Indaba 2025: Allegations of corruption and fraud in investment treaty arbitration3 February 2025

Allegations of corruption remain one of the greatest challenges for African countries and contribute to political instability and difficulties in successfully attracting foreign direct investment. Whilst several African countries continue to strengthen their anti-corruption laws and regulations to reduce its negative impact on society, issues related to allegations of corruption and fraud increasingly become a point of contention between African States and foreign investors and are frequently reflected in international investment awards or judgments of domestic courts enforcing such awards.

There are two main avenues allegations of corruption and fraud may come into play in investment treaty arbitration: (i) as issues of jurisdiction and merits brought before international arbitral tribunals (e.g. investors who obtained their investment through illicit acts such as bribery); and (ii) as behind the scenes violations during the arbitration itself aimed at securing a certain favourable outcome (e.g. bribing witnesses or the arbitral tribunal).

This Insight article takes a closer look at the ways international tribunals and domestic courts deal with allegations of corruption and fraud in the context of investment treaty arbitration with a focus on matters involving African States.

Allegations of corruption as an issue of jurisdiction and merits

Allegations of corruption and fraud may form part of substantive claims of investors or the host State’s defence arguments. Such allegations, if proven to be true, may amount to:

• breaches of the underlying international treaty (in case of corruption or fraud on behalf of the host State); or
• grounds for the dismissal of a claim on jurisdictional and admissibility grounds (in case of corruption or fraud on investor’s side).

In cases of alleged corruption by the investor, States are likely to invoke the so-called “clean hands” doctrine, which allows tribunals to procedurally bar investors’ claims due to illegal or improper conduct associated with the investment. This doctrine is recognised by some investment arbitration tribunals as a rule of international law. The application of the doctrine will depend on the facts of the matter at hand, the exact formulation of the claims, and the content of corruption allegations.

Famously, in World Duty Free Company Limited v. Kenya, the tribunal held that since the agreement for the construction of duty-free complexes was procured through a bribe to the former Kenyan President, the investor had no right to “legally maintain any of its pleaded claims in these proceedings on the ground of ex turpi causa non oritur actio”.¹ The tribunal also considered the claims by the investor alleging that the host State should equally be held responsible for accepting the bribe and therefore the claims should be allowed to proceed to the merits. The tribunal noted that it “does not identify the Kenyan President with Kenya”, referred to international public policy and public policy under the contract’s applicable laws and concluded that there is no basis for the tribunal to engage in a balancing exercise between acts committed by the investor on one side and the Kenyan President on the other. The tribunal emphasized that “the law protects not the litigating parties but the public; or in this case, the mass of tax-payers and other citizens making up one of the poorest countries in the world”.²

Investors and States are therefore well advised to remain aware of the implications of corruption and fraud issues throughout the life of the investment and the impact such allegations may have on future claims and defences that may be raised in the context of investment treaty arbitration.

Allegations of procedural corruption during the conduct of arbitral proceedings

Tribunals in investment arbitrations are required to act fairly and impartially, and to give each party to the dispute the opportunity to present their case. That said, arbitrators are also expected to conduct arbitrations in an efficient manner and avoid any unnecessary delay and expenses. Attempts by tribunals to balance these considerations, as well as an occasional unwillingness to proactively use their powers to control proceedings, may result in arbitrators inadvertently turning a blind eye to suspected corruption, improperly obtained evidence or fraudulent documents, especially if such matters are not brought to the tribunal’s immediate attention.

Challenging corruption at the stage of annulment or enforcement

Frequently, a losing party discovers procedural corruption and fraud only once the arbitration is concluded and after the arbitral award has been issued. Two main avenues have emerged for challenging awards obtained by means of procedural corruption and fraud:

• first, if the arbitration is conducted under the 1965 Convention on the Settlement of Disputes between States and Nationals of Other States (the “ICSID Convention”), the parties may apply for an award to be annulled under Article 52(1) of the ICSID Convention based on certain limited grounds, which include such grounds as
  “corruption on the part of a member of the tribunal” and “serious departure from a fundamental rule of procedure”. Even though annulment applications are rarely successful (because of the narrow grounds available for annulment) parties frequently seek to annul unfavourable awards; and
• Second, the parties may attempt to set the award aside at the seat of arbitration or resist the recognition and enforcement of the award in domestic courts. The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) is widely adopted by States around the world, with 43 of Africa’s 54 States being parties to this instrument. Article V(2) allows a State to refuse to enforce an award on so-called “Public Policy” grounds, where “the recognition or enforcement of the award would be contrary to the public policy of that country”. This ground can be construed quite broadly and a losing party in arbitration can use an allegation that the underlying arbitration award was procured by procedural corruption to prevent it from being enforced given that rewarding corrupt conduct is clearly contrary to public policy.

