I Introduction and Overview
This chapter addresses the issue of misconduct and impropriety by claimants and investors in investor–state arbitration, including corruption, bribery, fraud, illegality and abuse of process.2 Investor–state tribunals consistently deny such claims, at either the jurisdiction and admissibility, or merits phase, often awarding costs to the state. However, tribunals have not clearly articulated the burden and standard of proof for such allegations, and greater consistency and clarity is needed in this important area.
Section II of this chapter summarises cases in which tribunals have dismissed claims on the basis of misconduct by the claimant or investor, across three broad categories: (1) corruption and bribery; (2) fraud, illegality, misrepresentation or lack of good faith; and (3) abuse of process. Section III discusses the timing of challenges by states based on investor misconduct, and Section IV examines the burden and standard of proof for such allegations. Section V summarises remedies available to tribunals and states when faced with investor misconduct (or allegations or suspicions thereof), and Section VI sets out our conclusions.
II Cases Involving Investor Misconduct
This section summarises cases where the investor misconduct has been 'outcome-determinative', leading to dismissal of the case, and does not address cases where tribunals have rejected such allegations, or where the claim has been dismissed on other bases, such as lack of ratione temporis jurisdiction. Cases are presented in chronological order, to illustrate the jurisprudential evolution.
i Corruption and bribery in relation to the investment
Corruption is widely condemned under international and national law for its far-reaching economic, social and political impact.3 As noted by former UN Secretary-General Kofi Annan:
Corruption is an insidious plague that has a wide range of corrosive effects on societies. It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life and allows organized crime, terrorism and other threats to human security to flourish.4
To date, only three tribunals have dismissed investor–state claims on the basis of corruption or bribery; two are discussed herein.5
World Duty Free v. Kenya (2006)
The first investor–state tribunal to dismiss a claim on the basis of corruption was in World Duty Free v. Kenya. The claimant alleged expropriation of its contractual rights regarding duty-free concessions in airports.6 Remarkably, the claimant's CEO admitted in his witness statement to making a 'personal donation' of US$2 million to the Kenyan President. The CEO testified that he felt 'uncomfortable' about this 'donation', but 'was given to understand that it was lawful and that [he] didn't have a choice if [he] wanted [his] investment contract'.7
Perhaps unsurprisingly, in light of this direct admission by the claimant, the tribunal dismissed the claims on the basis of 'international public policy common to the community of nations', as the original investment was procured through bribery.8 The tribunal found that the claimant 'is not legally entitled to maintain any of its pleaded claims in these proceedings', denouncing corruption in the following terms:
Such corruption is more odious than theft; but it does not depend upon any financial loss and it requires no immediate victim. Corruption of a state officer by bribery is synonymous with the most heinous crimes because it can cause huge economic damage; and its long-term victims can be legion. The offence lies in bribing a person to exercise his public duty corruptly and not in accordance with what is right and proper for the state and its citizens. Like any other contract, a state contract procured by bribing a state officer is legally unenforceable, as an affront to the public conscience.9
The tribunal found that 'there can be no successful party on the merits in the traditional sense' and directed each party to bear its own costs and fees.10
Metal-Tech v. Uzbekistan (2013)
The claimant alleged expropriation of its investment in a plant for the production of molybdenum. The state objected to jurisdiction on the basis of, inter alia, alleged corruption in the making and operation of the investment.11 The chair and CEO of the claimant testified that he paid US$4 million to consultants with connections to state officials, including the brother of the Prime Minister, but maintained that these payments were for lobbying services.12
The tribunal dismissed the claim on the basis of lack of jurisdiction, because the investment had not been 'implemented in accordance with the laws and regulations of the Contracting Party in whose territory the investment is made', as required by Article 1(1) of the relevant BIT.13 The tribunal found that the claimant had failed to substantiate the services provided by the consultant. In reaching this conclusion, the tribunal emphasised the need to promote the rule of law:
While reaching the conclusion that the claims are barred as a result of corruption, the Tribunal is sensitive to the ongoing debate that findings on corruption often come down heavily on claimants, while possibly exonerating defendants that may have themselves been involved in the corrupt acts. It is true that the outcome in cases of corruption often appears unsatisfactory because, at first sight at least, it seems to give an unfair advantage to the defendant party. The idea, however, is not to punish one party at the cost of the other, but rather to ensure the promotion of the rule of law, which entails that a court or tribunal cannot grant assistance to a party that has engaged in a corrupt act.14
The tribunal ordered the parties to bear their own costs, on the basis that the state had participated in 'creating the situation that leads to the dismissal of the claims' (i.e., the corruption).15
- To date, only three tribunals have dismissed claims on the basis of bribery or corruption (World Duty Free v. Kenya, Metal-Tech v. Uzbekistan and Spentex v. Uzbekistan).
- The claims were dismissed on the basis of 'international public policy', and lack of jurisdiction or inadmissibility, namely lack of a protected 'investment'.
- In relation to costs, in World Duty Free v. Kenya and Metal-Tech v. Uzbekistan, the tribunals directed the parties to bear their own costs. However, in Spentex v. Uzbekistan, the tribunal apparently directed the state to donate to a United Nations anti-corruption initiative, and then ordered the costs of the arbitration to be split equally between the parties.
- Some commentators have criticised these awards for permitting a state to rely on its own wrongful conduct to escape liability.16
- Some commentators suggest that allegations of corruption are likely to increase in investor–state disputes, and tribunals have a duty to investigate a potential issue of corruption sua sponte, to ensure the enforceability of the award.17
- Allegations of corruption or bribery may also lead to settlement of the dispute.18
- In most cases to date, allegations of bribery or corruption have been dismissed on the basis of insufficient evidence.19 This issue is discussed further in Section IV, regarding the burden and standard of proof.
ii Fraud, illegality, misrepresentation or breach of good faith
To date, at least nine tribunals have dismissed investor–state claims on the basis of fraud, illegality, misrepresentation or breach of good faith.20 Three are discussed herein, together with one case where the tribunal found that the investor had 'cured' the relevant illegality.
Inceysa v. El Salvador (2006)
The claimant alleged expropriation of its contractual rights in relation to vehicle inspection services, awarded in a public bid process. The state objected to jurisdiction on the basis of alleged fraud.
The tribunal found that the claimant's contract bid was based on forged financial documents regarding its financial condition, intentional misrepresentation of its experience and qualifications, and concealment of its relationship with another bidder.21 The tribunal held that it had no jurisdiction on the basis of, inter alia, lack of consent, fraud, illegality, international public policy and lack of good faith:
[T]he foreign investor cannot seek to benefit from an investment effectuated by means of one or several illegal acts and, consequently, enjoy the protection granted by the host State, such as access to international arbitration to resolve disputes, because it is evident that its act had a fraudulent origin and, as provided by the legal maxim, “nobody can benefit from his own fraud”.
. . .
By falsifying the facts, Inceysa violated the principle of good faith from the time it made its investment and, therefore, it did not make it in accordance with Salvadorian law. Faced with this situation, this Tribunal can only declare its incompetence to hear Inceysa's complaint, since its investment cannot benefit from the protection of the BIT, as established by the parties during the negotiations and the execution of the agreement.
. . .
It is not possible to recognize the existence of rights arising from illegal acts, because it would violate the respect for the law which . . . is a principle of international public policy.22
Although the relevant BIT did not expressly require an investment to be made 'according to law', the tribunal considered correspondence exchanged during the negotiation of the treaty and determined that the state parties intended to exclude investments in contravention of the host state's laws from the scope of the BIT.23 The tribunal ordered the claimant to pay the costs of the proceedings, while each party was responsible for its own legal fees.24
Plama v. Bulgaria (2008)
The claimant alleged expropriation and other breaches of the Energy Charter Treaty (ECT) in relation to an oil refinery. The state objected to jurisdiction on the basis that, inter alia, the claimant 'obtained its investment . . . via misrepresentations in violation of Bulgarian law'.25
In the jurisdictional phase, the tribunal reserved its decision on this issue, and 'join[ed] the issue of misrepresentation to the consideration of the merits of the case'.26 The tribunal ultimately dismissed the claim, on the bases that the investment was obtained through fraud and misrepresentation, in breach of the principle of good faith and international public policy, and contrary to Bulgarian and international law:
The investment . . . was, therefore, the result of a deliberate concealment amounting to fraud, calculated to induce the Bulgarian authorities to authorize the transfer of shares to an entity that did not have the financial and managerial capacities required to resume operation of the Refinery . . . . [T]his behavior is contrary to other provisions of Bulgarian law and to international law and . . . it, therefore, precludes the application of the protections of the ECT.
