FINDING CLARITY AMIDST CONFUSION

• Date: 01 December 2020
• Author: LIEW Dominic Junior1 LLB (Summa Cum Laude) (Singapore Management University); Advocate and Solicitor (Singapore); Adjunct Faculty, Singapore Management University.
• Citation: (2020) 32 SAcLJ 643
• Published date: 01 December 2020

Cleaning up the Clean Hands Doctrine in International Investment Law

The international investment regime has come a long way since its inception. However, it has also come under increasing fire for, amongst others, conflicting investor–State tribunal decisions and the corresponding lack of legal certainty. These, in turn, adversely affect the attractiveness of the international investment regime. A prime example would be investor–State tribunals' inconsistent treatment of the clean hands doctrine, which has generated a great deal of confusion. This article hopes to provide clarity on the applicability, scope, and effect of the doctrine under international investment law through a thorough examination of the existing jurisprudence.

I. Introduction

1 Singapore is no stranger to investor–State arbitration. Recognised as a “modern and cost-efficient arbitration centre” with a “highly regarded” judiciary and a “supportive attitude towards arbitration”,2 Singapore has increasingly been chosen as the seat of arbitration for numerous investor–State arbitration disputes.3 In the past half a decade alone, Singapore's apex court has adjudicated two separate disputes relating to investor–State

arbitration.4 With more than 3,000 international investment agreements and almost 1,000 registered investment dispute settlement cases to date,5 the modern international investment regime looks poised to continue the remarkable growth it has enjoyed since the establishment of the International Centre for Settlement of Investment Disputes (“ICSID”) in 1966. The Singapore courts are likely to continue encountering cases involving international investment law elements in future, and will thus also have to grapple with the uncertainties that continue to plague investor–State disputes. Given the absence of a doctrine of binding precedent or stare decisis in investor–State arbitration,6 conflicting decisions on international investment law are not uncommon.7 From a pragmatic perspective, this lack of certainty not only adversely affects the attractiveness of the international investment regime,8 but also poses a problem to any court or tribunal seeking to resolve disputes involving international investment law.

2 This article hopes to shed light on one legal principle in particular which has faced inconsistent treatment at the hands of, amongst others, investor–State tribunals – the clean hands doctrine. In recent times, there has been an upward trend of states embroiled in investor–State disputes attempting to rely on the clean hands doctrine as a shield against investors' claims.9 This is unsurprising, given that it has become increasingly

expensive to be embroiled in investor–State disputes.10 States not only have to grapple with potential damages to be paid should the arbitral tribunal rule in the investors' favour; there are also other costs such as legal costs, arbitrators' fees, administration fees of arbitration centres, and the costs incurred for bringing in expert witnesses.11 To illustrate, in Plama Consortium Ltd v Republic of Bulgaria12 (“Plama”), the legal costs alone amounted to US$17.8m;13 in Yukos Universal Ltd (Isle of Man) v The Russian Federation14 (“Yukos”), the claimants sought damages amounting to a whopping US$114.174bn.15 The high costs of being involved in investor–State arbitration have even contributed to what commentators have called a “backlash” against the international investment regime over the past decade.16 The clean hands doctrine is thus part of the arsenal of strategies that states have employed in a bid to reduce the high costs of investor–State arbitration inflicted on their taxpayers.17

3 However, it remains unclear if the clean hands doctrine even exists as a rule of public international law to begin with. Moreover, even if the doctrine is a rule of public international law (which this article submits that it is), the exact form and contents of the doctrine remain unclear. This article thus seeks to clarify the existence, scope, and effects of the doctrine. Part II18 establishes that the clean hands doctrine is a rule of public international law. Specifically, this article establishes

that the clean hands doctrine is a general principle of law and is thus applicable to investor–State disputes where public international law is an applicable law. Part III19 proposes a framework for applying the clean hands doctrine in investor–State disputes. Part IV20 takes a closer look at the recent decision of Churchill Mining plc v Republic of Indonesia21 (“Churchill Mining”), applying this article's proposed framework to the facts of Churchill Mining. Finally, this article provides a few closing remarks in Part V.22

