Investment Treaty Disputes: A Malaysian Perspective – August 2020 – Corporate/Commercial Law – Malaysia – Mondaq News Alerts

Credit: Original article can be found here

INTRODUCTION

Historically, investors whose investments were expropriated or nationalised by the Host State had few rights of redress. The options were limited to seeking to enforce their rights in the national courts of the Host State or appeal to their own Home State to place commercial, diplomatic, or military pressure on the Host State depending on the nature of the said investment.

However, the international community has taken a conscious step to promote investment into developing nations by creating avenues for foreign investors to protect their rights over the last 50 years. The first key development was the creation of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (hereinafter referred to as “the ICSID Convention”) in 1965. This led to the establishment of the International Centre for the Settlement of Investment Disputes (“ICSID”) as a division of the International Bank for Reconstruction and Development (“World Bank”). Arising from the ICSID Convention, there has been an exponential growth in the number of investment treaty arbitrations that have been filed with ICSID as foreign investors seek to protect and enforce their rights by relying on the protection afforded in Bilateral Investment Treaties (“BITs”) between the State the foreign investor is investing in and the Host State.

The arena of investment treaty arbitration is a burgeoning one and is seen by arbitrators, practitioners, and academics alike as the epitome of international arbitration. It is seen as creating a powerful regime for the resolution on investor-state disputes and as overcoming a barrier to the flow of investment into the less developed or developing countries. It is also perceived as creating a powerful and vigorous regime for the enforcement of awards handed down by ICSID perhaps even more favourable than those awards handed down by other arbitral institutions such as the International Chamber of Commerce (“ICC”), the London Court of International Arbitration (“LCIA”) and the American Arbitration Association (“AAA”), to name but a few.

WHAT IS ICSID?

ICSID is an autonomous international institution established under the ICSID Convention. 163 countries are signatories to the ICSID Convention and 154 countries are contracting States. The ICSID Convention which is a multilateral treaty formulated by the World Bank, came into force on 14th October 1966. The aim of the ICSID Convention is to remove major impediments to international flows of private investment posed by non-commercial risks and to provide specialised international methods for the resolution of

investment treaty disputes. It was created as an impartial international forum for providing facilities for the resolution of legal disputes between eligible parties through conciliation or arbitration procedures. Malaysia acceded to the ICSID Convention in October 1966 and has entered into BITs with 67 countries.1 There has been a rapid expansion of ICSID’S caseload. At the end of 2019, the number of conciliation and arbitration cases registered with ICSID since its inception has reached 745. ICSID’s membership has increased following the ratification of the ICSID Convention by Djibouti, albeit that there have been recent denunciations by the Republic of Bolivia, Venezuela, and Ecuador. There are rumblings that other countries in the developing world may elect to follow suit.

It should be noted that apart from the ICSID Convention, there have been other development in the form of free trade agreements and regional trade agreements which also provide for the resolution of investment treaty disputes between an investor and the Host State. Examples of this include the North American Free Trade Agreement (“NAFTA”) and the Asean Investment Treaty to name but a few. There have also been industry specific treaties which also provide for the resolution of investment treaty claims such as the Energy Charter, which address energy disputes.

WHAT IS AN INVESTMENT DISPUTE?

Investment disputes generally arise when an investor, who may be an individual or a limited company, or a party to a joint venture or shareholder, has its investment in a contracting Host State nationalised, expropriated or unfairly treated by the said Host State. The investor can then, through the BIT with the Host State, resort to an investment treaty arbitration or conciliation under the ICSID Arbitration or Conciliation Rules.

DEFINITION OF AN “INVESTMENT”

The Washington Convention or ICSID Convention gives no definition of “investment”. Article 25 of the ICSID Convention in conferring jurisdiction on the Centre, merely provides as follows:

“Article 25(1) (1) The 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 designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.”

Georges R. Delaume has attempted to explain the rationale for this approach:2

“The term ‘investment’ is not defined in the Convention. This omission is intentional. To give a comprehensive definition… would have been of limited interest since any such definition would have been too broad to serve a useful purpose [or] might have arbitrarily limited the scope of the Convention by making it impossible for the parties to refer to the Centre a dispute which would be considered by the parties as a genuine ‘investment’ dispute though such dispute would not be one of those included in the definition in the Convention.”