. . .
[G]ranting the ECT's protections to Claimant's investment would be contrary to the principle nemo auditur propriam turpitudinem allegans  . . . It would also be contrary to the basic notion of international public policy – that a contract obtained through wrongful means (fraudulent misrepresentation) should not be enforced by a tribunal.
. . . The Tribunal finds that Claimant's conduct is contrary to the principle of good faith which is part not only of Bulgarian law . . . but also of international law.28
The tribunal reached this conclusion even though the ECT 'does not contain a provision [expressly] requiring the conformity of the Investment with a particular law'.29 The tribunal ordered the investor to pay over US$7 million of the state's legal fees and costs.30
Anderson v. Costa Rica (2010)
The claimant alleged that the state failed 'to provide proper vigilance and regulatory supervision over the national financial system'.31 The state objected to jurisdiction on the basis that, inter alia, there was no investment, as the claimants had invested money in what turned out to be an illegal 'Ponzi scheme' run by two brothers (the Villalobos brothers).32
The tribunal dismissed the claim on the basis of lack of jurisdiction ratione materiae. The tribunal noted that the BIT expressly required all investments to be 'made' or 'owned' in accordance with the law, and this requirement had to be met 'regardless of [the investor's] knowledge of the law or his or her intention to follow the law'.33 The tribunal found that the Villalobos brothers engaged in financial intermediation without the authorisation of the relevant state authority, the Central Bank, in contravention of Costa Rican law and the resulting acquisitions by the claimant were not legal:
The entire transaction between the Villalobos brothers and each Claimant was illegal because it violated the Organic Law of the Central Bank. If the transaction by which the Villalobos acquired the deposit was illegal, it follows that the acquisition by each Claimant of the asset resulting from that transaction was also not in accordance with the law of Costa Rica. Although the Claimants may not have committed a crime by entering into a transaction with the Villalobos, the fact that they gained ownership of the asset in violation of the Organic Law of the Central Bank means that their ownership was not in accordance with the laws of Costa Rica and that therefore each of their deposits and resulting relationships with Villalobos did not constitute an “investment” under the BIT.34
The tribunal noted that this interpretation reflects 'sound public policy' and 'sound investment practice', and these investors had not undertaken sufficient due diligence before committing funds.35 The tribunal directed the parties to share the costs and fees of the arbitrators and ICSID, and to bear their own legal expenses.36
Mamidoil v. Albania (2015)37
The claimant commenced arbitration to resolve a dispute in relation to a lease in the country's main port to build an oil storage container. The state objected to jurisdiction on the basis that the investor failed to acquire the necessary permits and the 'purported investment . . . never acquired any legal status under Albanian law'.38
The tribunal dismissed the objections to jurisdiction, but ultimately found in favour of the state on the merits. On jurisdiction, the tribunal noted that the BIT expressly required legality of an investment, and that illegality of an investment may occur through breach of substantive law (i.e., 'it does not comply with material norms regulating investments') or procedural 'norms and regulations', such as fraud or corruption.39 The tribunal noted that 'not every trivial, minor contravention of the law should lead to a refusal of jurisdiction':
[The Tribunal] must strike a balance between two criteria. On the one hand, neither Claimant nor the Tribunal may presume that the host State waives its sovereignty and agrees to the arbitration of disputes when the investor made the investment in violation of its substantive or procedural legislation. On the other hand, States must not be allowed to abuse the process by scrutinizing the investment post festum with the intention of rooting out minor or trivial illegalities as a pretext to free themselves of an obligation. A State must act consistently with its obligations and not resist jurisdiction because it wants to escape the consequences of its standing agreement to arbitrate.40
In the circumstances of this case, the tribunal concluded that although the investment was originally made in violation of Albanian law, 'the real issue is less one of the seriousness or triviality of the illegality but, rather, concerns finality' because the state's actions, including its offers to regularise or legalise the investment, were indications 'that it was ready to disregard the illegality for the past, to suspend it for the present and to repair it for the future'.41 The tribunal concluded:
It is true that a State cannot be expected to have consented to an arbitral dispute settlement mechanism for investments made in violation of its legislation. However, it can be expected to accept the jurisdiction of an arbitral tribunal when, in that State's own appreciation, the illegality of the investment was susceptible of being cured, as that State's legalization offers show.42
In these circumstances, the tribunal found that it had jurisdiction to hear the case, but ultimately (by majority) rejected the claims on the merits.43 The illegality issue was thus not 'outcome-determinative' in this case, but it is included in this chapter in light of the unusual factual scenario (illegality cured by subsequent state conduct).
- When an investor commits fraud, misrepresents material facts, violates the law of the host state or international law, or does not act in good faith, tribunals will generally dismiss the claim on jurisdictional or admissibility grounds or, less commonly, during the merits phase.44
- Tribunals will dismiss the claim even where the relevant treaty does not expressly require an investment to be made in good faith, or in accordance with the law of the host state or international law.45
- Tribunals will generally not accept jurisdiction over an illegal investment, even if the investor was unaware of the illegal nature of the investment (Anderson v. Costa Rica).
- Tribunals may accept jurisdiction over an illegal investment if the state has subsequently 'cured' the illegality, or otherwise waived the illegality issue (Mamidoil v. Albania).
- In assessing the legality of an investment, tribunals generally consider:
- Some tribunals have distinguished between illegality in procuring the investment, which is generally considered an issue of jurisdiction or admissibility, and illegality in operating the investment, which is generally considered an issue for the merits.49
- Where tribunals have found illegality, fraud, misrepresentation or a breach of good faith, the claimant is generally ordered to pay all or part of the state's costs.50
iii Abuse of process
To date, at least 12 tribunals have dismissed investor–state claims on the basis of abuse of process (also known as 'abuse of right').51 Six are discussed herein.
Phoenix Action v. Czech Republic (2009)
The claimant alleged expropriation in relation to metal companies. Ownership of these companies was transferred from Czech nationals to the Israeli claimant while disputes involving these companies were pending before Czech courts.52 The state objected to jurisdiction on the basis of, inter alia, there being no 'investment' within the meaning of the ICSID Convention or the BIT; and the claimant's 'abuse of a corporate structure'.53
The tribunal dismissed the claim on the basis of lack of jurisdiction, concluding that: 'only investments that are made in compliance with the international principle of good faith and do not attempt to misuse the system are protected'; and an investment made 'not for the purpose of engaging in economic activity, but for the sole purpose of bringing international litigation against the [state]' was not a 'good faith' investment and therefore was not entitled to protection:
The purpose of the international mechanism of protection of investment through ICSID arbitration cannot be to protect investments made in violation of the laws of the host State or investments not made in good faith, obtained for example through misrepresentation, concealments or corruption, or amounting to an abuse of the international ICSID arbitration system. In other words, the purpose of international protection is to protect legal and bona fide investments.
. . . States cannot be deemed to offer access to the ICSID dispute settlement mechanism to investments not made in good faith. The protection of international investment arbitration cannot be granted if such protection would run contrary to the general principles of international law, among which the principle of good faith is of utmost importance.54
. . .
