On 21 September 2026, an arbitral tribunal (the “Tribunal”) rejected the investment claims brought by Mohammad Reza Khalilpour Bahari (“Mr. Bahari”), an Iranian investor, against the Republic of Azerbaijan (“Azerbaijan”). The Tribunal accepted jurisdiction over part of the dispute but held that those claims were inadmissible because Mr. Bahari had fabricated documents central to his case and used them in the arbitration. The other alleged investments fell outside its jurisdiction.[1]
The arbitration arose under the 1996 bilateral investment treaty between Iran and Azerbaijan (the “Treaty”). The UNCITRAL Arbitration Rules, as revised in 2013 (the “UNCITRAL Rules”), governed the proceedings. The Permanent Court of Arbitration (the “PCA”) provided administrative support. The decision illustrates how serious fraud in the preparation and pursuit of claims can defeat treaty protection even where the claimant establishes the existence of a qualifying investment.[2]
Facts
Mr. Bahari’s claims concerned five businesses or categories of assets: a beverage manufacturing business (“Coolak Baku”), a related sugar refining project (“Shuvalan Sugar”), a fish processing business (“Caspian Fish”), an apartment in Baku (the “Ayna Sultan Property”) and a collection of carpets (the “Carpets”). He held a 75% interest in the joint venture operating Coolak Baku. His alleged participation in Shuvalan Sugar formed part of the same operation. His claimed interests in Caspian Fish were tied to shares in its holding company, Caspian Fish Co. Inc., incorporated in the British Virgin Islands (“Caspian Fish BVI”).[3]
The Treaty entered into force on 20 June 2002. Mr. Bahari alleged that Azerbaijan had pursued a campaign against him and his investments, involving conduct both before and after that date. His allegations included interference with his businesses, judicial proceedings affecting Coolak Baku and conduct preventing his return to Azerbaijan. Azerbaijan disputed the allegations and challenged jurisdiction, including on the grounds that the relevant assets were not protected investments, that the claims concerned conduct predating the Treaty and that the required investment approval had not been obtained.[4]
The evidentiary dispute centred on three documents purporting to record construction contracts for Coolak Baku, Shuvalan Sugar and Caspian Fish, dated respectively 1996, 1997 and 1999 (the “Chartabi Contracts”). Mr. Bahari submitted them with his statement of claim without explaining that they had been created in 2019. He later maintained that they reconstructed genuine earlier agreements. His quantum experts relied on them to support approximately USD 36.6 million in construction expenditure. Azerbaijan alleged that they were fabricated and that their use rendered the claims inadmissible.[5]
Issues
The principal questions were:
- Whether Mr. Bahari owned qualifying investments within the Treaty’s definition at the legally relevant time.
- Whether the Tribunal could hear claims concerning conduct predating the Treaty’s entry into force, and whether the Treaty permitted the importation of additional protections from other investment treaties.
- Whether the Treaty’s investment approval requirement applied to investments made before its entry into force and, if so, whether that requirement had been satisfied.
