Metal-Tech Ltd. v. Republic of Uzbekistan – ‘Strike Two’ Against Investor Claimants Facing the Corruption Defense

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. Continue reading