Having said that, most BITs have a provision which defines “investment”. In the context of Malaysia’s experience, for example, the UK-Malaysia BIT states the following:

Article 1 – Definition:

“For the purposes of this Agreement

(1) (a) “investment” means every kind of asset and in particular, though not exclusively, includes:

(i) movable and immovable property and any other property rights such as mortgages, liens, or pledges;

(ii) shares, stock and debentures of companies or interest in the property of such companies;

(iii) claims to money or to any performance under a contract having a financial value;

(iv) intellectual property rights and goodwill;

(v) business concessions conferred by law or under contract, including concessions to search for, cultivate, extract, or exploit natural resources.

(b) The said term shall refer:

(i) in respect of investments in the territory of the United Kingdom of Great Britain and Northern Ireland, to all investments made in accordance with its legislation, and

(ii) in respect of investments in the territory of Malaysia, to all investments made in projects classified by the appropriate Ministry of Malaysia in accordance with its legislation and administrative practice as an “approved project”.”

It can therefore be seen that a somewhat prescriptive approach has been adopted by Malaysia in seeking to define investments in some of its BITs. This approach in itself is not entirely uncommon across BITs. At this juncture it would be pertinent to point out that a number of older BITs involving Malaysia and some foreign States refers to the specific term “approved project”. In these BITs it is not sufficient for a foreign investor to satisfy the requirements that its project or contract amounts to an “investment” alone. There is an additional hurdle to pass in order to be entitled to protection under these BITs, namely, that the project or contract must be afforded the status of an “approved project”.

The Government of Malaysia takes the view that a project is afforded an “approved project” status when the foreign investor has obtained the express approval of the Ministry of International Trade and Industry (“MITI”) within the Government of Malaysia, designating the said project as an “approved project”. The mere fact that the Government of Malaysia has entered into a contract with a foreign investor does not automatically afford such an investor protection under a BIT where the clauses relating to “approved projects” are prevalent.

The problem with this approach or requirement for a project to be afforded an “approved project” status is that there appears to be no clear or uniform guidelines published by MITI as to the precise procedure involved in securing such a status to entitle the investor to protection. It appears to be arbitrary to an extent. In recognition of this, the term “approved project” is presently being removed from the BITs that the Government of Malaysia is negotiating or re-negotiating with foreign States.

This concept of an “approved project” status is not peculiar to Malaysia alone. Singapore, Thailand, the Philippines, and Indonesia appear to have a similar concept, save that the wording of the relevant clauses are somewhat different. This is apparent from a consideration of the following BITs:

(a) BIT between Malaysia and the Belgo-Luxemburg Economic Union:

“Article 1 – Definitions

(3) T he term “investment” shall comprise every kind of assets and more particularly, though not exclusively:

Provided that such assets when invested:

(i) in Malaysia, are invested in a project classified as an ‘approved project’ by the appropriate Ministry in Malaysia, in accordance with the legislation and the administrative practice, based thereon;”

(b) BIT between Singapore and Pakistan:

“Article 2.

  1. This Agreement shall only apply:

(a) in respect of investments in the territory of the Republic of Singapore, to all investments made by nationals and companies of the Islamic Republic of Pakistan, which are specifically approved in writing by the competent authority designated by the Government of the Republic of Singapore and upon such conditions, if any, as it shall deem fit;”

(c) BIT between Belgium and Indonesia:

“Article 9.

The protection accorded to investors by the provisions of the present Agreement shall apply:

(d) in the territory of the Republic of Indonesia only to investments which have been approved by the Government of the Republic of Indonesia pursuant to the stipulations contained in the Foreign Investment law No.1 of 1967 or other relevant laws and regulations of the Republic of Indonesia;”

(d) BIT between The Netherlands and the Republic of The Philippines

“Article 2

This Agreement shall apply only to investments brought into, derived from, or directly connected with investments brought into the territory of one Contracting Party by nationals of the other Contracting Party in conformity with the former Party’s laws and regulations, including due registration with the appropriate: agencies of the receiving Contracting Party, if so required by its laws.”

