ARBITRATORS’ INVESTIGATIVE RIGHTS AND DUTIES

(AND HOW THEY RELATE TO CORRUPTION IN ARBITRATION)

KIEV ARBITRATION DAYS, NOVEMBER 2014

Nick Neocleous

Partner

e: [email protected]

t: +44 (0)20 7691 4115

f: +44 (0)20 7691 4050

1
INTRODUCTION TO THE ARBITRATION ACT 1996

The Arbitration Act 1996 (the Act) consolidates and updates English arbitration law and procedure in
statute form. It was designed to codify legal rules and principles established by case law and brought
English law into line with international Arbitral principles. Arbitration proceedings under the Act are
not tied to English court procedure. The Act enables Arbitrators to use wide-ranging procedural
powers, similar to the case management techniques in European procedural systems, to ensure that the
arbitration progresses fairly and efficiently.

The Act was broadly based on United Nations Commission on International Trade Law (UNCITRAL)
Model Law on International Commercial Arbitration (1985)1 but applies equally to domestic and
international arbitration. It seeks to increase the scope of party autonomy and strengthens the powers
of the Arbitral Tribunal, whilst limiting judicial intervention in the arbitration process.

The Act applies to all institutional or ad hoc arbitrations, the legal “seat” of which is in England,
Wales or Northern Ireland. The general principles of the Act are set out in section 1 of Part I:

1. The provisions of this Part are founded on the following principles, and shall be construed
accordingly -

(a) The object of arbitration is to obtain the fair resolution of disputes by an impartial
Tribunal without unnecessary delay or expense;

(b) The parties should be free to agree how their disputes are resolved, subject only to such
safeguards as are necessary in the public interest;

(c) In matters governed by this Part the court should not intervene except as provided by this
Part. 2

It is possible to contract out of the parts of the Act. The Act lays down procedures which apply if the
parties do not agree different provisions. The Act classifies each section as mandatory or non-
mandatory. The parties cannot contract out of the mandatory sections under any circumstances, but
can contract out of non-mandatory sections if they agree to apply Arbitral rules such as The London
Court of International Arbitration Rules 2014.

Section 4 of Part I deals with this aspect of the Act:

(1) The mandatory provisions of this Part are listed in Schedule 1 and have effect
notwithstanding any agreement to the contrary. These appear in Appendix 1 to this note.

(2) The other provisions of this Part (the “non-mandatory provisions”) allow the parties to
make their own arrangements by agreement but provide rules which apply in the absence of
such agreement.

(3) The parties may make such arrangements by agreeing to the application of institutional
rules or providing any other means by which a matter may be decided.

(4) It is immaterial whether or not the law applicable to the parties’ agreement is the law of
England and Wales or, as the case may be, Northern Ireland.

(5) The choice of a law other than the law of England and Wales or Northern Ireland as the
applicable law in respect of a matter provided for by a non-mandatory provision of this Part is
equivalent to an agreement making provision about that matter.
1
Model law is a set of model legislative provisions that States can adopt by enacting it into national law
2
Section 1, The Arbitration Act 1996

2
 For this purpose an applicable law determined in accordance with the parties’ agreement, or
which is objectively determined in the absence of any express or implied choice, shall be
treated as chosen by the parties.3

With respect to the law applicable to the substance of the dispute, the non-mandatory sections 46 (1)
and (3) of the Act provide that:

“The Arbitral Tribunal shall decide the dispute in accordance with the law chosen by the
parties as applicable to the substance of the dispute, or, if the parties so agree, in accordance
with such other considerations as are agreed by them or determined by the Tribunal.”4

By applying these “other considerations” the Arbitrator can decide matters on an equitable basis,
without necessarily applying strict legal principles.

Section 46 also dictates that “if or to the extent that there is no such choice or agreement, the Tribunal
shall apply the law determined by the conflict of laws rules which it considers applicable.”5

3
Section 4, The Arbitration Act 1996
4
Section 46 (1) (b), The Arbitration Act 1996
5
Section 46 (3), The Arbitration Act 1996

3
LEGISLATION AND INSTITUTIONAL RULES – ARBITRATORS’ INVESTIGATIVE
RIGHTS (all non-mandatory)

The Act gives Arbitrators wide-ranging powers to determine “all procedural and evidential matters,
subject to the right of the parties to agree any matter.” 6 The parties’ agreement may be contained in
institutional or other rules which apply to the arbitration, or it may take the form of agreed directions
or some other free-standing procedural agreement.

Section 34 (2) is a non-mandatory part of the Act and sets out a non-exhaustive list of the procedural
issues to be determined by the Arbitral Tribunal.

(a) When and where any part of the proceedings is to be held;

(b) The language or languages to be used in the proceedings and whether translations of any
relevant documents are to be supplied;

(c) Whether any and if so what form of written statements of claim and defence are to be
used, when these should be supplied and the extent to which such statements can be later
amended;

(d) Whether any and if so which documents or classes of documents should be disclosed
between and produced by the parties and at what stage;

(e) Whether any and if so what questions should be put to and answered by the respective
parties and when and in what form this should be done;

(f) Whether to apply strict rules of evidence (or any other rules) as to the admissibility,
relevance or weight of any material (oral, written or other) sought to be tendered on any
matters of fact or opinion, and the time, manner and form in which such material should be
exchanged and presented;

(g) Whether and to what extent the Tribunal should itself take the initiative in ascertaining the
facts and the law;

(h) Whether and to what extent there should be oral or written evidence or submissions. 7

