Similarly, arbitral tribunals may refer to this doctrine when dealing with the “requirement of legality”19 without explicitly distinguishing between the two terms.20 However, some courts seem to indicate that there is a difference.21 Even if the tribunal does not deny jurisdiction over the dispute and considers the action admissible, the impure hands of an investor and a host State may have an influence on the merits of the case.21Seifi & Javadi, note 10 above, at 124.X21 These situations are generally divided into two categories. The first category includes misconduct by host States consisting of corruption, fraud or violation of the legitimate expectations of investors, as well as other types of illegal conduct of the host State. Second, some actions of investors may not have a direct bearing on the jurisdiction or admissibility of the claim, but rather be a matter of substance. This would include the misconduct of investors during the post-establishment phase of the investment as opposed to their approval or the modification of the host State`s national legislation after the creation of the investment.22Llamzon & Sinclair, note 49 above, at 530.X22 For example, non-compliance with the laws and regulations of the host State that occurred after the incorporation phase in Yukos resulted in a reduction in damage, which was due to applicants as a result of their violation, by 25%. 23Yukos Universal Limited (Isle of Man) v. Russian Federation, loc. cit. 48.X23 The purpose of this article is to collect existing relevant concepts and approaches to the principle of clean hands contained in arbitral tribunal decisions in investment disputes. It is necessary to indicate the possible reasons for the application of this principle by arbitral tribunals and to identify possible scenarios in which such a defence may be invoked. The inconsistency between the legal literature and case law raises the question of whether the status of the clean hands principle should be regulated more explicitly. In the absence of consensus as to whether this is a general principle of international law or whether its application can be inferred from the requirement of legality contained in treaties, greater clarity is sought in the application of its jurisprudence by the courts. This is particularly relevant to the extent that an investor`s impure hands may lead to different outcomes – the investment may be private due to the incompetence or inadmissibility of the right to protection under the contract, or such conduct may be significant in relation to the merits of the case. The current lack of consistency in arbitral awards contributes to confusion among both investors and States.
A degree of clarity could be achieved by explicitly differentiating the definitions contained in BITs; However, this would only solve the problem with regard to contracts concluded in the future. A unanimous approach to clean hands is particularly desirable, as the legitimacy of investor-State dispute settlement has been called into question. One of the allegations concerning the dysfunction of the system is the failure to take into account human rights violations in investor-state arbitration. Since it was the duty of the State to enforce the rights contained in international human rights instruments, it was very difficult to hold an investor accountable for such acts. However, since some international companies have much greater economic power and influence than some small countries, it was advocated that violations of internationally recognized human rights be recognized in arbitration. Even if international human rights instruments do not impose direct obligations on investors, the application of the clean hands principle would prevent investors from getting by without a hitch. Another ground invoked with regard to the application of the principle of clean hands in practice was recourse to the violation of international public policy.37de Alba, loc. cit. Note 9, 326.X37 In World Duty Free Company Limited v.
The Tribunal denied the Republic of Kenya jurisdiction to rule on a dispute on the basis of the claimant`s “dirty hands”. 38World Duty Free Co. Ltd. v. Republic of Kenya, ICSID Case No. 38 ARB/00/7, Award, ΒΆ 157 (4 October 2006). X38 The plaintiff was involved in an act of corruption which, in the court`s view, was contrary to international public policy. Similarly, the Tribunal in the case of Al-Warraq39Hesham Talaat M Al-Warraq v. Indonesia, loc. cit. 14.X39, noted that the complainant`s actions, since they were prejudicial to the public interest, fell within the scope of the clean hands doctrine by which the Court emphasised the relationship between the principle of clean hands and international public policy.
It has therefore been argued that the application of the principle of clean hands by transnational public order could help to avoid controversy over the unresolved status of the principle of clean hands as a general legal principle.40Lodovico Amianto, The Role of “Unclean Hands” Defences in International Investment Law, 6 McGill J.