The Tribunal is concerned here with the international principle of good faith as applied to the international arbitration mechanism of ICSID. The Tribunal has to prevent an abuse of the system of international investment protection under the ICSID Convention, in ensuring that only investments that are made in compliance with the international principle of good faith and do not attempt to misuse the system are protected.55
The tribunal considered that 'the whole “investment” was an artificial transaction to gain access to ICSID', was not bona fide, and was an abuse of process:
The abuse here could be called a “détournement de procedure”, consisting in the Claimant's creation of a legal fiction in order to gain access to an international arbitration procedure to which it was not entitled. . . . The conclusion of the Tribunal is therefore that the Claimant's initiation and pursuit of this arbitration is an abuse of the system of international ICSID investment arbitration.56
The tribunal ordered the claimant to bear all the costs and fees of the state.57
This appears to be the first investor–state decision dismissing a claim based on abuse of process.58
Europe Cement v. Turkey (2009) and CNH v. Turkey (2009)
These cases relate to hydroelectric plants repossessed by the state in 2003.59 In both cases, the claimants originally alleged that, prior to their repossession, they were non-Turkish investors. However, both cases were 'unusual' in that the parties eventually agreed that the case should be dismissed for lack of jurisdiction, albeit differing on the reasons for this request.60 In both cases, the tribunals found that the true claimants were Turkish nationals (the Uzan family) improperly trying to obtain the protection of the ECT by backdating share transfer transactions and other documents purporting to show timely ownership.61
The tribunal in Europe Cement v. Turkey found that 'the claim to ownership of the shares at a time that would establish jurisdiction was made fraudulently.'62 The tribunal found that 'there was in fact no investment at all, at least at the relevant time, and the lack of good faith is in the assertion of an investment on the basis of documents that according to the evidence presented were not authentic.'63 The tribunal concluded that the claimant had not acted in good faith and had committed an abuse of process, although this finding was not, strictly speaking, necessary, as the tribunal had already concluded that there was no 'investment':
If, as in Phoenix, a claim that is based on the purchase of an investment solely for the purpose of commencing litigation is an abuse of process, then surely a claim based on the false assertion of ownership of an investment is equally an abuse of process.64
Similarly, in CNH v. Turkey, the tribunal found that the claim was 'fraudulent' and an abuse of process because the claimant has 'intentionally and in bad faith abused the arbitration; it purported to be an investor when it knew that this was not the case. This constitutes indeed an abuse of process'.65 The tribunal also found that the claimant's conduct 'fails to meet the requisite standard of good faith conduct. The claim is manifestly ill-founded'.66
In both cases, the tribunals rejected the state's requests for moral damages arising from the claimant's abuse of process.67 However, the tribunals ordered the claimants (collectively) to pay the state's legal fees, expenses and costs (approximately: US$5 million for CNH; US$4 million for Europe Cement; plus US$15 million for the parallel Libananco claim).68
Philip Morris v. Australia (2015)
The claimant alleged expropriation and other breaches of international law in relation to tobacco 'plain packaging' measures. Ownership of the relevant assets was transferred to a Hong Kong company two months before the final state measure.69 The state objected to jurisdiction on the basis that, inter alia, the claimant had restructured its corporate group with the principal aim of commencing BIT arbitration.
The tribunal found that the claims were inadmissible and thus it was 'precluded' from exercising jurisdiction; the test for abuse of right or process revolved 'around the concept of foreseeability'; and a dispute is foreseeable when there is 'a reasonable prospect' that 'a measure which may give rise to a treaty claim will materialise'.70 The tribunal found that this dispute was foreseeable at the time of the restructuring, and rejected the claimant's assertion that the restructuring had been for tax or other business reasons.71
The tribunal concluded that:
[T]he commencement of treaty based investor-state arbitration constitutes an abuse of right (or abuse of process) when an investor has changed its corporate structure to gain the protection of an investment treaty at a point in time where a dispute was foreseeable.72
In relation to costs, the tribunal ordered the claimant to bear at least some of the costs of the arbitration; the exact amount is unknown as the costs award is redacted.73 The tribunal stated: 'While a finding of abuse of right does not imply any bad faith on the part of a claimant . . . a respondent State that faces an abuse of right should, in principle, not be burdened with the costs of defending itself against such a claim.'74
Ampal v. Egypt (2016)
Various corporate and individual claimants commenced a number of UNCITRAL, ICSID and International Chamber of Commerce arbitrations in parallel under various BITs and contracts, to resolve a dispute in relation to a gas pipeline in Egypt.75 The state objected to jurisdiction in the ICSID case on the basis of, inter alia, abuse of process.76
In November 2015, the UNCITRAL tribunal apparently upheld jurisdiction over the claim under the Egypt–Poland BIT.77 In February 2016, the ICSID tribunal (hearing the claim under the Egypt–US and Egypt–Germany BITs) found that, in one specific circumstance, pursuit of the two parallel BIT proceedings with overlapping claims 'crystallized' an abuse of process, but emphasised that there was no bad faith and the parallel proceedings were not abusive per se:
The Tribunal agrees with the Respondent that the four parallel arbitration[s] with, essentially, the same factual matrix, the same witnesses and many identical claims may look abusive. However, subject to one important qualification . . . the Tribunal is not persuaded that the four arbitral proceedings collectively or individually amount to an abuse of process.
It is possible, as a jurisdictional matter, for different parties to pursue distinct claims in different fora seeking redress for loss allegedly suffered by each of them arising out of the same factual matrix. . . . None of the four arbitrations at issue here is, per se, an abuse. It may not be a desirable situation but it cannot be characterized as abusive especially when the Respondent has declined the Claimants' offers to consolidate the proceedings.
However, there is one important exception to this finding of the Tribunal. It concerns the overlap of claims by Mr. Maiman in the present case and the UNCITRAL arbitration (the two treaty cases) for the recovery of the same sum.
. . . This is tantamount to double pursuit of the same claim in respect of the same interest. In the Tribunal's opinion, while the same party in interest might reasonably seek to protect its claim in two fora where the jurisdiction of each tribunal is unclear, once jurisdiction is otherwise confirmed, it would crystallize in an abuse of process for in substance the same claim is to be pursued on the merits before two tribunals. However, the Tribunal wishes to make it very clear that this resulting abuse of process is in no way tainted by bad faith on the part of the Claimants as alleged by the Respondent. It is merely the result of the factual situation that would arise were two claims to be pursued before different investment tribunals in respect of the same tranche of the same investment.78
The ICSID tribunal invited the claimants to 'cure' the abuse of process by electing to pursue their claims before either the UNCITRAL tribunal or the ICSID tribunal.79 The ICSID claimants then withdrew a portion of their claims in the parallel UNCITRAL arbitration, and thus 'cured' the abuse of process.80 The commercial arbitration claims also proceeded under the relevant contracts.
Churchill Mining v. Indonesia (2016)
The claimants commenced arbitration to resolve a dispute in relation to coal mines. The state asked the tribunal to dismiss all claims on the basis that the survey mining licences and related approvals were forged and fabricated, and the upgrade to exploitation licences was secured through deception and fraud.81
The tribunal noted that the ICSID Convention and the relevant BITs did not 'address . . . the consequences of unlawful conduct by claimant . . . during the performance of an investment' and the BITs only contained 'admission requirements applying at the time of establishment of an investment'.82 The tribunal thus considered general principles of international law to determine the consequences of the forgeries, and found the claims to be inadmissible as a matter of international public policy and as they were an abuse of process:
[C]laims arising from rights based on fraud or forgery which a claimant deliberately or unreasonably ignored are inadmissible as a matter of international public policy.
. . .
[T]he Tribunal cannot but hold that all the claims before it are inadmissible. This conclusion derives from the facts analyzed above, which demonstrate that the claims are based on documents forged to implement a fraud aimed at obtaining mining rights . . . the seriousness, sophistication and scope of the scheme are such that the fraud taints the entirety of the Claimants' investment . . . As a result, the general principle of good faith and the prohibition of abuse of process entail that the claims before this Tribunal cannot benefit from investment protection under the Treaties and are, consequently, deemed inadmissible.83
In reaching this conclusion, the tribunal emphasised the seriousness of the fraud, and the claimants' lack of due diligence overseeing the licensing process and forgery allegations.84 The tribunal ordered the claimants to pay 75 per cent of the state's expenses, plus the full tribunal and ICSID costs.85
- When an investor commits an abuse of process, tribunals will generally dismiss the claim on jurisdictional or admissibility grounds, or, less commonly, during the merits phase.
- Tribunals will generally dismiss the claim even when the relevant treaty does not refer to 'abuse of process' (which most treaties do not).
- Abuse of process generally 'denotes conduct that is not prima facie illegal'.86 Thus, abuse of process is distinct from illegality as an objection to jurisdiction or admissibility, but overlaps with the notion of conduct that is not in good faith.87 Cases that were decided solely on 'good faith' grounds before 2009 would perhaps also now be decided on 'abuse of process' grounds.
- Tribunals generally recognise a distinction between abuse of process and procedural abuse (also known as due process abuse), such as a pre-hearing 'document dump'.88
- To date, tribunals have found an abuse of process in three situations: (1) claimants attempting to establish international jurisdiction under an investment treaty by transfer of ownership or corporate restructuring while a dispute is pending or foreseeable (Philip Morris v. Australia) (this is separate from, but potentially overlaps with, ratione temporis issues); (2) claimants pursuing parallel proceedings in different international forums involving essentially the same dispute (Ampal v. Egypt; Orascom v. Algeria); or (3) false or fraudulent assertions of ownership, involving forged documents (CNH v. Turkey; Europe Cement v. Turkey; Churchill Mining v. Indonesia).