Section 37 of the Act sets out the Arbitral power to appoint experts, legal advisers or assessors. It is a
non-mandatory section of the Act and states that:

(1) Unless otherwise agreed by the parties -

(a) The Tribunal may -

(i) Appoint experts or legal advisers to report to it and the parties, or

(ii) Appoint assessors to assist it on technical matters,

and may allow any such expert, legal adviser or assessor to attend the proceedings;
and

(b) The parties shall be given a reasonable opportunity to comment on any

information, opinion or advice offered by any such person. 8

6
Section 34 (1), The Arbitration Act 1996
7
Section 34 (2), The Arbitration Act 1996

4
The general powers exercisable by the Tribunal are outlined at section 38 of the Act. This is also a
non-mandatory part of the legislation and states that:

(1) The parties are free to agree on the powers exercisable by the Arbitral Tribunal for the
purposes of and in relation to the proceedings.

(2) Unless otherwise agreed by the parties the Tribunal has the following powers.

(3) The Tribunal may order a claimant to provide security for the costs of the arbitration.

This power shall not be exercised on the ground that the claimant is—

(a) An individual ordinarily resident outside the United Kingdom, or

(b) A corporation or association incorporated or formed under the law of a country

outside the United Kingdom, or whose central management and control is
exercised outside the United Kingdom.

(4) The Tribunal may give directions in relation to any property which is the subject of the
proceedings or as to which any question arises in the proceedings, and which is owned by or
is in the possession of a party to the proceedings—

(a) For the inspection, photographing, preservation, custody or detention of the

property by the Tribunal, an expert or a party, or

(b) Ordering that samples be taken from, or any observation be made of or

experiment conducted upon, the property.

(5) The Tribunal may direct that a party or witness shall be examined on oath or affirmation,
and may for that purpose administer any necessary oath or take any necessary affirmation.

(6) The Tribunal may give directions to a party for the preservation for the purposes of the
proceedings of any evidence in his custody or control.9

The Arbitrators’ wide power to determine procedural and evidential matters is also found in the rules
of major Arbitral institutions:

The London Court of International Arbitration Rules 2014 (LCIA Rules 2014)

The LCIA Rules 2014 became effective on 1 October. They are substantively the same as the 1998
Rules.

Article 14 of the 2014 Rules outlines the Arbitral Tribunal's general duties to conduct proceedings and
to “adopt procedures suitable to the circumstances of the arbitration.”10 Article 14 continues to state
that:

“The Arbitral Tribunal shall have the widest discretion to discharge these general duties,
subject to such mandatory law(s) or rules of law as the Arbitral Tribunal may decide to be
applicable.” 11

8
Section 37 (1), The Arbitration Act 1996
9
Section 38, The Arbitration Act 1996
10
Article 14.4, The London Court of International Arbitration Rules 2014
11
Article 14.5, The London Court of International Arbitration Rules 2014

5
Article 16 grants that the Arbitral Tribunal “may hold any hearing at any convenient geographical
place in consultation with the parties and hold its deliberations at any geographical place of its own
choice” 12 and Article 17 outlines the Tribunal’s power to “decide upon the language(s) of the
arbitration.” 13

Article 19 states that before an oral hearing the Arbitral Tribunal may “require the parties to address a
list of specific questions or issues arising from the parties’ dispute” 14.

Articles 20 and 21 confer Arbitral powers regarding witnesses and experts, reflecting those in section
37 of the Act.

Article 22 grants additional rights to the Arbitrator “to conduct such enquiries as may appear to the
Arbitral Tribunal to be necessary or expedient.”15 Including “whether and to what extent the Arbitral
Tribunal should itself take the initiative in identifying relevant issues and ascertaining relevant facts
and the law(s) or rules of law applicable to the Arbitration Agreement, the arbitration and the merits
of the parties’ dispute.” 16

Article 22 also allows the Arbitral Tribunal to “apply to the merits of the dispute principles deriving
from “ex aequo et bono” 17, “amiable composition” or “honourable engagement” where the parties
have so agreed in writing.” 18 This Article reflects section 46 (1) (b) of the Act, which allows
Arbitrators to dispense with the consideration of law and consider solely what would be a fair and
equitable resolution to the dispute.

The International Chamber of Commerce Rules 2012 (ICC Rules 2012)

Article 18 gives the Tribunal the right to “conduct hearings and meetings at any location it considers
appropriate.” 19

Article 20 states that “in the absence of an agreement by the parties, the Arbitral Tribunal shall
determine the language or languages of the arbitration, due regard being given to all relevant
circumstances, including the language of the contract.” 20

Article 21 allows the parties freedom “to agree upon the rules of law to be applied by the Arbitral
Tribunal to the merits of the dispute. In the absence of any such agreement, the Arbitral Tribunal shall
apply the rules of law which it determines to be appropriate.” 21 The Article goes on to state that “the
Arbitral Tribunal shall assume the powers of an amiable compositeur or decide ex aequo et bono only
if the parties have agreed to give it such powers.” 22

Under Article 22 the Arbitral Tribunal, “after consulting the parties, may adopt such procedural
measures as it considers appropriate, provided that they are not contrary to any agreement of the
parties.” 23

