Malaysia's Recognition Of An ICSID Investment Treaty Dispute Award
The Convention on the Settlement of Investment Disputes Between States and National of Other States (ICSID Convention) serves as a crucial instrument in promoting and facilitating foreign investment. With its well-defined recognition and enforcement mechanisms, the ICSID Convention offers investors a sense of certainty in situations where a state fails to fulfil its obligations under bilateral or multilateral investment treaties.
The case of Elizabeth Regina Maria Gabrielle von Pezold and others v Republic of Zimbabwe WA-24NCC-322-07/2021 and WA-24NCC-323-07/2021 (von Pezold case) has bolstered international investors’ confidence in Malaysia’s legal framework. The von Pezold case reaffirms Malaysia’s ability to provide the appropriate avenue in resolving investment treaty disputes and enforce their contractual rights under the ICSID Convention, should such a dispute arise.
However, the High Court's ruling in the von Pezold case raises an important question: How can an award creditor enforce an ICSID Award against a foreign sovereign state? This article aims to shed light on the implications of the von Pezold case and examine the considerations involved in enforcing an ICSID Award.
The dispute arises from a constitutional amendment in Zimbabwe, whereby the Government of Zimbabwe was granted the constitutional authority to acquire land with full title without the obligation to provide any compensation. This amendment also imposed a prohibition on parties from seeking legal recourse to court to challenge the acquisition of land by the Republic of Zimbabwe (Land Reform Programme). Following the implementation of the Land Reform Programme, the Government of Zimbabwe (the Defendant) acquired a significant portion of the Plaintiffs’ land without offering any form of compensation.
The Plaintiffs initiated arbitration proceedings before the tribunal in the ICSID (the Tribunal) and sought restitution against the Defendant to reinstate their title to their previously owned lands, as well as declaratory relief and compensation for losses.
The Tribunal inter alia found that the Defendant had expropriated the Plaintiffs’ properties and awarded damages to the Plaintiffs (Award). Subsequently, the Defendant filed an application to annul the Award, which was dismissed by the Tribunal on 21.11.2018 (Annulment).
High Court In Malaysia
In 2021, the Plaintiffs filed originating summons to seek a declaration that the ICSID Award and the decision on the Annulment made pursuant to the ICSID Convention be recognised as binding and enforceable in Malaysia. For the first time, the High Court here recognised an ICSID Award. Several issues were ventilated in the High Court, including:
The Defendant submitted that the High Court has no jurisdiction over the alleged breaches of the German-Zimbabwe bilateral investment treaty (German BIT) and the Swiss BIT (Swiss BIT) as the Defendant’s actions were actions of a governmental or sovereign nature. The court's jurisdiction is limited to actions of a commercial or private nature of a foreign sovereign state.
The High Court disagreed with the Defendant’s contention and took the position that the consideration of sovereign immunity was applicable only at the execution stage, which was after the recognition of the Award and the decision on Annulment as a final judgment. As the Plaintiffs were seeking recognition and not the execution of the Award and the Decision on Annulment, the consideration of sovereign immunity from enforcement and execution was premature and should only be addressed when execution was sought.
The High Court also clarified that Article 54(3) of the ICSID cannot be used to prevent the recognition of an ICSID award and stated that immunity only applied when concrete measures of execution were taken to enforce the award’s pecuniary obligations.
2.Lack Of Procedural Framework In Malaysia
The Defendant further raised that Malaysia lacks a procedural framework legislated by Parliament for the enforcement of the ICSID award. Unlike jurisdictions such as the United Kingdom or Singapore, specific laws and rules have been enacted to govern the registration and enforcement of the ICSID awards. The Defendant argued that without any specific procedural mechanism, the courts were only empowered to interpret laws passed by Parliament and cannot use their inherent power to address gaps in the law.
The High Court relied upon various Commonwealth authorities and held that the absence of express procedural rules does not preclude the exercise of jurisdiction conferred by statute. The High Court also relied on the Federal Court case of Yong Teng Hing (t/a Hong Kong Trading Co) & Anor v Walton International Ltd  5 MLJ 629 and held that the High Court possesses original jurisdiction where it is expressly provided for by written law. The jurisdiction of the High Court to recognise the Award and the decision on Annulment under the ICSID was clear. Section 23(2) of the Courts of Judicature Act 1964 (CJA) conferred jurisdiction on the High Court to exercise “such other jurisdiction as may be vested in it by any written law in force within its local jurisdiction.” As such, the absence of such provisions does not impede the jurisdiction of Malaysian courts to uphold the recognition and enforcement of ICSID awards.
3. Enforcement Limited Under Swiss And German BITs
The Defendant submitted that the proceedings should be stayed as the BITs expressly limit the enforcement to Germany, Switzerland and/or Zimbabwe only. Therefore, the Defendant alleged that Malaysia was not the proper forum for the Plaintiffs’ claim and/or relief sought by the Plaintiffs.
