I
NVESTMENT ANDA
RBITRATION:
Corruption as a Loss of Access to International Investor-State Arbitration
By Elizabeth Cazzadore Student ID: 12781630
Supervisor: Professor Ingo Venzke Final Draft: 24th July 2020
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A
BSTRACTWithin this study an analysis of four prominent investor-state arbitration cases will be developed in order to determine if investment arbitration tribunals blatantly dismiss corruption related practices in the first stages of the arbitral proceedings. To reach a well-rounded conclusion and provide a future suggestion to this, a brief explanation on corruption in the establishment of investments will be developed to then deepen into the
Churchill Mining v. Indonesia, Metal-Tech v. Uzbekistan, Chevron v. Ecuador and World Duty Free v. Kenya cases while assessing current international investor-state arbitration
circumstances amongst the challenges being faced by the system and the worldwide pandemic to determine this kind of arbitration as an unbiased structure with a substantiated reasoning that meticulously deliberates each aspect of the case when in presence on corruption allegations (not as a source of dismissal when in presence of corruption) and suggest a preliminary approach in the form of a previous evaluation when facing corruption related cases.
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T
ABLE OFC
ONTENTSI. INTRODUCTION ... 3
II. CORRUPTION IN THE ESTABLISHMENT OF INVESTMENTS ... 4
III. RELEVANT CASE OVERVIEW ... 6
a. Churchill Mining PLC (“Churchill”) and Planet Mining Pty Ltd (“Planet”) v. Republic of Indonesia (“Indonesia”), ICSID Case No. ARB/12/14 and ICSID Case No. ARB/12/40 (“Churchill Mining v. Indonesia”). ... 6
b. Metal-Tech Ltd. (“Metal-Tech”) v. The Republic of Uzbekistan (“Uzbekistan”), ICSID Case No ARB/10/3 (“Metal-Tech v. Uzbekistan”). ... 8
c. Chevron Corporation and Texaco Petroleum Corporation (“Chevron”) v. The Republic of Ecuador (“Ecuador”), UNCITRAL, PCA Case No. 2009-23 (“Chevron v. Ecuador”) ... 9
d. World Duty Free Co. Ltd. (“WDF”) v. The Republic of Kenya (“Kenya”), ICSID Case No. ARB/00/7 (“World Duty Free v. Kenya”) ... 11
IV. CONDITIONS AND CONSEQUENCES OF CORRUPTION IN THE ESTABLISHMENT OF INVESTMENTS ... 12
a. Churchill Mining v. Indonesia ... 12
b. Metal-Tech v. Uzbekistan ... 14
c. Chevron v. Ecuador ... 16
d. WDF v. Kenya ... 19
e. Conditions, Consequential actions and Considerations on future tribunals impact 21 V. CRITICAL ASSESSMENT ... 24
a. Analysed Cases ... 24
i. Is the investor-state arbitration friendly to a particular party in the aforementioned disputes? ... 26
b. Current challenges facing international investment arbitration – Addressing the “unbalance” issue ... 27
i. What does the studied cases show? Is there a balance in ISDS? ... 29
c. Implications under current circumstances (COVID-19) ... 30
VI. CONCLUSIONS AND FUTURE SUGGESTIONS ... 32
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I.
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NTRODUCTIONAccording to some experts, the COVID-19 crisis may increase the prevalence of corruption in the establishment of investments.1 Investment tribunals have already been confronted with allegations of corruption in sixty-five different cases.2 For the purpose of this study four will be addressed and analysed in detail: Churchill Mining v. Indonesia,
Metal-Tech v. Uzbekistan, Chevron v. Ecuador and World Duty Free v. Kenya, these were
particularly selected because of its relevance in investor-state arbitration; within its remarkable features are the participation of high ranked public service official like the president of the involved state in one case and a domestic court judge in the other as party of the scheme, as well as the involvement of local partners in corrupt practices and its repercussion in the fate of the foreign investor. Out of the four cases, two (former) cases coincide in establishing a local partnership and two (later) in remaining as sole foreign investor companies through the investment.
The main objective is to analyse the issue of corruption as a source of loss of access to international arbitration in light of selected relevant cases involving corrupt practices and whether this assumption is validly established.
This thesis aims to conclude which consequences tribunals should draw from corruption involved in the establishment of the investment and which factors should be taken into account in the assessment. In a first step the risks of corruption shall be examined, to be defined what constitutes corruption in the establishment of investments as well as briefly addressing why corruption remains as an undesired practice within any institution. In a second step, a case overview over four prominent cases shall be given where fact patterns, arbitral tribunal analysis and conclusions will be scrutinized to be compared and sustain whether international investment arbitration blindly uses corruption as a justification to deny protection and whether it is influenced by some sort of bias. In a third step, the reasonings and conclusions reached by tribunals are to be compared, in an attempt to establish common conditions and consequences future tribunals may follow. The fourth step provides a critical assessment of the tribunal's reasoning and conclusions, focusing
1 Brody Greenwald and Jennifer Ivers, ‘Addressing the Coming Wave of COVID-19 Fraud and Corruption Allegations in International Arbitration | White & Case LLP - JDSupra’ (2020)
<https://www.jdsupra.com/legalnews/addressing-the-coming-wave-of-covid-19-53071/> accessed 3 June 2020.
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in particular on whether the approach taken is investor -or state- friendly, and whether it does an adequate job at re-balancing the Investor State Dispute Settlement (“ISDS”) system towards the state. Therefore, it concludes with the establishment of investment arbitration system as an unbiased structure with a substantiated reasoning that meticulously deliberates each aspect of the case when in presence on corruption allegations.
II.
C
ORRUPTION IN THE ESTABLISHMENT OFI
NVESTMENTSCorruption is an essential feature in economic failure and remains an obstacle to development and mitigation of poverty.3 Regardless of continuous and worldwide attempts to eradicate corruption, it still remains a growing issue by overly affecting the poor through the mismanagement of development predetermined funds and so deteriorating the state capacity to support basic services, feeding inequality and injustice
and discouraging foreign aid and investment.4
Corruption is unlawfully and wrongfully benefiting from a conduct carried out by an official or fiduciary person in virtue of taking advantage of its position to procure a profit for someone or for its own self.5 Moreover, this is a constant threat to human rights and adversary to an effective administration6 and so in efforts to eradicate this behaviour, important steps have been taken such as promoting disclosure of all paid revenue to host countries and even adding anticorruption provisions in recent International Investment Agreements (“IIAs”),7 especially within oil and mining that are normally industries that engage the most in such practices.8
Economically speaking, corruption is able to increase the number of projects of a country, but at the same time reduce such country’s growth because the productivity of said
3 United Nations Convention Against Corruption, Resolution 58/4, adopted Oct. 31, 2003 by the UN General Assembly, entered into force Dec. 14, 2005 (“U.N. Convention Against Corruption”). Foreword by U.N. Secretary-General Kofi Annan.
4 ibid.
5 ‘What Is CORRUPTION? Definition of CORRUPTION (Black’s Law Dictionary)’ <https://thelawdictionary.org/corruption/> accessed 9 June 2020.
6 Karl P Sauvant and others, The Evolving International Investment Regime: Expectations, Realities,
Options (2011). (p. 145, para. 2)
7 ibid.