- In relation to bullet (e), point (1), the line between legitimate corporate restructuring and 'abuse of process' can be difficult to distinguish. One key issue is whether the dispute is 'actual', 'foreseeable', 'highly probable' or 'crystallized'.89 Tribunals will also consider:
- the timing of the investment;
- the timing of the claim;
- the substance of the transaction;
- the true nature of the operation, for example, any 'economic activity in the market place', business plan, refinancing programme and economic objectives; and
- the degree of foreseeability of the government action.90 Tribunals should be cautious in labelling corporate restructuring an 'abuse of process'.
- In some circumstances, the abuse of process may be 'cured' by the claimant (Ampal v. Egypt) (similar to an illegality being 'cured' or 'waived' by the state, as discussed above, Mamidoil v. Albania).
- To date, no tribunal has awarded moral damages to the state arising from an abuse of process, although it has been requested on at least two occasions.91
- Most tribunals award full or partial costs to the state, when dismissing a case on the basis of abuse of process.92
III Timing of the Challenge
In ICSID arbitrations, a respondent state may raise a challenge on the basis of alleged claimant misconduct at virtually every stage of the proceedings.93
First, a respondent state may raise a preliminary objection pursuant to ICSID Rule 41, asking the tribunal to reject the claim as 'manifestly without legal merit'.94
Second, the state may raise issues of investor misconduct as a jurisdictional or admissibility objection, pursuant to Article 41 of the ICSID Convention.95 At this point, the tribunal may bifurcate the proceedings, and render a decision on jurisdiction or admissibility only, or join jurisdictional issues to the merits.
Third, the state may raise the objection in the merits phase, for example, when evidence of investor misconduct emerges during cross-examination of a factual witness.96
Fourth and finally, a state may request revision or annulment of the award on the basis of investor misconduct, pursuant to Articles 51 and 52 of the ICSID Convention, as was done in Siemens v. Argentina. However, new allegations or evidence of investor misconduct may not be raised in the annulment phase.97
For non-ICSID arbitrations, the respondent state may, depending on the applicable arbitration rules, raise allegations of investor misconduct as a preliminary objection, in the merits phase, in applications for recognition and enforcement, or in challenges to the award.
IV Proving Misconduct – Burden and Standard of Proof
Once a respondent state has raised a challenge based on investor misconduct, at whatever stage of the proceedings, the state must then prove that allegation – but the question of burden and standard of proof remains unsettled.98
i Burden of proof
Tribunals have adopted different approaches to determine the burden of proof for establishing investor misconduct. Generally, the burden of establishing the factual basis of the claim, as a whole, is upon the claimant. However, when it comes to proving an individual factual allegation, the burden generally rests upon the party alleging the fact, whether claimant or respondent (actori incumbit probatio, 'who asserts must prove').99
Some commentators have suggested a 'shifting burden' of proof to these evidentiary issues, at least partly due to the difficulty of procuring evidence of fraud, corruption, illegality, abuse of process and other investor misconduct.100 In other words, the state makes a prima facie showing of misconduct, through witness statements or documentary evidence, and the burden then shifts to the claimant–investor to establish that it has met the relevant requirements (legality, good faith, non-abuse of process, etc.). However, some tribunals have expressly rejected this 'shifting burden' approach.101
ii Standard of proof
The standard of proof for allegations of investor misconduct is also unsettled. Some tribunals apply a heightened standard of proof (e.g., 'clear and compelling evidence') or a more flexible standard that takes into account the difficulty of obtaining evidence of fraud, corruption and other improper conduct.
Cases endorsing a high standard of proof for allegations of investor misconduct include:
- Siag v. Egypt: the state alleged that the claimant fraudulently obtained a different nationality to manufacture treaty jurisdiction.102 Noting that '[i]t is common in most legal systems for serious allegations such as fraud to be held to a high standard of proof,' the tribunal applied a 'clear and convincing evidence' standard, which is 'greater than the balance of probabilities but less than beyond reasonable doubt'.103 The tribunal ultimately rejected the state's allegations of fraud.104
- EDF v. Romania: the tribunal rejected the claimant's allegations of attempted bribery by the state and adopted a 'high standard of proof'.105 The tribunal asserted: 'corruption must be proven and is notoriously difficult to prove since, typically, there is little or no physical evidence. The seriousness of the accusation of corruption in the present case, considering that it involves officials at the highest level of the Romanian Government at the time, demands clear and convincing evidence. There is general consensus among international tribunals and commentators regarding the need for a high standard of proof.'106 The EDF tribunal concluded that the investor's allegations of bribery had not been proven because the investor's witness lacked credibility, relied on hearsay evidence, and was not 'clear and convincing'.107
- Hamester v. Ghana: the tribunal 'examine[d] whether the investment was illegal from its very inception', and found that the state 'ha[d] not fully discharged its burden of proof in this regard'.108 There was evidence that some invoices had been inflated, but there was no proof that these invoices induced the state to sign the relevant agreement or that the alleged fraud prevented the state from entering into the agreement.
- African Holding v. Congo: the tribunal dismissed the state's allegation of corruption, finding that this allegation was 'very grave', requiring 'irrefutable evidence' and a particularly high standard of proof 'such as the evidence required for the investigation or criminal prosecution of corruption in countries where it is considered a criminal offense'.109
- Kim v. Uzbekistan: the tribunal (by majority) found that the state 'has not proven, either to the standard of “clear and convincing evidence”, or “reasonable certainty” that the payment of US$3 million to Mr Bizakov was an act contrary to the international public policy against corruption thereby rendering the claim inadmissible. The Tribunal therefore denies Respondent's objection to its jurisdiction on these grounds'.110
Commentators have recognised some contradiction in this approach, which recognises that corruption and other investor misconduct is notoriously difficult to prove and yet sets a very high standard of proof.111 Perhaps in light of this contradiction, other tribunals have adopted a lower standard of proof. For example:
- Europe Cement v. Turkey: the tribunal accepted the allegation of investor misconduct, based on 'circumstantial evidence' and the claimant's refusal to produce documents: 'the Tribunal has no direct evidence that any particular document placed before it was or was not authentic, but the implication of lack of authenticity is overwhelming. . . . Indeed, the evidence points to the conclusion that the claim to ownership of the shares at a time that would establish jurisdiction was made fraudulently.'112
- CNH v. Turkey: the tribunal noted that it 'cannot allow evidentiary perfection to be the enemy of common sense and judgment. There is ample evidence to conclude that the claimed transactions never occurred'.113
- Fraport v. Philippines Award I: the (first) tribunal rejected the claimant's request to apply a criminal standard of proof (i.e., beyond reasonable doubt) in determining whether the investor had violated Philippine law in procuring its investment.114
- Libananco v. Turkey: the tribunal recognised that fraud was a serious allegation but held that it did not require a 'heightened standard of proof'.115
Other tribunals have simply referred to multiple potential standards of proof, without deciding which standard should be applied. For example:
- Ampal v. Egypt: the tribunal dismissed the state's allegations of illegality as follows: 'whether the Tribunal applies a high standard of clear and convincing evidence or even a less demanding one or a combination thereof, in the circumstances, the Tribunal is not persuaded that the Claimants' investment was procured illegally. The Respondent's allegations are all based on innuendos. In sum, the Respondent has failed to discharge its burden of proof.'116
- Metal-Tech v. Uzbekistan: the tribunal noted that it had 'relative freedom' to determine the standard of proof in relation to allegations of corruption, because the BIT provided no instruction on this issue.117 The tribunal concluded:
While the debate about standards of proof and presumptions is an interesting one, the Tribunal finds that it does not require the application of the rules on burden of proof or presumptions to resolve the present dispute. In this case, facts emerged in the course of the arbitration. Because those facts raised suspicions of corruption, the Tribunal required explanations.
. . .
As in World Duty Free, the present factual matrix does not require the Tribunal to resort to presumptions or rules of burden of proof where the evidence of the payments came from the Claimant and the Tribunal itself sought further evidence of the nature and purpose of such payments. Instead, the Tribunal will determine on the basis of the evidence before it whether corruption has been established with reasonable certainty. In this context, it notes that corruption is by essence difficult to establish and that it is thus generally admitted that it can be shown through circumstantial evidence.118
Based on this brief survey, it appears that there is currently no consensus among international tribunals and commentators regarding the burden and standard of proof for allegations of investor misconduct. More certainty in this important area would be welcome.
