Corruption in International Commercial Arbitration

As human society changes, corruption increases too and takes many formats. Corruption is endemic throughout society. It would be foolhardy to expect that arbitration is free of bribery. States are required to undertake deliberate and decisive efforts to counteract or battle corruption. This rule is not jus cogens, but is an acceptable universal standard

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Introduction

As human society changes, corruption increases too and takes many formats. Corruption is endemic throughout society. It would be foolhardy to expect that arbitration is free of bribery. States are required to undertake deliberate and decisive efforts to counteract or battle corruption. This rule is not jus cogens, but is an acceptable universal standard. Disputes are to be handled by peaceful measures, such as arbitration. Arbitral processes are consensual; therefore, accusations of corruption can come from either party. It is unclear how arbitrators should respond to corruption claims when raised by parties in disputes. The principle of Kompetenz Kompetenz presents a similar set of issues, in that the arbitrators must select their own jurisdiction to resolve disputes, even when the claims are predicated on their actions. In addition, multinational disputes that are arbitrated can’t be immune to accusations of corruption, a worldwide problem.

Because corruption is on everyone’s mind, it is clear that there is a requirement to probe multinational transactions.1 While it is undeniable that there are systems in place to deal with corruption in the judicial settlement process, there is a lack of clarity as to how arbitrators should respond to corruption charges that are brought forth by parties in a dispute. It is critical to emphasize the guiding principles of international arbitration in order to better grasp the legal environment surrounding it. The United Nations Commission on International Trade Law (UNCITRAL) has identified four fundamental principles in international trade law. Parties’ autonomy, separability, competence-competence, geographical principle, and enforceability are among these principles.2 Before making any allegations of corruption, arbitrations must first face these standards.

Arbitrability of Corruption in International Commercial Arbitration

The topic at stake in this section is whether corruption charges can be referred to and resolved by an arbitrator. Arbitrability as a notion frequently clashes with the parties’ right to determine what matters should or should not be determined by the tribunal. When paired with public policy considerations, the issue gets more complicated. One of the fundamental concepts of arbitration is party autonomy, which essentially refers to the parties’ right to choose how their conflicts will be settled. Without substantial dissent, both national legislation and international arbitral institutions and organizations embrace this idea.3 This idea is sometimes opposed by the concept of arbitrability, or more precisely, ‘objective arbitrability,’ which raises the question of whether a certain form of dispute is susceptible to arbitration.

Every state decides on the matters that will be excluded from an arbitral tribunal’s jurisdiction based on the state’s political, social, and economic objectives.5 According to some critics, there is no universally acknowledged consensus on what topics are arbitrable, because each country has its own definition of legality and criminality. The distinctions across national legal systems on some problems of arbitrability can be compared to arbitral conflicts involving claims of bribery (or corruption), as this is a subject of contention in virtually every jurisdiction.

Solving International Commercial Arbitration Bribery

1. Corruption in the Contract

a. Burden of Proof Reversal

In most countries, it is standard procedure that “the burden of evidence lies with the person claiming a claim.” The idea that someone who asserts something must prove it is not a novel viewpoint, since it has been repeated several times in the courts, tribunals, and various other legal venues. In Rousaki’s opinion, reversing the burden of evidence violates both natural justice principles (right to be heard, especially) and basic tenets of logic.6 This is completely accurate, because it departs from the standard approach.7 Cao says that “a change in burden of proof is, therefore, unconstitutional if it affects a party’s right to a fair trial and the equality of parties”.8 In addition, Cao makes a reference to this method as a time saver. Rousaki argues, among other things, that the “suspected party should be well-positioned to refute erroneous claims via production.”9 Is this correct? The justification is not completely sound since the party suspected (the one who has been made to bear the burden of proof), could maliciously destroy or even suppress any evidence which would be indicative of their own corruption to their advantage without even the other side finding out.10 Reversing the burden of evidence is not a fixed rule.

b. Standard of Proof

The standard of proof is not well established in international commercial arbitration, in the sense that “there is no universal standard of proof applicable to corruption claims,” emphasizing that the threshold is not well defined.11 The emphasis is on the fact that rules are stretched in arbitration, which has both advantages and disadvantages depending on the case, since there appears to be no conventional threshold for demonstrating corruption, in contrast to court/litigation situations.12 It is safe to say that, given the difficulty of establishing corruption, raising the bar of proof in corruption cases will eventually exacerbate the issue and be ineffective. Additionally, malicious actors that engage in sharp practice might abuse the increased standard of evidence by simply denying any improper activities evading their responsibility.

From a different angle, Nueber argues that reducing the threshold of proof is both rational and equitable, given that it is difficult to show corruption in general and that increasing the bar causes additional issues.13 For this reason, owing to the soft approach to arbitration, it is a good approach because it is friendly toward the notion that demonstrating corruption is terrible, and inversely, it is a bad strategy because tribunals are forced to concede the reality that demonstrating corruption is heinous.

