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February 13, 2020

Corruption and its Effect on Termination Payments: Lessons for LatAm Project Finance Transactions


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A Landmark Decision in the Ruta del Sol Arbitration Against ANI Provides Valuable Lessons for Developers and Financiers of Projects in Latin America 

The landmark decision in the Ruta del Sol arbitration against the Agencia Nacional de Infraestructura – ANI, the Colombian government agency in charge of awarding concessions through public-private partnerships for the design, construction, maintenance, operation and administration of transport infrastructure in Colombia, addresses the key issue of whether governments must honor termination payments when the award of a concession or governmental agreement was tainted by corruption during the awarding process. In this landmark decision, the Arbitral Tribunal awarded the termination payments notwithstanding its declaration that the agreement was null and void, but did so (i) only in favor of those parties who had been unaware of the unlawful acts and who had acted in good faith and without fault (for example, the creditors); and (ii) in a substantially reduced amount and based on an unfavorable order of priority from the perspective of the financiers. 

The decision (pursuant to which ANI is required to pay approximately $61 million of the approximately $829 million requested by Ruta del Sol) provides valuable lessons for developers and financiers of projects in Latin America. This issue is a complicated matter, especially if the corruption is discovered during the construction phase and the government terminates the project based on a determination that the project is not in the public’s interest as corruption was instrumental in determining the need for such project initially. Third parties that act in good faith and provide goods or services or extend loans to the concessionaire in part in reliance on the government honoring termination payments are at particular risk during this phase if the project is never completed or otherwise fails. 

General Background of the Dispute

On August 6, 2019, an Arbitral Tribunal of the Arbitration Center at the Chamber of Commerce of Bogotá rendered a final award (“Award”) in the proceedings between Concesionaria Ruta del Sol S.A.S. and ANI regarding the dispute that arose upon termination of the concession to develop construct, operate and maintain Section II of the Autopista Ruta del Sol, a highway in Colombia. The Award determined that the Project’s concession was terminated, and ANI is required to make a termination payment of approximately $61 million[1] (of the approximately $829 million requested by Ruta del Sol), which was allocated to partially prepaying the outstanding debt to third-party creditors (including approximately $427 million owed to the Project’s lenders).
The almost seven-hundred-page-long Award is the result of extensive arbitration proceedings involving 14 litigants and spanning almost four years. Understanding the Award is key to developers and financiers of projects in Colombia and Latin America. The Award sheds light on complex matters such as the legality of concessions tainted by corruption during the awarding process, the right to termination payments in those cases and the rights of good faith creditors to a share of the termination payment.

It is still too early to reach a conclusion as to how the Award will affect the future of concession agreement-based projects. Among other things, the Award applied provisions specific to Colombian law to reach some of its conclusions, for example regarding termination payments which under Colombian law seemingly applies even if a contract is rendered null and void (subject to the limitations explained below). However, it is interesting to note that at least in one other recent case in the Odebrecht saga in Peru,[2] the government has requested that the concession agreement be declared null and void as a result of corruption in the concession award process, and is reported to be considering doing the same in two other cases.[3] In Peru, the right to a termination payment is acquired pursuant to the terms of the concession agreement. Thus, rendering such concession agreement null and void may have a different legal outcome in Peru than in Colombia—in fact, a potentially more draconian one from the perspective of third parties who acted in good faith.

The Project

Ruta del Sol is a subsidiary of the Brazilian construction company Odebrecht, whose extensive involvement in Operação Lava Jato and other corruption cases across Latin America is well known. In January 2010, Ruta del Sol entered into a concession agreement with ANI’s predecessor, the Instituto Nacional de Concesiones, for the construction, operation and maintenance of the Project. To finance a percentage of the Project’s costs, Banco Davivienda S.A., Bancolombia S.A., Itaú Corpbanca Colombia S.A., Banco de Bogotá S.A., Banco de Occidente S.A., Banco Popular S.A. and Banco AV Villas S.A provided to Ruta del Sol in 2010 and 2014 syndicated credit facilities in an aggregate amount of approximately $694 million.

Ruta del Sol Begins an Arbitration Against ANI

The arbitration proceedings were commenced by Ruta del Sol in August 2015, which claimed that ANI had breached the Concession Agreement and requested the Arbitral Tribunal, among other things, to declare that the Concession Agreement was valid and binding on the parties.

