INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES
WASHINGTON, D.C.
In the matter between
MALAYSIAN HISTORICAL SALVORS SDN BHD
(Applicant)
and
THE GOVERNMENT OF MALAYSIA
(Respondent)
(ICSID Case No. ARB/05/10)
_______________________________
DECISION ON THE APPLICATION FOR ANNULMENT
_______________________________
Members of the Ad Hoc Committee
Judge Stephen M. Schwebel (President)
Judge Mohamed Shahabuddeen
Judge Peter Tomka
Secretary of the Ad Hoc Committee
Ms. Aïssatou Diop
Representing the Applicant Representing the Respondent
Mr. Emmanuel Gaillard
Mr. John Savage
Mr. Yu-Jin Tay
Shearman & Sterling LLP
Tan Sri Abdul Gani Patail
Datuk Azailiza Mohd. Ahad
Ms. Aliza Sulaiman
Mr. Osman Affendi Mohd. Shalleh
Attorney General’s Chamber of Malaysia
Dato’ Cecil Abraham
Mr. Sunil Abraham
Zul Rafique & Partners
Mr. Robert Volterra
Mr. Stephen Fietta
Latham & Watkins LLP
Date of Dispatch to Parties: April 16, 2009
CL-0141
i
TABLE OF CONTENTS
Paragraphs
A. BACKGROUND 1-9
B. THE AWARD 10-23
C. THE ANNULMENT PROCEEDINGS 24-26
D. SUBMISSIONS OF THE PARTIES 27-55
(a) Malaysian Historical Salvors Sdn, Bhd 27-42
(b) The Government of Malaysia 43-55
E. ANALYSIS OF THE AD HOC COMMITTEE 56-82
F. DECISION 83-84
1
A. BACKGROUND
1. The question in this case is whether the Award on Jurisdiction of 17 May 2007 in
Malaysian Historical Salvors v. Malaysia
1
should be annulled on the sole ground invoked
by Malaysian Historical Salvors Sdn., Bhd. (the “Applicant” or the “Salvor”), namely,
that the Tribunal manifestly exceeded its powers by failing to exercise a jurisdiction over
the dispute with which it was endowed under the Convention on the Settlement of
International Disputes between States and Nationals of Other States
2
2. The matter arises in this way. In 1817, a British vessel named the Diana sank in
waters which now form part of the territorial waters of Malaysia. It was carrying a large
cargo of antique Chinese porcelain. The Applicant is a marine salvage company
incorporated under the laws of Malaysia, the majority of whose shares are owned by a
British national (whether that was the case when the dispute arose is in dispute). Under a
contract dated 3 August 1991
(the “ICSID
Convention”) and by the terms of the Agreement between the Government of the United
Kingdom of Great Britain and Northern Ireland and the Government of Malaysia for the
Promotion and Protection of Investments (the “Agreement” or “BIT”). A particular
question under the ICSID Convention is whether the resources spent by a company that
contracted with the Government of Malaysia to salvage a shipwreck constitute an
investment in that State within the meaning of Article 25(1) of the ICSID Convention.
Monetarily, the case is a small one, but, as will be seen, it involves larger issues.
3
1
Malaysian Historical Salvors Sdn., Bhd. v. The Government of Malaysia, ICSID Case No. ARB/05/10,
Award on Jurisdiction, May 17, 2007 (“Award”).
2
14 October 1966.
3
Contract No. IPL3/1991 dated 3 August 1991 between the Government of Malaysia and Malaysian
Historical Salvors Sdn., Bhd. (with Variation Order No. 1/1993 dated 12 April 1993 and Extension of
Contract dated 12 July 1994) (“Contract”).
(the “Contract”), the Applicant and the Government of
Malaysia (the “Respondent”) agreed that the Applicant would find the wreck and salvage
the cargo of the Diana for the Respondent. The Applicant by the title and provision of the
Contract agreed “to survey, identify, classify, research, restore, preserve, appraise, market,
sell/auction and carry out a scientific survey and salvage of the wreck and contents . . .
2
believed to be the Wreck ‘DIANA.’”
4
The Contract provides that the foregoing “[w]orks
is for the sole purpose of archeological interest and the study of historical heritage.”
5
The
Government and the Salvor “shall have ownerships of publication and intellectual rights.
… However the GOVERNMENT shall not commercially exploit such rights except in so
far as to propagate education, tourism, museums, culture and history.”
6
The Salvor “shall
ensure that at least 50% from its total personnel comprise Malaysian personnel for the
purpose of carrying out the Works.”
7
3. The Contract was on a “‘No Finds No Pay’ basis,”
8
4. Accordingly, title to the recovered cargo was to belong to the Respondent. Out of
the value of the recovered cargo, a “Service Fee” was to be paid by the Respondent to the
Applicant, in accordance with a formula set out in the Contract.
a well established practice in
marine salvage, which meant that all the costs of the search and salvage operation and its
risks would be borne by the Applicant but the finds (if any) would belong to the
Respondent, against payment by the Respondent to the Applicant of a portion of the value
of any finds.
9
Under a subsequent
contract,
10
the Applicant was to arrange for the auction of the recovered items in Europe
by the international auction firm, Christie’s. The Respondent reserved the right to
withdraw salvaged items from the sale “which are of interest to the National Museum for
study and exhibition”
11
4
Contract, Preamble.
5
Id.
6
Id., Clause 15.1.
7
Id., Clause 26.1.
8
Id., Clause 2.2.
9
See id., Clause 4.
10
Agreement No. PERB/PK/116/1994 dated 22 September 1994 between the Government of Malaysia,
Malaysian Historical Salvors and Christie’s Amsterdam B.V. (“Agreement 116/1994”).
11
Id., Clause 2.2.
provided that the Applicant was paid its share of the best
attainable value for these withdrawn items. The Applicant was then entitled to the
3
“Service Fee” comprising 70% of the combined total of the proceeds from auction plus
the appraised value of those items not auctioned.
12
5. After an extended search and salvage operation of almost four years, the Applicant
found the wreck and recovered approximately 24,000 pieces of porcelain from it. Some
items were withheld from sale by the Respondent; the remainder were auctioned in March
1995 at Christie’s in Amsterdam for approximately USD 2.98 million. A number of
pieces of antique Chinese porcelain so salvaged have been placed in the Malaysian
National Museum.
6. The Applicant in the original arbitration proceeding alleged that, while being
contractually entitled to 70% of the amount realised from Christie’s auction, it received
only USD 1.2 million, or 40% of the amount realised. The Applicant also alleged that the
Respondent withheld from sale salvaged items valued at over USD 400,000 and did not
pay the Applicant its share of the best attainable value of these items.
7. On 30 September 2004, the Applicant submitted a request for arbitration to ICSID,
invoking the consent to ICSID arbitration contained in the Agreement. On 17 May 2007,
the Tribunal’s Award dismissing the Applicant’s claims in their entirety for want of
jurisdiction was dispatched to the parties.
8. The Tribunal consisted of Mr. Michael Hwang, S.C., as the Sole Arbitrator. It is
the Award rendered by that distinguished arbitrator which is the subject of this annulment
proceeding. It may be noted that the ICSID Secretariat, in exercise of its screening
function, put a number of questions to the Applicant, and received its replies, before
registering the Request as supplemented by those replies.
13
9. The Applicant argued that its performance under the Contract fell within the
meaning of “investment” as defined under the Agreement,
14
12
Contract, Clause 4.1.1.
13
See Award, paras. 18 – 25.
and that the Respondent
14
Article 1 of the BIT provides, in part: “[f]or the purposes of the Agreement, (1)(a) ‘investment’ means
every kind of asset and in particular, though not exclusively, includes: … (iii) claims to money or to any
4
violated Article 2 (Protection of Investment), Article 4 (Expropriation), Article 5
(Repatriation of Investment) and Article 7 (Consent to ICSID arbitration) of the
Agreement. Whether the Agreement applied was not determined by the Tribunal because
the Respondent objected to the proceedings on the ground that ICSID had no jurisdiction
over the dispute under the ICSID Convention, which, in the event, was the sole question
addressed by the Sole Arbitrator.
B. THE AWARD
10. After the hearing, the Sole Arbitrator requested counsel to comment on several
ICSID cases which had not been discussed by the parties in their earlier submissions but
which he identified as being of interest for the matter under his consideration. On 17 May
2007, the Tribunal rendered its Award on Jurisdiction (the “Award”). The Tribunal
concluded that the Centre had no jurisdiction over the dispute submitted, and that the
Tribunal lacked the competence to consider the claims made by the Applicant.
15
11. The Tribunal stated that ICSID jurisprudence, cited by the parties, requires the
adoption of a two-stage approach to determine whether the Tribunal has jurisdiction over
a dispute. The Applicant must show that the Contract is an “investment” within the
meaning Article 25(1) of the ICSID Convention;
16
12. The Tribunal initially turned to the question whether the Contract was an
“investment” within the meaning of Article 25(1) of the ICSID Convention. The
Applicant had argued that the Contract was the quintessence of an “investment” because
the Applicant had invested its own funds and other financial resources (“outlay”) in the
if it succeeds in showing that, it must
then go on to show that the Contract also falls within the definition of an ‘investment’ as
set out in the relevant bilateral investment treaty.
performance under contract, having a financial value; … (v) business concessions conferred by law or under
contract, including concessions to search for, cultivate, extract or exploit natural resources.”
