Reforms and criticisms

Reforms and criticismsThe scale and scope of bribery in business is staggering. Nearly two in five polled business Executives have been asked to pay a bribe when dealing with public institutions. Half estimated that corruption raised project costs by at least 10 per cent. One in five claimed to have lost business because of bribes by a competitor. More than a third felt that corruption is getting worse.The consequences are dramatic. In developing and transition countries alone, corrupt politician corrupt politicians and government officials receive bribes believed to total between US$20 and 40 billion annually the equivalent of some 20 to 40 per cent of official development assistance. http://www.transparency.org/policy_research/surveys_indices/cpi/2010> and the 2010 Corruption Perceptions Index Report.Reforms and criticismsCorruption in arbitrationCan take many forms Bribery, abuse of public officeThere is a framework of legal measure in place to try to ensure that corruption does not take placeSo does this mean that the arbitrator must inform the relevant authority of any possible corruption.This might mean that he will breach confidentiality Anti corruption laws and arbitrationDoes not have a universal definition therefore it may be a concept that differs form jurisdiction to jurisdictionThis may be a problem in itselfIF we consider what each State would accept as being bribery there will be considerable differences In the UK payment[s] made with the purpose of expediting or facilitating the provision of services or routine government action which an official is normally obliged to perform are not permitted under the UK Bribery Act 2010 OECD Convention leaves state parties to decide whether such payments are unlawful, and are expressly permitted (subject to defined limits)Foreign Corrupt Practices Act 1977 (FCPA) 19 Countries like United States, Canada, and Singapore for instance use the word corruptly in their anti-bribery legislation without statutory definition, and each jurisdiction has a different interpretation of the word

Is it the duty of arbitrators of assess whether there is corruption in arbitration Initially Jurisdiction has been denied in the case ICISD 0001 where it said by Judge Lagergren that a dispute arising out of bribery is not arbitralHowever, Kempetence Kompetence and the separability of the arbitration clause will allow the arbitrators to decide whether the contract is valid will this include if there is corruptionThis may not be such a difficult question if there are allegations of corruption but if there is evidence but no allegation, does this present a difficultyGary Born asserts If there is evidence of corruption arbitrators are requested to make a binding arbitral award ...they consider and decide claims that contractual agreements are invalid, unlawful, or otherwise contrary to public policyThe difficulty is that arbitrators receive their mandate from their contract and as such to exceed this mandate might be seen as acting beyond such mandate and subject to challenge.

Does the arbitrator have the power to investigate corruption Where will the actual power come from for an arbitrator to investigate corruption without an allegation being made by one of the parties to the allegationRichard Kreindler, Aspects of illegality in the formation and performance of contracts (16th ICCA Congress, London, May 2002) Has argued A tribunal is not solely a manifestation and instrumentalization of party autonomy which can ignore international goals of sanctioning illegality.illegality contentions going to the nullity of the main contract even if initiated by the tribunal itself, should normally be deemed to fall within the terms of the submission to arbitrationIt is only [w]here a suspected or manifest illegality is irrelevant to the claims, defences... then the arbitrator should have no right or duty to engage in investigations and findings which are the province of the state criminal authorities. Arbitrators have a duty to make an enforceable awardIt is the duty of any arbitrator to make sure that the award he make is certain and enforceable.How can he ensure that this is the case if the award cannot be enforced because it is contrary to public policy.Arbitrators recognise that public policy make a contact that are in serious violation of moral standard null and void.Such a contract would be unlikely to be enforced under the NYC

Arbitrators powers to investigate are limitedDoes not have the same power to investigateEvidence can only be considered if it is relevant to the claimThe tribunal does not have the same powers of subpoena There is a difficulty if the only evidence is that of oral statements as the evidence must be clear and convincingIn some government contracts intermediates are used who a familiar with local laws. This type of procedure will lend itself to allegations that the payment of such a fee is a type of corruption. Although this is not necessary to case but it will be difficult to prove one way of the other It is alleged Senior officials actively engaged in corruption are often in a position to impede investigations and destroy or conceal evidence Maziar Jamnejad, World Duty Free v The Republic of Kenya: a Unique Precedent?Rumours or innuendo will not do there must be clear and convincing evidence of corruption