(e) BIT between Thailand and the United Kingdom

“Article 3

(1) The benefits of this Agreement shall apply only in cases where the investment of capital by the nationals and companies of one Contracting Party in the territory of the other Contracting Party has been specifically approved in writing by the competent authority of the latter Contracting Party.

(2) Nationals and companies of other Contracting Party shall be free to apply for such approval in respect of any investment of capital whether made before or after the entry into force of this Agreement.”

It can therefore be seen that the mere fact that a foreign investor may satisfy the ingredients of what constitutes an “investment” under a BIT does not necessarily mean that protection is granted. The said “investment” may also have to satisfy the additional requirement of being an “approved investment” in accordance with the express provisions of the applicable BIT.

WHAT ARE THE INGREDIENTS OF AN “INVESTMENT” WITHIN THE CONTEXT OF THE ICSID CONVENTION?

The term “investment” is by its very nature broad and not easily defined. Professor Christoph Schreuer3 has suggested that an “investment” exhibits the following characteristics:

(a) the project must have a certain duration;

(b) there is regularity of profit and return;

(c) there is an assumption of risk;

(d) the commitment of the investment is substantial; and

(e) there must be a significant contribution to the Host State’s development.

Whilst the notion of investment and its definition has not become a serious barrier to jurisdiction in investor-state arbitrations, there are nevertheless differing views as to what constitutes an “investment” within the meaning of Article 25 of the ICSID Convention. Tribunals have to a large extent approached each such objection to jurisdiction on its own merits with regard to the individual circumstances of the dispute at hand.

There is a large pool of academics and practitioners particularly from Europe and the United States of America who take a very liberal view in interpreting the term “investment”. There is another school of thought that adopts a more restrictive approach. This has been discussed in a number of ICSID decisions.4 It should be noted that there is no doctrine of stare decisis in so far as ICSID jurisprudence is concerned.

INVESTMENT TREATY CLAIMS AGAINST MALAYSIA

Malaysia has not been exempted from investment treaty arbitrations. To date the Government of Malaysia has been named as a respondent in four investment treaty claims of which three have been filed under the ICSID Convention and one pursuant to the Asean Investment Treaty 1997. This is despite Malaysia having no history of expropriation or nationalisation.

These four cases involving Malaysia are discussed in brief below.

Phillippe Gruslin v Malaysia, ICSID Case No. ARB/99/3

Phillippe Gruslin (“Gruslin”), a Belgian national, claimed that in January 1996 he made an investment of some US$2.3 million in securities listed on the Kuala Lumpur Stock Exchange (“KLSE”) through the entity known as the Emerging Asian Markets Equity Citi portfolio (“EAMEC portfolio”). Gruslin’s claim against the Government of Malaysia was for losses in the value of his investment arising from the alleged breach by the Government of Malaysia of the terms of an Intergovernmental Agreement with the BelgoLuxemburg Economic Union. The claim was that the imposition by the Government of Malaysia of exchange controls in September 1998 constituted a breach of obligations owed by the Government of Malaysia to Gruslin under the terms of the said BIT.

The Government of Malaysia argued that Gruslin’s investment in Malaysia was not an “approved project” within the meaning of Article 1(3)(i) of the BIT between Malaysia and the Belgo-Luxemburg Economic Union 5. The Government of Malaysia also argued that the portfolio and stock market investments did not fall within the definition of an “approved project”. Malaysia relied on historical evidence, namely the correspondence between MITI and various foreign governments and respective investors who had obtained “approved project” status for their investment in seeking to sustain this jurisdictional objection. Gruslin relied on a note exchanged between the Ministry of Foreign Affairs, Government of Malaysia, and the Dutch Embassy in Malaysia with regard to the clarification of the term “approved project”. It reads as follows:

“the term “Approved Projects” under Article 1(3)(i) of the Agreement on Encouragement and Reciprocal Protection of Investments between Malaysia and the Belgo-Luxemburg Economic Union should be read together with Article 1(3)(a) to Article 1(3)which. If any project undertaken does not require approval from the relevant designated Ministries, hence Article 1(3)(i) is not applicable.”