8 ‘Extractive Industries - Our Priorities - CORRUPTION IN THE EXTRACTIVE INDUSTRIES’
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investment is a backlog in the end,9 making the related goods and services boost from the yearly production an illusion.
There is a general agreement that corruption is prejudicial to countries’ economies in the distant future. There was a long period where corruption was acknowledged as a standard distortion; with this act funds are used on bribery rather than production, minimizing the effective distribution of resources and restricting economic growth.10 Even though there are alternative points of view to this understanding, like Leff, who contends that the main critics of corruption tend to have bureaucracies promoting economic development in mind, but if there are any other fundamental goals to be reached then governments give a re-assessment on the repercussions of corruption11. Furthermore, bribery grants business-persons a lot of power within the decision-making process, promoting economic accomplishment by decreasing doubt and backing new entrepreneurial projects.12 Moreover, Huntington sustains a resembling perspective, by arguing that corruption has a part in greasing the wheels of bureaucracy. According to this, bribery is a persuasive way of overcoming legislations that restrict economic activity; meaning that in cases where procedures are slower, money helps to fasten up this governmental decision making.13 It is questioned that corruption’s role in improving growth due to bribe auction contest, and given that more adept businesses are able to offer superior bribes, corruption gives way to appointing work to more productive companies.14
Another angle would be that the mere act of giving money to government officials gives the opposite desired effect in the long run, because then they are relying of constant presence of such incentives and therefore the system becomes inefficient when there is no money involved.15 Additionally, it is considered that the ones that are able to come forward with the highest amount are the most lucrative in rental.16 The reason behind
9 Vito Tanzi and Hamid Davoodi, ‘Roads to Nowhere: How Corruption in Public Investment Hurts Growth’ (1998) 12 Economic Issues 1.
10 Albert De Vaal and Wouter Ebben, ‘Institutions and the Relation between Corruption and Economic Growth’, vol 15 (2011).
11 Nathaniel H Leff, ‘Economic Development Through Bureaucratic Corruption’ (1964) 8 American Behavioral Scientist 8.
12 ibid.
13 Samuel P Huntington, Political Order in Changing Societies (Seventh Pr, Yale University Press 1968). 14 Paul J Beck and Michael W Maher, ‘A Comparison of Bribery and Bidding in Thin Markets’ (1986) 20 Economics Letters 1.
15 Gunnar Myrdal, ‘Asian Drama, An Inquiry into the Poverty of Nations’ (1969) 51 American Journal of Agricultural Economics 221 <https://doi.org/10.2307/1238331>.
16 William J Baumol, ‘Entrepreneurship: Productive, Unproductive, and Destructive’ (1990) 98 Journal of Political Economy 893.
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corruption’s negative influence in growth is that the most suitable individuals follow rent-seeking actions instead of socially productive ones.17
Now, it is important to bear in mind this corruption-growth relationship relies upon the institutional environment and that bondage must be studied as an interaction with other institutions and not in isolation of a particular one.18 Therefore, the interaction with arbitration institutions will be studied in harmony with current developments through a case brief.
III.
R
ELEVANTC
ASEO
VERVIEWThe following chapter will briefly identify and explain in a summarized manner four different distinctive cases where corruption practices are found in (i) a revoked license due to forgery, (ii) illegal agreements, (iii) judgement based upon bribery and (iv) contract obtained through high ranked official bribe; and therefore, attempt to provide a clear perspective of the fact pattern for further assessment.
Each case will highlight the fact pattern, legal issues and assessment (evidence and
consequence) in order to provide the prominent characteristics to be compared further on.
a. Churchill Mining PLC (“Churchill”) and Planet Mining Pty Ltd (“Planet”) v. Republic of Indonesia (“Indonesia”), ICSID Case No. ARB/12/14 and ICSID Case No. ARB/12/40 (“Churchill Mining v. Indonesia”). 19
The investors in this case are Churchill and Planet, British and Australian Companies respectively, that provide mining related services (general surveys, exploration and exploitation of sites). The Companies decide in investing in a project developed with Indonesian Companies, known as the East Kutai Coal Project (“EKCP”) localized on the Island of Kalimantan, Indonesia. The relevant issue outlined in this case unfolds in 2010, when a license in the EKCP mining project is revoked by East Kutai’s Regent on grounds that such license was illegally obtained by forgery20 and upon suggestion of the
17 Kevin M Murphy, Andrei Shleifer and Robert W Vishny, ‘The Allocation of Talent: Implications for Growth’ (1991) 106 The Quarterly Journal of Economics 503.
18 De Vaal and Ebben (n 10).
19 Churchill Mining and Planet Mining Pty Ltd v Republic of Indonesia, ICSID Case No ARB/12/14 and
12/40, Award, 6 December 2016.
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Indonesian Ministry of Forestry. Alongside the affected Indonesian Companies, Churchill and Planet begin legal proceedings in local courts fighting the decrees through revocation, arguing that the aforementioned licenses were attained legally with the local Ridlatama Companies partnership.
After that did not work, Churchill and Planet (“the Claimants”) seek to solve the issue through ISDS mechanism based on their respective Bilateral Investment Treaty (“BIT”), United Kingdom-Indonesia and Australia-Indonesia succeeding when in 24 February, 2014 the tribunal formed under the International Centre for Settlement of Investment Disputes (“ICSID”) decides that it has jurisdiction over the case and so the dispute continued. Within the issues raised by Indonesia, the validity of the mining license and alleged forgery was the main accusation, claiming that alongside their local partners, the Claimants licenses where forged by themselves; to this, Churchill and Planet declared that they had acted in good faith.
In the award, the tribunal concluded that Indonesia’s claims were right and that the Claimants “based on documents forged to implement a fraud aimed at obtaining mining rights”, consequently declaring all claims inadmissible,21 arguing that the core where the Claimants’ allegations (mining license) rise were forged and the investors were wilfully blind to the misbehaviour of their local partners, on the grounds of a threshold bar without the need of evaluating treaty violations alongside an international public policy matter;22 even though the source of fraudulence was not established, the tribunal determined that the Claimants did not carry out enough due diligence when doing their business with the local companies (presumably authors of the fraud). The order was for the Claimants to pay costs and arbitration fees. By 2017 an application for annulment was submitted by the investors and by March 2019 the committee decided to reject the claimants’ contention that the tribunal went beyond its faculties, did not follow the rule of procedure and did not argued its decision.23
21 ibid. (para. 528 award) 22 ibid. (para. 507-508)
23 Damien Charlotin, ‘Analysis: Churchill & Planet Mining v. Indonesia Annulment Committee Finds That Parties’ Discovery Obligations Can Be Limited by Domestic Law on Confidentiality, and That Procedural Orders Are Outside a Committee’s Mandate | Investment Arbitration Reporte’ (2019)
<https://www.iareporter.com/articles/analysis-churchill-planet-mining-v-indonesia-annulment- committee-finds-that-parties-discovery-obligations-can-be-limited-by-domestic-law-on-confidentiality-and-that-procedural-orders-are/> accessed 22 July 2020.
