Shearman & Sterling International Arbitration Group Obtains Landmark Decision in Investor-State Dispute
29 Apr 2009
Emmanuel Gaillard, John Savage, Yu-Jin Tay, Elodie Dulac

Shearman & Sterling scored an important victory for its client Malaysian Historical Salvors (MHS) in an arbitration brought against the Government of Malaysia before the International Center for Settlement of Investment Disputes (ICSID).

On May 17, 2007, an arbitral tribunal had declined jurisdiction over the dispute, holding that the salvage contract entered into by MHS with the Government of Malaysia did not constitute an investment under Article 25(1) of the ICSID Convention because it allegedly failed to meet a number of conditions, including that the investment significantly contribute to Malaysia's economic development. MHS had been represented by a different law firm in the underlying proceedings, but approached us to represent it in seeking an annulment of the Award on the ground that the Tribunal had committed a manifest excess of powers by declining jurisdiction over the matter.

On April 16, 2009, an ICSID ad hoc Committee found in favor of our client and annulled the Award on Jurisdiction rendered on May 17, 2007, holding that the sole arbitrator had manifestly exceeded its powers on the grounds that:

• he completely failed to take account of, and apply, the Malaysia-UK Bilateral Investment Treaty, which defined "investment" in broad terms;
• by his analysis of criteria which he considered relevant to interpretation of the term "investment" in the ICSID Convention, the arbitrator wrongly elevated them to jurisdictional conditions; and
• he failed to take account of the preparatory works of the ICSID Convention and, in particular, reached conclusions which were not consonant with the preparatory works in key respects.

Further, the Committee held that Malaysia has to pay ICSID and Committee members costs and expenses in connection with the annulment proceeding.

The ad hoc Committee's Decision is an essential contribution to the ongoing debate in ICSID jurisprudence on the scope of the term "investment" in Article 25(1) of the ICSID Convention. In particular, it underlines that the ICSID process was never intended to exclude small investors, small investments or small claims and it confirms that ICSID tribunals cannot ignore or downplay the significance of carefully calibrated definitions of "investment" negotiated by governments in bilateral and multilateral investment treaties, many of which refer investor-State disputes to ICSID arbitration.

The ad hoc Committee comprised Judge Stephen Schwebel (President, USA), Judge Mohamed Shahabudden (Guyana) and Judge Peter Tomka (Slovakia). Judge Shahabudden appended a dissenting opinion to the Decision.

The Shearman & Sterling team included partners Emmanuel Gaillard (Paris-International Arbitration) and John Savage (Washington, D.C.-International Arbitration), counsel Yu-Jin Tay (Singapore-International Arbitration) and associate Elodie Dulac (Washington, D.C.-International Arbitration), as well as legal trainee Elodie Moser (Singapore-International Arbitration).