12
Article 16.3, The London Court of International Arbitration Rules 2014
13
Article 17.4, The London Court of International Arbitration Rules 2014
14
Article 19.2, The London Court of International Arbitration Rules 2014
15
Article 22.1 (iii), The London Court of International Arbitration Rules 2014
16
Article 22.1 (iii) The London Court of International Arbitration Rules 2014
17
What is fair and just, according to equitable principles
18
Article 22.4, The London Court of International Arbitration Rules 2014
19
Article 18.2, The International Chamber of Commerce Rules 2012
20
Article 20, The International Chamber of Commerce Rules 2012
21
Article 21 (1), The International Chamber of Commerce Rules 2012
22
Article 21 (3), The International Chamber of Commerce Rules 2012
23
Article 22 (2), The International Chamber of Commerce Rules 2012

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Article 22 also states that “upon the request of any party, the Arbitral Tribunal may make orders
concerning the confidentiality of the arbitration proceedings or of any other matters in connection
with the arbitration and may take measures for protecting trade secrets and confidential
information.” 24 This provision is in contrast to the Act, which does not address the principles of
confidentiality and privacy. Since the Act came into effect, confidentiality has become an implied
term of every arbitration agreement.25

Articles 23-24 relate to the Arbitral Tribunal’s various powers to draw up Terms of Reference,
call Case Management Conferences and set out procedural timetables.

Article 25 states that “after studying the written submissions of the parties and all documents relied
upon, the Arbitral Tribunal shall hear the parties together in person if any of them so requests or,
failing such a request, it may of its own motion decide to hear them.” 26

Articles 25 (3) and 25 (4) deal with the Arbitrator’s right to hear witnesses and appoint experts.

Article 25 (6) allows the Arbitral Tribunal to “decide the case solely on the documents submitted by
the parties unless any of the parties requests a hearing.” 27

According to Article 26 “the Arbitral Tribunal shall be in full charge of the hearings, at which all the
parties shall be entitled to be present.”28

The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010 (SCC Rules
2010)

Article 20 allows the Arbitrator to “conduct hearings at any place which it considers appropriate.”29

Article 21 states that, unless agreed by the parties, the Arbitral Tribunal may “determine the
language(s) of the Arbitration.” 30

Article 22 grants the Arbitrator the right to:

“Decide the merits of the dispute on the basis of the law(s) or rules of law agreed upon by the
parties. In the absence of such agreement, the Arbitral Tribunal shall apply the law or rules of
law which it considers to be most appropriate.” 31

The same Article also allows that the Arbitral Tribunal “shall decide the dispute ex aequo et bono or
as amiable compositeur only if the parties have expressly authorised it to do so.” 32

Article 26 deals with issues of evidence and provides that the “admissibility, relevance, materiality
and weight of evidence shall be for the Arbitral Tribunal to decide.”33

Article 27 dictates that in consultation with the parties, the Arbitrator shall “determine the date, time
and location of any hearing.” 34

24
Article 22 (3), The International Chamber of Commerce Rules 2012
25
Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyd’s Rep 643
26
Article 25 (2), The International Chamber of Commerce Rules 2012
27
Article 25 (6), The International Chamber of Commerce Rules 2012
28
Article 26 (3), The International Chamber of Commerce Rules 2012
29
Article 20 (2), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010
30
Article 21 (1), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010
31
Article 22 (1), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010
32
Article 22 (3), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010
33
Article 26 (1), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010

7
Article 29 allows the Arbitral Tribunal to “appoint one or more experts to report to it on specific
issues.” 35

Article 46 refers to the confidential nature of Arbitral proceedings and states that:

“Unless otherwise agreed by the parties, the SCC and the Arbitral Tribunal shall maintain the
confidentiality of the arbitration and the award.”36

34
Article 27 (2), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010
35
Article 29 (1), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010
36
Article 46, The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010

8
LEGISLATION AND INSTITUTIONAL RULES – ARBITRATORS’ INVESTIGATIVE
DUTIES (all mandatory)

Fairness and efficiency

Whilst the Tribunal must determine how the arbitration is to proceed, it does not have unfettered
discretion to make decisions which might operate unfairly, or which might cause unnecessary costs or
delays. Section 33 of the Act protects the parties by imposing upon the Tribunal duties which must be
observed when making any decision in the arbitration. It is a mandatory provision because a
proceeding which departed from the stipulated duties could not properly be described as arbitration.
As section 33 is mandatory it will apply regardless of the wording of the arbitration agreement or the
institutional rules being applied, and parties cannot contract out of it.

The Tribunal must comply with section 33 “in conducting the Arbitral proceedings, in its decisions on
matters of procedure and evidence and in the exercise of all other powers conferred on it”37.

Section 33 (1) of the Act imposes a two-pronged duty on the Tribunal. It must:

(a) Act fairly and impartially as between the parties, giving each party a reasonable
opportunity of putting his case and dealing with that of his opponent, and

(b) Adopt procedures suitable to the circumstances of the particular case, avoiding
unnecessary delay or expense, so as to provide a fair means for the resolution of the matters
falling to be determined.38

“Fairness” requires the Tribunal to act even-handedly between the parties. It does not require the
Tribunal to give the parties exactly the same amount of time to make submissions. One party may
reasonably require much longer than its opponent to put its case, especially if it bears the burden of
proof on the issues in the arbitration.

