In that case, an Isle of Man company had brought a US$500 million claim against the Republic of Kenya for an alleged expropriation of a contract to operate duty free concessions at Kenya’s two international airports in Nairobi and Mombassa. Following the submission of the Claimant’s Statement of Claim, however, evidence emerged that the concession contract had itself been procured through the payment of a cash bribe to the former President of Kenya, Daniel Arap Moi.
Within days of this evidence emerging, we filed an application unprecedented in ICSID arbitration to have the claim dismissed in limine litis because it arose under a contract that was illegal and unenforceable as a matter of law and public policy. As a result of our application, an eminent arbitral tribunal chaired by Gilbert Guillaume, the former President of the International Court of Justice, suspended its hearing of the merits, and convened a hearing in The Hague to hear ground-breaking legal argument on the effect of a payment of a cash bribe to a then-sitting Head of State.
In an award that stands as a landmark judgment on the effects of corruption on international claims, the Arbitral Tribunal dismissed all claims against our client entirely, finding that a contract procured by a bribe was void as a matter of law, and that the machinery of international justice was not available to a claimant that had participated in such an illegality as a matter of international public policy.
In 2006 Ecuador unlawfully expropriated Occidental’s interests in Block 15 in the Ecuadorian Amazon region by declaring the caducidad of its participation contract. Occidental immediately commenced ICSID arbitration pursuant to the US-Ecuador bilateral investment treaty to pursue compensation. Ecuador sought to justify the contract termination on the allegation that Occidental several years earlier had failed to obtain government consent for a farmout arrangement that gave a 40% economic interest in Block 15 to another company. Occidental argued that it had not violated any such domestic law consent requirement but that in any event international law proscribed the radical sanction of contract termination as disproportionate where Ecuador suffered no prejudice from the alleged non-compliance. The ICSID tribunal accepted Occidental’s international law argument of proportionality and in a milestone decision unanimously found that, by imposing a disproportionate sanction, Ecuador had unlawfully expropriated its interest in Block 15.
Ecuador also sought to radically diminish the quantum of Occidental’s claim by arguing that the value of its interest should be reduced on account of a windfall profit tax law that Ecuador had enacted shortly before the expropriation. Occidental argued that the windfall profit tax law was itself in breach of Ecuador’s obligations under the participation contract and under principles of international law therefore had to be disregarded for quantum purposes. The ICSID tribunal accepted by majority Occidental’s argument and refused to reduce quantum on that basis.
Ecuador sought to annul the final award but the annulment committee appointed by ICSID upheld each of the foregoing findings by the tribunal, reducing quantum only on account of the 40% economic interest held by a third party farmee.