15
Award, para. 151
16
Article 25(1) of the ICSID Convention provides that “[t]he jurisdiction of the Centre shall extend to any
legal dispute arising directly out of an investment, between a Contracting State (or any constituent
subdivision or agency of a Contracting State…) and a national of another Contracting State, which the
parties to the dispute consent in writing to submit to the Centre.”
5
performance of the Contract, and also assumed the risk for the failure of the salvage
operation. The Applicant had also argued that its performance under the Contract had the
hallmarks of “investment” identified in previous ICSID cases,
17
and relied on Alcoa
Minerals v. Jamaica
18
13. The Respondent argued in response that the Contract was not an “investment”
within the meaning of Article 25(1) of the Convention, as the Contract was “for the sole
purpose of archaeological interest and the study of historical heritage.”
in which the Tribunal recognised that contribution of capital was
one type of investment.
19
The Respondent
submitted that the Applicant’s case did not meet the requirements of “investment” as set
out in the Salini v. Morocco case,
20
14. The Tribunal started its discussion of the meaning of the term “investment” by
recalling that Article 31 of the Vienna Convention on the Law of Treaties
and that the Contract had not contributed to the
economic development of Malaysia.
21
17
The Applicant relied on Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID
Case No. ARB/00/4, Decision on Jurisdiction, 23 July 2001, an English translation of which is found at 6
ICSID Reports 400 (2004), (“Salini v. Morocco”),; Joy Mining Machinery Limited v. Arab Republic of
Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction, 6 August 2004 (“Joy Mining v. Egypt”); and
Consorzio Groupement L.E.S.I. - DIPENTA v. People's Democratic Republic of Algeria, ICSID Case No.
ARB/03/8, Award, 10 January 2005 (“L.E.S.I.- DIPENTA v. Algeria”).
18
Alcoa Minerals of Jamaica, Inc. v. Jamaica, ICSID Case No. ARB/74/2, Alcoa Minerals of Jamaica, Inc.
v. Jamaica, ICSID Case No. ARB/74/2, Decision on Jurisdiction and Competence, 6 July 1975 (“Alcoa v.
Jamaica”).
19
Contract, Preamble.
20
See Award, para. 47.
21
23 May 1969, 1155 UNTS 331.
(the “Vienna
Convention”) provides that “[a] treaty shall be interpreted . . . in accordance with the
ordinary meaning to be given to the terms….” The Tribunal also considered that, taking
“a teleological approach” to the ICSID Convention, a tribunal ought to interpret the word
“investment” so as to encourage, facilitate and promote cross-border economic
cooperation and development. It held that support for this approach could be found, inter
alia, in the Preamble to the ICSID Convention which speaks of “[c]onsidering the need
for international cooperation for economic development….”
6
15. The Tribunal considered that there were seven decided cases “of importance” on
the issue whether a contract is an “investment” within the meaning of Article 25(1) of the
Convention, and that, while “there is no doctrine of stare decisis in ICSID
jurisprudence,”
22
a review of these cases would “assist in determining”
23
the issue at
hand. The Tribunal noted that the language of these cases could be interpreted as defining
features as typical characteristics on the one hand (the “Typical Characteristics
Approach”) or as jurisdictional requirements on the other (the “Jurisdictional Approach”).
While the Jurisdictional Approach requires that each of the established hallmarks of an
“investment” must be present before a contract can be considered an “investment,” the
Typical Characteristics Approach would still allow a tribunal to find that there is an
“investment,” even if one or more of the established hallmarks were missing.
24
16. The Tribunal then reviewed the seven cases of importance “to discern a broad
trend which emerges from ICSID jurisprudence on the ‘investment’ requirement….”
25
The Tribunal noted that jurisprudence on the meaning of “investment” typically cites
Salini v. Morocco
26
and Joy Mining v. Egypt
27
22
Award, para. 56.
23
Id. The seven cases “of importance” were Salini v. Morocco; Joy Mining v. Egypt; L.E.S.I.- DIPENTA v.
Algeria; Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No.
ARB/04/13, Decision on Jurisdiction, 16 June 2006 (“Jan de Nul v. Egypt”); Bayindir Insaat Turizm Ticaret
Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14
November 2005 (“Bayindir v. Pakistan”); !"#$%#&%venská obchodní banka, a.s. v. Slovak Republic, ICSID
Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction, 24 May 1999 (“CSOB v. Slovak
Republic”); and Patrick Mitchell v. The Democratic Republic of Congo, ICSID Case No. ARB/99/7,
Decision on the Stay of Enforcement of the Award, 9 February 2004 (“Patrick Mitchell v. DRC”).
24
Award, para. 70.
25
Id., para. 104.
26
See Salini v. Morocco, paras. 50 – 58.
27
See Joy Mining v. Egypt, paras. 42 – 63.
as authorities for the various defining
hallmarks of an “investment,” and that the factors considered in Salini v. Morocco are
widely accepted as a starting point of an ICSID Tribunal’s analysis on this point. The
Tribunal then cited the Salini v. Morocco factors, being: “contributions, a certain duration
of performance of the contract and a participation in the risks of the transaction . . . In
7
reading the Convention’s Preamble, one may add the contribution to the economic
development of the host State of the investment as an additional condition.”
28
17. The Tribunal concluded from its review of the seven cases that the differences
between the two approaches are likely to be academic, and in the practice it is unlikely
that any difference in juristic analysis would make any significant difference to the
ultimate findings of the tribunal. The Tribunal noted that ICSID tribunals tend to adopt
“an empirical rather than a doctrinaire approach”
29
(a) Where the facts are strongly in favour of a finding in each of the
relevant hallmarks of ‘investment,’ a tribunal can confirm its
jurisdiction in strong terms emphasizing that the requirements of
‘investment’ are clearly fulfilled (citation omitted).
(b) Where the facts clearly show that one or more of the relevant
hallmarks of ‘investment’ are missing, a tribunal may uphold the
jurisdictional challenge of a respondent in strong terms by using
language in support of a Jurisdictional Approach in order to
demonstrate more clearly why the tribunal is rejecting jurisdiction
(citation omitted).
(c) Where the facts are not as clear-cut as in the scenarios envisaged in
a) and b) above, a tribunal will have to consider whether there is
any evidence in support of each of the relevant hallmarks of
‘investment.’ Where there is some marginal evidence in support of
one of the relevant hallmarks of ‘investment,’ but more conclusive
evidence in support (sic) the presence of the other relevant
hallmarks of ‘investment,’ the tribunal may choose to discount the
weakness of the claimant’s case in one of the relevant hallmarks of
‘investment’ by stating that the issue of ‘investment’ should be
approached on a holistic basis. … In this situation, a tribunal is
likely to use language that may be interpreted as advocating a
Typical Characteristics Approach (citation omitted).
to determining whether there is an
“investment” within the meaning of Article 25(1) of the ICSID Convention, and
summarised the jurisprudence thus:
(d) Alternatively, in the scenario discussed in c), a tribunal may also
rely on a Jurisdictional Approach but, in examining whether each
of the relevant hallmarks of ‘investment’ is satisfied, the tribunal
28
Award, para. 78
29
Id., para. 106.
8
may take a broad approach, requiring only relatively marginal
evidence to establish a positive finding in favour of assuming
ICSID jurisdiction. … In other words, the hallmarks, although
essential, are not sufficient to ensure that a contract is an
‘investment’ (citation omitted).
(e) The classical Salini hallmarks are not a punch list of items which, if
completely checked off, will automatically lead to a conclusion that
there is an ‘investment.’ If any of these hallmarks are absent, the
tribunal will hesitate (and probably decline) to make a finding of
‘investment.’ However, even if they are all present, a tribunal will
still examine the nature and degree of their presence in order to
determine whether, on a holistic assessment, it is satisfied that there
is an ICSID ‘investment.’
30
18. The Tribunal then considered to what degree the hallmarks of “investment” had
been met in the present case, “adopting a fact-specific and holistic assessment.”
31
As to
the first hallmark, “Regularity of Profits and Returns” (which the Tribunal noted was cited
in Joy Mining v. Egypt, but not in Salini v. Morocco), the Tribunal held that there was no
regularity of profits or returns in the present case. However, it accepted the Applicant’s
argument that that criterion is not always decisive and has not been held to be an essential
characteristic in any of the cited cases.
32
19. Regarding the second hallmark, “Contributions,” the Tribunal held that it was not
in dispute that the Applicant expended its own funds, but “the size of the contributions
were in no way comparable to those found in Salini, Bayindir and Jan de Nul or even in
Joy Mining.”
33
20. As to the third hallmark, “Duration of the Contract,” the Tribunal noted that the
“Contract took almost four years to complete,”
34
30
Award, para. 106.
31
Id., para. 107.
32
Id., para. 108.
33
Id., para. 109.
