The ICSID Tribunal’s decision in BSG Resources v. Guinea concludes that the mining licences were obtained through corruption

BSG Resources Limited (in administration), BSG Resources (Guinea) Limited and BSG Resources (Guinea) SÀRL v. Republic of Guinea (I), ICSID Case No. ARB/14/22

Summary

BSG Resources Limited (in administration), BSG Resources (Guinea) Limited and BSG Resources (Guinea) SÀRL (together “BSG” or “claimants”) initiated two distinct arbitration proceedings, then consolidated, against the Republic of Guinea (“Guinea” or “respondent”) (together the “parties”) in accordance with the Guinean national investment legislation and pursuant to Articles 25 and 36 of the ICSID Convention.  The proceedings were brought following the (allegedly) unlawful expropriation of the claimants’ investment in relation to the revocation of mining licences in Guinea.

However, the BSG Tribunal, after having determined that the mining licences were obtained through corruption, established that such claims, as well as Guinea’s counterclaims, were inadmissible.  Furthermore, following the parties’ submission on costs, the tribunal ordered the claimants to bear 80% of the total costs of the proceedings and the respective parties’ expenses, including Guinea’s counsel’s success fees.

Background

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.  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. 

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

The inadmissibility of BSG’s claims

The respondent argued that the corruption allegations did not affect the jurisdiction of the tribunal over the dispute (para 269).  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’ corruption activities.  Instead, it raised jurisdictional objections based on rationae personae and rationae materiae—both of which were dismissed by the tribunal.  As a result, the tribunal affirmed its jurisdiction over the main claim. 

In addressing the merits of the dispute, the tribunal preliminarily established that the prohibition of corruption is a matter of international public policy.  

Drawing on the World Duty Free 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).   While both parties concurred with this approach, perplexities were raised by the claimants on whether bribery under international law encompassed the active trading of influence to secure a government concession (para 474).  After reviewing the applicable international conventions, the tribunal affirmed that international public policy against corruption prohibits “both 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” (para 485). 

The tribunal then proceeded to evaluate the applicable standard for proving corruption under international law.  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 intime conviction du juge, determined after considering the overall evidence of potential corruption indicated by the red flags in the record. These red flags are “facts which … signal conduct of potential concern” and the accumulation of which “may constitute evidence of corruption (para 496).”

After evaluating the evidence on the record, the tribunal identified several red flags, including (i) BSG’s 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’s attempts to destroy or tamper with the evidence showing their involvement in this scheme and, finally, (iii) BSG’s 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’s claim were secured through corrupt practices. Consequently, it declared BSG’s claims inadmissible as arbitral tribunals cannot give effect to contracts that contravene Guinean law and international public policy (para 1085). 

The tribunal also found Guinea’s counterclaims inadmissible. However, such inadmissibility was not an automatic consequence of the main claims’ inadmissibility, as the tribunal specified (para 1104).  Rather, the inadmissibility of Guinea’s 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).

The decision on costs

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.  Whereas Guinea requested that BSG bear the entirety of the arbitration costs and Guinea’s legal fees and expenses, including the success fee of around USD 1.3 million, for a total amount of around USD 7.6 million. 

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).  In contrast, Guinea’s stance was that its counsel’s 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).  

In addressing the parties’ submission on costs, the tribunal preliminary established its discretionary powers in the allocation of costs, including ICSID costs, and the parties’ legal fees and expenses, pursuant to Article 61(2) of the ICSID Convention.  As noted by the tribunal by referencing the Orascom v. Algeria case, the discretion in allocating the proceedings’ costs has been exercised by arbitral tribunals following two methods: equally dividing them between the parties or adhering to the “costs follow the event” principle (para 1119).  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). 

In this case, and as detailed above, the tribunal noted that BSG’s jurisdictional and counterclaims objections were partly successful, while its claims were deemed inadmissible due to corruption in securing the mining concessions.  Consequently, the tribunal dismissed BSG’s 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 “cost follow the event” 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.

Conclusion

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’ success or failure regarding the issues raised.

Tribunal’s composition

Gabrielle Kaufmann-Kohler (Swiss national) – president; Albert Jan van den Berg (Dutch national) – claimant-appointed arbitrator; Pierre Mayer (French national) – respondent-appointed arbitrator. 

Authors

Letizia Ceccarelli, associate at Squire Patton Boggs (UK) LLP; Hoda Ghassabian and Lorenzo Poggi, trainee lawyers at Squire Patton Boggs (UK) LLP.

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.