Abstract
The idea underlying the clean hands doctrine is that the lawfulness of the investor’s conduct is a pre-condition for the bestowal of jurisdiction upon the arbitral tribunal. However, this paper argues that the application of such doctrine – in the investment arbitration context – should not mean that States have an unlimited right to pursue the dismissal of a claim following an investor’s failure to comply with the host State’s law. Thus, there are two factors that an investment arbitration tribunal should take into account when confronted with allegations of unlawful acts committed by an investor in the establishment or development of its investment. First, the tribunal should assess the type and the degree of the violation of the law committed by the investor; and second, the tribunal should evaluate the relationship between the investor’s wrongdoing and the State’s conduct in connection with the commission and subsequent treatment of such infraction. In short, this paper provides an analytical framework for tribunals to follow in cases where the clean hands doctrine is invoked.
Highlights
An investor wants to establish an enterprise in a foreign country
This paper argues that the application of such doctrine – in the investment arbitration context – should not mean that States have an unlimited right to pursue the dismissal of a claim following an investor’s failure to comply with the host State’s law
There are two factors that an investment arbitration tribunal should take into account when confronted with allegations of unlawful acts committed by an investor in the establishment or development of its investment
Summary
An investor wants to establish an enterprise in a foreign country. It seeks the assistance of legal counsel to comply with the complex regulatory framework to commence operations. The tribunal, chaired by Rodrigo Oreamuno Blanco, held that the existence of the phrase “in accordance with law” in Article III of the El Salvador-Spain BIT was a clear manifestation of an international public policy to exclude from protection, this determination is simple: the State would never had approved the investment if it would have known the facts misrepresented by the investor.. In the words of the tribunal chaired by Yves Fortier, admissible errors could be the failure of competent local counsel to flag certain legal issues or that the arrangement infringing the host State’s law was not central to the profitability of the investment.76 All those exceptions were deemed not applicable in favor of Fraport since the company willfully violated the prohibitions set forth in Philippines law in relation to foreign control of public utility companies.. Even when an illegality occurred, such event can be subsequently taken into account by the tribunal when assessing the merits of the dispute, especially when calculating the damages, if applicable, in favor of the investor.
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