Burdon of proof for corruption Is Balance of probabilityIt has been argued that the burden should be reversed.A tribunal may consider circumstantial evidence, as well as draw adverse inferences, in determining whether corruption has been proven. This may allow the tribunal to make a finding of corruption where the evidence is otherwise insufficient to meet the balance of probabilities standardBut this will vary from tribunal to tribunal.The following will indicated some of the guidelines that may be taken into account but there are others Case law provides inconclusive guidelines.The US Department of Justices Lay-Persons Guide to the FCPA red flagsProvides some guidance as to what will amount to evidence of corruption

Unusual payment patterns or financial arrangements, a history of corruption in the country, a refusal by the foreign joint venture partner or representative to provide a certification that it will not take any action in furtherance of an unlawful offer, promise, or payment to a foreign public official and not take any act that would cause the U.S. firm to be in violation of the FCPA, unusually high commissions, lack of transparency in expenses and accounting records, apparent lack of qualifications or resources on the part of the joint venture partner or representative to perform the services offered, and whether the joint venture partner or representative has been recommended by an official of the potential governmental customer.

ICC Case No. 8891 (1998),The indirect evidence of a corrupt intermediary agreement included the following (i) intermediarys inability to provide proof of his execution of the contractually stipulated services; (ii) excessively high remuneration in relation to the type of services to be rendered; and (iii) remuneration assessed based on the value of the contract awarded to the principal (as opposed to the quantity or quality of services rendered).However because these factors were taken account in this case this approach is not taken in every caseOther indications of corruption might be UNCAC121 and the OECD Convention122: (i) the establishment of off-the-books accounts; (ii) the making of off-the-books or inadequately identified transactions; (iii) the recording of non-existent expenditures; (iv) the entry of liabilities with incorrect identification of their object; (v) the use of false documents; and (vi) the intentional destruction of bookkeeping documents earlier than foreseen by the law.

Corruption and evidence In most case the criteria is that the evidence it must be clear and convincing but in some cases where a consultancy price is very high that may not be taken as proof of bribery see WestacreTherefore it is possible to argued that the burden of proof is high

No Consistent approach to what amounts to clear and convincing evidence of corruption.

Frigates to Taiwan sagawhich originally ruled that payment by an agent to China was not bribery When reviewed in 2009 by a Swiss tribunal It was found that the award was tainted by fraud, because of a false testimony.

Arbitral awards and money laundering

Arbitral awards and money laundering In The Megofon case A arbitral tribunal upheld a defence based on money laundering in a dispute between Alfa Group Consortium and IPOC international growth fund limited. The tribunal ruled that IPOC gained its money from criminal activities, so could not benifit from the contract. Some jurisdictions take a more permissive attitude towards lobbying practices than othersInfluence as to the seat of arbitration Omnium de Traitement et de Valorisation S.A. v Hilmarton Ltd

Algerian government officials negotiated to procure a construction contract in governed by Swiss law, and provided for arbitration in Switzerland. Anti-corruption regulations under Algerian law prohibited intermediation in government procurement, whereas Swiss law did notSwiss law required a demonstration that the parties in fact intended for the intermediary to bribe or otherwise exercise improper influence over public officials.Had Algerian law been applied then the intermediary agreements would be prohibitedThe position in the UKLemenda Trading Co. Ltd v African Middle East Petroleum Co. LtdThe procurement of the renewal of an oil supply contract, through the use of an intermediate to use personal influence on various persons in Qatar. In certain circumstances the employment of intermediaries to lobby for contracts or other benefits is a recognised and respectable practice.... their use is now well-established in commercial situations, whether or not a 'public' body is involved.It was implied that if it involve some impropriety that would effect the decisionIt is generally undesirable that a person in a position to use personal influence to obtain a benefit for another should make a financial charge for using such influence, particularly if his pecuniary interest will not be apparent the size of the commission to be earned ,were enormous the intermediary agreement was held to be contrary to English public policyIs the potential for corruption linked torules of confidentialityNational legislation on issues such as money laundering may require arbitrators to report to the relevant authorities corruption which comes to their attention in the course of an arbitration. Such obligation overrides any express or implied duty of confidentialityInvestment arbitrationIs not subject to review on the grounds of public policy.But it is less the subject of confidentiality.Case law has indicated that Arbitrators have taken an inconsistent approach.Some adopting the position that the evidence is not clear.Others adopting the position that they uphold universal values of good morals, bonus mores, ethics of arbitration, or transnational public policyThis is based on the view that a court will not enforce an award if it is based on a contravention of public policy.