V Remedies For Investor Misconduct
Once misconduct is established, a tribunal has a number of options to sanction such conduct and to discourage future such claims, including:
- dismissing the claim for lack of jurisdiction or inadmissibility, on the basis that:
- the investment or investor was not protected by the relevant treaty;
- the investment or investor was not 'made in accordance' with law;
- there was no 'consent'; or
- there was a breach of international or transnational public policy;119
- awarding costs in favour of the state;120
- awarding moral damages to the state;121
- ordering security for costs;
- suspending the arbitration pending the resolution of criminal proceedings related to the misconduct; and
- permitting counterclaims by the sovereign state against the investor, depending on the terms of the relevant treaty.122
In addition to seeking the above remedies from tribunals, states may anticipate and seek to address such claims by re-drafting the definitions of 'investor' and 'investment' in investment treaties expressly to preclude protection of investments made or operated in contravention of domestic or international law, or to require express approval from the relevant state for all investments to be protected by the treaty.123
The number of investor–state cases involving investor misconduct (alleged or proven) remains relatively small. However, as the number of investment treaty arbitrations continues to rise, it is likely that cases involving investor misconduct will also increase. The cases discussed in this chapter provide useful lessons for all participants in investor–state arbitration.
Investors: make sure your 'house is in order' before coming to a tribunal with an investment treaty claim. Gather all evidence of a bona fide investment before initiating arbitral proceedings. Such evidence will be helpful on jurisdiction and admissibility issues, and on quantum.
States: be aware that there are unscrupulous, vexatious, frivolous and fraudulent claimants lurking in the penumbra of investor–state arbitration. It may be a long and expensive battle, but usually these claimants end up where they belong – out in the cold, without treaty protection and often subject to significant costs orders. Due diligence of potential investors, and potential claims, is of the utmost importance – carefully scrutinise their financial statements and qualifications, and raise any concerns in writing at the earliest opportunity.
Tribunals: be aware of these issues, and be ready to sanction investor misconduct – where it is proven. Also, be aware that states are increasingly raising allegations of investor misconduct, sometimes without foundation, and tribunals must be ready to dismiss frivolous allegations of investor misconduct (potentially with costs).
Investors, states and tribunals: do not succumb to the 'culture of litigiousness' that is pervading certain parts of investor–state (and commercial) arbitration.124 Address and resolve allegations of investor misconduct as expeditiously as possible.
Academics: this is a fertile area for further research. The authors (as practitioners, not academics) hope this modest contribution will provide a useful starting point for future discussion of these important issues.
1 Carmen Martinez Lopez is a partner at Three Crowns LLP (3C) and Lucy Martinez is an independent consultant, counsel and arbitrator at Martinez Arbitration (and former counsel at 3C). The authors were involved as counsel in some of the cases discussed herein; all references are to publicly available information. The authors thank Farshad Ghodoosi, María Juliana Muci, Rana Sebaly, Shimaa Al Ghafry and Srishti Jain for their assistance in relation to various editions of this chapter.
2 For further reading on these issues, see, for example, Emmanuel Gaillard, 'Abuse of Process in International Arbitration', 32(1) ICSID Review (2017), pages 1–21 (Gaillard); Joe Tirado et al, 'Corruption Investigations by Governmental Authorities and Investment Arbitration: An Uneasy Relationship', 29(2) ICSID Review (2014), pages 493–513; Aloysius Llamzon, Corruption in International Investment Arbitration, Oxford International Arbitration Series, 2014 (Llamzon); Michael Reisman and Christina Skinner, Fraudulent Evidence Before Public International Tribunals, Cambridge University Press, 2014 (Reisman and Skinner); Hervé Ascensio, 'Abuse of Process in International Investment Arbitration', (2014) Chinese J Intl L 763; Michael Hwang and Kevin Lim, 'Corruption in Arbitration – Law and Reality' (2012) 8 Asian International Arbitration Journal, pages 1–119 (Hwang and Lim); Eric De Brabandere, '“Good Faith”, “Abuse of Process” and the Initiation of Investment Treaty Claims' (2012) 3 Journal of International Dispute Settlement, pages 1-28; Constantine Partasides, Proving Corruption in International Arbitration: A Balanced Standard for the Real World, 25(1) ICSID Review (2010), pages 47–62 (Partasides); John P Gaffney, '“Abuse of Process' in Investment Treaty Arbitration' (2010) 11 J World Investment & Trade 515 Alison Ross, 'ILA Delegates Consider Corruption', Global Arbitration Review, 27 August 2010 (Ross); Kyriaki Karadelis, 'Corruption and the Standard of Proof', Global Arbitration Review, 26 July 2010; Andrew Newcombe, 'The Obligation to Arbitrate Fairly and in Good Faith in Investment Treaty Arbitration', Kluwer Arbitration Blog, 19 April 2010; Abby Cohen-Smutny and Petr Polasek, 'Unlawful or Bad Faith Conduct as a Bar to Claims in Investment Arbitration', in A Liber Amicorum: Thomas Wälde (2009); Florian Haugeneder, 'Corruption in Investor-State Arbitration', 10 Journal of World Investment & Trade (2009), pages 323–339; Jason N Summerfield, 'The Corruption Defense in Investment Disputes: A Discussion of the Imbalance Between International Discourse and Arbitral Decisions', 6(1) Transnational Dispute Management (2009); Aloysius Llamzon, 'The Control of Corruption Through International Investment Arbitration: Potential and Limitations',102 American Society of International Law Proceedings (2008), pages 208–212 (Llamzon 2008); Karen Mills, 'Corruption and Other Illegality in the Formation and Performance of Contracts and in the Conduct of Arbitration Relating Thereto', 3 Transnational Dispute Management (2006), pages 1–13 (Mills); Michael Reisman, Folded Lies: Bribery, Crusades and Reforms, Free Press, 1979, paragraphs 65–88.
3 See, for example, South Korea's Anti-Corruption and Bribery Prohibition Act (2015); Brazil's Clean Company Act (2014); Italy's Anti-Corruption Law (2012); UK Bribery Act (2010); Civil Law Convention on Corruption (2003); United Nations Convention Against Corruption (2003) (UN Convention); African Union Convention on Preventing and Combating Corruption (2003); Criminal Law Convention on Corruption (1999); the Organisation for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997); Inter-American Convention Against Corruption (1996); US Foreign Corrupt Practices Act (1977).
4 UN Convention, foreword, page iii.
5 (1) World Duty Free Company Limited v. The Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006 (World Duty Free v. Kenya); (2) Metal-Tech Ltd. v. The Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013 (Metal-Tech v. Uzbekistan); (3) Spentex Netherlands B.V. v. Republic of Uzbekistan, ICSID Case No. ARB/13/26, Award, 27 December 2016 (Spentex v. Uzbekistan) (award not publicly available, but discussed in V Djanic. In newly unearthed Uzbekistan ruling, exorbitant fees promised to consultants on eve of tender of process are viewed by tribunal as evidence of corruption, leading to dismissal of all claims under Dutch BIT, IAReporter, 22 June 2017, available at https://www.iareporter.com/articles/in-newly-unearthed-uzbekistan-ruling-exorbitant-fees-promised-to-consultants-on-eve-of-tender-process-are-viewed-by-tribunal-as-evidence-of-corruption-leading-to-dismissal-of-all-claims-under-dutch/ (accessed 9 January 2018), reporting that the case was dismissed as inadmissible due to the investment having been obtained through corruption). In two other investor–state cases, allegations of corruption apparently led to settlement of the dispute: (1) Siemens AG v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007 (Siemens v. Argentina); US Federal Bureau of Investigation, Dept of Justice Press Release, 'Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines', 15 December 2008, www.justice.gov/archive/opa/pr/2008/December/08-crm-1105.html (accessed 1 March 2017); Siemens AG, Corporate Communications and Government Affairs, Compliance Communications, 3 December 2009, www.siemens.com/press/pool/de/events/corporate/2009-q4/2009-q4-legal-proceedings-e.pdf (accessed 1 March 2017), pages 5–6; (2) Azpetrol International Holdings BV & Ors v. The Republic of Azerbaijan, ICSID Case No. ARB/06/15, Award, 8 September 2009 (Azpetrol v. Azerbaijan), paragraphs 6–8 (the claimant's director testified during cross-examination that he had provided funds to bribe state officials, which testimony then led to an adjournment and settlement).
6 World Duty Free v. Kenya, paragraphs 74 and 76. The claim was commenced pursuant to a contract providing for ICSID arbitration; namely, this was not a treaty claim.
7 id., paragraph 130(19).
8 id., paragraphs 148 (quoting a 1963 ICC award), 157 and 188.
9 id., paragraph 173.
10 id., paragraphs 190–191.
11 Metal-Tech v. Uzbekistan, paragraph 110(i).
12 id., paragraphs 86, 90 and 240.
13 id., paragraph 372.