The express duty to avoid unnecessary delay and expense was first introduced by the Act and is an
important provision. It is designed to promote efficiency by encouraging Arbitrators to impose strict
timetables to ensure that the Arbitral proceedings are progressed with all due expedition. In their
substantial report on the Arbitration Bill dated February 1996, the Departmental Advisory Committee
on Arbitration (DAC) stated that the Tribunal must not blindly follow court procedures, nor must it
allow itself to be bullied by lawyers or blinded by legal “science.” 39 The Tribunal must tailor the
procedures to the requirements of the particular case, unless the parties have agreed a procedure, for
example, by adopting a set of procedural rules. This may mean dispensing with certain procedural
features, such as full disclosure or oral hearings. The Tribunal’s freedom to tailor the procedure to
avoid unnecessary cost and delay is reflected in the powers conferred by section 34 of the Act as
detailed above, which includes the power to exclude or limit written submissions or disclosure, to
exclude the application of the strict rules of evidence, and to adopt inquisitorial procedures.

It can be difficult balancing the two limbs of fairness and efficiency and there can be conflict in some
instances. For example, directing an oral hearing would, in most cases, give the parties ample
opportunity to put their cases. However, in a case which does not require any lengthy consideration of
factual or expert evidence, it might involve a breach of section 33 (1) (b). In every case, the Tribunal
must balance the mandatory requirements of the two limbs of section 33 in determining the
appropriate procedure for that particular case.

37
Section 33 (2), The Arbitration Act 1996
38
Section 33 (1), The Arbitration Act 1996
39
Paragraph 153, DAC Report on the Arbitration Bill dated February 1996

9
Many major institutional rules contain provisions which, to some extent, reflect the Arbitral duties of
section 33, for example:

LCIA Rules 2014

Article 14.4 repeats the Tribunal’s duties under section 33 of the Act:

Under the Arbitration Agreement, the Arbitral Tribunal’s general duties at all times during the
arbitration shall include:

(i) A duty to act fairly and impartially as between all parties, giving each a reasonable
opportunity of putting its case and dealing with that of its opponent(s); and

(ii) A duty to adopt procedures suitable to the circumstances of the arbitration,

avoiding unnecessary delay and expense, so as to provide a fair, efficient and
expeditious means for the final resolution of the parties’ dispute.40

Article 14.5 states:

“At all times the parties shall do everything necessary in good faith for the fair, efficient and
expeditious conduct of the arbitration, including the Arbitral Tribunal’s discharge of its
general duties.” 41

ICC Rules 2012

The Tribunal and parties are expressly required to “make every effort to conduct the arbitration in an
expeditious and cost-effective manner, having regard to the complexity and value of the dispute.”42 At
the same time, the Tribunal is obliged to act fairly and impartially, ensuring that each party has a
reasonable opportunity to present its case.43

“The Arbitral Tribunal shall proceed within as short a time as possible to establish the facts of
the case by all appropriate means.” 44

SCC Rules 2010

The SCC Rules do not refer to fairness or efficiency. Instead they outline the Arbitral Tribunal’s duty
to:

“Conduct the arbitration in an impartial, practical and expeditious manner, giving each party
an equal and reasonable opportunity to present its case.” 45

Independence and impartiality

A fundamental aspect of the arbitration process is that Arbitrators must be independent and impartial.
This is particularly important given the limited possibilities for challenging awards. Section 67 of the
Act dictates that awards can only be challenged “because the Tribunal did not have substantive

40
Article 14.4, The London Court of International Arbitration Rules 2014
41
Article 14.5, The London Court of International Arbitration Rules 2014
42
Article 22 (1), The International Chamber of Commerce Rules 2012
43
Article 22 (4), The International Chamber of Commerce Rules 2012
44
Article 25 (1), The International Chamber of Commerce Rules 2012
45
Article 19 (2), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010

10
jurisdiction” 46 or because of “serious irregularities” which have caused, or will cause, substantial
injustice, such as those outlined in section 68 of the Act:

(a) Failure by the tribunal to comply with section 33 (general duty of tribunal);

(b) The tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction:
see section 67);

(c) Failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by
the parties;

(d) Failure by the tribunal to deal with all the issues that were put to it;

(e) Any Arbitral or other institution or person vested by the parties with powers in relation to the
proceedings or the award exceeding its powers;

(f) Uncertainly or ambiguity as to the effect of the award;

(g) The award being obtained by fraud or the award or the way in which it was procured being
contrary to public policy;

(h) Failure to comply with the requirements as to the form of the award; or

(i) Any irregularity in the conduct of the proceedings or in the award which is admitted by the
tribunal or by any Arbitral or other institution or person vested by the parties with powers in
relation to the proceedings or the award. 47

Section 1 of the Act states the general principle that there should always be an “impartial Tribunal”,48
and the consequences for non-compliance are outlined in section 24. This is a mandatory section of
the Act and dictates that:

(1) A party to Arbitral proceedings may (upon notice to the other parties, to the Arbitrator
concerned and to any other Arbitrator) apply to the court 49 to remove an Arbitrator on any of
the following grounds -

(a) That circumstances exist that give rise to justifiable doubts as to his impartiality;

(b) That he does not possess the qualifications required by the arbitration agreement;

(c) That he is physically or mentally incapable of conducting the proceedings or there

are justifiable doubts as to his capacity to do so;

(d) That he has refused or failed -

(i) Properly to conduct the proceedings, or

(ii) To use all reasonable despatch in conducting the proceedings or making

an award, and that substantial injustice has been or will be caused to the
applicant. 50

46
Section 67 (1), The Arbitration Act 1996
47
Section 68 (2) , The Arbitration Act 1996
48
Section 1 (a), The Arbitration Act 1996
49
“The court” is defined as “the High Court or a county court” in section 105 (1), The Arbitration Act 1996
50
Section 24 (1), The Arbitration Act 1996

