The Use and Misuse of the Corruption Defence in International Investment Arbitration

Abstract

This article argues that while a mutually beneficial relationship can be cultivated between international investment arbitration and anti-corruption policies, the recent emergence of a state-invoked 'corruption defence' as a complete defence to liability for alleged breach of investment protection obligations may hamper the sustainability and effectiveness of such a relationship. In the context of a corrupt host state, for instance, and particularly a corrupt developing host state, the growing use of this defence may arguably frustrate the objectives of both foreign investment protection and anti-corruption policies. This was the case, for instance, in the 2006 investment arbitration World Duty Free Co. Ltd. v. Republic of Kenya, in which the arbitral tribunal accepted the corruption defence invoked by Kenya as a complete defence to the investor's claims of alleged breach of investment protection obligations. In so doing, the tribunal arguably disregarded the potentially detrimental effects such a decision may have on Kenya's ability to fight corruption and attract further foreign investment, both of which are of crucial importance to its future development. This article argues, therefore, that investment arbitration tribunals ought to proceed with caution when permitting a corrupt host state, and particularly a developing one, to rely on the corruption defence, and ought to devise alternative remedies to the complete rejection of the claims where investor corruption is established.

The Viability and Potential of Corruption-Based Counterclaims in Treaty-Based ISDS Cases under ICSID Tribunals

“…It could encourage the host State to be corrupt or tolerate corruption, rather than abstain from it. 199 Therefore, a remedy other than the rejection of jurisdiction is necessary. Opening the scope of CBC 200 could be an effective replacement of the rejection of the claimant's claim at the jurisdictional stage.…”