- Whether Mr. Bahari’s creation and use of the Chartabi Contracts constituted fraud sufficiently serious to make the surviving claims inadmissible, and how the costs should be allocated.[6]
Bahari v Azerbaijan: Jurisdiction and Admissibility
The Tribunal held that it had jurisdiction over the dispute concerning Coolak Baku and Shuvalan Sugar, subject to the limits it identified concerning the applicable protections and the timing of the alleged conduct. It lacked jurisdiction over the claims concerning Caspian Fish, the Ayna Sultan Property and the Carpets.[7]
The claims within its jurisdiction were nevertheless inadmissible. Mr. Bahari’s fabrication and use of the Chartabi Contracts as central evidence of his alleged construction investments and expenditure constituted an abuse of process. The fact that the fraud concerned evidence prepared for the claims, rather than illegality in making or operating the investments, did not prevent dismissal. The Tribunal therefore rejected the surviving claims without determining whether Azerbaijan had committed the alleged substantive Treaty breaches.[8]
Reasoning
Qualifying investments required more than ownership of an asset
The Tribunal rejected the proposition that every asset listed in Article 1(1) automatically qualified as an investment. Interpreting the Treaty’s wording, context and purpose, it held that an investment must also possess the inherent characteristics of contribution, duration and risk, with risk encompassing an expectation of commercial return. A contribution could consist of money, equipment, services, know-how or technology. Duration depended on the intended operation, and the characteristics had to be assessed together.[9]
Mr. Bahari’s shares in Coolak Baku met that test. There was evidence, including acknowledgments by Azerbaijan, that he had committed resources to the venture. The undertaking was intended to operate over time and generate profits. Because Shuvalan Sugar formed part of that operation, the Tribunal’s jurisdiction extended to the related claims. This did not establish that every alleged expenditure on Shuvalan Sugar had occurred or that the refinery had been developed as claimed.[10]
The Ayna Sultan Property and the Carpets failed the investment test. Mr. Bahari’s asserted plan to develop prestigious corporate headquarters was inconsistent with the evidence that the property was a small apartment of approximately 45 square metres. He also testified that the museum project for which he had allegedly acquired the Carpets was not a commercial undertaking. The Tribunal therefore found the necessary expectation of commercial return absent in both instances. These conclusions depended on the purposes and evidence of the particular acquisitions.[11]
Ownership had to exist when the alleged Treaty breach occurred
The Tribunal accepted that the Treaty protected indirect investments, including investments held through an intermediate company. However, the investor had to own the relevant investment when the alleged Treaty breach occurred. Because a Treaty breach could only arise after entry into force, an investment already divested before that date could not support the claims advanced.[12]
The Tribunal found that Mr. Bahari had sold his shares in Caspian Fish BVI before the Treaty entered into force. His shareholding was the controlling investment: the rights he asserted to profits and the company’s underlying assets depended on it. There was no alleged agreement preserving a separate financial or commercial interest after the sale. The Caspian Fish claims therefore fell outside the Tribunal’s jurisdiction.[13]
Earlier events could provide context but could not themselves breach the Treaty
The Tribunal applied the principle of treaty non-retroactivity reflected in Article 28 of the Vienna Convention on the Law of Treaties. Article 12(1) of the Treaty extended protection to investments already existing when it entered into force, but did not make the Treaty applicable to earlier conduct. Pre-Treaty events could provide context for a later breach; the continued effects of earlier conduct, or the failure to remedy it, did not by themselves create a new Treaty claim.[14]
Nevertheless, the Tribunal accepted temporal jurisdiction over the relevant claims alleging breaches of fair and equitable treatment (“FET”) and the right to enter and remain in Azerbaijan. The alleged judicial conduct concerning Coolak Baku in 2005 and 2006, and other alleged post-entry-into-force conduct, were capable of constituting independent causes of action if ultimately proved. The Tribunal also observed that Mr. Bahari’s right-to-enter claim was “not fully pled” but found that alleged post-Treaty conduct preventing his return could, prima facie, constitute an independent cause of action. It therefore did not need to decide whether Article 10 covered disputes already existing before the Treaty entered into force or identify precisely when the dispute had arisen. These were jurisdictional findings, not findings that the alleged conduct had occurred or breached the Treaty.[15]