Therefore, evidential concerns are a significant problem in corruption accusations. One benefit of raising the bar for proof is that it short-circuits futile allegations of corruption from being made (locks out busy bodies). What may be the best approach to dealing with this strategy is to neither increase nor decrease the standard. Rather, deploy the “balance of probabilities” test which allows for consideration of circumstantial evidence, as well as drawing adverse inferences from the tribunal in order to determine whether corruption has been proven. Because, even if the standard of proof is not fixed, different scenarios dictate varying expectations for evidence quality and strength. Placing a constant measure is not required.

c. Exploring Sua Sponte (On its own motion)

The tribunal is empowered to probe corruption sua sponte (on its own initiative). The perfect example is one in which the evidence submitted to the tribunal on its face indicates corruption, yet neither party asserts it.14 This is an adequate shield and a commendable endeavor to eradicate corruption; however, there appear to be divergent views on the subject, as some scholars view it as a usurpation of powers by the arbitral tribunal in the sense of acting ultra vires; additionally, it may be a complete detour from the parties’ intention; on the other hand, some scholars believe that. Although, unhappily, there is a quandary regarding the arbitrator’s discretion to initiate proceedings sua sponte. It is an issue that continues to be controversial. There are differing views on what exactly needs to be handled with this channel. One idea is balancing the free will of the parties and the arbitrators’ authority, such as by including it as a clause in the arbitration agreement. One of the significant drawbacks of sua sponte is that an award may be deemed null and void or, more precisely, set aside if arbitrators go beyond their authority (“ultra petita”) to investigate matters not brought forward in arbitral proceedings/that fall outside their ambit; arbitrators should be aware of such instances and exercise the utmost caution as they ought to.15 Article 34 (2) (a) (iii) of the UNCITRAL Model Law and article v (1) (c) of the New York Convention validates this claim.

Additionally, the question of what happens if a tribunal fails to commence sua sponte and an award is later criticized on public policy grounds by a competent court on record is critical to explore.16 Another significant question is whether arbitrators may be held professionally accountable for their failure to act.17 These are critical concerns that need to be addressed directly; the world of commercial arbitration remains mute on them.18 In general, this is a sensible attempt to combat corruption in the sense that sua sponte appropriately protects the arbitral process’s integrity; it also indirectly provides the tribunal with an investigative eye “in light of the current upsurge in corrupt activities globally.” Furthermore, sua sponte recognizes that corruption has chameleon-like characteristics in that it conceals itself and is not always detectable by parties, the mechanism inadvertently lends a helpful hand to all parties to an arbitration.

2. Corruption of the arbitrators

Another method in which corruption manifests itself in the realm of international business arbitration is through corrupt activities of arbitrators.19 Integrity concerns touch practically everyone, and arbitrators are not immune.20 Arbitrators can be corrupt in a variety of ways, including coordinating with parties in advance to establish award limitations, assisting parties to arbitration, communicating behind closed doors/backdoor, and collecting exorbitant fees. A key issue to ask ourselves is, what can be done to decrease the corruptness of the arbitrators? Having a defined scale of payment for arbitrators and parties should be provided the liberty of disputing any issues as to the amount of legal costs imposed can a starting point.21

Second, it is possible to devise a system for pre-award deliberation wherein the system will not interact with the parties who are submitting themselves to arbitration other than the arbitrators themselves. This way, there will be no direct connection between the parties and the arbitrators.22 Additionally, creating a vetting committee/channels to monitor or probe arbitrator’s corrupt activity is an excellent idea.

3. Consequences from Corruption

As arbitrators deal with corruption concerns, the problems don’t end there, but in the questions of arbitrability and the standards of proof necessary in cases of corruption. Once the party who alleges a finding of corruption has led evidence or conducted a sua sponte inquiry, the arbitrator needs to consider the implications of the finding on the contract and each party’s separate claims.

In the vast majority of domestic legal systems, a difference is made between contracts that were sought after or implicitly secured by corruption, and others that were formed as a result of bribery. There is unanimous agreement among many jurisdictions, that in the former case, a contract is considered invalid. This effect is also considered to be transnational policy, according to international and national laws and norms.23 Until the offended party takes the procedures for its annulment, a contract secured through corruption remains legal. In a controversial move, World Duty Free v. Kenya, the investor acknowledged to paying $2 million as a contribution to the Kenyan President in order to conduct business with the Kenyan government in a World Duty Free case filed against Kenya.24 Since English law constituted the controlling law of the contract, the arbitrator concluded that the transaction was avoidable by Kenya.

It is proposed that since a contract intended to aid and abet corruption is ineffective, neither party may seek any recourse, such as compensation or restitution. This proposition is backed by the doctrine of clean hands, or ex turpi causa non oritur actio, and therefore, “claims tainted by wrongdoing will not succeed, and the loss lies where it falls.”25 The basic notion is that when someone’s action lacks good faith and righteousness, then the court will not help. However, in instances when the contract is purchased through corruption, what happens to the claims where the contract exists? Such a contract must be penalized just like the others, because the concept behind it is not to benefit the parties but to ensure the public’s interest in combating all types of corruption. In their opinion, this is overly severe for the person innocent of wrongdoing. The innocent party may sue for restitutio in integrum, after cancellation of the contract.26 One needs to be very careful, though, as giving a person an excessive tip would suggest that one is profiting from the illegality of the deal.

Conclusion

The Chartered Institute of Arbitrators must create clear and binding ethical norms of conduct for dealing with corruption in arbitration. In the process of drafting the American Association and the International Bar Association endeavored to remove corruption from their regulations, but, unfortunately, this failed. Essentially, the concept here is that adequate checks are important to prevent corruption, therefore having a code of conduct in place offers a shield against it by encouraging correct behavior and morality in arbitrators. After doing this, the question follows: should the parties’ interests take precedence above the impact on society if the fight against corruption is lost? It further says that this should not be the case, and that the arbitral tribunal should be always concerned about and on-guard for any corruption allegation.

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