34
Id., para. 110.
and therefore complied with the
minimum length of time discussed in Salini v. Morocco. However, due to the nature of
the Contract, the Tribunal held that the Applicant only satisfied this factor in a
9
quantitative sense, but failed to do so in the qualitative sense, given that (a) the time
expended in performance of the Contract was dependent, in part, on the element of
fortuity (this appears to be a reference to the difficulty in finding the wreck); (b) the
Contract did not appear to be a contract that would promote the economy and
development of the host State “as the criterion of duration is not satisfied in the qualitative
sense envisaged by ICSID jurisprudence.”
35
21. As to the fourth hallmark, “Risks Assumed Under the Contract,” the Tribunal
noted that it was not disputed that all the risks of the Contract were borne by the
Applicant. However, the Tribunal concluded that the fact that salvage contracts are
typically on a “no-finds-no-pay” basis was evidence that the risks assumed by the
Applicant under the Contract were no more than ordinary commercial risks normally
assumed by salvors.
36
Therefore, while the Applicant had satisfied the risk criterion in the
quantitative sense, the Tribunal concluded that the quality of the assumed risk was not
something which established ICSID practice and jurisprudence would recognise.
37
22. As regards the fifth hallmark, “Contribution to the Economic Development of the
Host State,” the Tribunal considered that “the weight of the authorities . . . swings in
favour of requiring a
significant contribution to be made to the host State’s economy.”
38
In particular, the Tribunal held that, given “all the circumstances of the factual matrix in
this case . . . the question of contribution to the host State’s economic development
assumes significant importance because the other typical hallmarks of ‘investment’ are
either not decisive or appear only to be superficially satisfied.”
39
The Tribunal concluded
that the “benefits offered by the Contract to Malaysia were of a different nature to those
offered in CSOB, Jan de Nul and Bayindir”;
40
35
Award., para. 111.
36
Id., para. 112.
37
Id.
38
Id., para. 123.
39
Id., para. 130.
40
Id., para. 144.
in its view, the “benefits flowing from the
Contract were no different from the benefits flowing to the place of the performance of
10
any normal service contract. The benefit was not lasting, in the sense envisaged in the
public infrastructure or banking infrastructure projects,”
41
23. The Award accordingly concluded that the Applicant’s claim failed in limine and
must be dismissed for lack of jurisdiction.
which were likely to provide
positive economic development to the host State.
42
Having concluded that the Contract was not
an “investment” within the meaning of Article 25(1) of the ICSID Convention, the
Tribunal found it unnecessary to discuss whether the Contract was an “investment” under
the Agreement.
43
C. THE ANNULMENT PROCEEDINGS
24. By an Application for Annulment dated 7 September 2007, the Applicant applied
to ICSID for an annulment of the Award pursuant to Article 52(1)(b) of the ICSID
Convention. The Application, which was made within the time prescribed by Article
52(2) of the ICSID Convention, was registered by the Secretary-General of ICSID on 17
September 2007.
25. On 30 October 2007, an ad hoc committee (the “Committee”) was constituted, its
members consisting of Judge Stephen M. Schwebel (United States), Judge Mohamed
Shahabuddeen (Guyana) and Judge Peter Tomka (Slovak Republic), together the
“Committee.” The parties were so notified on 30 October 2007 when they were also
informed that Mr. Ucheora Onwuamaegbu, Senior Counsel, ICSID, would serve as
Secretary of the Committee. On 6 November 2007, the Secretary of the Committee
informed the parties that Judge Schwebel had been designated by the other members of
the Committee as its President. On 26 September 2008, the Committee and parties were
informed that due to a redistribution of the Centre’s workload, Ms. Aïssatou Diop,
Consultant, ICSID, had been assigned to serve as Secretary of the Committee in
replacement of Mr. Onwuamaegbu.
41
Award, para. 144.
42
Id., para. 146.
43
Id., para. 148.
11
26. The first session of the Committee, originally planned for 3 December 2007, was
postponed, due to the delay of the initial advance payment to the Centre by the Applicant.
It was held on 31 March 2008 in The Hague. In accordance with the procedural time
table set out by the Committee at its first session in consultation with the parties, the
Applicant filed its Memorial on Annulment on 30 May 2008. The Respondent filed its
Counter-Memorial on 15 September 2008. The Applicant then filed its Reply on 13
October 2008, and the Respondent filed its Rejoinder on 10 November 2008. A hearing
took place on 3 December 2008 in The Hague. During the course of the proceedings, the
Members of the Committee deliberated by various means of communication, including a
meeting in The Hague on 4 December 2008.
D. SUBMISSIONS OF THE PARTIES
(a) Malaysian Historical Salvors Sdn, Bhd
27. The Applicant bases its request for an annulment of the Award on the ground that,
in deciding that the Centre had no jurisdiction over the dispute and the Tribunal lacked
competence to consider the claims submitted to it, the Tribunal manifestly exceeded its
powers under Article 52(1)(b) of the ICSID Convention.
44
The Applicant relies on
Vivendi v. Argentine Republic
45
as a basis for its argument that the failure of a tribunal to
exercise jurisdiction which it possesses constitutes an excess of powers within the
meaning of Article 52(1)(b).
46
28. The Applicant presents three main arguments in support of its claim that the
Tribunal’s decision that it lacked jurisdiction was a manifest excess of powers under
Article 52(1)(b). First, the Applicant argues that the Tribunal applied an overly-restrictive
It noted that it was common ground between the parties
that such failure constitutes an excess of powers.
44
Application for Annulment, para. 8.
45
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case
No. ARB/97/3, Decision on Annulment, 3 July 2002, para. 86: “[i]t is settled, and neither party disputes,
that an ICSID tribunal commits an excess of powers not only if it exercises a jurisdiction which it does not
have under the relevant agreement or treaty and the ICSID Convention, read together, but also if it fails to
exercise a jurisdiction which it possesses under those instruments.”
46
See Applicant’s Memorial, paras. 42 – 48.
12
definition of the term “investment.” The Applicant submits that the Tribunal failed to
apply the guiding principles set down in the Vienna Convention, and accordingly
disregarded the ordinary meaning of the term “investment.”
47
The Applicant argues that
the drafters of the ICSID Convention rejected restrictions on the meaning of the word
“investment” during the Convention negotiations, and concluded that the meaning of the
term would be left open. Accordingly, the Applicant argues that the term “investment”
under Article 25(1) of the ICSID Convention was intended to be a broad and inclusive
concept.
48
The Applicant also submits that the Tribunal failed to take account of the
ICSID Convention’s travaux préparatoires, a supplementary means of interpretation
provided for by Article 32 of the Vienna Convention,
49
that were directly relevant to the
Tribunal’s analysis in this case. In the view of the Applicant, those travaux préparatoires
contain numerous discussions of the definition of “investment” and confirm the broad
ordinary meaning of the term.
50
29. The Applicant’s second argument is that the Tribunal elevated characteristic-based
tests to the level of jurisdictional conditions. The Applicant submits that the Tribunal
identified certain “characteristics” or “hallmarks” of an investment from cases which it
termed the “critical cases on investment,” considering them to be (i) Regularity of Profits
and Returns; (ii) Contributions; (iii) Duration of the Contract; (iv) Risks Assumed under
They establish that the drafters of the ICSID Convention
decided against defining the term “investment.” They show that they rejected a monetary
floor for the value of an investment in order for it to be treated as an investment under
Article 25(1). And they indicate that it was accepted that great weight in the definition of
investment in the particular case would be given to the intentions of the Parties to the BIT
or other instrument that provided for recourse to ICSID.
47
See Applicant’s Memorial, paras. 50 – 55.
48
See id., paras. 57 – 67, 74.
49
Article 32 of the Vienna Convention provides: “[r]ecourse may be had to supplementary means of
interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order
to confirm the meaning resulting from the application of article 31, or to determine the meaning when the
interpretation according to article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result
which is manifestly absurd or unreasonable.”
50
See Applicant’s Memorial, paras. 50 – 57.
13
the Contract; and (v) Contribution to the Economic Development of the Host State.
51
The
Tribunal’s error, according to the Applicant, was to elevate these characteristics to the
level of jurisdictional “conditions” of an investment and to conclude that it was
“essential” to a claim that these investment characteristics be met.
52
The Applicant argues
that these conditions do not originate in the text of the ICSID Convention itself, and are
inconsistent with the ordinary meaning of the term “investment” and the ICSID
Convention’s travaux préparatoires.
53
The Applicant contends that the Tribunal
effectively narrowed the meaning of the term “investment” in a manner inconsistent with
the intention of the Convention drafters and its signatory states.
54
30. The Applicant makes an additional argument that the Tribunal improperly
introduced a further jurisdictional requirement of “contribution to the economic
development of the host State,” having extrapolated this additional condition from a
sentence in the Preamble of the ICSID Convention: “[c]onsidering the need for
international cooperation for economic development.”
55
The Applicant relies on the
Award in Pey Casado v. Chili
56
to argue that this sentence of the Preamble does not
establish a condition for investment, but merely reflects that such “‘economic
development’ would be a desirable and natural consequence of investment.”