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The fact pattern shows a partnership with domestic companies being those the ones who committed forgery and a revoked license. Moreover, the legal issues found are the establishment and assessment of evidence in presence of fraud allegations, the prominence of international law principles in absence of guidance through BIT and ICSID regulation and the required investors’ due diligence. Finally, in terms of evidence the “standard of balance of probabilities” is applied where the burden of proof is relocated to the investor where in order for it to prove dubious facts a higher amount of persuasive evidence must have been shown. Subsequently the (i) infringement of international law principle of good faith and abuse of right, (ii) public policy matter, (iii) examination of previous arbitral cases showing fraudulent conduct affects jurisdiction and/or admissibility and (iv) investors’ negligent behaviour resulted in the inadmissibility of claims as consequence.
b. Metal-Tech Ltd. (“Metal-Tech”) v. The Republic of Uzbekistan (“Uzbekistan”), ICSID Case No ARB/10/3 (“Metal-Tech v. Uzbekistan”). 24
Metal-Tech is a public company organized under Israel’s law, it became part of a joint venture with two State Owned Enterprises (“SOEs”) from Uzbekistan, creating Uzmetal to produce molybdenum in Uzbekistan.25 Metal-Tech carried out three agreements with Uzbekistan’s government-involved people; later on, within a year (2006-2007) the SOEs filed proceedings against Uzmetal in domestic courts on behalf of the distribution of dividends from shares, and at that time it was decided for Uzmetal to settle the non-paid dividends, something that did not happen. Under the circumstances the SOEs started bankruptcy proceedings against Uzmetal, resulting in the liquidation and transfer of Uzmetal assets to the SOEs by court decision,26 as consequence, in 2010 Metal-Tech started ICSID arbitration proceedings under the allegations of violation of domestic Uzbekistan laws alongside violation of Israel-Uzbekistan BIT,27 specifically Fair and Equitable Treatment standard (“FET”), as well as full protection and security and expropriation, in addition to compensation. The legal argument established is based on
24 Metal-Tech Ltd v The Republic of Uzbekistan, ICSID Case No ARB/10/3. 25 ibid. (para. 7)
26 ibid. (para. 34 et seq.) 27 ibid. (para. 107)
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customary international law and Uzbekistan’s law by the mere fact that claims are barred as result of corruption28.
To this, the Respondent argued that there was corruption behind the investment as it was “made and operated corruptly” against Uzbekistan laws29 and contested the tribunals’ jurisdiction; which ended up in the determination of corruption within two of the three consulting agreements resulting in illegality and so the loss of jurisdiction.
To summarize, the relevant facts are the establishment of a partnership with domestic (as well as the previous case) state-owned companies and the three agreements with government officials. In regards to the legal issues prominence of international law principles in absence of guidance through BIT and ICSID regulation (again), the claimant’s claim of presumed violation of BIT through the infringement of FET and full protection and security by the state, corruption as a jurisdictional issue, the investment’s illegality and shared responsibility by corrupt conduct. Now, regarding evidence, the issue of the assessment of proof when in presence of corruption arising as solution that the burden of proof its turned to the investor in light of “suspicious of corruption”, meaning that it has to prove its own innocence (same as previous) and so the establishment of “red flags” test. Concluding with the illegality of two of the agreements, dismissal for lack of jurisdiction as main consequence, therefore requests for relief were dismissed too.
c. Chevron Corporation and Texaco Petroleum Corporation (“Chevron”) v. The Republic of Ecuador (“Ecuador”), UNCITRAL, PCA Case No. 2009-23 (“Chevron v. Ecuador”) 30
The parties involved in this case are Chevron and Texaco as Claimants, both private companies organised under United States of America (“U.S.”) law, and the Republic of Ecuador as Respondent. The contention here relies upon a judgement where the Ecuadorian Court of Lago Agrio renders a decision ordering Chevron to pay an amount of USD 18.2 billion on behalf of damages to the complainant in that particular dispute.31 Accordingly, the domestic courts failed to be impartial and/or just, constituting a breach
28 ibid. (para. 389) 29 ibid. (para. 110)
30 Chevron Corp and Texaco Petroleum Co v The Republic of Ecuador, PCA Case No 2009- 2003,
UNCITRAL, Second Partial Award on Track II dated Aug 30, 2018 521.
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of U.S.-Ecuador BIT and an infringement of Chevron’s rights,32 the tribunal found the corruption allegation to be the most alarming part of the submission, reportedly the presiding Judge (Nicolas Zambrano) let the complainant’s representatives “ghost-write” the decision in their favour and consequently in Chevron’s detriment.33 Moreover, the tribunal observed that for a person not familiarized with the conflict, the domestic court decision looked like a “lengthy, detailed, reasoned and powerful decision”34 but later, through a balance of probabilities, concluded that the Judge actively requested a bribe from either of the parties eager to give him money on exchange of a favourable judgement. Chevron did not engage in the practice but the complainants’ representation did agree to do so, something that would translate into the enforcement of a decision in their favour; allowing them to also “ghost-write” material parts of the sentence.35 The legal reasoning behind this relies upon. The legal reasoning here relies on the Ecuadorian lower instance courts management of the Lago Agrio plaintiff v. Chevron litigation as wrongful and in breach of the investor’ rights in the US-Ecuador BIT.
Now emphasizing on the facts, investment made solely by foreign private owned companies (differentiation to previous two cases), presence of bribery of a judge who gave judgement domestically, failure of state in its obligations by breach of BIT as well as investor’s rights. Within the legal issues, the presence of customary international law (as the previous two), the failure of the home state to guarantee FET (commonality).
Evidence wise, it is remarkable yet again the assessment of evidence resolving on the
applicable standard of proof as “balance of probabilities” where a greater amount of evidence must be provided to prove dubious facts. As consequence, denial of justice to investor by corrupt practices within the judicial system was established, holding the home state responsible (divergence with the other two cases), therefore, failure to satisfy minimum standards under international law (breach of FET and customary international law) and the tribunal petition of removal of enforceability of the domestic courts judgement.
32 ‘Chevron v. Ecuador | IISD’ <https://www.iisd.org/project/chevron-v-ecuador> accessed 15 June 2020.
33 Chevron Corp. and Texaco Petroleum Co. v. The Republic of Ecuador, PCA Case No. 2009- 2003,
UNCITRAL, Second Partial Award on Track II dated Aug. 30, 2018. (n 30). (para. 5.226)
34 ibid. (paras. 5.3-5.4) 35 ibid. (paras. 5.230-5.232)
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The difference in the consequence here relies upon the fact that the investor did not engage in corruption practices making the home state a sole participant and therefore held responsible for its acts.
d. World Duty Free Co. Ltd. (“WDF”) v. The Republic of Kenya (“Kenya”), ICSID Case No. ARB/00/7 (“World Duty Free v. Kenya”) 36
WDF is a company constituted in United Kingdom (“UK”) which started ICSID arbitration proceedings against Kenya for its failure to comply with their contractual commitments by owing WDF and additionally by the seizing of property through Kenyan officials via court order, including management and control of WDF. The dispute emerged from a duty-free facilities contract to build, maintain and operate at the Nairobi and Mombasa airports where the WDF’s Chairman, Mr. Nasir Ibrahim Ali, admitted to have paid a “personal donation” to Kenya’s President, Mr. Daniel arap Moi, as part of the process of getting the contract.37 Here the main issue was that a bribe was fundamental to secure a contract for an investment and WDF participated in paying the amount, committing an illegal act.
