{"id":9518,"date":"2024-04-02T14:54:33","date_gmt":"2024-04-02T12:54:33","guid":{"rendered":"https:\/\/www.iisd.org\/itn\/?p=9518"},"modified":"2024-08-09T18:33:32","modified_gmt":"2024-08-09T16:33:32","slug":"the-icsid-tribunals-decision-in-bsg-resources-v-guinea-concludes-that-the-mining-licences-were-obtained-through-corruption","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2024\/04\/02\/the-icsid-tribunals-decision-in-bsg-resources-v-guinea-concludes-that-the-mining-licences-were-obtained-through-corruption\/","title":{"rendered":"The ICSID Tribunal\u2019s decision in BSG Resources v. Guinea concludes that the mining licences were obtained through corruption"},"content":{"rendered":"

BSG Resources Limited (in administration), BSG Resources (Guinea) Limited and BSG Resources (Guinea) S\u00c0RL v. Republic of Guinea (I),<\/span><\/i> ICSID<\/span> Case No. ARB\/14\/22<\/span><\/h2>\n

Summary<\/h3>\n

BSG Resources Limited (in administration), BSG Resources (Guinea) Limited and BSG Resources (Guinea) S\u00c0RL (together \u201c<\/span>BSG<\/b>\u201d or \u201c<\/span>claimants<\/b>\u201d) initiated two distinct arbitration proceedings, then consolidated, against the Republic of Guinea (\u201c<\/span>Guinea<\/b>\u201d or \u201c<\/span>respondent<\/b>\u201d) (together the \u201c<\/span>parties<\/b>\u201d) in accordance with the Guinean national investment legislation and pursuant to Articles 25 and 36 of the ICSID Convention<\/span>.\u00a0 The proceedings were brought following the (allegedly) unlawful expropriation of the claimants\u2019 investment in relation to the revocation of mining licences in Guinea.<\/span><\/p>\n

However, <\/span>the <\/span>BSG Tribunal<\/span><\/a>, after having determined that the mining licences were obtained through corruption, established that such claims, as well as Guinea\u2019s counterclaims, were inadmissible.\u00a0 Furthermore, following the parties\u2019 submission on costs, the tribunal ordered the claimants to bear 80% of the total costs of the proceedings and the respective parties\u2019 expenses, including Guinea\u2019s counsel\u2019s success fees.<\/span><\/p>\n

Background<\/h3>\n

The disputes arose in connection with the Simandou and Zogota iron ore mining areas in the southeast of Guinea, for which BSG had obtained mining licences.\u00a0 In 2011, and with the aim to fight corruption, Guinea adopted a new mining code, and commenced a review process of existing mining rights and projects in Guinea.\u00a0<\/span><\/p>\n

The review process exposed BSG’s involvement in corrupt activities, leading to the termination and revocation of its mining concessions in April 2014.\u00a0 BSG contested these allegations and filed claims for unlawful expropriation and discrimination against Guinea before the ICSID.<\/span><\/p>\n

The inadmissibility of BSG\u2019s claims<\/h3>\n

The respondent argued that the corruption allegations did not affect the jurisdiction of the tribunal over the dispute (para 269).<\/span>\u00a0 In fact, Guinea maintained that the issue of corruption was central to the dispute, influencing either the admissibility or, alternatively, the merits of the claims. Accordingly, Guinea did not raise any jurisdictional objections based on the claimants\u2019 corruption activities.\u00a0 Instead, it raised jurisdictional objections based on <\/span>rationae personae<\/span><\/i> and <\/span>rationae materiae<\/span><\/i>\u2014both of which were dismissed by the tribunal.\u00a0 As a result, the tribunal affirmed its jurisdiction over the main claim.\u00a0<\/span><\/p>\n

In addressing the merits of the dispute, the tribunal preliminarily established that the prohibition of corruption is a matter of international public policy.\u00a0\u00a0<\/span><\/p>\n

Drawing on the <\/span>World Duty Free<\/span><\/i><\/a> case, the tribunal asserted that bribery is contrary to the international public policy of most, if not all, states or, alternatively, to transnational public policy (para 472).<\/span>\u00a0 <\/span>\u00a0While both parties concurred with this approach, perplexities were raised by the claimants on whether bribery under international law encompassed the\u00a0active trading of influence to secure a government concession (para 474).<\/span> \u00a0After reviewing the applicable international conventions,<\/span> the tribunal affirmed that international public policy against corruption prohibits \u201cboth the passive and active forms of trading of influence, to the extent that the latter is exercised to directly or indirectly obtain an undue advantage from a public official\u201d (para 485).\u00a0<\/span><\/p>\n

The tribunal then proceeded to evaluate the applicable standard for proving corruption under international law.\u00a0 Upon recognizing the absence of a uniform standard under international law, the tribunal declined to apply a heightened standard of proof as requested by the claimants (para 493). The decision was based on the acknowledgement that corruption is, by its nature, difficult to prove and that the criminal law standard of beyond a reasonable doubt does not find application in international arbitration (para 493). Accordingly, the tribunal opted for the more flexible standard of reasonable certainty or <\/span>intime conviction du juge<\/span><\/i>, determined after considering the overall evidence of potential corruption indicated by the red flags in the record. These red flags are \u201cfacts which \u2026 signal conduct of potential concern\u201d and the accumulation of which \u201cmay constitute evidence of corruption (para 496).\u201d<\/span><\/p>\n