14 id., paragraph 389.
15 id., paragraph 422.
16 See, for example, Ross; Llamzon 2008, pages 210–211.
17 See, for example, Llamzon, page 227; Hwang and Lim, pages 8–14.
18 See note 5.
19 See, for example, Vladislav Kim et al v. Republic of Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, 8 March 2017 (Kim v. Uzbekistan); MOL Hungarian Oil & Gas Plc v. Republic of Croatia, UNCITRAL, PCA Case 2014-15, Award, 16 August 2014; EDF (Services) Ltd v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009 (EDF v. Romania); Waguih Elie George Siag & Anor v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009 (Siag v. Egypt); TSA Spectrum de Argentina SA v. Argentina, ICSID Case No. ARB/05/5, Award, 19 December 2008; African Holding Co of America Inc & Anor v. The Democratic Republic of the Congo, ICSID Case No. ARB/05/21, Award, 29 July 2008 (African Holding v. Congo); Rumeli Telekom & Anor v. Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008 (Rumeli v. Kazakhstan).
20 (1) Société d'Investigation de Recherche et d'Explotation Minière v. Burkina Faso, ICSID Case No. ARB/97/1, Award, 19 January 2000 (SIREXM v. Burkina Faso); (2) Inceysa Vallisoletana, SL v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006 (Inceysa v. El Salvador); (3) Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No. ARB/03/25, Award, 16 August 2007 (Fraport v. Philippines Award I), Decision on the Application for Annulment of Fraport AG Frankfurt Airport Services Worldwide, 23 December 2010 (Fraport v. Philippines Annulment Decision); Fraport AG Frankfurt Airport Services Worldwide v. Republic of Philippines, ICSID Case No. ARB/11/12, Award, 10 December 2014 (Fraport v. Philippines Award II); (4) Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008 (Plama v. Bulgaria); (5) Anderson et al v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award, 19 May 2010 (Anderson v. Costa Rica); (6) Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010 (Saba Fakes v. Turkey); (7) Libananco Holdings Co Ltd v. Republic of Turkey, ICSID Case No. ARB/06/8, Award, 2 September 2011 (Libananco v. Turkey) (part of a series of claims against Turkey; the other claims are discussed below in relation to abuse of process); (8) Valeri Belokon v. Kyrgyz Republic, UNCITRAL, Award, 24 October 2014 (Belokon v. Kyrgyz Republic Award) (dismissing the State's allegation of money laundering on the basis of insufficient proof) and Cour D'Appel de Paris, No. 15/01650, 21 February 2017 (Belokon v. Kyrgyz Republic Court Decision) (setting aside the award on public policy grounds, finding that there was sufficient evidence of money laundering), D Charlotin, 'BIT Award against Kyrgyzstan annulled in Paris, with court giving weight to money-laundering allegations that had earlier failed to persuade arbitrators', Investment Arbitration Reporter, 23 February 2017 (the state gathered additional evidence of the illegal activities between the award and the court ruling); (9) Hesham Talaat M. al-Warraq v. Republic of Indonesia, UNCITRAL, Final Award, 15 December 2014. See also, for example, KRIC v. Jordan Social Security Investment Fund, Award, August 2015 (LCIA arbitration against state fund dismissed on the basis of fraud in relation to the underlying share purchase deal; related ICSID and UNCITRAL claims were then discontinued) (not publicly available, but discussed in K Karadelis, 'Jordan wins LCIA case over share sale “fraud”', Global Arbitration Review, 25 August 2015, https://globalarbitrationreview.com/article/1034714/jordan-wins-lcia-case-over-share-sale-%E2%80%98fraud%E2%80%99 (accessed 10 January 2018)); Lighthouse Corporation Pty Ltd and Anor v. Democratic Republic of Timor-Leste, ICSID Case No. ARB/15/2, Award, 22 December 2017 (tribunal declined jurisdiction on the basis of lack of consent to submit the dispute to ICSID arbitration; the state argued that key email evidence was fabricated by the claimant, but the tribunal did not make any express findings of fraud).
21 Inceysa v. El Salvador, paragraphs 110, 115 and 119.
22 id., paragraphs 234, 239, 242, 249 and 335–337.
23 id., paragraph 195.
24 id., paragraph 338. A decision on rectification was issued in November 2006, but is not public.
25 Plama v. Bulgaria, paragraph 96.
26 Decision on Jurisdiction, 8 February 2005, paragraphs 229–230.
27 Nobody can benefit from his or her own wrong.
28 Plama v. Bulgaria, paragraphs 135 and 143–146.
29 id., paragraphs 138–139. But see Anatolie Stati et al v. Republic of Kazakhstan, SCC Case No. V116/2010, Award, 19 December 2013, paragraph 812 ('Respondent has also argued that Claimants' investments were either illegal from the beginning or became so at a later stage. First, the Tribunal notes that the ECT contains no requirement in this regard. Indeed, if the contracting States had intended there to be such a requirement, they could have written it into the text of the Treaty. . . . This consideration is even more valid in view of the extremely detailed definition of investment and other details regulated in the ECT. At least with regard to jurisdiction, the Tribunal does not see where such a requirement could come from. Whether that aspect is also relevant for the merits of the case, will have to be examined later in this Award'), paragraph 1093 (rejecting the state's claim of illegality, on the merits).
30 Plama v. Bulgaria, paragraph 324.
31 Anderson v. Costa Rica, paragraph 16.
32 id., paragraphs 29–35.
33 id., paragraphs 51–53.
34 id., paragraph 55.
35 id., paragraph 58. See also paragraph 22 (the investors did 'little investigation and research' and were '[d]rawn by the high interest rates and confidential nature of the scheme').
36 id., paragraph 66.
37 Mamidoil Jetoil Greek Petroleum Products Société Anonyme SA v. Republic of Albania, ICSID Case No. ARB/11/24, Award, 30 March 2015 (Mamidoil v. Albania).
38 id., paragraph 324.
39 id., paragraphs 372 and 378 (confirming that the ECT, an alternative basis for the claim, does not protect unlawful investments).
40 id., paragraph 483.
41 id., paragraph 493.
42 id., paragraph 494.
43 id., paragraphs 495 and 839.
44 See, for example, Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010 (Hamester v. Ghana), paragraph 127 ('The Tribunal considers that a distinction has to be drawn between (1) legality as at the initiation of the investment (“made”) and (2) legality during the performance of the investment. Article 10 [regarding investments made prior to the treaty's entry into force] legislates for the scope of application of the BIT, but conditions this only by reference to legality at the initiation of the investment. Hence, only this issue bears upon this Tribunal's jurisdiction. Legality in the subsequent life or performance of the investment is not addressed in Article 10. It follows that this does not bear upon the scope of application of the BIT (and hence this Tribunal's jurisdiction) – albeit that it may well be relevant in the context of the substantive merits of a claim brought under the BIT. Thus, on the wording of this BIT, the legality of the creation of the investment is a jurisdictional issue; the legality of the investor's conduct during the life of the investment is a merits issue'); Phoenix Action Ltd v. The Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009 (Phoenix Action v. Czech Republic), paragraph 104 ('There is no doubt that the requirement of the conformity with law is important in respect of the access to the substantive provisions on the protection of the investor under the BIT. This access can be denied through a decision on the merits. However, if it is manifest that the investment has been performed in violation of the law, it is in line with judicial economy not to assert jurisdiction'). But see South American Silver Limited v. Bolivia, PCA Case No. 2013-15, Award, 22 November 2018, paragraph 453 ('Bolivia has not shown that the clean hands doctrine is part of international public policy or constitutes a principle of international law').
45 See, for example, Inceysa v. El Salvador, paragraph 195; Plama v. Bulgaria, paragraphs 138–139; Mamidoil v. Albania, paragraph 293.
46 See also Hochtief Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/07/31, Decision on Liability, 29 December 2014, paragraph 199 ('not every technical infraction of a State's regulations associated with an investment' will constitute illegality); Peter A Allard v. The Government of Barbados, PCA Case No. 2012-06, Award on Jurisdiction, 13 June 2014, paragraph 94 (non-compliance with the Exchange Control Act was an inadvertent and technical breach of local law, and did not involve breach of fundamental legal principles of the state); ECE Projektmanagement International GmbH & Anor v. Czech Republic, PCA Case No. 2010-5, Award, 19 September 2013 (ECE v. Czech Republic), paragraph 3.170 (distinguishing between cases of fraud or corruption and a failure to comply with construction code rules, and noting that the latter is not of the same order of gravity); Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, paragraph 86 ('minor errors' do not constitute illegality).