The High Court held that the BITs do not contain provisions that derogate from the Defendant’s waiver of sovereign immunity. By entering into the BITs and agreeing to arbitrate disputes at the ICSID, the Defendant had waived its sovereign immunity, as affirmed by Article 54(1) of the ICSID Convention. The court referred to Article 70 of the ICSID Convention, which reinforced the principle of the Convention that the Convention applied to all territories unless a Contracting State has expressly excluded it through exclusive jurisdiction clauses. However, no such clause existed in this matter, thereby affirming the application of the ICSID Convention.
On the other hand, with the inclusion of the Most-Favoured Nation (MFN) clause in the BITs, the High Court concluded that the Defendant had committed to extending better rights to investors from other countries. Consequently, it would contradict the purpose of the Clause to be subjected to the restrictive enforcement arbitration award. As such, the High Court held that the MFN clause was applicable to extend the provisions for the protection of the Plaintiffs’ rights and interests as beneficiaries of the MFN clauses.
4.Orders for service out of the jurisdiction
Despite the absence of specific legislation concerning service of process on foreign sovereign states in Malaysia, the High Court rejected the argument that it undermined the court's authority to grant orders for service out of the jurisdiction. The High Court relied on the New Zealand High Court ruling in Sodexo v Hungary  NZHC 371 and held that the court could resort to Order 11 rule 1(1)(M) of the Rules of Court (ROC) 2012 to permit the service of the originating summonses and the Plaintiffs’ affidavit in support on the Defendant.
Since the Award and the decision on Annulment given by the Tribunal under the ICSID Act was a final judgement in each Contracting State including Malaysia, Order 11 rule 1(1)(M) of the ROC applied to the enforcement of a judgment as well as arbitral awards, and it was not limited to the enforcement under the Arbitration.
Furthermore, the High Court relied on the case of Goodness For Import and Export v Phillip Morris Brands Sarl  5 MLJ 171 and highlighted that Section 23(1) of the CJA conferred extra-territorial jurisdiction on the court independently of the provisions outlined in Order 11 of the ROC. This further strengthened the court's jurisdiction to address matters involving foreign sovereign states.
Commentary: Sovereign Immunity In Malaysia
In Government of Malaysia v Nurhima Kiram Fornan & Ors  6 CLJ 429, the High Court first granted an anti-arbitration injunction in the foreign arbitration proceedings on the basis of sovereign immunity. The High Court determined that the ‘Deed of Cession’ was non-commercial in nature but was one relating to the cession of the land of a now sovereign state. In the absence of any waiver from Malaysia, absolute immunity applied from the jurisdiction of the Spanish Proceedings.
The principle of sovereign immunity is based on the maxim “par in parem non habet imperium”, in other words, one sovereign state has no sovereignty over the other. The doctrine of sovereign immunity is founded on the principles of reciprocity and mutual recognition. For instance, in von Pezold, the Defendant was unable to invoke sovereign immunity as it had voluntarily waived immunity by entering into an agreement in the BITs to arbitrate disputes under Article 54(1) of the ICSID Convention.
Another example is the prolonged territorial dispute between Malaysia and Singapore concerning the sovereignty over Pedra Banca/Pulau Batu Puteh. In this case, both nations have explicitly agreed to waive their sovereign immunity and submit to the jurisdiction of the International Court of Justice (ICJ) to settle the dispute. Consequently, neither nation can rely on the doctrine of sovereign immunity to avoid the ICJ's jurisdiction.
On the other note, the High Court’s decision in von Pezold to recognise the Award rendered against the Republic of Zimbabwe reflects Malaysia’s commitment to its obligations under the ICSID Convention and its efforts to establish itself as an arbitration-friendly jurisdiction. The von Pezold case provides reassurance to investors that ICSID Award will be recognised in Malaysia.
Presently, the von Pezold case is under appeal before the Court of Appeal. It remains uncertain as to whether the Plaintiffs will succeed in enforcing and executing the ICSID award against the Defendant. It is particularly intriguing to observe how the appellate court will scrutinise the approach taken by the High Court in the von Pezold case.
 Article 54(3) of the ICSID Convention reads: “Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.”  Article 11(3) of the German BIT reads: “...the award shall be enforced in accordance with the domestic law of the Contracting Party in the territory where the investment in question is located and Article 10(6) of the Swiss BIT reads: “...the arbitral award shall be final and binding for the parties involved in the dispute and shall be enforceable in accordance with the laws of the Contracting Party where the investment in question is situated.”
 Article 70 of the ICSID Convention reads: “This Convention shall apply to all territories for whose international relations a Contracting State is responsible, except those which are excluded by such State by written notice to the depositary of this Convention either at the time of ratification, acceptance or approval or subsequently.”
3 July 2023