Illegality and Corruption in International Arbitration: The Role of Arbitrators and Counsel

We all know the majority of arbitration rules impose confidentiality obligations on arbitrators and counsel.  But, they typically do not address possible exemptions on that requirement which may be utilized if arbitrators feel compelled to address issues of illegality by breaking that obligation of confidence.

Obviously an arbitrator or arbitral panel are not in the same position as a judge who can investigate issues of illegality.  The panel has an obligation to maintain the confidentiality of the proceedings.

It used to be that even if there was no legal requirement of an arbitrator to disclose corrupt activities, there was some overriding duty that will compel an arbitrator to make such a report under the guise of public interest justice or international public order. However, there are now compelling statutory obligations that apply to counsel and arbitrators alike.

For example there are anti-money laundering regulations and anti-corruption legislation in many countries together with international treaties which may impose on arbitrators an obligation to report reasonable suspicions of a party’s corrupt activities.

Arbitrators must then consider:

(a)  Any specific exemption arising from the confidentiality obligations imposed on them by the appointing authority and the appropriate arbitration rules.

(b) Whether they are specifically exempted from the confidentiality obligations if a competent authority requested disclosure of information in line with national legislation or international conventions.

(c) The more difficult question is whether there is an obligation on the arbitrators to act on their own volition to report findings of illegality to the appropriate authority.[i]

All of this requires careful consideration of the evidence before the tribunal and the obligations placed on the tribunal not only by the governing law, but ultimately on laws from their home jurisdiction and international convention.

While this is all very good where one of the parties tenders the appropriate evidence to satisfy the burden of proof that there are allegations of illegality, the real question is what do you do as arbitrator when you are merely suspicious or there is limited evidence to suggest there is illegality behind the contractual issues.

Arbitral bodies of course, have limited means to discover facts or press for documents or evidential points which obviously will impact the consideration of the burden of proof of illegality.

Arbitrators should still be cognizant of their role in the process. Findings of illegality need to be clearly set out by applying the appropriate rules of evidence.  In other words the tribunal must not move to a prosecutorial role based upon its suspicions, but must make that analysis based on the evidence before it.[ii] That determination will then factor strongly in whether arbitrators will be obligated under national or international law to report.

The evidence before an arbitrator is key. Clearly, arguments that raise the suspicion of illegality, as opposed to the proof of same, have not usually served to overturn an arbitral award.

In Westacre Investments Inc. v. Jugoimport SPDR Holdings Co. Ltd.  [1998] 3 WLR 770, the tribunal took a passive role with allegations of illegality.  On application to the High Court to set aside the award, the Court concluded (at 773) that the public policy of sustaining international arbitration awards on the facts of that case outweighed the public policy in discouraging international commercial corruption.  The court had no difficulty upholding the arbitral jurisdiction and that the arbitral tribunal did not find allegations of bribery.

Compare that to the courts’ comments in National Iranian Oil Co. v Crescent Petroleum Co. 2016 EWCH 510 .  The tribunal found that while there were discussions of a potential bribery there was no evidence of one that had actually been made, nor was there any evidence to support any imbalance between the parties to suggest that the payment had been made.  The contract was upheld.

The Claimant challenged the arbitration in the High Court of England and Wales on the grounds of bribery and corruption arguing that the evidence of bribes being discussed sufficiently “tainted” the contract, meaning it should not now be enforced.  It also pointed to public and political opinion that was now very much against bribery and corruption.  The Respondent took the position that  a mere “taint” of corruption was not sufficient grounds to overturn the decision.

The court agreed that mere allegations the contract was tainted would lead to uncertainty and undermine party autonomy. As in Westacre it upheld the decision of the tribunal. However, the court did note that the concept contracts should be open to challenge on the basis of being merely “tainted” was “attractive” in light of both English law and international conventions dealing with bribery. In this instance merely having an “attractive” argument did not make it a compelling one. Further, whether “attractive” or not, later decisions of the Court make it clear that review of arbitral decisions based on public policy defences were to be treated with extreme caution. (Sinocore International Co. Ltd v RBRG Trading (Uk) Ltd. 2017 EWHC 251).

What all this means is that the courts have not completely shut the door on overruling the decisions of a tribunal on potentially weaker allegations of illegality. It is still a high hurdle to challenge an arbitral decision on mere allegations of dishonesty.

If there is some evidence that a contract has become tainted in some fashion it behooves the tribunal then to carefully consider the evidence of any suggested illegality and also to weigh that with the understanding that the mere fact there is some evidence on this point may give broader scope to challenge the award in the courts. Such allegations though, will likely not trigger a reporting obligation on the part of the arbitrators.

[i] Hiroyuki Tezuka, “Corruption Issues in the Jurisdictional Phase of Investment Arbitrations” in Addressing Issues of Corruption in Commercial and Investment Arbitration by Domitille Baizeau and Richard Kreindler, (2015) Dossier XIII of the ICC Institute of World Business Law at pgs 56-57

[ii] A. Timothy Martin, “International Arbitration and Corruption: An Evolving Standard” (Spring, 2002) International Energy and Minerals Arbitration, Mineral Law Series, Vol 2002 pages 5-7

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