasonable price a willing purchaser would have offered for the AAPL's shareholding in Serendib on the date preceding the destruction of the shrimp farm. When making this assessment, the Tribunal declined to take into account Serendib's goodwill and future profitability as not proven by the claimant. Essentially, to estimate the "reasonable price", the Tribunal determined the value of Serendib's physical assets decreased by the amount of Serendib's liabilities on the relevant date. The Tribunal awarded US$ 460,000 in compensation plus simple interest at the rate of 10% from the date of the arbitration request up to the date of the actual payment.

The Tribunal took its decision by a 2-1 majority. One arbitrator, in his dissenting opinion, declined Sri Lankan liability and rejected AAPL's claim for damages.