The illegality objection in investor-state arbitration

摘要

In the past decade, the number of investment tribunals wrestling with allegations of investor illegality and corrupt conduct has soared. Much has been said and written about corruption in investment arbitration, but the treatment and import of objections on the basis of an investor's illegal conduct other than corruption has not received equal attention. This article seeks to fill that void through a comprehensive, methodical review of investment awards to date that have grappled with the issue. Allegations of investor misconduct are richly diverse, ranging from the wilful disregard of local foreign investment restrictions to inadvertent administrative omissions a host State knowingly elected not to enforce. Recognizing that the factual matrices giving rise to the illegality objection are highly fact-specific, this article explores the contours of the illegality objection, its typology, the analytical framework tribunals apply, the evolving and competing applicable legal standards, the scenarios when illegality is fatal to jurisdiction or admissibility (or not), and the relevance of the State's conduct in perhaps overcoming that death knell.