47 See, for example, Kim v. Uzbekistan (majority decision), paragraph 541 ('Respondent either has failed to establish that Claimants acted in noncompliance with various laws or that such acts of noncompliance do not result in a compromise of an interest that justifies, as a proportionate response, the harshness of denying application of the BIT'); see also Carmen Martinez Lopez and Lucy Martinez, 'Proportionality in Investment Treaty Arbitration And Beyond: An “Irresistible Attraction”?' BCDR International Arbitration Review No. 2 (2015) pages 1–28.
48 See, for example, Inceysa v. El Salvador, paragraph 338; SIREXM v. Burkina Faso, paragraphs 5.29 and 5.33; Hamester v. Ghana, paragraph 135.
49 See, for example, Hamester v. Ghana, paragraph 127 (see note 44); Fraport v. Philippines Award I, paragraph 345; Copper Mesa Mining Corporation v. Republic of Ecuador, PCA Case No. 2012-2, Award (Redacted), 15 March 2016, paragraph 5.54; Oxus Gold plc v. Republic of Uzbekistan, UNCITRAL, Final Award, 17 December 2015, paragraphs 706–707; ECE v. Czech Republic, paragraphs 3.165 to 3.168.
50 See, for example, Inceysa v. El Salvador, paragraph 338; Fraport v. Philippines Award II, paragraph 530; Plama v. Bulgaria, paragraph 324; Saba Fakes v. Turkey, paragraph 154.
51 (1) Phoenix Action v. Czech Republic; (2) Europe Cement Investment & Trade SA v. Republic of Turkey, ICSID Case No. ARB(AF)/07/2, Award, 13 August 2009 (Europe Cement v. Turkey); (3) Cementownia 'Nowa Huta' SA v. Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009 (CNH v. Turkey); (4) Mobil Corporation et al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010; (5) ST-AD GmbH v. Republic of Bulgaria, UNCITRAL, PCA Case No. 2011-06, Award on Jurisdiction, 18 July 2013; (6) Renée Rose Levy and Gremcitel SA v. Republic of Peru, ICSID Case No. ARB/11/17, Award, 9 January 2015 (Levy v. Peru); (7) Philip Morris Asia Limited v. The Commonwealth of Australia, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility, 17 December 2015 (Philip Morris v. Australia); (8) Ampal-American Israel Corp. & Ors v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction, 1 February 2016 (Ampal v. Egypt); (9) Transglobal Green Energy LLC & Anor v. The Republic of Panama, ICSID Case No. ARB/13/28, Award, 2 June 2016 (Transglobal v. Panama); (10) Churchill Mining & Anor v. Republic of Indonesia, ICSID Case Nos. ARB/12/14 and 12/40, Award, 6 December 2016 (Churchill Mining v. Indonesia) (annulment proceedings pending); (11) Orascom TMT Investments Sàrl v. People's Democratic Republic of Algeria, ICSID Case No. ARB/12/35, Final, Award, 31 May 2017 (Orascom v. Algeria) (annulment proceedings pending); (12) Capital Financial Holdings Luxembourg SA v. Republic of Cameroon, ICSID Case No. ARB/15/18, Award, 22 June 2017 (Capital Holdings v. Cameroon).
52 Phoenix Action v. Czech Republic, paragraphs 24–28.
53 id., paragraphs 38 and 40.
54 id., paragraphs 113, 142–143 and 145. Contra Saba Fakes v. Turkey, paragraphs 104, 112–113 (noting the decision in Phoenix Action but holding that 'good faith' was not incorporated into the definition of 'investment' for the purposes of Article 25(1) of the ICSID Convention).
55 Phoenix Action v. Czech Republic, paragraphs 100, 106 and 113 (emphasis in original).
56 id., paragraphs 143–144.
57 id., paragraph 152.
58 In terms of precedents for lifting the corporate veil, see, for example, Barcelona Traction, Light and Power Co Ltd (Belgium v. Spain), 1970, I.C.J. 3, paragraph 56 ('the veil is lifted, for instance, to prevent the misuse of the privileges of legal personality, as in certain cases of fraud or malfeasance . . . or to prevent the evasion of legal requirements or of obligations'). In relation to the origins of abuse of process, see, for example, Hersch Lauterpacht, The Development of International Law by the International Court, London, 1958, page 164 ('There is no right, however well established, which could not, in some circumstances, be refused recognition on the ground that it has been abused'); Vaughan Lowe, 'Overlapping Jurisdiction in International Tribunals', AYBIL, volume 20, 1999, page 203 (abuse of process 'relates to the good order of judicial proceedings. [It] is common to all the major legal systems, and may be properly applied by a tribunal in any legal system, including the international legal system, in the exercise of the tribunal's competence to regulate its own proceedings'). See also Societe Generale iro DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, S.A. v. Dominican Republic, UNCITRAL, LCIA Case No. UN7927, Award on Preliminary Objections to Jurisdiction, 19 September 2008, paragraph 110 (noting the need for a 'bona fide transaction').
59 The third case in this trifecta is Libananco v. Turkey, which was also dismissed on the basis of investor misconduct (misrepresentation), but not on the basis of abuse of process.
60 CNH v. Turkey, paragraph 109; Europe Cement v. Turkey, paragraph 81.
61 CNH v. Turkey, paragraphs 122–28; Europe Cement v. Turkey, paragraphs 141–144; see also Libananco v. Turkey paragraphs 150, 249–251; Kemal Uzan & Ors v. Turkey, ECHR Application No. 18240/03, Judgment, 29 March 2011 (dismissing the claim as manifestly ill-founded).
62 Europe Cement v. Turkey, paragraph 167.
63 id., paragraph 175.
65 CNH v. Turkey, paragraph 159.
66 id., paragraph 157.
67 Europe Cement v. Turkey, paragraph 181 ('the Tribunal need not go this far as it does not consider that exceptional circumstances such as physical duress are present in this case to justify moral damages'); CNH v. Turkey, paragraph 170 ('the Respondent requests, in the case at hand, that the Arbitral Tribunal grant compensation for moral damages based merely on a general principle, i.e., abuse of process. It is doubtful that such a general principle may constitute a sufficient legal basis for granting compensation for moral damages').
68 CNH v. Turkey, paragraph 178; Europe Cement v. Turkey, paragraph 186; Libananco v. Turkey, paragraph 569.
69 Philip Morris v. Australia, paragraphs 163–165.
70 id., paragraphs 554, 567–569 and 588.
71 id., paragraph 584.
72 id., paragraph 585.
73 Philip Morris v. Australia, UNCITRAL PCA Case No. 2012-12, Final Award Regarding Costs, 8 March 2017 (redacted).
74 id., paragraph 60.
75 id., paragraph 12.
76 id., paragraph 312. The state also objected on the basis of alleged illegality and corruption. The tribunal noted: 'It is a well-established principle of international law that a tribunal constituted on the basis of an investment treaty has no jurisdiction over a claimant's investment which was made illegally in violation of the laws and regulations of the Contracting State.' id., paragraph 301. However, the tribunal found that the state had failed to discharge its burden of proof on this issue, as discussed further in Part IV.
77 id., paragraphs 12(iv), 332–333; see also Yosef Maiman & Ors. v. Arab Republic of Egypt, UNCITRAL PCA Case No. 2012-26, Decision on Jurisdiction and Admissibility, 5 May 2016 (not publicly available).
78 Ampal v. Egypt, paragraphs 328–331.
79 id., paragraph 334–339.
80 Ampal v. Egypt, Decision on Liability and Heads of Loss, 21 February 2017, paragraph 22.
81 Churchill Mining v. Indonesia, paragraph 106.
82 id., paragraph 488.
83 id., paragraphs 508 and 528.
84 id., paragraph 509. See also id., paragraph 515 ('the acts of forgery brought to light in these proceedings are of a particularly serious nature in light of the number and nature of forged documents and of the aim pursued, namely to orchestrate, legitimize and perpetuate a fraudulent scheme to gain access to valuable mining rights'), paragraphs 516 and 527 ('The seriousness of the fraud just discussed is compounded by the Claimants' lack of diligence . . . Claimants' absence of diligence became apparent in the present proceedings when they filed or produced 34 forged documents to support their claims') .
85 id., paragraphs 553–556. The claimants' application to annul the award was recently dismissed with costs, although the annulment decision is not yet public. See 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 25 March 2019, subscription required).