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Impartiality is such a fundamental tenet of Arbitral proceedings that section 33 reiterates that the
Tribunal must act “impartially as between the parties.”51

Other international Arbitral rules impose requirements of independence and impartiality on

Arbitrators. For example:

LCIA Rules 2014

Article 5.3 states that “all Arbitrators conducting an arbitration under these Rules shall be and remain
at all times impartial and independent of the parties.” 52

The Article also obliges each Arbitral candidate to sign a written declaration stating:

“Whether there are any circumstances currently known to the candidate which are likely to
give rise in the mind of any party to any justifiable doubts as to his or her impartiality or
independence and, if so, specifying in full such circumstances in the declaration.”53

This duty continues after an Arbitrator is appointed.54

Under Article 10, an Arbitrator’s appointment may be revoked “if circumstances exist that give rise to
justifiable doubts as to the Arbitrator’s impartiality or independence.”55

ICC Rules 2012

Article 11 requires Arbitrators to be and remain “impartial and independent” of the parties.56 The
Article also requires prospective Arbitrators to:

“Sign a statement of acceptance, availability, impartiality and independence. The prospective

Arbitrator shall disclose in writing to the Secretariat any facts or circumstances which might
be of such a nature as to call into question the Arbitrator’s independence in the eyes of the
parties, as well as any circumstances that could give rise to reasonable doubts as to the
Arbitrator’s impartiality.” 57 This is a continuing obligation during the Arbitration. 58

SCC Rules 2010

Article 14 states that “every Arbitrator must be impartial and independent”59 and imposes a duty upon
them to “disclose any circumstances which may give rise to justifiable doubts as to his/her
impartiality or independence.”60 Once an Arbitrator has been appointed he must submit a signed
statement of impartiality and independence disclosing any circumstances which may give rise to
justifiable doubts as to his impartiality or independence. 61 An Arbitrator must immediately inform the
parties where such circumstances arise in the course of arbitration. 62

51
Section 33 (1) (a), The Arbitration Act 1996
52
Article 5.3, The London Court of International Arbitration Rules 2014
53
Article 5.4, The London Court of International Arbitration Rules 2014
54
Article 5.5, The London Court of International Arbitration Rules 2014
55
Article 10.1, The London Court of International Arbitration Rules 2014
56
Article 11 (1), The International Chamber of Commerce Rules 2012
57
Article 11 (2), The International Chamber of Commerce Rules 2012
58
Article 11 (3), The International Chamber of Commerce Rules 2012
59
Article 14 (1), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010
60
Article 14 (2), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010
61
Article 14 (2), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010
62
Article 14 (3), The Arbitration Institute of the Stockholm Chamber of Commerce Rules 2010

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CORRUPTION IN ARBITRATION

The most common form of corruption in international arbitration is bribery. Corrupt individuals often
prefer arbitration as it is a confidential process and is more attractive to them than the publicity of the
courts. Arbitrators can only deal with the civil consequences of such behaviour but it can be difficult
to know how to deal with some aspects of bribery which are only prohibited in certain jurisdictions.
Legal communities are becoming increasingly sensitive to corrupt practices, and there is a growing
anti-corruption industry of both governmental and non-governmental bodies. 63

An international consensus on a broad definition of both public and private sector corruption can be
found in Articles 15, 16, and 21 of the United Nations Convention against Corruption 2003
(UNCAC). Article 15 applies to the bribery of both national and foreign public officials and is defined
as:

(a) The promise, offering or giving, to a public official, directly or indirectly, of an undue
advantage, for the official himself or herself or another person or entity, in order that the
official act or refrain from acting in the exercise of his or her official duties;

(b) The solicitation or acceptance by a public official, directly or indirectly, of an undue

advantage, for the official himself or herself or another person or entity, in order that the
official act or refrain from acting in the exercise of his or her official duties.64

Article 16 defines corruption in the public sector as the act of:

“Intentionally promising, offering or giving to a foreign public official or an official of a

public international organization, directly or indirectly, of an undue advantage, for the official
himself or herself or another person or entity, in order that the official act or refrain from
acting in the exercise of his or her official duties, in order to obtain or retain business or other
undue advantage in relation to the conduct of international business.”65

Corruption in the private sector is defined in Article 21 as:

(a) The promise, offering or giving, directly or indirectly, of an undue advantage to any
person who directs or works, in any capacity, for a private sector entity, for the person himself
or herself or for another person, in order that he or she, in breach of his or her duties, act or
refrain from acting;

(b) The solicitation or acceptance, directly or indirectly, of an undue advantage by any person
who directs or works, in any capacity, for a private sector entity, for the person himself or
herself or for another person, in order that he or she, in breach of his or her duties, act or
refrain from acting. 66

Public and private bribery are not the only forms of corruption in international trade that are outlawed.
Article 18 UNCAC outlines the practice of “trading in influence”, an offence involving a person
having “real or supposed influence” over public bodies or officials, trading the “abuse” of such
influence (as opposed to the payment of bribes), in return for an “undue advantage” from a person
seeking this influence. 67 Another illicit arrangement involves “facilitation payments”, otherwise
known as “speed” or “grease” payments to foreign public officials. These are defined as:

63
Including the Global Compact and the Group of States against Corruption within the Council of Europe,
Transparency International, and the United Nations Convention against Corruption Coalition.
64
Article 15, United Nations Convention against Corruption 2003
65
Article 16 (1), United Nations Convention against Corruption 2003
66
Article 21, United Nations Convention against Corruption 2003
67
Article 18, United Nations Convention against Corruption 2003

13
 “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.” 68

Such payments are prohibited under the UK Bribery Act 2010 and most other national laws.

