What to Do About Corrupt Arbitral Tribunals?

Discussions of corruption in the context of international arbitration typically focus on how arbitral tribunals handle corruption allegations in the cases before them. But there is a wholly separate issue that is often glossed over or ignored: corruption in the arbitral proceedings themselves. And I’m not just talking about the concern—stressed by numerous prominent figures in the arbitration community—about potential conflicts of interest in the system for constructing the tribunals. That concern is a real and serious one, but there is also a more direct and crude problem: parties (or their lawyers) bribing, or making backdoor deals with, the arbitrators to secure a favorable outcome. Last November, Stephen Jagusch QC discussed the routine nature of certain forms of corruption in the arbitration process. He highlighted this claim by repeating a boast he had heard from a presiding arbitrator that year: the arbitrator was “[able] to deliver a good result providing the party appointing him was prepared to share the result with him.” A similar story of corruption and bribery occurred last year in Italy in an arbitral proceeding between AmTrust and Somma. The saga culminated in AmTrust using in U.S. federal court to block the arbitral award, claiming that Somma had offered on the arbitrators 10% of the final award if the one of the arbitrators found in Somma’s favor. Although the case was ultimately settled, the questions about impropriety in the arbitral process remain.

There are two avenues for handling corruption in the arbitral process, but unfortunately neither provides an adequate guard against potentially corrupt activity conducted by arbitrators:

  • The first opportunity for redress is during the arbitral process itself. Most arbitral rules allow a party to move to remove an arbitrator for impropriety. Examples of these rules can be found in Rules 10.1 and 10.2 of the LCIA (2014) Rules, Article 14 of the ICC Rules (2017), and Articles 12 and 13 of the UNCITRAL Rules (2010). None of these rules directly addresses the issue of corruption. Instead, they act as catch-all rules to allow for the removal of an arbitrator if there appears to be an issue with that arbitrator’s “impartiality” or “independence.” The claims are then directed either towards the courts that govern the arbitral rules (as is the case with the LCIA and the ICC Rules) or to the appointing authority (as is the case UNCITRAL Rules). Regardless of the mechanism used to rule on the claim, the remedy under all three sets of rules is similar: the arbitrator is simply removed, and there are no further repercussions for the arbitrators themselves or for any of the other parties involved in corrupt activity. Moreover, the rules do not actually require a decision on whether or not there was improper activity, which may make challenges easier on a per case basis, but allows corrupt actors to point to the subjective grounding of the decision to shield them from any reputational damage stemming from their removal. While this system may help a party to deal with an immediate instance of corruption, it does not do enough to discourage corruption in the system overall.
  • The other option available to parties worried about corruption in international arbitration proceedings is a challenge in national court to block the enforcement of a decision rendered by a corrupt tribunal. These challenges usually must be made in the same jurisdiction in which the award was made, as courts in outside jurisdictions, such as the jurisdiction in with enforcement is being sought, have generally found they have no power to hear claims regarding arbitral corruption under existing rules. Claims of corrupt tribunals can be successful when brought in the jurisdiction in which the award was rendered. But relying on this protection requires, among other things, that the award was made in a jurisdiction in which judicial corruption is not a concern. This may not always be the case, particularly in investment-state disputes between developing countries and investors from wealthy countries. Furthermore, relying on post hoc review to deal with corruption issues adds a significant amount of time and cost to the entire process.

Thus, while these two systems have provided some degree of protection against corruption in international arbitration, a gap remains. This gap could be filled through a modification of the arbitral rules to allow for challenges to be made against arbitrators specifically for issues regarding corruption, and basing the decisions on objective fact, rather than the subjective view of the party making the challenge. This option would have the advantage of ensuring that the challenge is closer in time to the actual corrupt activity, while also making sure that there is sufficient normative pressure behind the challenge to add some reputational damage if the arbitrator actually is found to be corrupt. Certain rules already seem to be open to removing some of the shields that allow arbitrators to be removed without actually harming their reputation. Beginning in 2015, the ICC started to provide the reasoning behind the decisions to remove arbitrators under Article 14. If the rules would take one step further and create a charge specific to corruption, it could help to combat the growing appearance of corruption in the arbitral process.

One thought on “What to Do About Corrupt Arbitral Tribunals?

  1. Pingback: What to Do About Corrupt Arbitral Tribunals? | Matthews' Blog

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