Inceysa Vallisoletana S.L. v. Republic of El Salvador
ICSID · Investment (ICSID and treaty) · El Salvador · 2 Aug 2006
Why it matters
Inceysa v. El Salvador is a landmark investment treaty case because it established that investments made through fraud or illegality are not entitled to protection under the ICSID Convention or the BIT. The tribunal applied the principle of good faith and international public policy to deny jurisdiction, setting a precedent that investors cannot benefit from their own wrongdoing. This case is frequently cited for the 'legality requirement' in investment arbitration.
Summary
Inceysa Vallisoletana S.L., a Spanish company, participated in a public bid in El Salvador for vehicle inspection services. It won the bid and signed a contract with the Ministry of Environment. After disputes arose, Inceysa initiated ICSID arbitration under the Spain-El Salvador BIT, claiming expropriation and breach of contract. El Salvador objected to jurisdiction, arguing that Inceysa had fraudulently misrepresented its experience and financial capacity in the bidding process. The tribunal found that Inceysa had submitted false financial statements, fabricated contracts, and lied about a strategic partner. Applying the BIT's requirement that investments be made 'in accordance with law,' the tribunal held that Inceysa's investment was illegal and therefore not protected. The tribunal also invoked the principles of good faith, nemo auditur propriam turpitudinem allegans (no one can benefit from their own wrong), international public policy, and prohibition of unlawful enrichment. It concluded that the Centre lacked jurisdiction and the tribunal lacked competence. The decision is a leading authority on the legality requirement in investment arbitration.
The detail
Parties: Inceysa Vallisoletana S.L. v. Republic of El Salvador
Case number: ICSID Case No. ARB/03/26
Outcome: ICSID declined jurisdiction; Inceysa's claims dismissed because its investment was obtained through fraud, violating good faith and international public policy.
Applicable law: Spain-El Salvador BIT (1995); ICSID Convention; El Salvador Investment Law; international law principles (good faith, nemo auditur propriam turpitudinem allegans, international public policy, prohibition of unlawful enrichment).
Issues in play: The BIT's requirement that investments be made 'in accordance with law' collided with Inceysa's fraudulent procurement of the contract. The tribunal held that illegal investments are not protected under the BIT or the ICSID Convention.
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