The proceedings took an unexpected turn when in December 2016 Odebrecht acknowledged in a plea bargain agreement entered with the U.S. Justice Department that it had paid bribes to government officials in a number of countries, including Colombia. In January 2017, Gabriel Ignacio García Morales, a Colombian public official,[4] confessed before the Colombian courts that he had accepted $6.5 million in bribes from the Odebrecht Group in relation to the Project’s award process.

In light of these events, ANI filed a counterclaim requesting that the Tribunal declare the Concession Agreement null and void and that any payment to be made by ANI to Ruta del Sol should be limited to the value of the works completed prior to the annulment of the Concession Agreement.

What Were the Tribunal’s Findings Regarding Corruption?

As it is increasingly the case in international arbitration[5], the Arbitral Tribunal did not shy away from considering and deciding on the existence of corruption. In this case, the Arbitral Tribunal found that the evidence regarding corruption submitted by the parties was conclusive. Among other relevant sources of evidence, the Tribunal took into consideration the plea bargain entered into between the U.S. Department of Justice and representatives of Braskem and Odebrecht, the complaints formulated against Odebrecht personnel following the plea bargain, the decision from the Colombian criminal court finding Mr. García Morales guilty of corruption, the administrative decision of the Elite Anti-Corruption Group within the State’s Attorney’s Office imposing disciplinary sanctions on Mr. García Morales, as well as his own declaration before the Arbitral Tribunal.

Is the Concession Agreement Valid?

In assessing the validity of the Concession Agreement under Colombian law, the Arbitral Tribunal analyzed whether it had an unlawful purpose and cause contrary to public policy, and whether its award involved misuse or abuse of power by public officials and had been conducted without the required formalities established by the law. The Tribunal concluded that the Concession Agreement was null and void as it was entered in contravention of all the grounds described above.

Did the Concession Agreement’s Invalidity Affect the Tribunal’s Jurisdiction?

No. In upholding its jurisdiction, the Arbitral Tribunal relied on the principle of the autonomy of the arbitration clause, pursuant to which the invalidity of the contract does not affect the validity of the arbitration clause.

Is a Concessionaire Entitled to a Termination Payment When the Contract has been Declared Null and Void?

In this case, the answer of the Arbitral Tribunal was positive, but only for the benefit of third parties that acted in good faith.

Colombian law[6] provides that in the event that a Public-Private Partnership contract or concessions for transport infrastructure signed prior to the enactment of the Colombian Public-Private Partnership Law (such as the Concession Agreement) is rendered null and void, the contractor should be compensated for the works it has performed. Such compensation should be calculated on the basis of costs, investments and expenses incurred by the concessionaire (including interest), excluding any remuneration or benefit payable to the concessionaire, and the amount of such compensation may in no event exceed an amount equal to the benefit obtained by the public.[7]

However, the Arbitral Tribunal determined that, because the Concession Agreement was declared null and void as a result of unlawful acts, only those persons that had been unaware of the unlawful acts and who had acted in good faith and without fault (“buena fe exenta de culpa”), in a qualified good faith standard,[8] are entitled to receive the termination payment. The Arbitral Tribunal thus concluded that, since the Lenders (and other creditors) acted in good faith and without fault, the termination payment should be applied to repay their outstanding credits. Finally, the Tribunal concluded that the amount of the termination payment should be adjusted by using Colombia’s consumer price index and should include interest.

Were the Lenders Paid in Full?

No. The Arbitral Tribunal calculated the amount of termination payment to be $61,114,001, a small portion of the $835,739,752 requested by Ruta del Sol, of which $533,325,825 corresponded to debt to third-party creditors, the majority ($427,860,761) being owed to the Lenders. The Arbitral Tribunal further ordered that the termination payment be applied to pay creditors in the following order of priority: tax obligations, labor related payments, payments to suppliers and, lastly, financial obligations. As a result, the Lenders will ultimately receive only a very small fraction of Ruta del Sol’s outstanding debt owed to them.

The significantly lower termination payment amount awarded by the Arbitral Tribunal results from the Tribunal’s finding that Ruta del Sol’s calculation considered prices above market levels to account for payments whose purpose was other than the satisfaction of public interest, such as the payment of bribes or financing political campaigns.