The tribunal took the view that the note was of uncertain effect in relation to Gruslin’s investment. The tribunal also took the view that it was for Gruslin to discharge the burden of proof that the particular assets in the EAMEC portfolio fell within the definition of the Article 1(3) of the BIT. The tribunal therefore rejected Gruslin’s contention that the note had the effect of abrogating the requirement of proviso (i) to Article 1(3) of the BIT.

Gruslin also argued that, as the investment had been approved pursuant to Article 7 of the KLSE Listing Manual which required approval of the then Capital Issues Committee (“CIC”) the said investment should be afforded protection. It was Gruslin’s position that arising from CIC approval that the listing of any shares on the KLSE was automatically an investment in an “approved project” so as to satisfy the requirements of proviso (i) to Article 1(3) of the BIT between Malaysia and the Belgo-Luxemburg Economic Union.

The tribunal, however, took the view that the said proviso to Article 1(3) of the BIT between Malaysia and the Belgo-Luxemburg Economic Union and the CIC requirement concerned different subjects such that the approval by the CIC only satisfied a governmental requirement that the business of a corporation be approved by a governmental agency. The tribunal was of the view that the approval by the CIC was not determinative of whether or not the investment was an “approved project” within the meaning of Article 1(3)(i) of the said BIT. The tribunal therefore upheld the objection of the Government of Malaysia that Gruslin’s investment was not an “approved project” attracting protection under the said BIT.

The investment treaty claim filed by Gruslin was therefore dismissed on jurisdictional grounds.

Phillippe Gruslin v Malaysia, ICSID Case No. ARB/94/1

The is very little public information surrounding this dispute save that the subject matter of the dispute pertains to a construction project and that the investment treaty claim was amicably resolved between the parties. Accordingly, there is no award handed down by a tribunal.

Malaysian Historical Salvors v Malaysia, ICSID Case No. ARB/05/106

Malaysian Historical Salvors Sdn Bhd (“MHS”) entered into a salvage contract on August 1991 to salvage the wreck and contents of a sunken vessel, Diana. Disputes arose under that contract which initially resulted in commercial arbitration between MHS and Malaysia. MHS was dissatisfied with the outcome of the arbitration proceedings and subsequently commenced proceedings before the Malaysian Courts in which MHS was unsuccessful.

Some years later, MHS instituted an investment treaty claim pursuant to Article II of the ICSID Convention, alleging that the Government of Malaysia confiscated MHS’s property and that the national courts denied MHS justice and due process of law

The Government of Malaysia raised a jurisdictional objection in the investment treaty claim, namely, that the salvage contract was not an investment within the meaning of the BIT between the United Kingdom and Malaysia and also that it was not an “approved project”. The Government of Malaysia contended that a marine salvage contract simply did not fall within the meaning of the definition of an “investment” under the Article 1(a)(i) to (v) of the UK-Malaysia BIT or Article 25 of the of the ICSID Convention.

In asserting that the salvage contract was not an “approved project”, the Government of Malaysia contended that MHS had not submitted an application to MITI for its investment to be classified as an “approved project” in order to enjoy protection under the relevant BIT. It was further contended that the onus lay on the party seeking protection under the BIT to make an application to MITI, it being immaterial whether the protection sought under the relevant BIT is for the manufacturing sector or nonmanufacturing sector. The Government of Malaysia argued that no undue emphasis should be placed on the execution of the salvage contract by a government department on behalf of the Government of Malaysia as all contracts entered into by the Government of Malaysia have to be signed by authorised persons pursuant to the provisions of Section 2 of the Government Contracts Act 1949, which reads as follows:

“All contracts made in Malaysia on behalf of the Government shall, if reduced to writing, be made in the name of the Government of Malaysia and may be signed by a Minister, or by any public officer duly authorized in writing by a Minister either specially in any particular case, or generally for all contracts below a certain value in his department or otherwise as may be specified in the authorization.”

The Government of Malaysia also argued that the fact that a number of Ministries within the Government of Malaysia were involved did not accord “approved project” status to the salvage contract concerned. Much reliance was placed by the Government of Malaysia on the reasoning of the tribunal in the Gruslin decision.