86 Gaillard, page 2.
87 Phoenix Action v. Czech Republic; CNH v. Turkey; Europe Cement v. Turkey; Churchill Mining v. Indonesia.
88 Gaillard, page 2 ('while it is not uncommon for a party to an arbitration to file large numbers of documents immediately before the start of an evidentiary hearing in order to hinder its opponent's preparations and one might loosely refer to this conduct as “abusive”, such conduct should be properly characterized as a violation of due process and can be remedied under existing procedural rules, for example by a decision that such documents are inadmissible').
89 See, for example, Pac Rim Cayman v. The Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent's Jurisdictional Objections, 1 June 2012, paragraph 2.99 ('the dividing-line occurs when the relevant party can see an actual dispute or can foresee a specific future dispute as a very high probability and not merely a possible controversy. . . . [T]his dividing-line will rarely be a thin red line, but will include a significant grey area'; the tribunal went on to reject the state's argument that the restructuring was an abuse of process); Levy v. Peru, paragraphs 185–189; Gaillard, page 4 ('[a]buse of process will arise where a corporate claimant makes or restructures its investment in order to gain access to a dispute with the host State that is foreseeable, but may not yet have crystallized').
90 See, for example, Phoenix Action v. Czech Republic, paragraphs 135–144; Transglobal v. Panama, paragraphs 102–103.
91 See note 67.
92 See, for example, Churchill Mining v. Indonesia, paragraph 556 (claimants to bear 75 per cent of the state's costs, US$8.64 million); Levy v. Peru, paragraphs 201–202 (claimants to pay entire administrative costs plus contribute US$1.57 million to the state's legal fees and expenses); Transglobal v. Panama, paragraphs 126–127 (claimants to pay almost all costs and fees of the arbitration); CNH v. Turkey, paragraphs 177–178 (claimants to bear all ICSID costs, plus around US$5 million of the state's legal costs). Contra Capital Holdings v. Cameroon, paragraphs 481–482 (ordering the claimant to pay the arbitration costs, but each party to bear their own legal costs).
93 The Secretary-General may also refuse to register a request for arbitration on the basis that the dispute is 'manifestly outside the jurisdiction of the Centre', pursuant to Article 36 of the ICSID Convention. To date, and unsurprisingly, it appears that no such refusals have been based on investor misconduct.
94 ICSID Arbitration Rules (2006), Rule 41(5); see, for example, Rachel S Grynberg & Ors. v. Grenada, ICSID Case No. ARB/10/6, Award, 10 December 2010, paragraphs 4.6.15–4.6.16 (state alleging, inter alia, abuse of process through attempt to relitigate a claim), 7.31–7.37 (tribunal noting that 'the initiation of the present arbitration is thus an improper attempt to circumvent the basic principles set out in Convention Article 53 and the procedures available for revision and rectification of awards provided for in Article 51', but not applying the 'abuse of process' label).
95 See, for example, Fraport v. Philippines Award I; Azpetrol v. Azerbaijan; African Holding v. Congo.
96 See, for example, EDF v. Romania; Siag v. Egypt; Rumeli v. Kazakhstan.
97 See, for example, RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14, Annulment Proceeding, Decision on the Application of RSM for a Preliminary Ruling, 7 December 2009, paragraphs 21–30 (no new evidence regarding alleged corruption in the annulment phase).
98 See also, for example, Oil Platforms Case (Iran v. United States), Judgment on the Merits,  ICJ Reports 161, 6 November 2003, Separate Opinion of Judge Higgins, paragraph 33 ('Beyond a general agreement that the graver the charge the more confidence must there be in the evidence relied on, there is thus little to help parties appearing before the Court (who already will know they bear the burden of proof) as to what is likely to satisfy the Court').
99 See, for example, Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Jurisdiction and Admissibility Judgment, 29 November 1984, ICJ Reports 1984, paragraph 101 ('That a litigant seeking to establish a fact bears the burden of proving it is a commonplace, well-established in the jurisprudence').
100 See, for example, Mills, page 9 ('Because of the near impossibility to “prove” corruption, where there is a reasonable indication of corruption, an appropriate way to make a determination may be to shift the burden of proof to the allegedly corrupt party to establish that the legal and good faith requirements were in fact duly met'); see also Europe Cement v. Turkey, paragraphs 163–164 (referring to evidence of fraud adduced by the state, and noting that the claimants could have rebutted this inference – thus suggesting a shifting burden).
101 See, for example, Llamzon, paragraph 9.09; Siag v. Egypt, paragraphs 315–317 ('As to the burden of proof, the general rule, well established in international arbitrations, is that the Claimant bears the burden of proof with respect to the facts it alleges and the Respondent carries the burden of proof with respect to its defences. . . . Egypt asserted that it had proved Mr Siag's non-Lebanese nationality and that accordingly “the burden has shifted.” The Tribunal does not accept this latter submission. Because negative evidence is very often more difficult to assert than positive evidence, the reversal of the burden of proof may make it almost impossible for the allegedly fraudulent party to defend itself, thus violating due process standards. It is for this reason that Tribunals have rarely shifted the burden of proof').
102 Siag v. Egypt, paragraphs 219–221.
103 id. paragraphs 325–326.
104 id., paragraph 358.
105 EDF v. Romania, paragraph 221.
107 id., paragraphs 224 and 227.
108 Hamester v. Ghana, paragraphs 131–134, paragraph 138 ('Hamester's practices might not be in line with what could be called “l'éthique des affaires,” but, in the Tribunal's view, they did not amount, in the circumstances of the case, to a fraud that would affect the Tribunal's jurisdiction. The Tribunal sees the over-statement of invoices as an issue bearing upon the balance of equities between the two parties, rather than the existence itself of the contract or the investment. Such elements would have been taken into consideration by the Tribunal when discussing the merits, if it had found that any compensation was due to Hamester').
109 African Holding v. Congo, paragraph 52 (unofficial translation from the original French text).
110 Kim v. Uzbekistan, paragraph 614. See also Saba Fakes v. Turkey, paragraphs 131, 135 ('The Tribunal considers that the burden of proof of any allegations of impropriety is particularly heavy. This burden of proof was not met in the present case. Consequently, the Tribunal accepts the Claimant's submission as to the dates of the transfer of the temporary certificates to the Claimant'; the tribunal ultimately concluded that the claimant did not hold legal title over the relevant certificates and thus did not have a protected investment).
111 See, for example, Partasides, paragraphs 42–44 (commenting on EDF v. Romania: '[t]he tribunal is telling us that allegations of this type of illegality are by definition “notoriously” difficult to prove. Yet, it nevertheless proceeds to impose an enhanced standard of proof on the allegation. Its message is difficult to accept: “Dear investor, you will inevitably find the allegation almost impossible to prove, but we are nonetheless going to raise the evidential hurdle to make it even harder”. I fear this kind of juxtaposition (“The tribunal recognises that it is very difficult to prove corruption, but we are regardless going to make it even more difficult to prove”) is precisely where international arbitral tribunals can show themselves to live in the most remote of ivory towers').
112 Europe Cement v. Turkey, paragraph 167.
113 CNH v. Turkey, paragraph 121.
114 Fraport v. Philippines Award I, paragraph 399.
115 Libananco v. Turkey, paragraph 125.
116 Ampal v. Egypt, paragraph 306.
117 Metal-Tech v. Uzbekistan, paragraph 238.
118 id., paragraphs 239 and 243.
119 See, for example, Inceysa v. El Salvador, paragraphs 177 and 242; Plama v. Bulgaria, paragraphs 139 and 141; World Duty Free v. Kenya, paragraph 188; Metal-Tech v. Uzbekistan, paragraph 156; Fraport v. Philippines Award I, paragraphs 398 and 400.
120 See, for example, CNH v. Turkey, paragraphs 158 (citing ICSID tribunals awarding costs against parties 'as a sanction against what they see as dilatory or otherwise improper conduct in the proceedings'), 159 ('the misconduct of an arbitration proceeding leads generally to the allocation of all costs on the party in bad faith'), 178; Plama v. Bulgaria, paragraph 324; Phoenix Action v. Czech Republic, paragraph 152; Inceysa v. El Salvador, paragraph 338; Europe Cement v. Turkey, paragraph 186 (all awarding fees or costs, partial or complete, in favour of the state).
121 See note 67.
122 See, for example, ICSID Convention, Article 46; ICSID Arbitration Rule 40(2).
123 See, for example, US Model BIT 2012, footnote 2, definition of 'investment' ('Among the licenses, authorizations, permits, and similar instruments that do not have the characteristics of an investment are those that do not create any rights protected under domestic law').
124 Gaillard, page 2.