Moreover, the Arbitral Tribunal stated that it could not fully rely on Ruta del Sol’s or the EPC Contractor’s[9] financial statements to determine the costs, investments and expenses incurred in the development of the Project. As experts appointed by Ruta del Sol, ANI and the Arbitral Tribunal based their calculation of the termination payment on information provided by Ruta del Sol and the EPC Contractor, the Arbitral Tribunal rejected the reports submitted by all such experts and determined the amount of the termination payment based on its own calculations. This decision of the Arbitral Tribunal to reject the reports submitted by third-party experts is an important one for financiers of projects and should be taken into account when structuring projects in Latin America, as financiers typically rely on these types of experts to extend credit, when they size the debt amount as to the expected termination payment and even when considering the dispute resolution mechanism that should apply to the project documents (as some may be less (or more) likely to second-guess the opinion of experts, as in this case). 

As the Award is the first to address the effects of the Odebrecht corruption cases on public procurement in Latin America, it is still too early to determine whether it is part of a new trend towards the annulment of concession agreements tainted by corruption or if it is merely the response to particularly egregious and notoriously unlawful conduct. In other cases, governments in the Latin American region for concessions that are already operational have “requested” Odebrecht to sell the concession and retain the purchase price in “trust” to honor any damages Odebrecht is required to pay to such government: such an alternative is obviously more palatable to third-party investors as it avoids them paying the price for the wrongdoing of others. Only time will tell the extent to which this precedent will affect the willingness of investors to invest in PPPs or public works projects in the region, as well as the due diligence that they will apply when doing so.


[1] All the amounts listed in this note in United States Dollars correspond to approximations calculated by converting the amounts originally provided in the Award in Colombian Pesos.

[2] Municipio de Lima presentaría otros dos arbitrajes, revelan (Expreso, 6 November 2019), available at:; Procurador Ramírez estará en EE.UU. por arbitraje de Rutas de Lima (La República, 31 October 2019), available at: 1/7; Jorge Muñoz no descartó anular contrato de concesión de peajes a Rutas de Lima (El Comercio, October 30, 2019), available at:

[3] Graña y Montero estaría dispuesta a vender Vía Expresa Sur para salir de la concesión (Gestión, June 2, 2019), available at:; Municipio de Lima presentaría otros dos arbitrajes, revelan (Expreso, November 6, 2019), available at:

[4] At the time of award of the Concession Agreement Mr. García Morales had been Vice-Minister for Transport since April 2007, and General Manager of INCO and Inter-institutional Coordinator for the development and successful completion of the Ruta del Sol Road Project since September 2009. Mr. García Morales was found guilty of bribery by a Colombian criminal court in December 2017.

[5] About the recent trends and responses to corruption claims in arbitration, see, “The Emergence of transnational responses to corruption in international arbitration.” Arbitration International, 2019, 35, 1–19

[6] The Arbitral Tribunal applied Article 48 of Law 80 of 1993 and Paragraph 1 of Article 32 of Law 1508 of 2012 (Colombian Public-Private Partnership Act), as amended by Article 20 of Law 1882 of 2018. Also relevant for the Arbitral Tribunal’s calculation of the termination payment were the guidelines established by the Colombian Constitutional Court in its Decision C-207/2019, of May 16, 2019.

[7] Note that the Arbitral Tribunal also concluded that using this “formula” may not always result in payments to the contractor and that it was possible that contractors may need to make payments to the government (for example, if the government made an upfront payment to the concessionaire that is higher than the investments made by the concessionaire to contribute to the public interest).

[8] The concept of good faith without negligence was construed by the Colombian Constitutional Court in its decision C-963/99 of December 1, 1999, as to require “the need to display, beyond a conduct that is honest, correct, or base don trust, an external behavior exempted from error, [which is] diligent and timely, in accordance with the desired objective and expected end result- which are provided under the law-.”

[9] Also a wholly owned subsidiary of Odebrecht.

Authors and Contributors

Cynthia Urda Kassis


Project Development & Finance

+1 212 848 7969

+1 212 848 7969

New York

Augusto Ruiloba


Project Development & Finance

+1 212 848 4562

+1 212 848 4562

New York