In Álvarez y Marín
Corporación and others v. Panama, the majority declined to take jurisdiction over a dispute
arising from an investment made in indigenous regions of Panama due to the
investors’ serious breach of Panamanian law. Although the tribunal found no
explicit requirement of legality in the relevant treaties, it held that such a
requirement is inherent to the very notion of investment and can be implied by
general principles of good faith and nemo auditur propriam
turpitudinem allegans. After examining the timing of the breach as well as the
seriousness of it, the majority concluded that it was proportionate to deprive
the investors of treaty protection. The Álvarez y Marín award sheds light on many important yet highly contentious
legal issues concerning legality requirements. This includes the qualification
of the admission clause, the implied legality requirement, the material scope
of such requirement and whether legality goes into jurisdiction or merits. It
is submitted that the Álvarez y Marín tribunal has adopted many innovative approaches toward these
issues and, consequently, the case is expected to have a significant impact on
the practice of investment arbitration going forward.