Reforms and criticisms

The 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 criticisms

Corruption in arbitration
Can take many forms Bribery, abuse of public office
There is a framework of legal measure in place to try
to ensure that corruption does not take place
So 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 arbitration

Does not have a universal definition therefore it may be a concept that
differs form jurisdiction to jurisdiction
This may be a problem in itself
IF 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
arbitral
However, 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 corruption
This 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 difficulty
Gary 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 policy
The 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
allegation
Richard 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 arbitration
It 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 award
It 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 limited

Does not have the same power to investigate

Evidence can only be considered if it is relevant to the claim
The 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 convincing
In 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 probability
It 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 standard
But 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 LayPersons Guide to the FCPA red flags

Provides 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 case

Other 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 Westacre
Therefore 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 saga

which 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

Some jurisdictions take a more permissive attitude

towards lobbying
practices than others
Influence 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
not
Swiss 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 prohibited

The position in the UK

Lemenda Trading Co. Ltd v African Middle East Petroleum Co. Ltd
The 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
decision
It 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
policy

Is the potential for corruption linked to

rules of confidentiality
National 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
confidentiality

Investment arbitration
Is 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 policy
This 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
country
Article 34(2)(b)(ii) of the UNCITRAL Model Law
provides for the setting aside of an award on
grounds of public policy
There 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 challenge

Will support arbitration
The 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 Triad
There 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 arbitration

Westacre Investments Inc. v JugoimportSPDR 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 corruption

Colman 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 Appeal

held 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 the
tribunal 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 authorities
And 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 decision
The 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 law
The Court of Appeal overturned on the basis that the High Court had erred
in re-opening the tribunals findings of fact
Court 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 challenge
Singapore 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 review

At 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-Taiwan
French 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 ThomsonCSF v Frontier AG
SA 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

Which approach is taken will vary

form jurisdiction to jurisdiction
See Australian approach
See USA approach

Contextual review
Contextual 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 factor

Colman 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 test
Mantell 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 Westacre

Regarded 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 I
The 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 applied

Waller 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 scale

UK 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 the
Public 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 influence

There 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.