Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia
ICSID · Investment (ICSID and treaty) · Malaysia · 17 May 2007
Why it matters
This award is a landmark in ICSID jurisprudence for adopting a restrictive, objective definition of 'investment' under Article 25(1) of the ICSID Convention, requiring a significant contribution to the host State's economic development. It sparked debate on whether the term 'investment' has an inherent meaning independent of party consent, influencing subsequent cases like 'Romak v. Uzbekistan' and the 'Salini test'.
Summary
Malaysian Historical Salvors (MHS), a Malaysian company, entered into a contract with the Government of Malaysia to salvage the cargo of the DIANA, a British vessel that sank in 1817. The contract was on a 'no finds-no pay' basis, meaning MHS bore all costs and risks. MHS spent nearly four years and significant resources to recover 24,000 pieces of porcelain, which were auctioned for about US$2.98 million. MHS claimed it was entitled to 70% of the proceeds but received only US$1.2 million. After unsuccessful domestic arbitration and court challenges, MHS initiated ICSID arbitration under the Malaysia-UK BIT, alleging expropriation and unfair treatment. The sole arbitrator, Michael Hwang, dismissed the claim for lack of jurisdiction, ruling that the salvage contract did not constitute an 'investment' under Article 25(1) of the ICSID Convention. Applying the 'Salini test' (contribution, duration, risk, and contribution to economic development), the arbitrator found that while MHS made contributions, assumed risk, and the contract had duration, it did not make a substantial contribution to Malaysia's economic development. The benefits were no different from any service contract and were not lasting. The arbitrator declined to consider whether the contract qualified as an investment under the BIT, as the ICSID Convention's objective requirements were not met. The award was later annulled by an ad hoc committee, which held that the arbitrator had exceeded his powers by imposing additional requirements beyond the BIT's definition, but the case remains significant for its strict interpretation of 'investment'.
The detail
Parties: Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia
Case number: ICSID Case No. ARB/05/10
Outcome: The Tribunal dismissed the claim for lack of jurisdiction, finding that the salvage contract was not an 'investment' under the ICSID Convention. Each party bore its own legal costs and half the arbitration costs.
Applicable law: ICSID Convention, Malaysia-UK Bilateral Investment Treaty (BIT) (1988)
Issues in play: The definition of 'investment' under Article 25(1) of the ICSID Convention versus the broader definition in the BIT. The Tribunal held that the ICSID Convention imposes objective jurisdictional requirements, including a contribution to the host State's economic development, which the salvage contract did not satisfy.
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