Bribery in arbitration

As Vladimir Pavić states in his 2012 paper “Bribery and international commercial arbitration – the
role of mandatory rules and public policy” 69 it is very unlikely that the Arbitrators themselves will be
involved in demanding or accepting bribes during the Arbitral proceedings. It is less rare that
fraudulent acts are committed during the course of proceedings, for instance false testimony and
forged documents. Most commonly the corruption takes place prior to the arbitration and is invoked
during the proceedings by one of the parties. Case law suggests that the most common circumstances
surrounding this type of corruption is when an agent assists its principal in obtaining a certain contract
or permission. Once the contract is secured, the principal refuses to pay the agent’s “commission”,
and the agent brings the matter before arbitration. Respondent principals commonly argue that their
arrangement with the agent was a conduit for bribery, and that to remunerate the agent would be
tantamount to reimbursing them for the bribes paid to the officials.

Arbitrators’ rights and obligations to inquire into corruption sua sponte 70

A key issue for Arbitrators is whether they are able to investigate possible bribery of their own
volition, or if they are limited to inquiring into allegations advanced by the parties. Arbitration serves
as a private equivalent of a national court, and both types of decisions are equally as binding.71
Arbitrators could therefore be expected to approach matters of public policy in the same manner as
their judicial counterparts. However, arbitration is borne of the parties’ contractual wishes and it could
be argued that an Arbitrator imposing his own will onto proceedings would be acting outside his
authority.

An Arbitral award could be at risk of being set aside or refused enforcement if an Arbitrator has acted
outside their mandate by making enquiries sua sponte. However, as Michael Hwang and Kevin Lim
stated in their paper “Corruption in Arbitration - Law and Reality”, 72 failure to act sua sponte may
lead to a decision that unintentionally endorses bribery, and a court reviewing a subsequent challenge
to the award may be tempted to make their own enquiries to ascertain the existence of corruption, and
uphold the challenge on public policy grounds if corruption is revealed. If an Arbitrator suspects
corruption they should investigate sua sponte, provided it is relevant to the resolution of the dispute
submitted to them. If either party to a contract is found to be corrupt it can decide the enforceability of
the claim and is therefore relevant to the resolution of the dispute. The consideration of issues of
corruption must, therefore, fall within the Tribunal’s mandate.

If a Tribunal makes a finding of corruption, it nevertheless retains jurisdiction over the parties’
dispute, and is entitled to adjudicate issues of corruption. If a contract is deemed to have been
obtained by corruption it will generally be set aside by the victim in order to avoid his obligations. A
victim may lose his right to avoid his obligations if he chooses to continue the contract with
knowledge of such corruption. However, contracts providing for corruption are unenforceable or

68
Appendix F, paragraph F.5, UK Law Commission Consultation Paper No. 185 dated 31 October 2007
69
Pavić, Vladimir, Bribery and International Commercial Arbitration – The Role of Mandatory Rules and
Public Policy (17 November 2012). Victoria University Wellington Law Review (2012) Vol. 43 pp. 661-686.
Available at: http://ssrn.com/abstract=2252499
70
Of his own accord, not at the request of the parties
71
Article 35 (1) UNCITRAL Model Law on International Commercial Arbitration 1985
72
Hwang, Michael and Lim, Kevin, Corruption in Arbitration - Law and Reality. This article is an expanded
version of a paper of the same title presented at the Herbert Smith-SMU Asian Arbitration Lecture on 4 August
2011 in Singapore. Available at http://www.arbitration-
icca.org/media/0/13261720320840/corruption_in_arbitration_paper_draft_248.pdf

14
inadmissible without being set aside. One party’s intention to commit corruption under a contract does
not preclude the other party from making claims arising out of the contract.

Disclosure of corruption to the authorities v preserving the confidentiality of Arbitral

proceedings

The question of whether Arbitrators should report their suspicions to the authorities is a thorny one.
Confidentiality is one of the main advantages of arbitration, whether it is express or implied. It is
important to note, however, that the Arbitral process is private and therefore any confidentiality exists
to protect private interests. In contrast, reporting corruptive crime protects public interests, and by
doing so Arbitrators are helping to combat a growing international problem. In support of public
policy, it must therefore follow that, although there is no general legal duty to report corruption to the
authorities, the ethical duty to disclose overrides the duty to preserve the confidentiality of Arbitral
proceedings.

The burden and standard of proof

The burden of proof in arbitration is borne by the party alleging the corruption.73 They must discharge
the balance of probabilities standard of proof. This evidentiary standard must be flexibly understood
as it is innately difficult to prove corruption. In applying this standard of proof, Tribunals may
consider circumstantial indicators of corruption, and/or draw adverse inferences from a party’s failure
to produce documents, when ordered.

The law governing the elements and legal consequences of corruption

In order for a Tribunal to find that a party has committed corruption, and to determine the legal
consequences which ensue, they must ascertain whether the established facts make out all the
elements of the offence of corruption under the applicable law. The Tribunal will first look to the law
chosen by the parties to govern their contract. The parties are usually allowed to choose the applicable
law, but this freedom is subject to the issues of public policy and mandatory norms.