Enforcement /Setting Aside awards for corruption

Article V(2)(b) of the New York Convention The recognition or enforcement of the award would be contrary to the public policy of that countryArticle 34(2)(b)(ii) of the UNCITRAL Model Law provides for the setting aside of an award on grounds of public policyThere is a great variation, between jurisdictions, and even between courts within certain jurisdictions, regarding the permissible extent of court review of a tribunals findings, if there is a challenge to enforcement. Minimal Review at challengeWill support arbitrationThe court will not usually review the tribunals identification and application of the law. The Swiss case of Thomson-CSF v Frontier AG Northrop Corporation v TriadThere are limited instances in which the minimal review approach will allow a re-examination of the tribunals findings.Fresh evidence of illegality, which is of sufficient cogency and weight to be likely to have materially influenced the arbitrators conclusion had it been advanced at the [arbitration] hearing was not available or reasonably obtainable at the time of the hearing of the arbitrationWestacre Investments Inc. v Jugoimport-SPDR Holding Co. Ltd [1998],J alleged that Westacre had bribed Kuwaiti officials in order to obtain the Sales Contract for J, and argued that Ws claim for its commission should therefore be denied. The tribunal held that J had failed to provide sufficient evidence of corruption to prove its allegations; hence, the intermediary agreement was valid, and J was ordered to pay commission to W When the award was presented for enforcement in England, J challenged the award, raising the same argument. This time, however, J attempted to introduce new evidence not put before the tribunal, by way of an affidavit (referred to in the courts judgment as the Affidavit) alleging that W was being used by Kuwaiti government officials to receive bribes under the Intermediary Agreement, and that Ws witnesses gave false evidence at the arbitration hearing to conceal such corruptionColman J. at first instance was concerned with supporting the arbitral process Declared that there exists the strongest conceivable public policy against re-opening of arbitral awards on findings of fact, Hence the rule that they may only be disturbed upon production of fresh evidence:By attempting to introduce the Affidavit in order to prove perjury committed at the arbitration hearing] the defendants, in effect, invite the enforcement court to retry issues of fact which the arbitrators had before them and which they had to and did determine. If the public policy defence extended to this ground, it would present an open invitation to disappointed parties to re-litigate their disputes by alleging perjury and a major inroad would be made into the finality of Convention awards(NYC)The Court of Appealheld Westacre majoritys approach endorsing Colman J.s first instance judgment This followed legislative policy as it was outlined in the arbitration Act 1996 giving primacy to the autonomy of arbitral proceedings and upholding the finality of arbitral award.

Minimal review at Challenge Interference with a tribunals findings is where thetribunal errs in its identification or interpretation of the forums public policy. If (and only if) such error of law leads the tribunal to uphold a contract repugnant to the forums international public policy, the award can be set aside or refused enforcement by the court. Singapore Court of Appeal case of AJU v AJT.Singapore Court of Appeal case of AJU v AJT.