Outlining the facts, an investment was made by a foreign company (as well as the previous case but differs from the first and second) and a contract was made with the government to operate in airports. In regards to the legal issues, prominence of principles of international law (similar to previous three) as well as public policy on corruption (Churchill Mining v. Indonesia), and failure of the investor to comply with its obligations (same as Churchill). In terms of evidence the assessment was based upon alleging party bearing the burden of proof with the particularity that the lack of the state’s denial nor proving on the bribe gave the tribunal enough room to take it as establishment of payment,
consequentially declaring the voidance of the contract as well as dismissing investors’
claims raised from corrupt practices based on the lack of jurisdiction as a public policy matter given that this is a punishable act by criminal law and contrary to international public policy.
As a general comparison, it is easy to identify the common ground between each case as: lack of normative in applicable law and therefore prominence of customary international law principles, corruption as a matter of public policy, use of the standard of balance of
36 World Duty Free Co Ltd v The Republic of Kenya, ICSID Case No ARB/00/7, Award dated Oct 4, 2006 1. 37 ibid. (paras. 66, 130)
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probabilities as to asses evidence and the investor’s behaviour as a fundamental factor in corruption allegations; while finding its divergences in: participants in the investment, varying between foreign, foreign-domestic, foreign-public domestic companies; base of the claim differing in license, governmental contract, domestic judgement, seizing of investors’ property.
IV.
C
ONDITIONS ANDC
ONSEQUENCES OFC
ORRUPTION IN THEE
STABLISHMENT OFI
NVESTMENTSIn order to further develop a reasoned criterion to reaching a well-rounded conclusion, an analysis on the rationale and conclusions attained by the tribunals must be undertaken alongside a comparison to determine common conditions and consequential actions that future tribunals would be prone to pursue. Hereunder the relevant issues are emphasized in a case by case basis.
a. Churchill Mining v. Indonesia
The reasoning of the Churchill Mining v. Indonesia tribunal undertakes three different legal issues that are of great importance in the analysis of investor’ behaviour as a source of inadmissibility and loss of access to international arbitration,38 such as: the establishment and assessment of evidence due to the fraud allegations, the role of International Law Principles on the legal consequences of forgery and the required level of due diligence of the investor.
In regards to proving illegal investments as a result of fraud, corruption or forgery, the general understanding is that it is difficult to establish and if by any chance an investor is found guilty of such practice partially (e.g. lawfully made investment but engaged later in bribery), the claim would be admitted but the corruption involved practice becomes part of the merits or quantum of the case.39 In this case, after Indonesia’s allegations on the authenticity of the signatures found in the license documents, the tribunal sustained
38 Nathalie Bernasconi-Osterwalder and Lise Johnson, International Investment Law and Sustainable
Development: Key Cases from 2000–2010 (2000).
39 Brody K Greenwald and Jennifer A Ivers, Addressing Corruption Allegations in International Arbitration (2019).
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that the burden of proof was under the Respondent’s responsibility;40 and that such evidence was to be evaluated under “standard of balance of probabilities or intime
conviction”, which translates into the necessity of a higher amount of persuasive evidence
in order to prove dubious facts. Moreover, the intent was not fundamental to find forgery or fraud but acts as a relevant circumstantial evidence.41 The tribunal recognised that the evidence pointed to the local partner companies instead of the Claimants but such assumption it is not enough to draw legal consequences,42 concluding that “a fraudulent scheme permeated the Claimants’ investments in the EKCP”.43 Finally, the assessment made by the tribunal here was that firstly, Indonesia’s government officials’ signature in relevant documents is by hand and the licenses on dispute were mechanically reproduced. Secondly, most of the documents presented to the tribunal by the Claimants were not within the governmental database, there were more than one version of the documents, some signed, others not signed and others even without initials of the officials. Thirdly, the license application by the Ridlatama companies regarding the project was not proven. Lastly, the tribunal noted the irregularity in the fact that after the revoking of licenses they were made valid again by decree 10 days after.44
Subsequently, given that there were no provisions to approach the legal consequences of the investors’ unlawful behaviour (neither within the applicable BIT nor in the ICSID Convention),45 the tribunal took into consideration previous arbitral cases where the illegality of an investment plays a main role in the ISDS and having them in mind dealt with this issues in a manner which depending on the fact pattern shown in each case, such illegality has a consequence in admissibility and jurisdictional matters, that may be addressed in the merits.46 Furthermore, this behaviour is considered an abuse of right and in violation of the good faith principle and establishing that claims coming from fraud or forgery -based rights are inadmissible as a “matter of international public policy”.47 Consequently to the authorship of the forgery (evidence pointed to the Indonesian partner companies instead of the Claimants), the tribunal concluded that due diligence was
40 Churchill Mining and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and
12/40, Award, 6 December 2016 (n 19). (para. 238)
41 ibid. (para. 244) 42 ibid. (para. 476) 43 ibid. (para. 507) 44 ibid. (para. 441) 45 ibid. (para. 488) 46 ibid. (para. 494) 47 ibid. (para. 508)
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missing, fitting better under negligent behaviour the manner in which they looked into their Indonesians’ partner mining license,48 phrasing it as a “willful blindness” and so, the fit consequence was to make such claims inadmissible. The tribunal pondered whether the Claimants did exercise an acceptable level of due diligence, relying on the reasoning of a previous case49 it was assessed the known as the “head-in-the-sand problem” which evaluates whether the claim may be tainted by when the Claimants failed to notice serious misconduct or crime by a third party,50 meaning that Churchill and Planet knew or should
have known of the wrongdoing related to their investment but decided to do nothing, compared to just failing to take due care.51 Consequently declaring all claims inadmissible in complete sentence.52
b. Metal-Tech v. Uzbekistan
Within the relevant legal issues approached by this tribunal, there are three of particular relevance to this thesis: standard of proof when in presence of corruption, the investments’ legality and shared responsibility in regards to corrupt conduct.
Given that the corresponding BIT lacks to have an answer when there is existence of corruption, the natural course for a state to be held accountable for its actions (Uzbekistan) would be to seek answers in international law, and therefore, the application regarding burden of proof would be logically, under that same premise, that each party has to prove the facts on which leans;53 but there is an unprevented detail and that is corruption, making the tribunal question if this might turn the burden of proof in order for the allegation of corruption to be established;54 however, led by the facts established in the course of the arbitration, the tribunal decided that the precedential rules on burden of proof were not essential to uphold the allegation, and therefore determined that “suspicions of corruption” was build55 (payment of more than USD 4 million to consultants was a bit odd),56 hence asking ex officio to Metal-Tech to prove its own
48 ibid. (paras. 517-527)
49 David Minnotte & Robert Lewis v Republic of Poland, ICSID Case No ARB (AF)/10/1 Retrieved from
https://www.italaw.com/cases/707.