The Tribunal separately rejected jurisdiction over alleged pre-Treaty breaches of customary international law. It found no agreement to depart from non-retroactivity and held that the Treaty’s offer to arbitrate could not be used to bring such earlier conduct within its jurisdiction merely by characterising it as a breach of customary law. In doing so, it expressly disagreed with the approach taken in Tekfen TML Joint Venture v. Libya (II).[16]
The most favoured nation clause was confined to FET
Mr. Bahari sought to rely on the Treaty’s most favoured nation clause (the “MFN Clause”) to import obligations of full protection and security and effective means of asserting claims and enforcing rights from Azerbaijan’s treaties with third States. The Tribunal rejected that approach.[17]
Article 2(3) first guaranteed FET and then stated that “this treatment” must be no less favourable than the specified comparator treatment. The Tribunal held that those words confined the MFN Clause to more favourable FET provisions. They did not permit the importation of the distinct protections invoked by Mr. Bahari. The ruling thus turned on the wording of this particular clause.[18]
Approval obtained before entry into force could satisfy Article 9
Article 9 made Treaty protection conditional on approval of the investment by the host State’s competent authorities. The Tribunal held that this requirement applied to investments made before the Treaty entered into force as well as later investments. The provision protecting existing investments did not displace that separate condition.[19]
However, the Tribunal rejected Azerbaijan’s contention that an existing investment necessarily required a new approval after entry into force. Approval could be a single event occurring before or after the Treaty became effective. For an earlier investment, substantive approval by an Azerbaijani authority competent over that investment could suffice. The Treaty did not prescribe particular formalities for such approval.[20]
The Tribunal found the requirement satisfied for Coolak Baku, including Shuvalan Sugar, in light of the authorities’ involvement with the investment, licensing and other evidence of State knowledge and approval. It added that, even if formal approval had been necessary, Azerbaijan would have been deemed to have waived that requirement for these investments. Article 9 therefore remained applicable, but substantive approval, with waiver as an alternative ground, defeated Azerbaijan’s objection.[21]
The finding of fraud rested on the substance and use of the documents
Azerbaijan bore the burden of proving the facts underlying its fraud objection. The Tribunal applied a standard of reasonable certainty, requiring it to be convinced, on an overall assessment of the evidence, that the relevant facts had occurred. It distinguished the high threshold for an abuse of process finding from the evidentiary standard: the seriousness of the allegation did not require a separate, heightened standard of proof. The assessment of abuse was objective and did not require separate proof of subjective bad faith.[22]
The Tribunal did not treat the mere fact that the Chartabi Contracts were created in 2019 as conclusive proof of fraud. It examined whether they accurately reproduced genuine earlier agreements, how they had been created and how they had been presented in the arbitration. Submitting true copies of genuine earlier contracts without an adequate explanation could potentially constitute procedural misconduct without necessarily amounting to fraud.[23]
The evidence did not support that explanation here. The Tribunal was reasonably certain that Chartabi Contracting had not existed at the relevant time, had not built the facilities as the engineering, procurement and construction contractor described in the documents, and that Mr. Bahari had not made the contractual payments. It nevertheless acknowledged that Mr. Chartabi or people or companies associated with him might have carried out some construction work. The Tribunal considered the absence of contemporaneous records, inconsistencies with witness testimony and the actual works, deficiencies in the purported payment evidence and the implausibility of reconstructing the contracts more than twenty years later.[24]
Mr. Bahari’s procedural conduct reinforced those findings. He initially submitted the documents without disclosing their later creation, allowed an authenticity inspection to proceed without the necessary explanation, and repeatedly failed to provide a transparent account of their provenance. The Tribunal rejected his attempt to characterise the matter as a simple mistake. It also rejected his objection that Azerbaijan had raised the admissibility issue too late, noting the delayed disclosure of relevant information and his opportunity to respond in his post-hearing brief.[25]