The tribunal7 which consisted of Michael Hwang SC as sole arbitrator, in upholding the Government of Malaysia’s objection on grounds of jurisdiction, concluded that the salvage contract did not amount to an “investment” within the meaning of Article 25(1) of the ICSID Convention. The tribunal concluded that MHS’s contract was in essence a simple marine salvage contract. The tribunal opined that the hallmarks of an investment should be fact specific and there should be a holistic assessment in determining what constitutes an “investment”. In this regard, the tribunal held that:

(a) firstly, the tribunal held that the lack of regularity of profit and return in respect of the salvage contract was immaterial;

(b) secondly, that the contributions of a financial nature were made under a commercial salvage contract;

(c) thirdly, the fact that the contract took four years to complete was a risk that would be associated with the salvage contract in view of the element of fortuity;

(d) fourthly, the risks that the Claimant assumed under the contract were inherent in a salvage contract in view of the “no find no pay” concept and they were normally commercial risks that would be assumed in salvage contracts; and

(e) lastly, the tribunal held that the salvage contract did not make either a significant or substantial contribution to the economic development of Malaysia.

The tribunal therefore held that the salvage contract was not “an investment” and dismissed MHS’s claim on jurisdictional grounds. The tribunal did not address the arguments relating to the salvage contract not being an “approved project” in its award.

MHS thereafter sought to annul the award. The Annulment Committee by 2:1 majority, subsequently held that the salvage contract was an “investment”. The majority, which consisted of Peter Tomka and Stephen Schwebel8 , took the view that the contract between the Government of Malaysia and MHS is one of a kind of asset and that what was precisely at issue between the Government of Malaysia and MHS was a claim to money and to performance under a contract having financial value. The majority went on to state that the salvage contract involves intellectual property rights and the right granted to salvage may be treated as a business concession conferred under contract. Hence, by the terms of the agreement, the salvage contract was an investment. In the majority’s view, there is no basis for an overly strict, application of the five Salini criteria in every case as the said criteria are not fixed or mandatory as a matter of law as these criteria do not appear in the ICSID Convention.

In summation, the majority in the Annulment Committee was of the view that the tribunal had manifestly exceeded its powers for the following reasons:

(a) the tribunal altogether failed to take account of and apply the BIT 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) the tribunal’s 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; and

(c) the tribunal 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 the term “investment” undefined, and to accord great weight to the definition of an “investment” agreed by the Parties in the instrument providing for recourse to ICSID.

Mohammed Shahabudeen9 who dissented, held that the claimant’s outlay did not promote the economic development of Malaysia in the sense that it did not substantially or significantly contribute to it. Mohammed Shahabudeen was of the view that the economic development of the Host State is a condition of an ICSID investment. In this regard, Mohammed Shahabudeen held that:

(a) however wide is the competence of parties to determine the terms of an investment, that competence is subject to some outer limits outside of their will, if only to measure the width of their competence within those limits;

(b) the outer limits in this particular dispute included a requirement that an investment must contribute to the economic development of the Host State10;

(c) the tribunal was correct in finding that the contribution to the economic development of the Host State had to be substantial or significant;

(d) the tribunal was also correct in finding that MHS’s outlay did not promote the economic development of Malaysia in a substantial or significant manner11;

(e) it is a reversal of the logical process to begin the inquiry with a consideration of what is an investment under the UK-Malaysia BIT; and

(f) if the tribunal erred in holding to these effects, it nevertheless did not manifestly exceed its powers.

The Annulment Committee did not address the arguments relating to the salvage contract not being an “approved project” in either the majority award or the minority award.

To date, MHS has taken no steps to re-institute a fresh investment treaty claim arising from the majority decision of the Annulment Committee. The majority decision of the Annulment Committee appears to be the subject matter of controversy among some academic writers.

Boonyanit Boonsom v Government of Malaysia

This is not a claim under the ICSID Convention but bears consideration as it is an investment treaty claim under the Asean Treaty 1987. The Government of Malaysia is a party to the Asean Investment Treaty 1987 and was a claim registered by the family of a Thai investor, Boonyanit Boonsom, arising out of the decision handed down by the Federal Court of Malaysia in Adorna Properties Sdn Bhd. vs Boonyanit Boonsom12.