50 Churchill Mining and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and
12/40, Award, 6 December 2016 (n 19). (para. 502)
51 ibid. (para. 504) 52 ibid. (para. 528 award)
53 Metal-Tech Ltd. v. The Republic of Uzbekistan, ICSID Case No ARB/10/3 (n 24). (para. 237) 54 ibid. (para. 238)
55 ibid. (para. 239) 56 ibid. (para. 240)
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innocence, reversing the burden of proof; later expressed that “corruption is by essence
difficult to establish and that it is thus generally admitted that it can be shown through
circumstantial evidence”,57 circumstantial evidence is used as an indicator (“red flags”) of corruption and even if the wording varies has by essence similar constitution. The tribunal pinpointed six factual findings: the amount of payments, the lack of proof of services, the lack of qualification of the consultant, the sham consulting contracts, the lack of transparency of the payee, and the connections of the consultants with public officials in charge of Metal-Tech’s investment.58 It was noted that Metal-Tech was not able to deliver proof of services because there were none or not legitimately provided at the moment of the settling of the investment.59 The matter concluded in the existence of corruption in two out of the three agreements due to the “red flags” test.
In regards to the illegality of the investment, there is no general consensus on whether this issue concerns the tribunals’ jurisdiction, the claims’ admissibility or the cases’ merits. Even though some BITs have an “in accordance with the law” provision, these are considered to exclude illegal investments from protection under the BIT. The tribunal concluded that in this particular, article 1 of the corresponding BIT set out the extent of legality to non-trivial breach and corruption is found within this scope, accordingly, the clause is silent on the on the need to be operated in conformity with the local laws when settled requirement, only gives indication about the timing of the investment.60 Therefore, after an analysis of Uzbekistan law, the tribunal deduced that it is considered against the law: first, to give or to promise something of value to a public official or an intermediary of that public official in exchange for the action or omission of a certain performance that the official must or could have done; second, to reward a mediator to lead an official’s action or omission of certain performance; and third, the time of payment is not of relevance because could happen before or after the desired performance.61 A broad list of international instruments pursuing the eradication of corrupt practices were highlighted by the tribunal alongside the mention of a previous award to compare the consultancy contracts facts with the applicable law one by one, concluding that corruption practices impair the legality of the investment establishment and were against Uzbekistan laws,
57 ibid. (para. 243)
58 ibid; Bernasconi-Osterwalder and Johnson (n 38).
59 Metal-Tech Ltd. v. The Republic of Uzbekistan, ICSID Case No ARB/10/3 (n 24). (para. 265) 60 ibid. (para. 193)
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therefore it lacked of jurisdiction by what it is stated in the BIT article 8 (1) “restricted to disputes concerning an investment, as defined in Article 1(1) of the BIT”.62
Finally, in terms of the tribunals’ assessment of the shared responsibility concerning corrupt behaviour, it was expressed the common perspective that an unfair advantage might be given to the Respondent but support cannot be expected when involved in a corrupt act, more so in advocacy of the rule of law,63 allowing Uzbekistan to invoke investors behaviour (involvement in corruption) as a bar of its own responsibility under international law but made aware that the state’s own involvement in this matter does imply a sanction and so ordered each party to bear its own costs in an attempt to solve that the investor should not bear consequences by itself when acting with state collaboration in the scheme64 but still concluding in its decision a lack of jurisdiction in this issue.65
c. Chevron v. Ecuador
The highlighted legal issues present in this arbitration and its corresponding approach by the tribunal are: applicable standard of proof by international courts and tribunals, the assessment of evidence in corruption and investment case practice and the consequent violation of the state’s obligation to guarantee FET.
In order to prove allegations of judicial corrupt practices the tribunal implemented the “balance of probabilities” standard holding that this remains the standard of proof but without further explanation on why.66 This is an exceptional case in investment arbitration practice where Claimants achieve to substantiate corruption.
The assessment of evidence led the tribunal to point out forensic proof (images) from computers used by the domestic Judge, where it was disclosed a high number of complicated queries unable to be answered because of the scarce forensic evidence at hand, contrary to what would be a “smoking gun”. Additionally, a direct factual link to the “how and when” was not identified with the provided evidence at the time of the drafting of the decision, so the tribunal based this draft upon circumstantial evidence.67
62 ibid. (para. 373) 63 ibid. (para. 389) 64 ibid. (para. 422) 65 ibid. (para. 423)
66 Chevron Corp. and Texaco Petroleum Co. v. The Republic of Ecuador, PCA Case No. 2009- 2003,
UNCITRAL, Second Partial Award on Track II dated Aug. 30, 2018. (n 30). (para. 8.42)
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The testimony of a prior Ecuadorian Judge (Dr. Alberto Guerra) as Chevron witness was crucial in the partial award, within his declaration was said that Judge Zambrano came forward to request him to reach an agreement with Chevron’s counsel to obtain monetary compensation for a decision in its favour and after some dwelling for some time (weeks) with Chevron’s lawyer, the proposition was rejected and the link was never established;68 not so long after Chevron’s rejection, an agreement with the other party was concluded to fasten the case and favour them, by paying US$ 1,000 monthly to Dr. Guerra in order to ghost-write the orders to Judge Zambrano and for Chevron’s procedural motions to be rejected.69
According to Guerra, the agreement established to pay US$ 500,000 for them to draft the judgement and that a “proper benefit” was to be paid to Guerra for his help once the money was with Zambrano; around two weeks prior to the release of the Lago Agrio decision, Guerra was asked to check the draft sent o Zambrano by the plaintiff’s attorney, he did so in Zambrano’s residence using the plaintiff’s attorney computer with instruction to not leave traces nor make changes; later on, he (Guerra) also helped Zambrano via call to draft a clarification order for the decision.70 This testimony was found legitimate and able to be materially corroborated by the tribunal with current proof; by initiating several actions in U.S. Federal courts for alleged violations of racketeer influenced and corrupt organizations statute, Chevron was able to disclose “unprecedented mass of evidential material”.71
Emails gathered in the U.S. federal process unveiled that long before the judgement, the plaintiff’s lawyers had been orchestrating the ghost-writing scheme. Through further evidence there was even demonstrated the way orders were delivered from Guerra to a Lago Agrio court worker before its emission with an alike text, accompanied by an US$ 1,000 monthly withdrawal from a confidential account used by the plaintiffs’ attorneys and that same amount was deposited in Guerra’s account.72 In additional findings, the authorship of the final judgement was difficult to locate73 because of format
68 ibid. (paras. 4.347–4.349) 69 ibid. (para. 4-350)
70 ibid. (paras. 4.405–4.408, 5-157, 5-158)
71 ibid. (paras. 4-326, 4-327, 1.40) (via deposing and cross examination of key witnesses like Zambrano himself and disclosure of other party’s attorney personal notebook, private email correspondence, computer hard drives, and hundreds of hours of video outtakes)
72 ibid. (paras. 4.328, 4.332, 4.334, 4.337, 4.340–4.341, 4.352–4.375) 73 ibid. (paras. 4.443, 6.36)
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inconsistencies, parts of it were found to be copy pasted from several other documents,74 after a linguistic assessment from an expert, it was established that there was a high probability that the Lago Agrio judgement was co-written by different people and that Judge Zambrano input was not that substantial;75 a significant part of the estimate was tracked back to a court-appointed expert briefing and not to the proof in which the judgement was falsely relying, it became clear that the report came from the plaintiffs’ expert and not an unbiased one. The scheme was corroborated by the plaintiffs’ attorney personal notebook and video outtakes,76 surprisingly the whole thing was deliberately recorded.