57
31. Thirdly, and in the alternative, the Applicant argues that, even if the Tribunal was
correct to adopt a characteristics-based approach, it erred in introducing an additional
requirement that the investment characteristics must not only be present “quantitatively,”
but that they must also be present “qualitatively” and “to a sufficient degree before an
‘investment’ can be found.”
58
51
Applicant’s Memorial, paras. 31 – 33, citing Award, headings at pp. 35 – 43.
52
Id., para. 79, citing Award, para. 106(d) and (e).
53
Id., paras. 32, 77.
54
Id., para. 82.
55
Id., para. 69.
56
Victor Pey Casado et Fondation ‘Presidente Allende’ c. République du Chili, ICSID Case No. ARB/98/2,
Sentence arbitrale, 8 May 2008.
57
Applicant’s Memorial, para. 71, citing Pey Casado v. Chili, para. 232.
58
Id., para. 39.
The Applicant argues that despite finding that certain of the
14
investment conditions were met, the Tribunal erroneously held that the Contract did not
constitute an “investment” because it found that the investment characteristics or
conditions did not exist to a sufficient “qualitative” extent. The Applicant submits that
“[t]hese ‘qualitative’ conditions have no basis in law,”
59
and are “alien to the meaning of
‘investment’ in the ICSID Convention.”
60
32. As regards the first characteristic, “Regularity of Profits and Returns,” the
Applicant acknowledges that the Tribunal held that this feature is not always critical and
accepted that the absence of this element was immaterial to the determination of whether
the Contract constitutes an “investment.”
The Applicant then proceeds to analyse each of
the characteristics of an investment enumerated by the Tribunal, to illustrate the
“qualitative” approach which it argues the Tribunal erred in adopting.
61
33. Concerning the second characteristic, “Contributions,” the Applicant argues that
the Tribunal erred in considering that “the
size
of the contributions were in no way
comparable to those found in Salini, Bayindir and Jan de Nul….”
62
The Applicant
recalls that minimum monetary limits for investments were canvassed during the
negotiations of Article 25(1), but were rejected.
63
The Applicant accordingly submits
that the fact that its contributions were smaller than those mentioned in the case law
surveyed by the Tribunal is of no relevance.
64
34. As regards the third characteristic, the “Duration of the Contract,” the Applicant
argues that the Tribunal erred in finding that because the duration of the Contract
depended on the element of fortuity, it did not meet the duration criterion “in the
qualitative sense envisaged by ICSID jurisprudence.”
65
59
Applicant’s Memorial, para. 85.
60
Id., para. 84.
61
Id., para. 87, citing Award, para. 108.
62
Id., para. 90, citing Award, para. 109.
63
Id., para. 92.
64
Id., para. 93.
65
Id., para. 98, citing Award, para. 111.
The Applicant contends that there
is no legal authority for this additional “qualitative” requirement, and that the Tribunal’s
15
finding is in contradiction to the ICSID Convention’s travaux préparatoires, which show
that a requirement of a minimum duration of five years for an investment was debated and
rejected by the drafters.
66
The Applicant also submits that the Tribunal confused its
assessment of whether the element of duration was met with the separate issue of whether
the investment would promote the economy and development of the host State.
67
35. Concerning the fourth characteristic, the “Risks Assumed under the Contract,” the
Applicant argues that the Tribunal again erred by concluding that “while [the Applicant]
may have satisfied the risk characteristic or criterion in a quantitative sense (i.e., that there
was inherent risk assumed under the Contract), the quality of the assumed risk was not
something which established ICSID practice and jurisprudence would recognize.”
68
The
Applicant reiterates its argument that there is no legal justification for this qualitative
requirement in the ICSID jurisprudence, and that the Tribunal’s approach led it to make a
manifest jurisdictional error.
69
36. The final investment characteristic discussed by the Tribunal is a “Contribution to
the Economic Development of the Host State.” The Applicant argues that this condition
is not supported by the text of the ICSID Convention.
70
However, the Applicant argues
that, even if this characteristic were a condition, the Tribunal erred in finding that,
although the Contract contributed to Malaysia’s economic development, “this benefit is
not of the same quality or quantity envisaged in previous ICSID jurisprudence.”
71
The
Applicant submits that there was no basis for the Tribunal’s conclusion that the economic
contribution to the host State be “substantial” or “significant,”
72
66
See Applicant’s Memorial, paras. 98 – 101.
67
Id., para. 99.
68
Id., para. 105, citing Award, para. 112.
69
Id., paras. 106 – 107.
70
Id., para. 121.
71
Id., para. 116, citing Award para. 132.
and argues that “[t]his
72
Id., paras. 110 – 113, 121.
16
additional threshold, arbitrarily imposed by the Tribunal, is manifestly not found in the
text of the Preamble, nor in the text of Article 25(1) of the ICSID Convention.”
73
37. The Applicant therefore concludes that the Tribunal’s assessment of whether the
Contract satisfies the characteristic of an investment suffers from manifest and
fundamental flaws arising out of (i) the Tribunal’s failure to consider the text of the
Convention and its travaux préparatoires; (ii) the overriding significance given to the
facts found in its selection of ICSID cases, which it effectively elevated to binding
precedent; and (iii) its requirement that each of the investment “conditions” should be
present to a sufficient “qualitative” degree. The Applicant submits that the Award should
be annulled in its entirety in accordance with Article 52(1)(b) of the ICSID Convention.
38. The Applicant also argued that the Tribunal should “have considered the BIT
definition of ‘investment’ because it was expressly defined by the United Kingdom and
Malaysia to be extremely broad and encompassing ‘every kind of asset,’”
74
39. The foregoing derives from the Applicant’s Memorial. It was reiterated by the
Applicant’s Reply. The Reply submitted that Article 52(1)(b) of the ICSID Convention,
which restricts annulment to cases in which “the Tribunal has manifestly exceeded its
powers,” does not visualize a procedure in which the ad hoc Committee first determines
whether the Tribunal has exceeded its powers and then, if it determines that the Tribunal
has exceeded its powers, as a separate stage of the analysis determines whether the excess
is manifest. By that procedure, a wrong holding that there is jurisdiction will be allowed
to stand unless, as a separate stage of the analysis, it is found that the error was manifest.
The Applicant submits that there is a single determination, and that it is concerned with
the question whether the Tribunal has exceeded its powers. In this respect, the Applicant
argued that a wrong jurisdictional holding is by its nature manifest. (At the oral hearing,
the suggestion
being that an investment within this broad definition governs the scope of an investment
under Article 25(1) of the ICSID Convention.
73
Applicant’s Memorial, para. 121.
74
Id., p. 7, footnote 32.
17
the Applicant did not rely on the latter argument but rather argued that the errors of the
Tribunal were manifest on other grounds, namely those described above.)
40. On the question whether the economic development of the host State is a
requirement of an investment, the Applicant submits in its Reply that all the Preamble of
the ICSID Convention observes is that contribution to economic development of the host
State is a possible consequence but not a condition of investment. In other words, “while
the ICSID Convention’s Preamble recognises that in protecting ‘investments’, the
Convention encourages development of the host state, this does not mean that the
development of the host state is a constitutive condition of an ‘investment’ within the
meaning of the Convention.”
75
41. In oral argument before the Committee on 3 December 2008, the Applicant
reiterated its contentions, emphasising that the Tribunal did find that, in some respects, the
outlay contributed to the economy of the Respondent and submitting that, however small
was the contribution, it supported the nature of the outlay as being that of an investment.
There was no basis for the Tribunal’s treating investment in infrastructure or banking as
investment within the meaning of the ICSID Convention while holding that investment in
the cultural history and museum content of a host State was outside the meaning of the
Convention. The Salvor was required to utilise its expertise, labour and equipment, to
invest its own financial and other resources, and assume all risks of the salvage operation,
financial and physical. It was required to search for and secure the wreck, bring the cargo
to the surface, clean, restore, inventory and photograph the salvaged items, and arrange
for their sale. The fact that this was the first salvage contract to be at issue in an ICSID
case, and that the contribution to the economy of Malaysia of the contract’s
implementation was small, hardly supported the conclusions of the Sole Arbitrator that
the quality of the assumed risk was not of a kind that ICSID jurisprudence would
recognise, and that the undoubted risk must be discounted because it was an ordinary
commercial risk that did not entail a significant contribution to the economic development
of the host State.
75
Applicant’s Reply, para. 19.
18
42. The Applicant requested the Committee to order the Respondent the
reimbursement of all costs and expenses incurred by the Applicant in connection with the
annulment proceedings, including the fees and expenses of legal counsel.
76
(b) The Government of Malaysia
43. The Respondent asks the Committee to reject the Applicant’s request for
annulment of the Award in its entirety. The Respondent’s position is that the Application
demonstrates no basis for annulment of the Award under Article 52(1)(b) of the
Convention. It urges, inter alia, that “investment” under Article 25(1) of the ICSID
Convention means an investment for the economic development of the host State, that the
Applicant’s outlay was not for that purpose, and that the claim is accordingly outside of
the jurisdiction of the Tribunal.