After evaluating the evidence on the record, the tribunal identified several red flags, including (i) BSG\u2019s payment to an intermediary linked to the government, who lacked any specific qualifications and did not provide any tangible service to the claimants other than securing the mining rights through its illicit influence; (ii) BSG\u2019s attempts to destroy or tamper with the evidence showing their involvement in this scheme and, finally, (iii) BSG\u2019s failure to conduct meaningful due diligence (para 1000). In light of the cumulative significance of these red flags, the tribunal was therefore reasonably certain that the mining rights central to BSG\u2019s claim were secured through corrupt practices. Consequently, it declared BSG\u2019s claims inadmissible as arbitral tribunals cannot give effect to contracts that contravene Guinean law and international public policy (para 1085).\u00a0<\/span><\/p>\n

The tribunal also found Guinea\u2019s counterclaims inadmissible. However, such inadmissibility was not an automatic consequence of the main claims\u2019 inadmissibility, as the tribunal specified (para 1104).\u00a0 Rather, the inadmissibility of Guinea\u2019s counterclaims was based on the fact that the alleged damages arose directly out of conduct contrary to Guinean and international law carried out by its own government officials at the time (para 1110).<\/span><\/p>\n

The decision on costs<\/h3>\n

In their submission on costs, the claimants requested Guinea cover their legal fees and expenses of around USD 7.2 million and the ICSID costs, for a total amount of around USD 9.9 million.\u00a0 Whereas Guinea requested that BSG bear the entirety of the arbitration costs and Guinea\u2019s legal fees and expenses, including the success fee of around USD 1.3 million, for a total amount of around USD 7.6 million.<\/span>\u00a0<\/span><\/p>\n

BSG contested Guinea’s inclusion of the success fees in its calculation of legal fees and expenses as unreasonable. Specifically, BSG argued that Guinea had knowingly assumed the risk associated with success fees and that such a risk should not be transferred to the claimants (para 1113).\u00a0 In contrast, Guinea\u2019s stance was that its counsel\u2019s compensation under the alternative fee arrangement (i.e., success fees) was not unreasonable, arguing that (i) success fees are recoverable to account for a contingency fee arrangement and that (ii) the established 25% rate is not unreasonable in the context of the dispute (para 1114).\u00a0\u00a0<\/span><\/p>\n

In addressing the parties\u2019 submission on costs, the tribunal preliminary established its discretionary powers in the allocation of costs, including ICSID costs, and the parties\u2019 legal fees and expenses, pursuant to Article 61(2) of the ICSID Convention.\u00a0 As noted by the tribunal by referencing <\/span>the <\/span>Orascom v. Algeria<\/span><\/i> case<\/span><\/a>, the discretion in allocating the proceedings\u2019 costs has been exercised by arbitral tribunals following two methods: equally dividing them between the parties or adhering to the \u201ccosts follow the event\u201d principle (para 1119).\u00a0 The latter principle could be applied either to fully allocate the costs, including those incurred by the other party upon the losing party, or to allocate the costs to the parties proportionally to their success or failure (para 1119).\u00a0<\/span><\/p>\n

In this case, and as detailed above, the tribunal noted that BSG\u2019s jurisdictional and counterclaims objections were partly successful, while its claims were deemed inadmissible due to corruption in securing the mining concessions.\u00a0 Consequently, the tribunal dismissed BSG\u2019s argument against the inclusion of success fees, reasoning that these fees (i) were part of an alternative arrangement with its counsel rather than a reward and (ii) were reasonable, especially considering the nearly identical overall expenses of both parties when including the success fees (para 1123). Therefore, by applying the \u201ccost follow the event\u201d principle, the tribunal ruled that 80% of the ICSID costs, as well as 80% of costs incurred by Guinea, were to be borne by BSG.<\/span><\/p>\n

Conclusion<\/h3>\n

The BSG award aligns with existing case law, which suggests that claims based on investments tainted by corruption may be considered inadmissible under international law. This award also confirms the tendency of arbitral tribunals of proportionally allocating the costs of proceedings based on the parties\u2019 success or failure regarding the issues raised.<\/span><\/p>\n

Tribunal\u2019s composition<\/h3>\n

Gabrielle Kaufmann-Kohler (Swiss national) – president; Albert Jan van den Berg (Dutch national) – claimant-appointed arbitrator; Pierre Mayer (French national) – respondent-appointed arbitrator.\u00a0<\/span><\/p>\n

 <\/p>\n

Authors<\/h3>\n

Letizia Ceccarelli<\/b>, associate at Squire Patton Boggs (UK) LLP; <\/span>Hoda Ghassabian<\/b> and <\/span>Lorenzo Poggi<\/b>, trainee lawyers at Squire Patton Boggs (UK) LLP.<\/span><\/p>\n

For the avoidance of doubt, the statements in this article are only of a descriptive nature and do not express any opinion on the correctness or incorrectness of any of the decisions or arguments described herein. The views expressed are those of the authors and do not necessarily reflect the views or positions of any entities they represent.<\/span><\/p>\n