Curbing Impropriety in Investment and Arbitration

Prepared By: Beatus Malima

Partner – Mawalla Advocates- Tanzania

Presented by: Asmahaney Saad, Managing Partner- KTA Advocates, Uganda

Principles/ Rules of dealing with Investor wrong doing-
Institute of Arbitration

qThe duty to investigate/examine corruption and fraud;

qThe legality requirement;
qThe balance of probabilities as the standard to show
wrong doing;
qThere shall be consequences if and when investor –
wrong doing is shown.
 1. Duty to Investigate/Examine
“The position today [2003] is that the international arbitrator has
a clear duty to address issues of bribery, money laundering or
serious fraud whenever they arise in the arbitration and whatever
the wishes of the parties and to record its legal and factual
conclusions in its award. This is the only course available to
protect the enforceability of the award and the integrity of the
institution of … arbitration.”
Cremades BM, Cairns DJA (2003).
 2.THE LEGALITY REQUIREMENT

There is no protection if the investment was established

in breach of the laws, i.e., host state laws or
international laws.
• “An investment will not be protected if it has been created in violation of
national or international principles of good faith; by way of corruption, fraud,
or deceitful conduct; or if its creation itself constitutes a misuse of the system
of international investment protection under the ICSID Convention. It will
also not be protected if it is made in violation of the host State’s law.”
Hamester v. Ghana, ICSID ARB/07/24, Award, 18 June 2010, para. 123
 “In accordance with the law”

“An investment will not be protected if it has been created in

violation of national or international principles of good faith; by
way of corruption, fraud, or deceitful conduct; or if its creation
itself constitutes a misuse of the system of international
investment protection under the ICSID Convention. It will also
not be protected if it is made in violation of the host State’s
law.”
Hamester v. Ghana, ICSID ARB/07/24, Award,
18 June 2010, para. 123
 3.Burden of Proof
The burden of proof rests with the claimant or with the party that
alleges a certain fact. At the same time, however, the burden of
proof may shift to the other side under certain circumstances, for
example when a party proves a certain fact on a prima facie basis.
The burden of proof in investment arbitration may narrow or
widen depending on the alleged facts and the stage of the
proceedings, i.e. the jurisdictional stage or merits.
Phoenix v. the Czech Republic
 3.1 Standard of Proof
The most common standard in international arbitration practice (both
commercial and investment) is the “balance of probabilities”
standard.

Is the “balance of probabilities” to be applied for the allegations of

fraud and corruption, or the standard must be higher e.g. “clear and
convincing evidence”?

In other words, a tribunal is to see whether a certain fact is more

probable to be true than not. There is an ongoing discussion whether
the same standard of proof (i.e. “balance of probabilities”) is to be
applied for the allegations of fraud and corruption, or whether this
standard must be higher (e.g. “clear and convincing evidence”).
3.2 Take away points from the principle of
burden of proof
v Is it reasonably feasible for an arbitral tribunal to expect the
alleging party to gather facts which can meet the standard of
proof that is as high as “clear and convincing evidence” when
dealing with illicit actions which are usually being conducted
in deep secrecy?

v Would the application of the usual standard of proof (“balance

of probabilities”) be insufficient to decide on such serious
allegations as fraud and corruption?
 4. Consequences

“[t]he idea . . . 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.”

-Metal-Tech v. Uzbekistan (2013), para. 422.

The law is clear – and rightly so - that in such a situation [of
an investment tainted by corruption] the investor is deprived
of protection and, consequently, the host State avoids any
potential liability. That does not mean, however, that the
State has not participated in creating the situation that leads
to the dismissal of the claims. Because of this participation,
which is implicit in the very nature of corruption, it appears
fair that the Parties share in the costs.”
THANK YOU