44. The Respondent also contends that, in declining jurisdiction, the Tribunal did not
“manifestly exceed its powers” as required for an annulment under Article 52(1)(b), and
that the Applicant is in effect asking the Committee to annul the Award on the basis that
the Committee should take a different view from the Tribunal either on “the Article 25
question per se, or on the question of whether or not the individual hallmarks were
satisfied in its individual case.”
77
45. The Respondent’s argument centers on the nature of an annulment in ICSID
proceedings. According to the Respondent, annulment is an “extraordinary and narrowly
circumscribed remedy”
78
and the mandate of the Committee in an annulment proceeding
is “narrow and limited.”
79
The Respondent argues that the Applicant’s Application “falls
well outside of the Committee’s mandate.”
80
76
Applicant’s Memorial, para. 129 and Applicant’s Reply, para. 77.
77
Respondent’s Counter-Memorial, para. 122.
78
Id., para. 39.
79
Id., Title of Section III.
80
Respondent’s Counter-Memorial, para. 36.
It submits that finality of proceedings is an
important component for the integrity of the ICSID process, and annulment is a limited
19
exception and must be exercised only in the narrow circumstances mandated by Article
52.
81
46. The Respondent emphasises the distinction between an annulment and an appeal.
It submits that two main distinctions exist: the first relates to the result of the process
when an annulment or appeal is successful, the second relates to the legal basis of the
challenge to the underlying award.
82
The Respondent relies on ICSID jurisprudence to the
effect that annulment is not a remedy against an incorrect decision; in its view, the
Applicant’s Memorial reveals that at the heart of its Application lies an objection to the
correctness of the Tribunal’s finding on whether the Contract was an “investment” within
the meaning of Article 25(1) of the Convention.
83
47. The Respondent does not agree with the Applicant’s proposition that an annulment
is warranted because the Tribunal “manifestly exceeded its powers” under Article
52(1)(b) of the Convention. The Respondent contends that the Tribunal did not exceed its
powers at all. Rather, in declining jurisdiction on the basis that the Contract was not an
“investment” within the meaning of Article 25(1) of the Convention, the Respondent
submits that “the Tribunal acted entirely within its powers.”
That kind of objection, submits the
Respondent, is not within the scope of an application for annulment.
84
The Respondent maintains
that, in essence, the Applicant is required by Article 52(1)(b) of the Convention to
demonstrate that the conclusions reached in the Award in relation to the investment
question were “beyond the scope of reasonable debate [and the Applicant] palpably failed
to do so.”
85
48. The Respondent bases this argument on its view that the Tribunal correctly
concluded that the Contract was not an “investment” under Article 25(1). It submits that,
contrary to the Applicant’s assertions, the Tribunal correctly considered that “investment”
81
Respondent’s Counter-Memorial, para. 43.
82
See id., para. 46.
83
Id., para. 51.
84
Id., para. 55.
85
Id., para. 56.
20
has an objective meaning under Article 25(1),
86
and the Applicant’s argument that the
consent of the parties should provide a guiding light when determining whether an
“investment” exists would lead to an absurdity, given that Article 25 places an outer limit
upon parties’ ability to refer disputes to ICSID.
87
The Respondent also disputes the
Applicant’s assertion that the Tribunal disregarded the Vienna Convention, and argues
that not only was the Tribunal mindful of the Convention, but that its approach to
interpretation was entirely consistent with the Convention.
88
49. As regards the “hallmarks” of an investment, the Respondent argues that the
Applicant misrepresents the case in saying that (1) the Tribunal adopted strict
jurisdictional conditions; (2) the Tribunal found that the hallmarks of an investment were
present; and (3) the Tribunal arbitrarily imposed an additional “qualitative” pre-condition
for jurisdiction. The Respondent contends that “the Tribunal’s identification of five
hallmarks of investment under Article 25(1), and its ‘fact-specific and holistic’ approach
to determine the extent to which those hallmarks were met, are uncontroversial.”
89
The
Respondent argues that “[t]he Tribunal’s approach is entirely consistent with the ‘global
assessment’ employed by previous ICSID tribunals, which requires the hallmarks of
investment to be ‘examined in their totality’ on the facts of any given case.”
90
In the
Respondent’s view, even if the Tribunal had imposed a stricter regime based on the
jurisdictional conditions approach, this would not have provided a basis for annulment,
given that previous and subsequent tribunals have themselves employed such an
approach.
91
50. In response to the Applicant’s argument that the Tribunal effectively elevated
characteristics found in the jurisprudence into “binding precedent,” the Respondent argues
86
See Respondent’s Counter-Memorial., paras. 62 – 68.
87
Id., paras. 65, 68.
88
Id., para. 70.
89
Id., para. 85, citation omitted.
90
Id., para. 85.
91
Id., para. 86, relying on L.E.S.I-DIPENTA v. Algeria, para. 13(iv) and Pey Casado v. Chili, paras. 231 –
232.
21
that the Tribunal legitimately referred to ICSID jurisprudence and leading commentary,
92
and that its extensive citing of ICSID jurisprudence only enhances the legal credibility of
the Award and its insusceptibility to annulment. The Respondent points out that the
Tribunal “noted that each of the hallmarks of investment that it identified had been
recognised and applied by previous ICSID tribunals.”
93
In the Respondent’s view, the
“Tribunal conducted a meticulous analysis of the meaning of ‘investment’ under Article
25 of the Convention, analysing previous ICSID jurisprudence and leading commentary,
and reached a conclusion based on its assessment of the detailed facts of the case.
[Accordingly t]he Tribunal . . . did not exceed its powers at all.”
94
51. Even if the Tribunal exceeded its powers (which the Respondent disputes), the
Respondent argues that this would not provide any basis for the annulment of the Award,
given that, in the view of the Respondent, the Tribunal did not “manifestly” exceed its
powers.
95
The Respondent contends that the “manifest” requirement under Article
52(1)(b) sets a high threshold, and cites from an article in which its author takes the view
that “the addition of the word ‘manifestly’ to the language of paragraph (b) is a serious
restriction of the authority of an ad hoc Committee under Article 52’”
96
The Respondent
also notes that the concept of “manifest” exists elsewhere in the Convention and
Arbitration Rules. The Respondent submits that the interpretation of these other
provisions support the view that the concept “sets a high bar to the application of any
provision so conditioned.”
97
52. Taking the threshold set by the “manifest” concept into account, the Respondent
then submits that the Applicant has failed to demonstrate that any excess of powers by the
92
See Respondent’s Counter-Memorial, paras. 87 – 100.
93
Id., para. 90.
94
Id., para. 100.
95
See id., paras. 101 – 123.
96
Id., para. 106, citing Mark B. Feldman, The Annulment Proceedings and the Finality of ICSID Arbitral
Awards, 2 ICSID
REVIEW – F.I.L.J. 101 (1987).
97
Id., para. 112, citing CDC Group plc v. Republic of Seychelles, ICSID Case No. ARB/02/14, Decision of
the ad hoc Committee on the Application for Annulment of the Republic of Seychelles, 29 June 2005
(“CDC Group v. Seychelles”), para. 42.
22
Tribunal authorizes the Committee to annul under Article 52(1)(b).
98
It contends that, to
annul the award, the Committee must conclude that the Tribunal’s approach is so
preposterous that it falls beyond the reasonable scope of the debate on the precise
meaning of the term ”investment” under Article 25(1). The Respondent argues that this
is not the case, and submits that the Committee must reject the Applicant’s arguments and
“dismiss the Application on the basis that there was no manifest excess of powers by the
Tribunal.”
99
53. In its Rejoinder of 10 November 2008, the Respondent emphasizes its argument
that the Committee only has competence if an error of the Tribunal was “manifest.” It
argues that a jurisdictional mistake is not necessarily a manifest excess of powers and that
the Applicant has not given appropriate weight to this proposition.
54. In oral argument before the Committee on 3 December 2008, the Respondent
reiterated its case, emphasising that, even if the Committee found that there was a
manifest excess of jurisdiction, it had the discretion to uphold the Award.
55. The Respondent also asks that the Committee require the Applicant to bear all of
the costs and expenses incurred by the Respondent in connection with the annulment
proceedings.
100
E. ANALYSIS OF THE AD HOC COMMITTEE
56. This case concerns the interpretation of treaties. The Vienna Convention on the
Law of Treaties, a product of the extended codification processes of the International Law
Commission of the United Nations led by a succession of exceptionally distinguished
Special Rapporteurs, has been widely accepted, 108 States being party. Among the States
that have ratified it are Malaysia and the United Kingdom. The Committee notes that the
Vienna Convention as such is not applicable to the 1965 Washington Convention nor to
the 1981 United Kingdom – Malaysia BIT. The Vienna Convention applies only to
98
See Respondent’s Counter-Memorial, paras. 120 – 123.
99
Id., para. 123.
100
Id., para. 125 and Respondent’s Rejoinder, para. 100.
23
treaties which are concluded by States after its entry into force with regard to such States.
Malaysia became party to the Vienna Convention only in 1994. The non-retroactivity of
the Vienna Convention is, however, “[w]ithout prejudice to the application of any rules
set [in it] to which treaties would be subject under international law independently of the
Convention.”