The fraud was sufficiently serious and central to justify inadmissibility
The Tribunal treated the legal consequence of fraud as a separate question from whether fraud had been established. Abuse of process required exceptional circumstances. Its assessment considered the seriousness of the conduct, Mr. Bahari’s direct involvement, the connection between the false evidence and the claims, the timing of its creation and the particular evidentiary difficulties of the dispute.[26]
The connection to the claims was decisive. The Chartabi Contracts were not peripheral documents. Mr. Bahari relied on them as evidence of his alleged investments, while his quantum experts used them to support USD 36.6 million in construction costs. That figure represented approximately 55% of the total amounts the experts regarded as invested across Coolak Baku, Shuvalan Sugar and Caspian Fish; the Tribunal had no jurisdiction over the Caspian Fish claims. Mr. Bahari’s later attempt to minimise the contracts’ significance did not displace their central role.[27]
The documents had been fabricated in anticipation of claims against Azerbaijan and subsequently deployed as a foundational part of the case. The scarcity of reliable contemporaneous evidence increased the seriousness of that conduct. The Tribunal concluded that the attempted use of false evidence could have led it to grant ill-founded claims and constituted a serious misuse of the arbitration procedure. It also considered that allowing claims founded on such fraud to proceed would be contrary to international public policy.[28]
The result was inadmissibility of the claims over which jurisdiction had otherwise been established. The Tribunal’s reasoning did not establish an automatic rule that every defective or inauthentic document defeats an entire claim. It expressly recognised that the consequences could differ where the document was merely evidence of secondary importance.[29]
The costs award reflected both the outcome and the circumstances of the proceedings
Although an abuse of process finding could justify a full costs award, the Tribunal retained discretion under Article 42 of the UNCITRAL Rules. It took account of troubling incidents involving alleged witness intimidation and pressure on Mr. Bahari’s funder, while recording the absence of direct evidence of their origin or impact. It also considered the substantial disparity between the parties’ expenditure.[30]
The Tribunal ordered Mr. Bahari to reimburse Azerbaijan EUR 782,898.15 in advances on arbitration costs and to contribute USD 13,513,750.93, GBP 1,317,189.50 and EUR 6,000 towards its legal fees and other expenses. The latter amounts represented two-thirds of Azerbaijan’s relevant costs. The sums awarded carried interest at the rate specified in the award as “SOFR 3-month +2%”, compounded annually.[31]
Conclusion
The decision demonstrates that establishing a protected investment is only one step towards obtaining relief. A claimant’s later fabrication and deployment of central evidence can make otherwise jurisdictionally valid claims inadmissible, even where the wrongdoing did not occur when the investment was made. The gravity of the fraud and its relationship to the claims were essential to that conclusion.[32]
The award also illustrates the importance of the particular treaty text. An asset must meet the applicable investment requirements, ownership must exist at the relevant time, and post-entry conduct must support an actionable claim. An MFN clause does not necessarily extend to every substantive protection found in another treaty. At the same time, an approval requirement may be satisfied through substantive State approval predating the treaty. For investors and counsel, the lesson is to establish both the legal basis of treaty protection and the provenance and reliability of the evidence on which the claims depend.[33]
[1] Mohammad Reza Khalilpour Bahari v. Republic of Azerbaijan, PCA Case No. 2022-49, Award, 21 September 2026, ¶¶ 491-492, 694-696, 711(a)-(c).
[2] Id. ¶¶ 1, 16-17, 627, 631, 694-696.
[3] Id. ¶¶ 251, 257, 275-276, 283, 450, 470-472.
[4] Id. ¶¶ 356, 493-494, 542-550, 563.
[5] Id. ¶¶ 601-602, 633, 664, 685-688.
[6] Id. ¶¶ 384, 515-516, 536-540, 579-585, 601-602, 706-710.
[7] Id. ¶¶ 540, 561, 600, 711(a)-(b).
[8] Id. ¶¶ 631, 672, 694-696, 711(c), (f).
[9] Id. ¶¶ 369-375, 384.
[10] Id. ¶¶ 461-467, 470-472.
[11] Id. ¶¶ 475-480, 489-491.
[12] Id. ¶¶ 376-384.
[13] Id. ¶¶ 408-412, 448.
[14] Id. ¶¶ 516-519, 525-531, 544-546.
[15] Id. ¶¶ 542-552.
[16] Id. ¶¶ 553-561.
[17] Id. ¶¶ 536-540.
[18] Id. ¶¶ 538-540.
[19] Id. ¶¶ 580-585.
[20] Id. ¶¶ 587-590.
[21] Id. ¶¶ 594-599.
[22] Id. ¶¶ 229-234, 628-630.
[23] Id. ¶¶ 633-635.
[24] Id. ¶¶ 636-663.
[25] Id. ¶¶ 664-672.
[26] Id. ¶¶ 628-631, 673-679, 688-693.
[27] Id. ¶¶ 679-687.
[28] Id. ¶¶ 688-696.
[29] Id. ¶¶ 679, 694-696.
[30] Id. ¶¶ 706-709.
[31] Id. ¶¶ 709-710, 711(d)-(e).
[32] Id. ¶¶ 627, 631, 679, 694-696.
[33] Id. ¶¶ 384, 527, 538-540, 552, 587-590, 597-599.