Corruption As a Complete Defense in Investment Arbitration or Part of a Balance?

Abstract

This article examines the use of "unclean hands" and corruption as a defense in international investment arbitration using the infamous World Duty Free v Kenya arbitration in 2006 as a lens. By allowing for corruption to act as a complete defense, even when the "unclean hands" were on the part of both sides, allows for host States to be effectively rewarded for their corruption leaving the investor with their investment taken away and no recourse. How is it equitable to allow a State, whose illegal actions are more serious, to dismiss an investor's claim because of a comparatively minor illegality which was solicited from them? If two parties can act immorally and illegally in concluding a contract, there is merit to the argument that no court should aid one whose cause of action is based on an immoral or illegal act, ex dolo malo non oritur action. But corruption cases in investor-state disputes are rarely so black and white. This article proposes a paradigm shift to account for a more balanced approach.

Keywords: International Arbitration; Investment Law; Corruption; State Responsibility; Public International Law; Contract Law; Equity

JEL Classification: K33