The account statements expose the expert’s payment of around US$ 100,000 and so the tribunal deduced that these were bribes and just a portion of the entirety of the plan.77 In efforts to give the benefit of the doubt to Judge Zambrano, the tribunal examined his statement in U.S. courts to come to the conclusion that he was unreliable (he claimed full authorship of a decision based in a 237,000 page long file with more than 100 expertise reports delivered in three months with only the help of his student-secretary assistance meanwhile attending other issues),78 “whilst not absolutely impossible, this achievement within such a short time seems inherently unlikely” expressed the tribunal, there were a number of mismatches on the testimony description and the actual document that were considered too, like the fact that he supposedly dictated and that there were “numbers, formulae and abbreviations that do not lend themselves to mere oral dictation”;79 added to the fact that the plaintiffs’ representatives had a significant monetary gain enough to be a clear motive.80
Regarding the violation of the FET accord, after establishing the presence of corrupt practices it was evaluated whether this would correspond to a denial of justice and by doing so a FET infringement. In this sense, the tribunal explained that the demonstration of denial of justice is not to be taken lightly, given that its presumed for courts to act righteously and there is a margin of appreciation allowed “before the threshold of a denial
74 ibid. (paras. 6.48, 6.110–6.111) 75 ibid. (paras. 5.89-5.90) 76 ibid. (paras. 4.318, 4.473, 4.267–4.277) 77 ibid. (paras. 4.300–4.301, 4.302–4.303, 5.245, 5.247) 78 ibid. (para. 5.85, 5.149-5.150, 5.10-5.11) 79 ibid. (para. 5.138) 80 ibid. (paras. 4.411–4.412)
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of justice can be met”,81 but provided that the ghost-writing was so grotesque, it “directly impacted, adversely” the Claimant’s rights82 and so it would only translate into a denial
of justice if it were attributable to the State.83 In terms of allocation, there was noted by the tribunal that when issuing the judgement, Zambrano was acting vested with his power as a Judge part of Ecuador’s judiciary, under the status of Ecuador’s law, enforceable by the country’s judicial branch and inside the Ecuadorian’s judicial system;84 and so accordingly, it was ascertained that Zambrano’s conduct was evidently concealed with governmental authority,85 and even further endorsed by higher levels within the domestic legal system that ignored “strong prima facie evidence of judicial misconduct, procedural fraud and (particularly) ‘ghostwriting’ when facing the issue (appellate, cassation and constitutional courts),86 leading them to conclude that this conduct was indeed attributable to the Respondent as seen that Zambrano’s conduct was not an isolated one.87
The Respondent’s behaviour concerning the addressment (or lack of it), of the issue was perceived as “failure of national system as a whole to satisfy minimum standards required under international law”88 and therefore it was settled as a denial of justice, a breach of
its duty to accord FET and customary international law under the respective BIT.89 The outcome was for the tribunal to order the state to take the necessary measures in order to remove the enforceability of the judgement, to prevent the plaintiff’s from enforcing partially or totally the decision, to communicate this decision swiftly in writing to countries where enforcement might be seek and to revert any pending process under the nation’s control.90
d. WDF v. Kenya
Herein the tribunal was faced with application of general principles of international law and public policy on corruption, investor’s obligations accordingly to what is established in domestic and international courts, the transparency in the procedure, the proving of
81 ibid. (paras. 8.41-8.42) 82 ibid. (para. 8.59) 83 ibid. (para. 5.226) 84 ibid. (paras. 8.46, 8.50) 85 ibid. (para. 8.50) 86 ibid. (paras. 8.28, 8.34, 8.51) 87 ibid. (paras. 8.51–8.52) 88 ibid. (para. 8.60) 89 ibid. (paras. 8.77, 10.5) 90 ibid. (para. 10.13)
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corruption in an investment dispute and the dismissal of claims arising from corrupt practices as legal issues.
The execution of the bribery was explained in Mr. Ali’s witness statement, where during a visit to the President’s residence in company of a well-connected and close friend to the President, Mr. Rashid Sajjad,91 a cash filled briefcase was left by a wall and later collected by the end of the meeting from the same spot, noticing at the time that the briefcase was instead filled with fresh corn. The briefcase contents were US$ 500,000, drawn from a US$ 2 million letter of credit remission previously submitted to Mr. Sajjad. It was understood by Ali that this procedure, even though dubious, was within the law and a requisite to get the investment contract.92 It was explained later that the corn meant the President’s liking of the proposal.93 Even though WDF tried to establish this situation as a lawful “gift of protocol” performed for a public purpose and part of the cultural practice94 in the country instead of a bribery, the tribunal disagreed and determined that this was for the purpose of getting an audience with the President to get him to agree on the investment,95 moreover the tribunal found that the bribery was unquestionable on the evidence provided from WDF itself.96 The payment was considered a bribe to acquire the WDF contract in which the claims were based.97
It is not under dispute that the alleging party has the burden of proof and not the other way around, so under this premise, the lack of rejection on Kenya’s behalf for the payment to the President under the outlined context was a trigger for the tribunal to conclude that the payment was established.98
After the Chairman’s admission of a “personal donation” payment to the President in order to attain the contract upon which the case was motivated, the claims were dismissed for public policy reasons. The ICSID tribunal established that corruption in both its forms, active or passive, and bribery are punishable by criminal law in great part of the world,99 is supported by several international Conventions, showing a united front to undermine
91 World Duty Free Co. Ltd. v. The Republic of Kenya, ICSID Case No. ARB/00/7, Award dated Oct. 4, 2006 (n 36). (para. 130) 92 ibid. 93 ibid. (para. 131) 94 ibid. (para. 110, 120, 133) 95 ibid. (para. 136) 96 ibid. (para. 166) 97 ibid. (para. 167) 98 ibid. (para. 132) 99 ibid. (para. 142)
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this practice by going beyond national normative but through global cooperation, getting a new scenario and reinforcing its rejection.100 Moreover, the tribunal established bribery
as contrary to the international public policy of most, if not all, states.101
The WDF contract was ruled by Kenyan law additionally to the application of English law in case of the constitution of a tribunal102 and so the tribunal found no discrepancy because there was no material difference on the disputed aspects at English and Kenyan common law,103 deducing that the contract was void under both laws104 and therefore dismissing the claims in addition to commanding the parties to bear their procedural and legal costs.105
e. Conditions, Consequential actions and Considerations on future tribunals impact
In this kind of cases it is remarkable the difficulty to establish which party should bear the burden of proof and even more what proving corruption allegations entails, such is the issue that a set of unique guidelines has been developed for this specific area. Normally the burden of proof relies on the party alleging corruption to prove it; though most courts and tribunals differ as to the applicable standard of proof, although the majority require more compelling evidence to prove corruption, the standard applied by international courts and tribunals is normally flexible, granting discretionary powers to tribunals to sort out substantiation “are neither rigid nor technical”;106 corruption nevertheless may be proven through circumstantial, rather than direct, evidence; and tribunals have the ability to produce adverse inferences against either party for failing to produce evidence.107 Only in a scarce amount of cases has been successful to prove the investor illegal behaviour, and even then, such achievement is tainted by dooming admissions executed by the party involved in the bribes.
