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Corruption—Sword and Shield in International Disputes

By November 24, 2021 No Comments

corruption

Corruption impacts resolution of international business disputes both as a sword and shield. In some cases, corruption causes a breach, while in others, corruption can be a defense to breach. Dana Gas v. Crescent National Gas exemplifies corruption as a sword—an instance in which the aggrieved party claims it did not receive the benefit of its bargain as a result of corruption.

In that case Dana Gas Co., based out of the UAE, entered a deal with National Iranian Oil, a subsidiary of Crescent National Gas, for 600 million cubic feet of gas through newly constructed oil pipeline systems. The deal proceeded until 2014 when Dana Gas Co. sued National Iranian Oil, claiming that alleged corruption interfered with the delivery of the gas. The arbitrators recently agreed and awarded Dana Gas Co. $607.5 million.

On the other hand, where an investor obtains a state contract through bribery, corruption can be a defense (or shield) to subsequent claims of breach. Consider for example a pending lawsuit in which a state owned Venezuelan mining company (referred to as FMO) challenges enforcement of $188 Million arbitral award based on alleged bribery underlying procurement of the contract. In that case, Commodities & Minerals Enterprise, Ltd (or CME) initiated arbitration proceedings, claiming that FMO breached contracts concerning management of an iron ore shipment station and process. FMO urged the panel to consider that CME obtained its contract through bribery—but the arbitrators declined and entered an award in favor of CME. Now, FMO opposes enforcement of the award in federal court, arguing that enforcement would allow CME to reap the benefits of a contract obtained through corruption.

Whether as sword or shield, as cause of breach or defense to breach, bribery and corruption continue to play a significant and evolving rule in investor state arbitration and litigation.

Here at Ehrenstein|Sager, as premier international business attorneys, we understand and confront corruption in investor state disputes to form a winning strategy for our clients.