In a recent ICSID decision dated 6 December 2016 the tribunal
took a novel approach to dealing with the impact of fraud when considering investor
claims under a bilateral investment treaty (BIT). The tribunal found that the
entire investment was “tainted” by the fraud and therefore the arbitration
should never have been brought. This was in spite of the fact that there was no
evidence of wrongdoing on the part of the investor and regardless of the merits
of the claims. In this case, the tribunal dismissed claims against Indonesia
brought by two investors over a dispute relating to the revocation of mining
licenses held by a local partner for the exploitation of a large undeveloped
coal reserve. The tribunal found that a total of 34 disputed documents
submitted by the claimants as evidence of their investment were forged.
Although the evidence available suggested that responsibility for the forgeries
lay with the claimants’ local business partner, the tribunal found that the
fraud affected the whole of the claimants’ investment. Relying on the general
principle of good faith and the prohibition of abuse of process in
international law, the tribunal found that the claimants could not benefit from
bit protection and dismissed the claims. The claimants were ordered to pay all
the costs of the arbitration, as well as seventy-five per cent of the
respondent’s costs. The potential impact of this decision is wide ranging and
highlights the importance of investors and their advisors carrying out proper
due diligence and ensuring that all elements of an investment, including the
conduct of other parties and stakeholders, are held to high standards. There is
otherwise a real risk that an investor could lose the protection of a bit
without itself having engaged in any wrongdoing.