1 The impact of corruption on the validity of mining contracts Bertrand Montembault, Partner, Paris Energy and Infrastructures Group, Herbert Smith 3 March 2008 Toronto

2 Corruption Perception in 2008

3 Definition of corruption “[I]ntentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business.” OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, adopted on 21 November 1997, at article 1

4 Structure and Sanction of corruption (1) The exercise of undue influence under corruption (passive corruption) as well as corruptive conduct (active corruption) are criminally sanctioned (national legislations). (2) Corruption contracts are illicit as their purpose is criminally sanctioned (national legislations and international instruments, such as OECD Convention). (3) Contracts obtained by corruption are void / voidable (new trend in national legislations, and international instruments – Civil law Convention on corruption of the Council of Europe; United Nations Convention on corruption (Merida Convention)). Mining Company Consultant / Agent Civil servant / State Agency / consulting agreement (2) Influence (1) Mining contract / concession (3)

5 Sanction of corruption by arbitrators Traditional sanction of corruption contracts  Rationale: corruption contracts are contrary to public policy on the basis of illicit cause.  Consequence: either (i) denial of jurisdiction by arbitrators when enforcement is sought, or (ii) annulment of the contract. New sanction of contracts obtained by corruption  Rationale: either (i) consent of the State to the contract is affected by corruption, or (ii) the validity of the contract is affected by corruption.  Consequence: either (i) the State’s consent to the contract is affected, thus rendering it “void”, or (ii) the contract is “voidable” and may be rescinded by the State.

6 Contracts obtained by corruption Facts SIREXM V. Burkina Faso (ICSID case ARB/97/1)  Indirect participation in the project company was granted to an influential civil servant. No disclosure to the State.  Disloyal and intentional behaviour of the civil servant, leading to a defective consent to the investment convention by the State. World Duty Free v. Kenya (ICSID case ARB/00/7)  Direct bribe to the President of Kenya  The corrupt payment formed an intrinsic part of the contract and therefore affected its validity.

7 Elements to be considered to avoid corruption Advantages offered to State representatives are not considered as advantages offered to the State. Any payments or advantages in kind should be made or offered to a State entity, such as the State treasury. Any payments or advantages in kind should be made or offered pursuant to a law / regulation. Any transfer of interests between investors should be subject to prior due diligence.