II. Clean hands doctrine as a general principle of law

4 Lawyers from both common law and civil law jurisdictions will no doubt be familiar with equivalents of the clean hands doctrine under their respective municipal laws.23 The gist of the clean hands doctrine is simple – where a claimant is guilty of certain misconduct, the doctrine precludes the claimant from obtaining relief against the respondent. Any description of the doctrine is best kept generic at this juncture, given that there is presently no universally accepted definition of the clean hands doctrine in public international law.24 In the context of investor–State arbitration, the doctrine, if successfully invoked by the State, would preclude a claimant investor who is guilty of misconduct from obtaining relief against the respondent state. Naturally, one would have various questions as to the precise content of the doctrine (for example, what type(s) of misconduct would allow a state to invoke the doctrine? Must the claimant and respondent owe each other obligations of a reciprocal nature for the doctrine to operate?); these questions will be addressed below.25 The more pertinent issue is that the status of the clean hands doctrine as a rule of public international law remains murky. It is uncontroversial that investor–State tribunals are able to apply rules of public international law (assuming public international law is an applicable law to the dispute).26

But is the clean hands doctrine even a rule of public international law in the first place?

5 Under Art 38(1) of the Statute of the International Court of Justice27 (“ICJ Statute”), there are three primary sources of public international law – treaties, international custom, and general principles of law. There are presently no treaties or international conventions that expressly establish the clean hands doctrine as a rule of public international law, and the doctrine has been emphatically rejected as a rule of customary international law.28 Thus, the only gateway for the doctrine to be applied would be if the doctrine were a general principle of law within the meaning of Art 38(1)(c) of the ICJ Statute. This article takes the view that the doctrine is, indeed, a general principle of law.

6 It is generally accepted that a legal principle should be recognised as a general principle of law if it is found in the domestic legal orders of the world's major legal systems.29 A priori any conclusion that a legal principle is a general principle of law is best arrived at only after an examination of the laws of domestic legal orders. That being said, it is recognised that judicial decisions and the writings of publicists, while not primary sources of public international law, are regarded as evidence of the law under Art 38(1)(d) of the ICJ Statute;30 they have even been called “the most useful sources for ascertaining the existence and application of a given legal principle”.31 Accordingly, in order to establish that the clean hands doctrine is a general principle of law, this part will examine both (a) the existing jurisprudence of the International Court of Justice (“ICJ”); and (b) the laws of domestic legal orders. Given that the focus of this article is the clean hands doctrine in international investment law, this part will also analyse (c) the existing investor–State jurisprudence and its treatment of the clean hands doctrine. Where appropriate, existing academic literature will also be referred to and discussed.

A. Existing International Court of Justice jurisprudence

7 The most recent pronouncement of the ICJ on the clean hands doctrine comes in the form of its judgment regarding preliminary objections in Certain Iranian Assets (Islamic Republic of Iran v United States of America),32 where the ICJ expressly declined to take a position on the doctrine.33 While this means that the ICJ has not formally rejected the doctrine as a general principle of law,34 the ICJ has also evidently chosen to refrain from endorsing the doctrine despite having the opportunity to do so.35 In short, the existing ICJ jurisprudence is regrettably unhelpful in assessing whether the doctrine constitutes a general principle of law.

8 Before turning to the laws of domestic legal orders, however, it bears mentioning that proponents of the clean hands doctrine typically rely on the same select decisions of (mostly individual judges of) the Permanent Court of International Justice (“PCIJ”) and the ICJ to buttress the view that the doctrine is a general principle of law. Such decisions include:

(a) the dissenting opinion of Judge Anzilotti in Legal Status of Eastern Greenland;36

(b) the decision of the PCIJ in The Diversion of Water from the Meuse (Netherlands v Belgium)37 (“Diversion of Water from the Meuse”), which some have argued was effectively an adoption of the clean hands doctrine;38

(c) the separate opinion of Judge Hudson in Diversion of Water from the Meuse, where he stated that he “who seeks equity must do equity”;39

(d) the dissenting opinion of Judge Anzilotti in Diversion of Water from the Meuse;40

(e) the dissenting opinion of Judge Morozov in United States Diplomatic and Consular Staff in Tehran (United States of America v Iran);41

(f) the dissenting...