Apportioning Fault for Performance Corruption in Investment Arbitration

Abstract

Abstract International investment tribunals are frequently presented with the host state’s allegation that the foreign investor bribed a government official. In most of the disputes to date, the state portrays itself as victim and the corrupt act is alleged to have occurred during the making of the initial investment. If bribery is proved, the case is terminated without going into the merits. However, in a growing number of cases, corruption is alleged to have occurred during performance of the investment. If it is proved and whether or not an element of coercion on the part of the host state is proved, the tribunal is confronted with the question of whether the corruption automatically terminates the case, or whether the facts warrant the apportionment of fault and the determination of damages accordingly. When presented with an act of performance corruption, this Article asks if and how a tribunal should apportion fault between the host state and the foreign investor. The Article proposes that the State and the investor share the fault. An equitable outcome—and one that deters and reduces the occurrence of corruption—must sanction and disincentivize both parties to the corrupt act. This Article advocates for the contributory fault approach to performance corruption and proposes a three-factor test by which a tribunal may assess fault and apportion damages.