Public policy prevents the application of any rules which would undermine the fundamental legal
principles of the domestic law. In the context of private international law, mandatory norms are
usually derived from the laws that lay down the foundations of an economic system. Arbitrators
usually apply the rules chosen by the parties or, failing that, any rule they deem most closely
connected to the dispute. The dilemma for Arbitrators is which public policy and which mandatory
norms they should use.

Corrupt parties will naturally choose a law which upholds the validity of their contract and does not
contain anti-corruption regulations or public policy considerations. However, contrary to the chosen
law, mandatory laws or public policies of the place of performance or Arbitral seat may provide that
one or both parties had committed corrupt acts. As Pavić has pointed out, Arbitrators are not part of
any judiciary and are therefore not obliged to use the rules of any particular State, so may rely on
transnational public policy. Such rules are based on legal principles upon which there is a broad
consensus in the international community. There is no definition of “broad consensus” however, and
it is not certain whether the breadth is measured by the number of States, or their relative economic
and political importance. States have different definitions of corruption and prohibit different
practices. Certain acts, such as bribery of public officials, are prohibited by over 160 countries and
could therefore reasonably be considered as a transnational public policy. In contrast, facilitation
payments and trading in influence are condemned in far fewer countries.74

73
Article 27.1, United Nations Commission on International Trade Law Arbitration Rules 2010
74
Pavić, Vladimir, Bribery and International Commercial Arbitration – The Role of Mandatory Rules and
Public Policy (17 November 2012). Victoria University Wellington Law Review (2012) Vol. 43 pp. 661-686.
Available at: http://ssrn.com/abstract=2252499

15
No matter whether the Arbitrator had applied national or transnational rules, if a contract is held to be
a vehicle for bribery, it is declared null and void. This is illustrated in the two well-known examples
of bribery allegations raised by respondents in arbitration:

1. In Award ICC Case No. 1110 from 1963, the claimant sought to enforce his contractual
entitlement to 10% commission payments as an intermediary for all Argentinean energy
contracts awarded to the respondent. The claimant’s “major asset” was his influence over the
officials who awarded public contracts. The Tribunal found that the object of the agreement
was to facilitate bribery, which led Judge Lagergren to decline jurisdiction. He stated:

“It cannot be contested that there exists a general principle of law recognised by civilised
nations that contracts which seriously violate bonos mores or international public policy are
invalid or at least unenforceable and that they cannot be sanctioned by courts of Arbitrators
(cf Oscanyan v Winchester Arm. Co., US Supreme Court 1880, 103 US 261). This principle is
especially apt for use before international arbitration tribunals that lack a ‘law of the forum’ in
the ordinary sense of the term.” 75

“After weighing all the evidence I am convinced that a case such as this, involving such gross
violations of good morals and international public policy, can have no countenance in any
court either in the Argentine or in France, or, for that matter, in any other civilised country,
nor in any Arbitral tribunal. Thus, jurisdiction must be declined in this case. It follows from
the foregoing, that in concluding that I have no jurisdiction, guidance has been sought from
general principles denying Arbitrators to entertain disputes of this nature rather than from any
national rules on arbitrality. Parties who ally themselves in an enterprise of the present nature
must realise that they have forfeited any right to ask for assistance of the machinery of justice
(national courts or Arbitral Tribunals) in settling their disputes.” 76

2. In World Duty Free Company Limited v the Republic of Kenya, ICSID Case No. ARB/00/7,
Award dated 4 October 2006, one of the claimant’s allegations was that the Kenyan
government had commandeered its two duty free complexes at Nairobi and Mombasa
International Airports. Kenya counter-alleged that its contract with the claimant was
unenforceable because it was the result of a “personal donation” of $2 million to the
President, which the claimant had admitted and described in detail in its submission. The
Tribunal retained jurisdiction and made a finding of bribery on the facts. On the basis that
bribery is against transnational public policy, the Tribunal found the contract was void and
dismissed the claimant’s claim. It was stated:

“The concept of public policy (‘ordre public’) is rooted in most, if not all, legal systems.
Violation of the enforcing State’s public policy is grounds for refusing recognition or
enforcement of foreign judgments and awards. The principle is enshrined in Article V.2 of the
New York Convention of 10 June 1958 and Article 36 of the UNCITRAL Model Law
recommended by the General Assembly of the United Nations on 11 December 1985. In this
respect, a number of legislatures and courts have decided that a narrow concept of public
policy should apply to foreign awards. This narrow concept is often referred to as
‘international public policy’ (‘ordre public international’). Although this name suggests that it
is in some way a supra-national principle, it is in fact no more than domestic public policy
applied to foreign awards and its content and application remains subjective to each State.” 77

“The Tribunal notes that, in some of these cases, it was alleged that corruption is widespread
either within the purchasing country or in the particular sector of activity. However, all

75
Paragraph 16, Award ICC Case No. 1110 (1963)
76
Paragraph 23, Award ICC Case No. 1110 (1963)
77
Paragraph 138, World Duty Free Company Limited v the Republic of Kenya, ICSID Case No. ARB/00/7
(Award dated 4 October 2006)

16
 Arbitral Tribunals concluded that such facts do not alter in any way the legal consequences
dictated by the prohibition of corruption (see ICC case n° 1110 paras. 19-20; ICC case n°
3916, Yves Derains – Collection of ICC awards 1974-1985 – Kluwer 1990 – p. 509; ICC case
n° 8891 – Journal du droit international 2000 n° 4 p. 1083). They recognised that in some
countries or sectors of activities, corruption is common practice without which the award of a
contract is difficult – or even impossible – but they always refused to condone such practices.
The present Tribunal agrees with such conclusion.”78