100 ibid. (para. 146) 101 ibid. (para. 157) 102 ibid. (para. 158)
103 ibid. (para. 159) (“…a state contract procured by bribing a state officer is legally unenforceable, as an affront to the public conscience. The fact that the transaction is performed outside England or is subject to a law other than English law is immaterial…. In the Tribunal’s view, this same statement describes the converse position at common law in Kenya.”)
104 ibid. (para. 188) 105 ibid. (para. 192)
106 Greenwald and Ivers (n 39). 107 ibid. (p. 15 et seq.)
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It is not under dispute that arbitral tribunals may and should address corruption allegations when a hint of its existence is raised because arbitrators particularly are invested with a “responsibility to the administration of justice” that goes alongside the autonomy given by domestic courts; great efforts by public a private sectors are being made to remove this and so, arbitrators should be an active part of that process rather than staying on the side-lines and being an accomplice since the core of the issue revolves around the each nation’s non-effective domestic judicial powers;108 but the practice suggests that arbitral tribunals are not keen to dive themselves into corruption allegations as easily because of the implied limitations in pursuing a sua ponte investigation on corruption (arbitrator’s excess of mandate, lack of police powers and due process concerns such as right to equal treatment and right to be heard)109 logically resorting to transnational principles of public policy as legal approach without getting deeper into the issue as evidenced in the analysed cases that concluded in dismissal of claims.
Delving on the consequences of corruption, particularly, international arbitration, Greenwald and Ivers sets out four possible outcomes that summarize what has been revealed through the previously examined cases: retaliating against and causing damage to an investor for corrupt reasons would violate the state’s obligation to accord FET (see
Chevron v. Ecuador110); claims arising out of contracts procured through corruption or concluded for purposes of paying bribes would be dismissed (e.g. World Duty Free v.
Kenya); investments made through corruption would not be protected under any treaty
and would not give rise to valid claims (Metal-Tech v. Uzbekistan111); and post-investment corruption may have consequences for the merits or quantum of the claims112 (Metal-Tech v. Uzbekistan).
108 Domitille Baizeau and Tessa Hayes, The Arbitral Tribunal’s Duty and Power to Address Corruption Sua
Sponte, vol 19 (2017). (p. 235) citing B. M. CREMADES and D. J. A. CAIRNS, “Trans-national Public Policy”, p. 80.
109 ibid. (p. 243-247)
110 Chevron Corp. and Texaco Petroleum Co. v. The Republic of Ecuador, PCA Case No. 2009- 2003,
UNCITRAL, Second Partial Award on Track II dated Aug. 30, 2018. (n 30); Greenwald and Ivers (n 39). (“…such conduct amounted to a denial of justice and thus to a violation of Ecuador’s obligation to accord fair and equitable treatment”)
111 Greenwald and Ivers (n 39). (“Legality requirement (…)Israel and Uzbekistan had limited the scope of their consent in the BIT to arbitrate only disputes arising out of investments implemented in accordance with local law (…) this excluded BIT’s protection investments made through non-trivial violations of the host State’s laws, violations of its foreign investment regime, fraud, and corruption”)
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Now, in addressing common conditions it has been made clear that tribunals have developed arbitration standards for an issue to be considered as corrupt under three requirements: (i) the promise, offer, or giving of something of value; (ii) intended for a public official or another person or entity; (iii) in order for that official to take or refrain from taking official action.113 In terms of intent or mens rea, there has not been a direct approach in the previously mentioned cases114 beyond the declaration of one of the parties to being unaware of performing a bribery; but it has been established that in order to satisfy this, it is enough to reveal the individual’s acting with a bad purpose but still knowing the unlawfulness of its actions.115
As common ground, something that is a recurrent and really important issue when in presence of a corruption related case is the applicable standard of proof which determines the assessment of evidence, it has stand out because of the broad range of variations found like “standard of balance of probabilities or intime conviction” (higher amount of persuasive evidence in order to prove dubious facts) (Churchill Mining v. Indonesia), reversed burden of proof after suspicious corruption was built (prove its own innocence) later determined under six factual findings or “red flags” (Metal-Tech v. Uzbekistan), unprecedented mass of evidential material, or “balance of probabilities” (Chevron v.
Ecuador) and alleging party bears the burden of proof (WDF v. Kenya). Alongside there
is the applicability of International Law Principles when in need of guidance by the lack of stance of directly applicable normative (e.g. contract, BIT, domestic law).
This might lead tribunals into following these patterns but also developing new ones, given that each has differentiating aspects that would not allow to follow the same path, neither reach the same conclusions. As evidenced in the cases used as reference, while there is a tendency in terms of jurisdiction116 and admissibility117 for claims to be
113 Metal-Tech Ltd. v. The Republic of Uzbekistan, ICSID Case No ARB/10/3 (n 19) (para. 289); Greenwald and Ivers (n 33) (p.9-10).
114 World Duty Free Co. Ltd. v. The Republic of Kenya, ICSID Case No. ARB/00/7, Award dated Oct. 4, 2006 (n 36). (para. 130: WDF Chairman “felt uncomfortable with the idea of handing over this “personal donation” which appeared to me to be a bribe. However, this was the President, and I was given to understand that it was lawful and that I didn’t have a choice if I wanted the investment contract.”); (para. 136: “The Tribunal considers that those payments must be regarded as a bribe made in order to obtain the conclusion of the 1989 Agreement”)
115 Greenwald and Ivers (n 39). (p. 14)
116 Metal-Tech v. Uzbekistan: Tribunal lacked of jurisdiction when in presence of corruption
117 Churchill Mining v. Indonesia: claims coming from forgery inadmissible as a “matter of international public policy” (para. 528); and WDF v. Kenya: dismissed for public policy reasons on ground of
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dismissed when their grounding is tainted by forgery/corrupt practices, or even in the tribunals’ assessment of shared responsibility consequently leading to each party bearing their costs (Metal-Tech v. Uzbekistan and WDF v. Kenya); it is noticeable the differ in the evidence examination and the similar but still varied appraisal of the legality of an investment and its consequence for the investor or for the state; future tribunals would be prone to pursue the prior on behalf of consistency if some of the conditions coincide.
V.
C
RITICALA
SSESSMENTIn an attempt to establish a well-rounded analysis, it is important to have look into certain aspects that have an impact on the subject at hand such as the approach taken in the aforementioned cases and whether is friendly towards the investor or the home state; the current institutional crisis that the ISDS is undergoing, particularly the “balancing issue” and if the studied cases do incur on this critic; alongside a brief assessment on the current circumstances (COVID-19), evaluating if this event is incurring and/or will incur in the future of corruption related arbitration cases and therefore its system.
a. Analysed Cases
The reasoning behind the dismissal of the cases on corruption grounds have raised attribution issues by commentators118 who consider that bribery as a “bilateral” act needs both the investor and the home state official contribution. Accordingly, to let states use this fact as a defence would not be fair and even develop negatively into “incentives” since “the more corrupt the state’s officials, the less liable the state becomes”.119 Under article 7 of Articles on the Responsibility of States for Internationally Wrongful Acts (“ARSIWA”),120 it is clear that a state’s official act on his private sphere does not translate into imputable to the state but if on the other hand, the official ultra vires act is invested by official capacity is considered as the state acting under international law.