101
The Convention’s provisions on the interpretation of treaties, embodied
in Articles 31
102
and 32,
103
while contested when adopted, have been accepted by the
International Court of Justice
104
57. The “ordinary meaning” of the term “investment” is the commitment of money or
other assets for the purpose of providing a return. In its context and in accordance with
the object and purpose of the treaty – which is to promote the flow of private investment
to contracting countries by provision of a mechanism which, by enabling international
settlement of disputes, conduces to the security of such investment – the term
and the international community as expressive not only of
treaty commitment but of customary international law. The Committee thus considers
itself on firm ground in resorting to the customary rules on interpretation of treaties as
codified in the Vienna Convention.
101
Vienna Convention, Article 4.
102
Article 31 provides:
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the
terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text,
including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in connection with
the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connection with the conclusion of the
treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the
application of its provisions;
(b) any subsequent practice in the application of the treaty which establishes the agreement of the
parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended.
103
See supra note 49 for the text of Article 32 of the Vienna Convention.
104
See Territorial Dispute (Libyan Arab Jamahiriya/Chad), Judgment, I.C.J. Reports 1994, pp. 21-22,
para. 41; Kasikili/Sedudu Island (Botswana/Namibia), Judgment, I.C.J. Reports 1999, p. 1059, para. 18.
24
“investment” is unqualified. The purpose of the ICSID Convention was described in a
draft of the Convention conveyed by the Bank's General Counsel to the Executive
Directors of the Bank in these terms: “[t]he purpose of this Convention is to promote the
resolution of disputes arising between the Contracting States and nationals of other
Contracting States by encouraging and facilitating recourse to international conciliation
and arbitration.”
105
58. At issue in this case is the meaning of the treaty term “investment” as that term is
used in Article 25(1) of the ICSID Convention—but also in Article 1 of the Agreement
between the Government of the United Kingdom of Great Britain and Northern Ireland
and the Government of Malaysia for the Promotion and Protection of Investments because
that instrument is the medium through which the Contracting States involved have given
their consent to the exercise of jurisdiction of ICSID.
The meaning of the term “investment” may however be regarded as
“ambiguous or obscure” under Article 32 of the Vienna Convention and hence justifying
resort to the preparatory work of the Convention “to determine the meaning.” As the
pleadings in the instant case illustrate, there certainly have been marked differences
among ICSID tribunals and among commentators on the meaning of “investment” as that
term appears in Article 25(1) of the Convention. Thus the provision may be regarded as
ambiguous. In any event, courts and tribunals interpreting treaties regularly review the
travaux préparatoires whenever they are brought to their attention; it is mythological to
pretend that they do so only when they first conclude that the term requiring interpretation
is ambiguous or obscure.
59. Article 1 of that Agreement defines “investment” capaciously.
For the purpose of this Agreement
(1)(a) ‘investment’ means every kind of asset and in particular, though not
exclusively, includes:
105
ICSID, HISTORY OF THE ICSID CONVENTION: DOCUMENTS CONCERNING THE ORIGIN AND THE
FORMULATION OF THE CONVENTION ON THE SETTLEMENT OF INVESTMENT DISPUTES BETWEEN STATES AND
NATIONALS OF OTHER STATES (“HISTORY OF THE ICSID CONVENTION”), Volume I, p. 16 (1968).
25
…
(ii) shares, stock and debentures of companies or interests in the
property of such companies;
(iii) claims to money or to any performance under contract having a
financial value;
(iv) intellectual property rights…;
(v) business concessions conferred . . . under contract….
60. The Contract between the Government of Malaysia and Malaysian Historical
Salvors is one of a kind of asset; what is precisely at issue between the Government and
the Salvor is a claim to money and to performance under a contract having financial
value; the contract involves intellectual property rights; and the right granted to salvage
may be treated as a business concession conferred under contract.
61. It follows that, by the terms of the Agreement, and for its purposes, the Contract is
an investment. There is no room for another conclusion. The Sole Arbitrator did not
reach another considered conclusion in respect of the Agreement. He rather chose to
examine, virtually exclusively, the question of whether there was an investment within the
meaning of Article 25(1) of the ICSID Convention. Finding that there was not, he found
that “it is unnecessary to discuss whether the Contract is an ‘investment’ under the
BIT.”
106
Nevertheless the Sole Arbitrator observed that, “while the Contract did provide
some benefit to Malaysia,” there was not “a sufficient contribution to Malaysia’s
economic development to qualify as an ‘investment’ for the purposes of Article 25(1) or
Article 1(a) of the BIT.”
107
106
Award, para. 148
107
Id., para. 143
He provided an extensive analysis in support of his
conclusion in respect of the ICSID Convention, but none in respect of his conclusion in
respect of the BIT. The Committee is unable to see what support the Sole Arbitrator
could have mustered to sustain the conclusion that the Contract and its implementation
did not constitute an investment within the meaning of that Agreement. On the contrary,
(and subject to the consideration noted below in paragraph 81 of this Decision), it is clear
26
that the Contract and its performance by the Salvor constitute an investment as that term is
defined by the Agreement.
62. Under Article 7 of the Agreement, the sole recourse in the event that a legal
dispute between the investor and the host State should arise which is not settled by
agreement between them through pursuit of local remedies or otherwise is reference to the
International Centre for Settlement of Investment Disputes. Unlike some other BITs, no
third party dispute settlement options are provided in the alternative to ICSID. It follows
that, if jurisdiction is found to be absent under the ICSID Convention, the investor is left
without international recourse altogether. That result is difficult to reconcile with the
intentions of the Governments of Malaysia and the United Kingdom in concluding their
Agreement, as those intentions are reflected by the terms of Article 7 as well as the
Agreement’s inclusive definition of what is an investment. It cannot be accepted that the
Governments of Malaysia and the United Kingdom concluded a treaty providing for
arbitration of disputes arising under it in respect of investments so comprehensively
described, with the intention that the only arbitral recourse provided between a
Contracting State and a national of another Contracting State, that of ICSID, could be
rendered nugatory by a restrictive definition of a deliberately undefined term of the ICSID
Convention, namely, “investment,” as it is found in the provision of Article 25(1). It
follows that the Award of the Sole Arbitrator is incompatible with the intentions and
specifications of the States immediately concerned, Malaysia and the United Kingdom.
63. What of the intentions of the Parties in concluding the Washington Convention?
The term “investment” was deliberately left undefined. But light is shed on the intentions
of the Parties in respect of that term by the Convention’s travaux préparatoires as well as
the Convention’s interpretation by the Executive Directors of the International Bank for
Reconstruction and Development in adopting and opening it for signature.
64. The World Bank staff’s initial proposal on “The Jurisdiction of the Center”
provided, in Section 1 (1): “The jurisdiction of the Center shall be limited to disputes
between Contracting States and nationals of other Contracting States and shall be based
27
on consent.”
108
Section 1 (3) provided: “Except as otherwise agreed between the parties,
the Center shall not exercise jurisdiction in respect of disputes involving claims of less
than the equivalent of one hundred thousand United States dollars determined as of the
time of submission of the dispute.”
109
Paragraph (3) places a monetary limit on claims to be submitted to the
Center. Arbitration is a not inexpensive procedure and parties should not
be forced to have resort to it if the amount claimed remains below a certain
limit which, for purposes of illustration, has been put at the equivalent of
U.S. $100,000.
The comment on this proviso reads:
110
65. The First Draft of what became Article 25(1) of the Convention provided: “(1) The
jurisdiction of the Center shall extend to all legal disputes between a Contracting State . . .
and a national of another Contracting State, arising out of or in connection with any
investment, which the parties to such disputes have consented to submit to it.”
111
It
further provided that: “(i) ‘investment’ means any contribution of money or other asset of
economic value for an indefinite period or, if the period be defined, for not less than five
years.”
112
The term ‘investment’ means the acquisition of (i) property rights or
contractual rights (including rights under a concession) for the
establishment or in the conduct of an industrial, commercial, agricultural,
financial or service enterprise; (ii) participations or shares in any such
enterprise; or (iii) financial obligations of a public or private entity other
than obligations arising out of short-term banking or credit facilities.
A further attempted definition by the Bank’s Secretariat reads:
113
66. The reaction of States and their representatives to these proposals was mixed. In
the event, their specifications were rejected. While they elicited some support, the
prevailing view was that there should be no monetary limit on claims submitted and that
the contribution of money or other asset of economic value need not be for an indefinite
108
HISTORY OF THE ICSID CONVENTION, Volume II-1, p. 33.
109
Id., Volume II-1, p. 34.
110
Id.
111
Id., Volume I, p. 116.
112
Id.
113
Id., Volume II-2, p. 844.
28
period or for not less than five years.
114
More than this, a British proposal that omitted
any definition of the term “investment,” on the ground that a definition would only create
jurisdictional difficulties, “was adopted by a large majority in the Legal Committee.”
115
67. That result was consistent with the position of the General Counsel of the Bank,
Mr. Broches, who served as chairman of the regional meetings of legal experts of
governments and of the Legal Committee. Thus,
Mr.
