On 4 October 2013, an ICSID tribunal rendered its decision in the investment treaty dispute between the Israeli company Metal-Tech Ltd. and Uzbekistan. In the award, the tribunal found that it lacked jurisdiction to hear the parties’ claims and counterclaims brought under the Israel-Uzbekistan BIT and Uzbek law due to corruption related to Metal-Tech’s investment in Uzbekistan. In particular, the tribunal found that payments of approximately USD4 million made by Metal-Tech to several individuals, including an Uzbek government official and the brother of the then Prime Minister of Uzbekistan, while presented as remuneration for various consultancy services, in fact constituted corruption and were illegal under Uzbek law.

The tribunal based its decision to refuse jurisdiction on Uzbekistan’s lack of consent under the BIT and the ICSID Convention to refer the dispute to ICSID arbitration. Such consent, found in Article 8(1) of the BIT, was limited to disputes “concerning an investment”, which Article 1(1) of the BIT defined as “…any kind of assets, implemented in accordance with the laws and regulations of the Contracting Party in whose territory the investment is made…”. The tribunal interpreted this requirement to mean that the investment must be made “in compliance with the law at the time when it was established” (para. 193). Since it proceeded to find on the facts that corruption took place to an extent sufficient to violate Uzbekistan law in connection with the establishment of Metal-Tech’s investment in Uzbekistan, the investment did not comply with Article 1(1) of the BIT. Therefore, the tribunal concluded that the dispute did not fall within Article 8(1), was not covered by Uzbekistan’s consent, and did not meet the consent requirement set out in Article 25(1) of the ICSID Convention (paras. 372-373).

This decision marks the second time an ICSID case has been dismissed on grounds of investor corruption. In the first case, World Duty Free Co. Ltd. v. Republic of Kenya (ICSID Case No. ARB/00/7, Award, 4 October 2006), the arbitral tribunal found that the claimant had bribed the President of Kenya to obtain a concession agreement and therefore held that the resulting agreement was unenforceable and dismissed the claimant’s claims that Kenya had breached its contractual obligations. While celebrated for vindicating international anti-corruption standards, the World Duty Free decision has also been criticized for accepting the corruption defense invoked by Kenya as a complete defense, while failing to address the more complex underlying causes of corruption in the case.

There are several interesting similarities between these two cases. First, in both cases the host states are notorious for their own corrupt practices (Kenya is ranked 136 out of 177 on Transparency International’s Corruption Perceptions Index, while Uzbekistan is ranked 168). Second, in both cases the corruption allegations were raised by the host States during the proceedings and arose directly from the claimants’ evidence. Finally, although both tribunals dismissed the claimants’ respective cases on grounds of corruption, they acknowledged in one way or another that the host States had also participated in the corrupt conduct.

There are, however, also differences between the two cases that are worth noting. First, in World Duty Free, the claimant’s allegations were brought under a contract that appeared to be silent on the effects of illegality, while in Metal-Tech the claims were brought under a BIT that provided for an explicit legality requirement for investments. Perhaps as a result of these different starting points, in reaching its decision that the claimant’s conduct was “an affront to public conscience” (para. 178) and that it was not legally entitled to maintain any of its pleaded claims, the tribunal in World Duty Free relied extensively on international and regional instruments, international standards, international commercial arbitration awards, and “transnational public policy”, in addition to the laws of England and Kenya that were stipulated as the governing law in the contract. The tribunal in Metal-Tech, on the other hand, only briefly referenced “international law and the laws of the vast majority of States” (para. 290), international instruments criminalizing corruption, and previous decisions and awards, and relied mainly on the interpretation of the BIT, Uzbek law, and the ICSID Convention for its seemingly more “technical” decision to dismiss Metal-Tech’s claims on the ground of lack of jurisdiction.

Second, while in World Duty Free there was clear and unambiguous evidence of corruption (the claimant gave money directly to the Kenyan President in order to obtain the contract), in Metal-Tech there were only corruption “indicators” or “red flags” (para. 293) that arose from the claimant’s testimony (money was paid to third parties for alleged consultancy services). The Metal-Tech tribunal was therefore required to undertake a more detailed and careful analysis of the facts and Uzbek law in order to find that corruption in fact took place in this case.

Finally, while in both cases each party ultimately bore its own costs, in World Duty Free this was a result of the tribunal’s finding that “there can be no successful party on the merits in the traditional sense” since Kenya prevailed on the ground of “ordre public international and public policy” (para. 190). In Metal-Tech, on the other hand, the tribunal ordered each party to bear its own costs in part because Metal-Tech was deprived of protection under the BIT and, consequently, the host State avoided any potential liability. The tribunal noted that this “does not mean…that the State has not participated in creating the situation that leads to the dismissal of the claims. Because of this participation, which is implicit in the very nature of corruption, it appears fair that the Parties share in the costs” (para. 422).

In the “ongoing debate that findings on corruption often come down heavily on claimants, while possibly exonerating defendants that may have themselves been involved in the corrupt acts” (Metal-Tech Award, para. 389), the above-mentioned differences between the two cases may make the dismissal of Metal-Tech’s claims seem less troubling to some of World Duty Free’s critics. However, the Metal-Tech decision does not only constitute ‘strike two’ against investor claimants found to have engaged in corrupt activities. For countries like Uzbekistan and Kenya, which are already seen as risky investment targets (the former is ranked 146 out of 189 by the World Bank for its “ease of doing business” and the latter is ranked 129), it may mean ‘game over’.