It is worth noting that allegations of procedural corruption and fraud in both New York Convention enforcement proceedings and ICSID annulment proceedings will face a high evidentiary bar. The courts and annulment committees are sensitive to the fact that such allegations may be used by the losing party as a veiled attempt to reopen the merits of the dispute. That said, such attempts, even if unsuccessful, will still serve to delay enforcement of the award in question and increase costs for all parties.

Nigeria v P&ID case study

A good example of a successful challenge of procedural corruption during arbitral proceedings is Federal Republic of Nigeria v Process & Industrial Developments Limited³, a case brought before the English High Court that concerned a challenge of the arbitral award granted in 2017.

The original arbitral award found Nigeria to be in breach of a Gas Supply and Processing Agreement (“GSPA”) signed in 2010 and awarded Process & Industrial Developments Limited (“P&ID”) US$6.6bn. By the time the award was challenged in the English courts, the sum, together with interest, had grown to over US$11bn.

In January 2023, the award was set aside under s. 68 of the United Kingdom’s Arbitration Act 1996, which inter alia allows for arbitral awards to be overturned if such awards are “obtained by fraud” or “contrary to public policy”. Specifically, the court found that during arbitral proceedings P&ID had:

• improperly obtained and retained over 40 privileged documents;
• relied on material evidence which it knew to be false; and
• bribed a Nigerian official to buy her silence in the arbitration proceedings in relation to the bribes she had accepted at the time the GSPA was signed.

Due to these violations, the court held that the arbitration was a “shell that got nowhere near the truth” and that the award was obtained only by “practising the most severe abuses of the arbitral process”. The court had “no hesitation” in finding that there had been a substantial injustice. According to the court, had the tribunal been aware of the bribery and concealment, “the entire picture would have had a different complexion”.

For completeness, we note that in the English court proceedings, Nigeria put forward a range of bribery allegations that went to the merits of the underlying dispute. Most of the allegations were not upheld and the court specifically noted that it is not the role of the court to “decide the merits of the dispute”. This approach underscores the importance of timely raising procedural corruption allegations with the arbitral tribunal if they are known at the time of bringing the dispute.

Tips for investors and States alike

Although the responsibility for the integrity of arbitral proceedings rests primarily with the arbitrators, there are steps parties can take at all stages of arbitral proceedings to ensure that due process is respected:

• ensuring the retention of quality legal representation and reputable experts;
• selecting reputable arbitration rules (where possible) empowering the tribunals to take active steps to prevent dues process violations;
• selecting a reputable arbitration seat (where possible) with a robust and efficient court system;
• appointing independent and impartial arbitrators;
• promptly challenging the arbitrators that lack impartiality or are biased towards one of the parties;
• if possible, opting for the reputable arbitral institution for the administration of arbitral proceedings;
• ensuring in submissions to the tribunal in relation to case management points that both sides have equal opportunities to present their case;
• promptly raising concerns if the arbitral tribunal itself is not following the agreed rules of the arbitration;
• avoiding bad faith tactics (e.g. obstructing access to documents); and
• promptly raising concerns with the tribunal if the other party appears to be acting in bad faith.

Conclusion

Allegations of corruption and fraud will likely remain topical issues in investment treaty arbitration, including those involving African States, for years to come. Investors and States alike should thoroughly consider the timing and potential implications of raising corruption allegations as jurisdictional or merits issues. In addition, the parties have instruments to ensure that an arbitral award is obtained through a fair and transparent process. Such an award faces fewer obstacles at the enforcement stage and will be a more powerful tool in any future engagements with the host State regarding projects in the State.

[1] See World Duty Free Company Limited v. Republic of Kenya, ICSID Case No. ARB/00/07, Award, 4 October 2006, para. 179.
[2] See World Duty Free Company Limited v. Republic of Kenya, ICSID Case No. ARB/00/07, Award, 4 October 2006, paras. 178-181.
[3] See The Federal Republic of Nigeria v. Process & Industrial Developments Limited [2023] EWHC 2638 (Comm), available at: https://www.judiciary.uk/wp-content/uploads/2023/10/Nigeria-v-PID-judgment.pdf