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Abstract

Consider the following case. An investor is building an apartment complex. Halfway into developing this multi-million-ducat investment, a government department starts demanding bribes, which is business as usual for it. The investor initially resists, but eventually caves in. Years later, the host state seeks to use the investor’s participation in this corruption against it in an investment-treaty arbitration. The applicable investment treaty stipulates that only lawfully made investments are protected, with the result that the investor must fail. Any arbitral tribunal would be uncomfortable with this outcome. The degree of wrongfulness of the investor’s conduct pales in comparison to the host state's, noting that the host state has let many of its governmental departments become dens of corruption. But the arbitral tribunal’s hands are apparently tied. The terms of the applicable investment treaty are clear: the investor's claim must be denied, with an asymmetric outcome that effectively benefits the state. This chapter unties arbitral tribunals’ hands. It lays down another path for these tribunals to follow in such cases, one which avoids this outcome, yet remains honest to the tenets of international investment law.