a Thai company whose produced television programmes, and AJT, a British Virgin Islands company, were parties to a contract enabling AJU to stage an annual tennis tournament in Bangkok for a term of five years. Disputes arose which led to the commencement by AJT of arbitration proceedings against AJU. AJU lodged a complaint of fraud against AJTs director with the Special Prosecutors Office of Thailand, alleging forgery of a document. The Thai police commenced investigations against the alleged offenders on charges of fraud, forgery, and use of a forged document.The parties negotiated and entered into a settlement agreement governed by Singapore law (the Concluding Agreement) but withdrawal of a complaint in relation to such offences will not necessarily cause the termination of criminal proceedings or investigations.The issue of the validity of the Concluding Agreement was submitted to the tribunal, which rendered an interim award terminating the arbitration. It found that the Concluding Agreement was valid and enforceable, and that AJU did not obtain the non prosecution order through bribery of the Thai authorities.AJT sought to set aside the interim award on public policy grounds, arguing the Concluding Agreement was illegal as an agreement to stifle the prosecution of noncompoundable forgery charges in Thailand, and that the non-prosecution order had been procured through bribery and/ or corruption of the Thai authoritiesAnd argued that proceeding on the basis that this was an appropriate case for the court to intervene and re-open the tribunals findings on the legality of the Concluding Agreement, The decisionThe High Court re-evaluated the evidence relating to AJTs allegations of illegality, and concluded that the Concluding Agreement was illegal under its governing law (Singaporean law) and the law of the place of performance (Thai law), as it was an agreement between the parties to stifle the prosecution of non-compoundable offences under Thai lawThe Court of Appeal overturned on the basis that the High Court had erred in re-opening the tribunals findings of factCourt of Appeal drew a distinction between errors of law relating to the forums public policy on the one hand, and errors of fact on the other. The Court of Appeal held that the public policy exception in Article 34(2)(b)(ii) of the UNCITRAL Model Law only permits setting aside of awards for errors of law as to what constitutes Singapores international public policy It is a question of law what the public policy of Singapore is. An arbitral award can be set aside if the arbitral tribunal makes an error of law in this regard a tribunals .... findings of fact can be subject to court review in the limited circumstances where there is fraud, breach of natural justice or some other recognised vitiating factor.

minimal review of the arbitral award at challengeSingapore Court of Appeal case of AJU v AJT.where there is fraud, breach of natural justice or some other recognised vitiating factor.Total scrutiny of the award both as a matter of fact and of law Maximum reviewAt one time the French court took the view that the court was entitled and obliged to conduct total and comprehensive review of the tribunals findings, so long as the award is challenged on any international public policy ground European Gas Turbines SA v Westman International Ltd It took the view to decide otherwise would deprive the control of the judge of all efficacy, and therefore, of all its rationale. see frigates-to-TaiwanFrench courts now draw a distinction between awards where a fraud which has been influential on the arbitrators decision has been proven, the Court will be led into a re-examination of the facts of the case see Thomson-CSF v Frontier AGSA Thals Air Defense v. GIE Euromissile 2004 The task of a reviewing court is to take the award as it is [and] not to rewrite it.... or to conduct a re-examination (of the Merits of the case ) in the absence of a manifest violation(which must be ) flagrant real and specific and those where there is no proof. Which does not allow a maximum review. he Court will reverts to applying the rule according to which it cannot conduct a substantive review of the award [absent a manifest, actual and specific breach of international public policy]. see frigates-to-TaiwanWhich approach is taken will vary form jurisdiction to jurisdiction See Australian approachSee USA approachContextual reviewContextual review was suggested obiter In Soleimany.v Solemany a Jewish rabbinical court applied Jewish law and found a contract for smuggling of carpets was illegal under Iranian law, but held any purported illegality would have no effect on the rights of the parties" under the applicable Jewish law.The court refused enforcement of the award for contravention of English public policy. s, Waller L.J stated In our view, an enforcement judge, if there is prima facie evidence from one side that the award is based on an illegal contract, should inquire further to some extent.

Waller L.J Soleimany v Soleimany Two stage test Is there evidence on the other side to the contrary? Has the arbitrator expressly found that the underlying contract was not illegal? Or is it a fair inference that he did reach that conclusion? Is there anything to suggest that the arbitrator was incompetent to conduct such an inquiry? May there have been collusion or bad faith, so as to procure an award despite illegality? Arbitrations are, after all, conducted in a wide variety of situations; not just before high-powered tribunals in international trade but in many other circumstances. We do not for one moment suggest that the judge should conduct a full-scale trial of those matters in the first instance. That would create the mischief which the arbitration was designed to avoid. The judge has to decide whether it is proper to give full faith and credit to the arbitrator's award. Only if he decided at the preliminary stage that he should not take that course does he need to embark on a more elaborate inquiry into the issue of illegality. Details of the stage one test (1) Available evidence of legality and illegality; (2) The way the Arbitrator reached his or her conclusion of illegality; (3) The degree of competency of the Arbitrator; (4) The way arbitration was conducted. Care must be taken to verify whether the award was procured by fraud, collusion or bad faith.Waller L.J. Said that the court should also consider the nature of the illegality as a Stage 1 factorColman J. at first instance Westacre On the one hand there is the public policy of sustaining the finality of awards in international arbitration and on the other hand the public policy of discouraging corrupt trading In my judgment, it is relevant to this balancing exercise to take into account the fact that there is mounting international concern about the prevalence of corrupt trading practices However, although commercial corruption is deserving of strong judicial and governmental disapproval, few would consider that it stood in the scale of opprobrium quite at the level of drug-trafficking. On balance, I have come to the conclusion that the public policy of sustaining international arbitration awards on the facts of this case outweighs the public policy in discouraging international commercial corruption

