Introducing the Illegality-Curing Doctrine

Abstract Imagine a case where the State objects to the arbitral tribunal’s jurisdiction on account of the investor’s misconduct, which it alleges means that the investor cannot satisfy the investment-legality requirement. The proof behind this allegation is very strong. Indeed, 10 years prior to the investor bringing its claim, (independent) courts in the State had found that certain of the investor’s directors had bribed governmental officials—crimes for which they spent time in jail and paid substantial fines. Since then, the investor’s record has been clean.Can the investment-legality requirement still apply in this case? Through the punishments that have been inflicted in respect of this misconduct, could the investment have been cured of its illegality? That it could is the basic idea of the illegality-curing doctrine.This doctrine requires that arbitral tribunals refrain from inflicting their own punishment, which, for investors, is the loss of the chance to pursue their investment-treaty claims. Instead, domestic courts in the host State should deal with investor misconduct that falls foul of an investment-legality requirement. For those (typical) cases where the investor’s misconduct is discovered during the arbitration, a path is sketched out for arbitral tribunals to refer such cases to the appropriate domestic-level actors. While the illegality-curing doctrine represents a radical departure from the current jurisprudence on the application of investment-legality requirements, it can deliver superior rule-of-law outcomes.