Broches called attention to the fact that the document did not limit or
define the types of disputes which might be submitted to conciliation or
arbitration under the auspices of the Center. It was difficult to find a
satisfactory definition. There was the danger that recourse to the services
of the Center might in a given situation be precluded because the dispute in
question did not precisely qualify under the definition of the convention.
There was the further danger that a definition might provide a reluctant
party with an opportunity to frustrate or delay the proceedings by
questioning whether the dispute was encompassed by the definition. These
possibilities suggested that it was inadvisable to define narrowly the kinds
of disputes that could be submitted. Moreover, Mr.
Broches added, a
contracting state would be free to announce that it did not intend to use the
facilities of the Center for particular kinds of disputes.
116
68. Mr. Broches elsewhere explained that:
since the jurisdiction of the Center is limited by the overriding condition of
consent, the exclusions desired by the one or the other delegation could be
achieved by a refusal of consent in those cases in which in their view there
was no proper case for use of the facilities of the Center. Refusal of
consent would be an adequate safeguard for host States….
The purpose of Section 1 is not to define the circumstances in which
recourse to the facilities of the Center would in fact occur, but rather to
indicate the outer limits within which the Center would have jurisdiction
provided the parties’ consent had been attained. Beyond these outer limits
114
“In a draft preceding the Working Paper, a lower limit ($100,000) had been fixed for the subject-matter
of the dispute. That provision had not been retained . . . because disputes involving small amounts could be
important as test cases, whereas there would be other cases in which it would be impossible to place a
pecuniary value on the subject-matter of a dispute.” H
ISTORY OF THE ICSID CONVENTION, Volume II-1, p.
567.
115
CHRISTOPH SCHREUER, THE ICSID CONVENTION: A COMMENTARY, p. 123 (2001), citing to HISTORY OF
THE
ICSID CONVENTION, Volume II-2, p. 826.
116
HISTORY OF THE ICSID CONVENTION, Volume II-1, p. 54.
29
no use could be made of the facilities of the Center even with such
consent.
117
69. However it is important to note that the travaux préparatoires do not support the
imposition of “outer limits” such as those imposed by the Sole Arbitrator in this case.
Little more about the nature of outer limits is indicated in the travaux than is contained in
Article 25(1), namely that, “[t]he jurisdiction of the Centre shall extend to any legal
dispute arising directly out of an investment.…” It appears to have been assumed by the
Convention’s drafters that use of the term “investment” excluded a simple sale and like
transient commercial transactions from the jurisdiction of the Centre. Judicial or arbitral
construction going further in interpretation of the meaning of “investment” by the
establishment of criteria or hallmarks may or may not be regarded as plausible, but the
intentions of the draftsmen of the ICSID Convention, as the travaux show them to have
been, lend those criteria (and still less, conditions) scant support.
70. The Report of the Bank’s Executive Directors is similarly illuminating. In the
debate over the draft of that Report, Mr. Broches recalled that none of the suggested
definitions for the word “investment” had proved acceptable. He suggested that while it
might be difficult to define the term, an investment in fact was readily recognizable. He
proposed that the Report should say that the Executive Directors did not think it necessary
or desirable to attempt a definition. After some further debate, the Report was adopted in
the following terms:
Consent of the parties is the cornerstone of the jurisdiction of the Centre.
While consent of the parties is an essential prerequisite for the jurisdiction
of the Centre, consent alone will not suffice to bring a dispute within its
jurisdiction. In keeping with the purpose of the Convention, the
jurisdiction of the Centre is further limited by reference to the nature of the
dispute and the parties thereto.
…
No attempt was made to define the term ‘investment’ given the essential
requirement of consent by the parties, and the mechanism through which
Contracting States can make known in advance, if they so desire, the
117
HISTORY OF THE ICSID CONVENTION, Volume II-1, p. 566.
30
classes of disputes which they would or would not consider submitting to
the Centre (Article 25(4)).
118
71. The preparatory work of the Convention as well as the Report of the Executive
Directors thus shows that: (a) deliberately no definition of “investment” as that term is
found in Article 25(1) was adopted; (b) a floor limit to the value of an investment was
rejected; (c) a requirement of indefinite duration of an investment or of a duration of no
less than five years was rejected; (d) the critical criterion adopted was the consent of the
parties. By the terms of their consent, they could define jurisdiction under the
Convention. Paragraph 23 of the Report provides that: “[c]onsent of the parties is the
cornerstone of the jurisdiction of the Centre….” Paragraph 27 imports that the term
“investment” was left undefined “given the essential requirement of consent by the
parties.” It continues that “States can make known in advance . . . the classes of disputes
which they would or would not submit to the Centre,” i.e., they could specify
particularities of their consent.
72. Does the passage of paragraph 25 that “consent alone will not suffice to bring a
dispute within its jurisdiction. In keeping with the purpose of the Convention, the
jurisdiction of the Centre is further limited by reference to the nature of the dispute and
the parties thereto” indicate that “investment” as used in Article 25(1) has an objective
content that cannot be varied by the consent of the parties? Only to the following limited
extent. “[T]he nature of the dispute” appears to refer to the dispute being a legal dispute.
The reference to “the parties thereto” merely means that for a dispute to be within the
Centre’s jurisdiction, the parties must be a Contracting State and a national of another
Contracting State. These fundaments, and the equally fundamental assumption that the
term “investment” does not mean “sale,” appear to comprise “the outer limits,” the inner
content of which is defined by the terms of the consent of the parties to ICSID
jurisdiction.
118
International Bank for Reconstruction and Development, Report of the Executive Directors on the
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, March
18, 1965 (“Report of the Executive Directors”), paras. 23, 25, 27.
31
73. While it may not have been foreseen at the time of the adoption of the ICSID
Convention, when the number of bilateral investment treaties in force were few, since that
date some 2800 bilateral, and three important multilateral, treaties have been concluded,
which characteristically define investment in broad, inclusive terms such as those
illustrated by the above-quoted Article 1 of the Agreement between Malaysia and the
United Kingdom. Some 1700 of those treaties are in force, and the multilateral treaties,
particularly the Energy Charter Treaty, which are in force, of themselves endow ICSID
with an important jurisdictional reach. It is those bilateral and multilateral treaties which
today are the engine of ICSID’s effective jurisdiction. To ignore or depreciate the
importance of the jurisdiction they bestow upon ICSID, and rather to embroider upon
questionable interpretations of the term “investment” as found in Article 25(1) of the
Convention, risks crippling the institution.
74. In the light of this history of the preparation of the ICSID Convention and of the
foregoing analysis of the Report of the Executive Directors in adopting it, the Committee
finds that the failure of the Sole Arbitrator even to consider, let alone apply, the definition
of investment as it is contained in the Agreement to be a gross error that gave rise to a
manifest failure to exercise jurisdiction.
75. Nevertheless, the Committee recognizes that the Sole Arbitrator acted in the train
of several prior ICSID arbitral awards which lend a considerable measure of support to his
approach. The seminal award is the Decision on Jurisdiction of a distinguished tribunal in
Salini v. Morocco. The Respondent objected to jurisdiction in respect of the existence of
an investment. The Tribunal began with a consideration of the BIT. This consideration
was preceded by the following observation:
However, to the extent that the choice of jurisdiction clause was exercised
in favour of ICSID, the rights at stake must equally constitute an
investment in the sense of Article 25 of the Washington Agreement. The
Arbitration Tribunal is therefore of the view that its jurisdiction depends on
the existence of an investment both in the sense of the bilateral Agreement
and of the Convention, following the case-law on this point.
119
119
Salini v. Morocco, para. 44.
32
It proceeded to find jurisdiction under the BIT. It continued:
The Tribunal notes that there have been almost no cases where the notion
of investment in the sense of Article 25 of the Convention has been raised.
However, it would be misguided to consider that the demand of a dispute
‘directly related to an investment’ can always be equated with the consent
of the contracting parties. In fact, the case-law of the ICSID and
commentators are consistent in regarding the necessity of an investment as
an objective condition for the Centre’s jurisdiction to be activated (citation
omitted).
With the exception of a decision of the Secretary General of the ICSID
refusing to record a claim for arbitration regarding a dispute stemming
from a simple sale, the decisions available have only very rarely focused
on the concept of an investment (citation omitted).
Academic writings have generally observed that an investment suggests
payments, a certain period of execution of the deal and participation in the
risks of the transaction. A reading of the preamble of the Convention
permits to add to these the criterion of contribution to the economic
development of the State receiving the investment (citation omitted).
In truth, these various elements can be interdependent.… It results from
this that these various criteria must be appreciated together….
120
76. Salini v. Morocco is largely consistent with the leading commentary on the ICSID
Convention. Professor Christoph Schreuer writes:
The Tribunal applied these criteria to the contract and concluded that it constituted an
investment pursuant to the BIT as well as Article 25 of the Washington Convention.
it seems possible to identify certain features that are typical to most of the
operations in question: the first such feature is that the projects have a
certain duration. . . . The second feature is a certain regularity of profit
and return. . . . The third feature is the assumption of risk usually by both
sides. The fourth typical feature is that the commitment is substantial. . . .