The majority decision in Westacre

Difficulty with the two-stage testMantell L.J. (with whom Sir David Hirst agreed) expressed significant reservations regarding the two-stage test, saying that I have some difficulty with the [two-stage test] and even greater concerns about its application in practice.Waller L.J Was the dissenting judge in the Court of Appeal decision in Westacre his reasoning is based on the idea that upholding public policy is preferable to the certainty of an arbitration award.

The majority in WestacreRegarded nature of the illegality as a Stage 2 factor to be taken into account as part of the balancing exercise between the competing public policy considerations of finality and illegality.These two versions of Stage IThe majority came to the opposite conclusion from Waller L.J. In their Stage 1 analysis. Applying Stage 1 of the Soleimany two-stage test, Mantell L.J. observed First, there was evidence before the Tribunal that this was a straightforward, commercial contract. Secondly, the arbitrators specifically found that the underlying contract was not illegal. Thirdly, there is nothing to suggest incompetence on the part of the arbitrators.Finally, there is no reason to suspect collusion or bad faith in the obtaining of the award. Accordingly, it was held that there was no justification to conduct a full scale enquiry under Stage 2, even if the two-stage test should be appliedWaller L.J. ca disagreed with Colman J. And stated the appropriate level of opprobrium at which to place commercial corruption, holding that the principle against enforcing a corrupt bargain of the nature of this agreement, if the facts in M.M.s affidavit ( the Affidavit not put before the Tribunal, which Jugoimport attempted to introduce as evidence before the Court) are correct, it is within that bracket recognise by Phillips J in Lemenda as being based on public policy of the greatest importance and almost certainly recognised in most jurisdictions throughout the world. I believe it important that the English court is not seen to be turning a blind eye to corruption on this scaleUK High Court case of R v V,

Steel J. followed the Westacre majority, and stated The difficulty with the concept of some form of preliminary inquiry is of course assessing how far that inquiry has to go. This must be all the more so where R does not seek to deploy any new evidence (let alone evidence not available at the time of the original reference).

Most leading arbitral jurisdictions construe the public policy exception narrowly Only in cases where there has been a clear violation of fundamental rules of public policy that an award should be set aside or refused enforcement The New York Convention and most national legislation simply refer to public policy as a ground for setting aside or refusing to enforce an award, without qualifying or defining thePublic policy has been defined in different ways (see earlier notes)Westacre, court referred to the distinction drawn in Lemenda between international public policy rules of public policy which if infringed will lead to non-enforcement by the English court whatever their proper law and wherever their place of performance and English domestic public policy and held that only violation of the former can justify interference with an award. This explains why, in Soleimany, the English Court of Appeal refused to enforce the award upholding a contract for smuggling carpets out of Iran such a contract contravened one of those rules of public policy, which if infringed will lead to non-enforcement by the English court whatever their proper law and wherever their place of performance.International Law Association defines international public policy According to the enforcing states national interests:"The international public policy of any State includes: (i) fundamental principles, pertaining to justice or morality, that the State wishes to protect even when it is not directly concerned; (ii) rules designed to serve the essential political, social or economic interests of the State, these being known as lois de police or public policy rules; and (iii) the duty of the State to respect its obligations towards other States or international organisations." Therefore it can be seen that corruption can be defined as contrary to public policy.Contracts for the sale of influenceThere Difficulties insignificant divergence between jurisdictions as to whether the sale of influence is present and in what circumstances the influence peddling amount to corrupt.

Difficulties in assessing corruption in the arbitral process.Although there is near world wide agreement that corruption violates international public policy.Some countries do not agree that this is the case.The problem seems to be that not all jurisdictions agree on a common definition for corruption. There may be jurisdictional differences on what amount to public policy Different jurisdictions and sometimes even different courts within the same jurisdiction, do not apply the same criteria for deciding when and how far the court will review this matter on enforcement.