The Thai investor invested in a piece of land in Penang. However, due to a fraud that was committed in the Land Office in Penang, the property in question was transferred to a third party who claimed to have an indefeasible title to the property. The matter was the subject matter of litigation before the High Court of Malaya, Court of Appeal of Malaysia and ultimately, the Federal Court of Malaysia. The Federal Court of Malaysia upheld the decision of the High Court of Malaya that the purchaser, despite the fraud, had indefeasible rights to the said piece of land.

The decision of the Federal Court of Malaysia in Adorna Properties Sdn Bhd. vs Boonyanit Boonsom was the subject of much criticism by academic writers. Ultimately, the decision in Adorna Properties Sdn Bhd. vs Boonyanit Boonsom was subsequently overruled by another decision of the Federal Court some years later by way of a decision in Tan Ying Hong v Tan Sian Sian13

The crux of the claim by the family of the Thai investor against the Government of Malaysia was premised on there being denial of justice and expropriation in the light of the Federal Court of Malaysia revisiting its earlier decision in Adorna Properties Sdn Bhd. vs Boonyanit Boonsom. Specific allegations were made as to the integrity or lack thereof of the judiciary in Malaysia at the material time the Thai investor was litigating the matter before the national courts. Ultimately, this investment treaty claim did not proceed to a hearing on the merits. This dispute was amicably resolved, relatively recently.

INVESTMENT TREATY CLAIMS BY MALAYSIAN ENTITIES

Malaysian investors have resorted to investment-treaty claims. Set out below are some of the relevant disputes.

Telekom Malaysia Berhad v Republic of Ghana

Telekom Malaysia Berhad claimed a sum of approximately USD38 million in respect of their investment in Ghana Telecommunications Company Limited (“Ghana Telecommunications”) against The Republic of Ghana pursuant to the Bilateral Investment Treaty entered into between the parties, in respect of a dispute concerning Telekom Malaysia Berhad’s interest in Ghana Telecommunications. The arbitration was held under the UNCITRAL Rules.

MTD Equity Sdn Bhd & MTD Chile SA v Republic of Chile, ICSID Case No. ARB/01/17

This is a case in which a Malaysian company took advantage of the Chile-Malaysia BIT. This was an investment with regard to the development of a mixed used planned community in Santiago, Chile. The site which was zoned for agriculture required rezoning and applications were made to various Chilean agencies. Approval was granted and thereafter development commenced. Subsequently, MTD Equity Sdn Bhd was informed that the project was inconsistent with the Government of Chile’s urban development policy, by which time MTD Equity Investment Sdn Bhd had invested substantial monies. An investment treaty claim was then filed on or about 6th August 2001. On 25th May 2004, the tribunal ultimately found the Government of Chile liable and ordered payment of approximately USD6 million together with interest in favour of MTD Equity Sdn Bhd and its Chilean subsidiary.

Axiata Investments (UK) Limited & Ncell Private Limited v Federal Democratic Republic of Nepal, ICSID Case No. ARB/19/15

This is a claim by a Malaysian telecommunication company called Celcom Axiata Berhad by way of its English subsidiary in respect of a telecommunications dispute pursuant to the UK/Nepal BIT. The tribunal has been constituted and the arbitration is presently pending. A confidentiality order was issued by the tribunal on 3rd July 2020 preventing disclosure of the details of the claim.

Ekran Berhad v People’s Republic of China, ICSID Case No. ARB/11/15

On or about 24th May 2011, Ekran Berhad, gave notice of arbitration under the China-Malaysia BIT in respect of a dispute pertaining to the construction of an arts and cultural facility. This dispute appears to have since been settled and the investment treaty claim was discontinued on 16th May 2013.

KLS Energy Lanka Sdn Bhd & KLS Energy Lanka (Private) Ltd v Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/18/39

KLS Energy Lanka Sdn Bhd, is presently involved in a dispute with the Government of Sri Lanka under the Sri Lanka-Malaysia BIT. The subject matter of the dispute pertains to renewable energy generation enterprise valued at USD150 million. The investment treaty claim is presently ongoing.