The fifth feature is the operation’s significance for the host State’s
development. This is not necessarily characteristic of investments in
general. But the wording of the Preamble and the Executive Director’s
Report suggest that development is part of the Convention’s object and
purpose. These features should not necessarily be understood as
120
Salini v. Morocco, para. 52.
33
jurisdictional requirements but merely as typical characteristics of
investments under the Convention (citations omitted).
121
77. It should be noted that Professor Schreuer, unlike the Sole Arbitrator in the instant
case, does not treat these characteristics (or “hallmarks” in the usage of the Sole
Arbitrator) “as jurisdictional requirements.”
78. While this Committee’s majority has every respect for the authors of the Salini v.
Morocco Award and those that have followed it, such as the Award in Joy Mining v.
Egypt, and for commentators who have adopted a like stance – and, it need hardly add, for
its distinguished co-arbitrator who attaches an acute Dissent to this Decision – it gives
precedence to awards and analyses
122
79. The most recent Award that addresses the issue, of 24 July 2008, is, in the view of
this Committee, the most persuasive, Biwater v. Tanzania.
that are consistent with its approach, which it finds
consonant with the intentions of the Parties to the ICSID Convention.
123
The Criteria for an ‘Investment’: An initial point arises as to the relevant
test to be applied. In advancing submissions on Article 25 of the ICSID
Convention, parties not infrequently begin with the proposition that the
term ‘investment’ is not defined in the ICSID Convention, and then
proceed to apply each of the five criteria, or benchmarks, that were
originally suggested by the arbitral tribunal in Fedax v. Venezuela, and re-
stated (notably) in Salini v. Morocco, namely (i) duration; (ii) regularity
of profit and return; (iii) assumption of risk; (iv) substantial commitment;
and (v) significance for the host State’s development (citations omitted).
…
Its pertinent passages read:
In the Tribunal’s view, there is no basis for a rote, or overly strict,
application of the five Salini criteria in every case. These criteria are not
fixed or mandatory as a matter of law. They do not appear in the ICSID
121
SCHREUER, supra note 115, p. 140.
122
See Yulia Andreeva, Salvaging or Sinking the Investment? MHS v. Malaysia Revisited, THE LAW AND
PRACTICE OF INTERNATIONAL COURTS AND TRIBUNALS, Volume 7, No. 2, 2008, p. 161, and Devavish
Krishan, A Notion of ICSID Investment, in T. Weiler (ed.), I
NVESTMENT TREATY ARBITRATION: A DEBATE
AND
DISCUSSION (2008).
123
Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award,
24 July 2008 (“Biwater v. Tanzania”).
34
Convention. On the contrary, it is clear from the travaux préparatoires of
the Convention that several attempts to incorporate a definition of
‘investment’ were made, but ultimately did not succeed. In the end, the
term was left intentionally undefined, with the expectation (inter alia) that
a definition could be the subject of agreement as between Contracting
States. Hence the following oft-quoted passage in the Report of the
Executive Directors: … (citations omitted).
Given that the Convention was not drafted with a strict, objective,
definition of ‘investment’, it is doubtful that arbitral tribunals sitting in
individual cases should impose one such definition which would be
applicable in all cases and for all purposes. As noted by one commentator:
‘There is no multilateral grant of authority over objective
interpretation granted to individual tribunals sitting in cases of
particular investor-State disputes.’ [citing D. Krishan, ‘A Notion of
ICSID Investment’ in I
NVESTMENT TREATY ARBITRATION: A
DEBATE AND DISCUSSION (T. Weiler, ed. 2008).]
Further, the Salini Test itself is problematic if, as some tribunals have
found, the ‘typical characteristics’ of an investment as identified in that
decision are elevated into a fixed and inflexible test, and if transactions are
to be presumed excluded from the ICSID Convention unless each of the
five criteria are satisfied. This risks the arbitrary exclusion of certain types
of transaction from the scope of the Convention. It also leads to a
definition that may contradict individual agreements (as here), as well as a
developing consensus in parts of the world as to the meaning of
‘investment’ (as expressed, e.g., in bilateral investment treaties). If very
substantial numbers of BITs across the world express the definition of
‘investment’ more broadly than the Salini Test, and if this constitutes any
type of international consensus, it is difficult to see why the ICSID
Convention ought to be read more narrowly.
Equally, the suggestion that the ‘special and privileged arrangements
established by the Washington Convention can be applied only to the type
of investment which the Contracting States to that Convention envisaged’
does not, in this Arbitral Tribunal’s view, lead to a fixed or autonomous
definition of ‘investment’ which must prevail in all cases, for the ‘type of
investment’ which the Contracting States in fact envisaged was an
intentionally undefined one, which was susceptible of agreement (citation
omitted).
The Arbitral Tribunal therefore considers that a more flexible and
pragmatic approach to the meaning of ‘investment’ is appropriate, which
takes into account the features identified in Salini, but along with all the
circumstances of the case, including the nature of the instrument containing
the relevant consent to ICSID.
35
The Arbitral Tribunal notes in this regard that, over the years, many
tribunals have approached the issue of the meaning of ‘investment’ by
reference to the parties’ agreement, rather than imposing a strict
autonomous definition as per the Salini Test (citation omitted).
To this end, even if the Republic could demonstrate that any, or all, of the
Salini criteria are not satisfied in this case, this would not necessarily be
sufficient – in and of itself – to deny jurisdiction.
124
80. The Committee fully appreciates that the ground for annulment set forth in Article
52(1)(b) of the ICSID Convention specifies that “the Tribunal has manifestly exceeded its
powers.” It is its considered conclusion that the Tribunal exceeded its powers by failing
to exercise the jurisdiction with which it was endowed by the terms of the Agreement and
the Convention, and that it “manifestly” did so, for these reasons:
(a) it altogether failed to take account of and apply the Agreement between
Malaysia and the United Kingdom defining “investment” in broad and
encompassing terms but rather limited itself to its analysis of criteria which it
found to bear upon the interpretation of Article 25(1) of the ICSID Convention;
(b) its analysis of these criteria elevated them to jurisdictional conditions, and
exigently interpreted the alleged condition of a contribution to the economic
development of the host State so as to exclude small contributions, and
contributions of a cultural and historical nature;
(c) it failed to take account of the preparatory work of the ICSID Convention and,
in particular, reached conclusions not consonant with the travaux in key respects,
notably the decisions of the drafters of the ICSID Convention to reject a monetary
floor in the amount of an investment, to reject specification of its duration, to leave
‘investment’ undefined, and to accord great weight to the definition of investment
agreed by the Parties in the instrument providing for recourse to ICSID.
81. The Committee thus is constrained to annul the Award of the Sole Arbitrator. It
goes no farther; in particular, the decision as to whether there may be jurisdiction of an
124
Biwater v. Tanzania, paras. 310, 312 – 18.
36
ICSID Tribunal in respect of the claim despite objections of Malaysia on still other
grounds means that jurisdiction may be a matter for a newly constituted ICSID Tribunal
to determine, should the Applicant seek its establishment.
82. The parties have submitted their costs and each maintains that the other should be
required to meet the whole of them. The Committee takes note of the fact that the
practice of virtually all ICSID annulment committees has been to divide the costs of
ICSID – including the fees of the committee members and disbursements – equally
between the parties, and that fees of counsel have been left to the party incurring them.
However in this case the Committee has concluded that it was not the intent of the drafters
of the ICSID Convention to exclude claimants advancing claims of minor financial
dimension. If such claimants are left to pay not only the costs of their legal representation
but half of the ICSID costs as well, the practical result could be to discourage if not debar
small claims. In view of that consideration, as well as the fact that the Award stands
annulled despite the Respondent's vigorous and comprehensive defence and adoption of it,
and that, before the Sole Arbitrator, the Respondent argued (however understandably) for
the essential conclusions that the Sole Arbitrator ultimately reached, the Committee holds
that the Respondent shall meet all the Centre's costs of this annulment proceeding. The
Applicant shall accordingly be reimbursed for those costs, which it has advanced by its
deposits. Each party however shall be left to meet the costs of its legal representation and
the disbursements flowing from it.
F. DECISION
83. For the foregoing reasons, the Committee DECIDES,
(1) that the Award on Jurisdiction of 17 May 2007 of the Sole Arbitrator in
Malaysian Historical Salvors v. The Government of Malaysia is annulled;
(2) that the Government of Malaysia shall bear the full costs and expenses
incurred by ICSID in connection with this annulment proceeding. Accordingly the
Government of Malaysia shall reimburse the Applicant the advances paid by the latter to
ICSID;
37
(3) that each party shall bear its own costs of representation in connection with
this annulment proceeding.
84. Judge Shahabuddeen, while he has signed the Decision in authentication of its
text, dissents from it. His Dissenting Opinion is appended to the Decision.
[signed] [signed]
____________________________________ ___________________________________
Mohamed Shahabuddeen Peter Tomka
Date: [19] February 2009 Date: [20] February 2009
[signed]
____________________________________
Stephen M. Schwebel
Date: [28] February 2009
Washington, D.C.
