Drawing the Line: Addressing Allegations of Unclean Hands in Investment Arbitration

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.