FREE TRADE AGREEMENTS

Malaysia has entered into Free Trade Agreements with a number of countries such as Australia, Chile, India, Japan, New Zealand, Pakistan, Turkey, and the European Union. These Agreements also contain dispute resolution provisions whereby the disputes arising under the Free Trade Agreements between a foreign investor and Malaysia can be resolved by way of arbitration. Malaysia also entered into the Trans-Pacific Partnership Agreement (“TPPA”) with twelve Pacific Rim Nations, namely, Australia, Brunei Canada, Chile, Japan, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States of America. However, the United States of America withdrew from the TPPA on 23rd January 2017. In the light of the United States of America’s withdrawal, the TPPA investors from the remaining eleven countries in November 2017, reached an agreement to implement the TPPA, now renamed as the Comprehensive Progressive Agreement for Transpacific Partnership (“CPTPP”). The CPTPP has been signed by all the eleven countries and is now awaiting ratification. Malaysia has yet to ratify the CPTPP.

The CPTPP has dispute resolution provisions for international arbitration. These FTAs and the CPPTP will, in future, likely give rise to investment treaty claims.

CONCLUSION

In conclusion, the following salient points ought to be given regard to:

(a) as a foreign investor in Malaysia, it is necessary to have regard to the terms of the applicable BIT with Malaysia and to ascertain if there is an “approved project” provision or requirement subsisting in the said BIT in order to properly ascertain if the investment is afforded suitable protection;

(b) Malaysian companies or investors looking to invest abroad should be mindful of the existence of terms of any BITs so as to ensure that any investment is capable of protection by way of an investment treaty claim. In this regard, Malaysian companies and investors should be extremely careful when seeking to invest in what may be considered “high risk” countries. It is imperative that a proper review is conducted of the available investment treaty protection, particularly, where the investments are capital intensive and if one is entering into agreements with the Host State directly or a government agency within the Host State; and

(c) ultimately, the Malaysian experience in investment treaty disputes, in particular, under the ICSID Convention has been relatively favourable. Malaysia does not have a history of expropriation of foreign investments and claims of denial of justice have to date not succeeded on the merits, which suggests that the legal framework within Malaysia in terms of the national court system and the commercial arbitration system provide suitable avenues for foreign investors to properly enforce their contractual rights should a dispute arise.

Footnotes

1 The full list can be found on the ICSID website at http://ICSID.worldbank.org.

2 ‘The Convention on the Settlement of Investment Disputes Between States and National of Others’ (1996) 1 INT LAW 64, 70

3 The ICSID Convention: A Commentary (2001) (“Schreuer”) p. 121 et seq

4 Salini Costruttori S.p.A. and Italstrade S.p.A. v Kingdom of Morocco ICSID Case No. ARB/00/4; Joy Mining Machinery Ltd v Arab Republic of Egypt ICSID Case No. ARB/03/11; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v Islamic Republic of Pakistan ICSID Case No. ARB/03/29; Ceskoslovenska Obchodni Banka, a.s. v Slovak Republic ICSID Case No. ARB/97/4; PSEG Global Inc and Konya Ilgin Elektrik Uretim ve Ticaret Ltd Sirketi v Republic of Turkey ICSID Case No. ARB/02/5; Jan de Nul N.V. Dredging International N.V. v Arab Republic of Egypt ICSID Case No. ARB/04/13.

5 See Article 1(3) of the BIT between Malaysia and the Belgo-Luxemburg Economic Union above.

6 Tan Sri Dato’ Cecil Abraham and Dato’ Sunil Abraham appeared as counsel for the Government of Malaysia in this investment treaty dispute.

7 http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C247/DC654_En.pdf

8 http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C247/DC1030_En.pdf

9 http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C247/DC1031_En.pdf

10 Patrick Mitchell v. Democratic Republic of the Congo, ICSID Case No. ARB/99/7, Decision on the Application for Annulment of the Award, 1 November 2006 (“Patrick Mitchell v. DRC”), para. 31.

11 Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983 (“Amco v. Indonesia”). See also id., Award, 20 November 1984.

12 [2001] 1 MLJ 241. 13 [2010] 2 MLJ 1.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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