In WDF v. Kenya, the tribunal explained that Kenya did not have knowledge of the President’s payment until the arbitration proceedings and therefore was not able to affirm
118 Bernardo Cremades, ‘“Corruption in Investment Arbitration,” in Global Reflections On International Law, Commerce And Dispute Resolution: Liber Amicorum Robert Briner, Gerald Aksen (Ed.)’ 948 p. 119 Greenwald and Ivers (n 39).
120 International Law Commission, ‘Responsibility of States for Internationally Wrongful Acts (2001)’ (2001) II United Nations Publications
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it or waive its rights “based on the knowledge of the Kenyan President attributable to Kenya”.121 The tribunal then expressed that this “was a covert bribe; and accordingly, its receipt is not legally to be imputed to Kenya itself. If it were otherwise, the payment would not be a bribe.”122
Furthermore, even when neither the investors nor the state officials were held accountable for corrupt actions in Metal-Tech v. Uzbekistan and WDF v. Kenya cases, the tribunals response was to dismiss the claims in its entirety. It was additionally mentioned by the tribunal how deeply disrupting in Kenya’s case was that this is not a common government official that was bribed and even more so that the act was introduced not by WDF but by the President himself, adding up to the fact that no effort has been made domestically to make him responsible of his corrupt act;123 nevertheless this is not new, this kind of injustice has been expressed in earlier litigations and had been addressed on behalf of public policy and so the law safeguards the public and not the parties in dispute, and by public it is referring to the tax-payers and citizens124 and so, by quoting Lord Mansfield, the tribunal expressed that the public policy general principle is that a court will not give a hand to someone whose cause of action is instituted in immoral or illegal behaviour.125 In Metal-Tech v. Uzbekistan there was complaint by the Claimant because nobody within the governmental-related sphere to this project was held responsible126 but the tribunal only stated that even when in these kind of situations it is normally perceived as unfairer for claimants, the aim is not to condemn one party instead of the other but for the rule of law to reign, something that consequently implies that it is not possible to aid a party previously involved in corruption.127
Both Metal-Tech and WDF cases, established that even if the state makes use of corruption in its favour as a defence, likewise as consequence to its failure to prosecute the tribunal would award costs to both parties128; and decide additionally a fortiori as
121 World Duty Free Co. Ltd. v. The Republic of Kenya, ICSID Case No. ARB/00/7, Award dated Oct. 4, 2006 (n 36). (paras. 184-185)
122 ibid. (para. 169) 123 ibid. (para. 180) 124 ibid. (para. 181)
125 ibid. (Lord Mansfield in Holman v. Johnson (1775) 1 Cowp. 341, 343 “ex dolo malo non oritur actio”) 126 Metal-Tech Ltd. v. The Republic of Uzbekistan, ICSID Case No ARB/10/3 (n 24). (para. 336)
127 ibid. (para. 389)
128 ibid (para. 422); World Duty Free Co. Ltd. v. The Republic of Kenya, ICSID Case No. ARB/00/7, Award
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lacking on jurisdiction on state’s counter-claims in light of corruption practices, this last part evidenced in the Metal-Tech case.129
On the other hand, Churchill Mining v. Indonesia’s dismissal of claims was justified by the tribunal consequently to being “based on documents forged to implement a fraud aimed at obtaining mining rights”;130 but given that there was not found an established consequence to investor’s or its partners illicit behaviour within the applicable normative (BIT and ICSID Convention) after a look into relevant jurisprudence, the conclusion was to keep the inadmissibility on grounds of “international public policy”. This reveals that investors are held accountable too, not only for their acts but for their partners acts too; that if the state wants to secure responsible investor acting it has to be explicitly drafted within the treaty given that it’s the tribunals’ first reference; that investor fraud is under the category of public order by being fraud-based so the right is contaminated by fraud, but if it would have been performed during the investment itself then it would remain inconsequential in terms of arbitration.131
Finally, Chevron v. Ecuador proves the other side of the coin in terms of consequences, while claims like Churchill Mining and WDF cases are found to be inadmissible because claims based on a contract or investment executed with corrupt methods are doomed to be dismissed, in this scenario the state was found liable for the damaging consequences that paying a bribery caused to Chevron on behalf of the violation to accord FET.132
i. Is the investor-state arbitration friendly to a particular party in the aforementioned disputes?
Some of these consequences benefit investor as Claimant and others do the opposite letting the state have its way, but in terms of decision-making patterns, which is the one that actually has a tendency to believe itself to have a leverage in terms of corruption? The mind goes instinctively to Claimant, but after what has been uncovered it is definitely not so easy to respond.
There are some things that stand out in the cases that might help to establish a better judgement such as: Churchill Mining’s conclusion setting that in order for a state to
129 Metal-Tech Ltd. v. The Republic of Uzbekistan, ICSID Case No ARB/10/3 (n 24). (para. 423)
130 Churchill Mining and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and
12/40, Award, 6 December 2016 (n 19). (para. 528-531)
131 Bernasconi-Osterwalder and Johnson (n 38). (p. 38) 132 Greenwald and Ivers (n 39).
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expect non-corruption investor behaviour explicitly agreed in the treaty; when, in entering an agreement, contract or treaty it is expected for parties to act in accordance with the law, more so with something so obvious as to stay clear out of corrupt deeds, so rightful and honest behaviour should be expected and without the need to be written in order to be punishable, this might be seen as a quite a restricted approach.
Another aspect addressed in the same case is that if the corruption would have been performed during the investment itself (opposite to Chevron’s), then it would remain inconsequential in terms of arbitration, more or less equivalent to the international law “principle of clean hands”, doctrinal approach which developed within international investment law as the “legality requirement”, suitable to explain this; in this context operates as a jurisdictional bar, the analysis of the legality is limited to the investment-establishment stage, not to the post-investment-establishment conduct and thus, does not need to be mentioned in the treaty.133. The problem with this is that, as stated before, this is a bilateral act that naturally involves both parties134, meaning that corruption is an important enough problem to be dismissed on behalf of technicalities as this particular approach seems to develop, that if not done in a particular moment then it is not assessed by the tribunal, the gravity and consequences of a state involved into such immoral practice should open enough concerns to not be dismissed, or at least not with these arguments that might let the state get away with it.
b. Current challenges facing international investment arbitration – Addressing the “unbalance” issue
Brower and Blanchard address this issue expressing that there are two currents within the critique but neither has been supported by evidence. One that sustains itself in the figure of biased arbitrators while the other upholds that treaty protection and investor-state arbitration structurally benefit investors.135
The reciprocity relationship of obligations and benefits in investment treaties is normally perceived as quid pro quo, it is suggested though that in treaties related to foreign investment obligations are located mainly on the host state without equal responsibilities
133 Jamal Seifi and Kamal Javadi, ‘The Consequences of the Clean Hands Concept in International Investment Arbitration’ (2013) 19 Asian Yearbook of International Law 122. (p. 3)
134 Cremades (n 118).
135 Charles N Brower and Sadie Blanchard, ‘What’s in a Meme? The Truth about Investor-State Arbitration: Why It Need Not, and Must Not, Be Repossessed by States’ (2014) 52 Columbia Journal of Transnational Law 689.