“The answer, as regards public policy, is that the law protects not the litigating parties but the
public; or in this case, the mass of tax-payers and other citizens making up one of the poorest
countries in the world. Mr Ali’s complaint of unfairness was voiced centuries ago by earlier
English litigants; and it was fully answered, as recorded in Chitty (Chitty on Contracts,
Volume 1 at paragraph 17-007, 28th edition - cited by Kenya as the leading English treatise),
by Lord Mansfield in Holman v Johnson (1775) 1 Cowp. 341, 343. It merits citing in full:

‘… the objection, that a contract is immoral or illegal as between plaintiff and

defendant, sounds at all times very ill in the mouth of the defendant. It is not for his
sake, however, that the objection is ever allowed; but it is founded in general
principles of policy, which the defendant has the advantage of, contrary to the real
justice, as between him and the plaintiff, but accidentally, if I may say so. The
principle of public policy is this: ex dolo malo non oritur actio. No court will lend its
aid to a man who founds his cause of action upon an immoral or illegal act. If, from
the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi
causa, or the transgression of a positive law of this country, there the court says he
has no right to be assisted. It is upon that ground the court goes; not for the sake of
the defendant, but because they will not lend their aid to such a plaintiff. So if the
plaintiff and the defendant were to change sides, and the defendant was to bring his
action against the plaintiff, the latter would then have the advantage of it; for where
both are equally at fault, potior est conditio defendentis.”

In other words, if Kenya were guilty of bribery and the claimant in this proceeding, it would likewise
fall at the same procedural hurdle, to the benefit of the claimant as respondent.” 79

A void contract would normally give rise to obligations for parties to make restitution for what they
have received pursuant to the contract. This is not the case with matters involving bribery, where no
restitution is due. This can result in corrupt parties retaining a benefit from their illicit actions, i.e. an
agent keeping the bribe he was advanced and did not use, or a principal who is granted the favour or
contract he sought, without reimbursing the agent for his “services.” Such an inequitable ending can
also act as a tool against corruption, as an agent in such circumstances would not benefit from their
corrupt behaviour. Contracts procured by bribery are also usually voidable as the deceit or excess of
authority used results in a lack of valid consent.

Article 34 of the UNCITRAL Model Law sets out various grounds on which an award can be set
aside or enforcement refused. These grounds include Arbitral incapacity and circumstances where:

“The award deals with a dispute not contemplated by or not falling within the terms of the
submission to arbitration, or contains decisions on matters beyond the scope of the
submission to arbitration.” 80

78
Paragraph 156, World Duty Free Company Limited v the Republic of Kenya, ICSID Case No. ARB/00/7
(Award dated 4 October 2006)
79
Paragraph 181, World Duty Free Company Limited v the Republic of Kenya, ICSID Case No. ARB/00/7
(Award dated 4 October 2006)
80
Article 34 (2) (a) (iii) UNCITRAL Model Law on International Commercial Arbitration 1985

17
Article 34 also states that an award can be set aside if a court finds “the award is in conflict with the
public policy of this State.” 81 This provision is mirrored in section 103 of the Arbitration Act:

“Recognition or enforcement of the award may also be refused if the award is in respect of a
matter which is not capable of settlement by arbitration, or if it would be contrary to public
policy to recognise or enforce the award.”82

Once a Tribunal has made a finding of corruption and rejected a claim, a claimant will have virtually
no chance of getting the decision reversed by a national court. This is the case even if the Tribunal has
found bribery where there was none. An unsuccessful respondent in such a matter could refuse to
recognise the award or could invoke public policy grounds to have the award set aside. The public
policy argument is notoriously unpopular in Arbitral proceedings and is generally invoked when all
other arguments have failed. Courts will examine whether the enforcement of such an award would
run contrary to the public policy of the country of recognition. Their approach is not uniform and
there are no specific guidelines or formulae to such a review.

81
Article 34 (2) (b) (ii) UNCITRAL Model Law on International Commercial Arbitration 1985
82
Section 103 (3), The Arbitration Act 1996

18
APPENDIX 1

Schedule 1 – Mandatory Provisions of Part I

 sections 9 to 11 (stay of legal proceedings);

 section 12 (power of court to extend agreed time limits);

 section 13 (application of Limitation Acts);

 section 24 (power of court to remove arbitrator);

 section 26 (1) (effect of death of arbitrator);

 section 28 (liability of parties for fees and expenses of arbitrators);

 section 29 (immunity of arbitrator);

 section 31 (objection to substantive jurisdiction of tribunal);

 section 32 (determination of preliminary point of jurisdiction);

 section 33 (general duty of tribunal);

 section 37 (2) (items to be treated as expenses of arbitrators);

 section 40 (general duty of parties);

 section 43 (securing the attendance of witnesses);

 section 56 (power to withhold award in case of non-payment);

 section 60 (effectiveness of agreement for payment of costs in any event);

 section 66 (enforcement of award);

 sections 67 and 68 (challenging the award: substantive jurisdiction and serious irregularity),
and sections 70 and 71 (supplementary provisions; effect of order of court) so far as relating
to those sections;

 section 72 (saving for rights of person who takes no part in proceedings);

 section 73 (loss of right to object);

 section 74 (immunity of arbitral institutions, &c.);

 section 75 (charge to secure payment of solicitors’ costs).

19
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