Tag Archives: UNCITRAL

What to Do About Corrupt Arbitral Tribunals?

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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: Continue reading →

Sua Sponte Corruption Inquiries by Arbitral Tribunals: Causing More Harm than Good?

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As several prior posts on this blog have discussed (see here, here, and here), corruption has emerged as a significant and controversial issue in international investor-state arbitration proceedings, with a number high-profile cases in which the tribunal refuses to provide relief on the grounds that the underlying contract was procured through corruption. In these cases, corruption allegations usually surface at the initiative of one of the parties. For example, this summer, Djibouti filed an arbitration against Dubai-owned port operator DP World, seeking annulment of a port concession because DP World allegedly formed its contract with Djibouti for the operation of Africa’s largest container terminal through corrupt means. However, in rare instances, corruption can enter the picture without either party raising the issue during the proceedings. In these cases, the arbitral tribunal considers the issue of corruption sua sponte, even when neither party alleges corruption by the other.

Perhaps the most prominent example of this is the tribunal’s decision in Metal-Tech v. Uzbekistan. In Metal-Tech, the ICSID tribunal, in its words, “required explanations” from the parties for suspicious facts that “emerged in the course of the arbitration”–in particular the fact that Metal-Tech had paid exorbitant, seemingly unjustifiable sums for consulting services to an Uzbeki government official and individuals with close ties to Uzbeki leadership. The ICSID tribunal then essentially placed the burden of disproving corruption in light of this circumstantial evidence on Metal-Tech, which could not come up with enough evidence to overcome the tribunal’s presumption. The ICSID tribunal held it did not have jurisdiction and dismissed Metal-Tech’s claim.

On the surface, sua sponte efforts by tribunals to address corruption may seem like a positive step in the anticorruption fight. Indeed, it might seem irresponsible for the tribunal to stick its head in the sand given such facially suspicious facts. As Michael Hwang and Kevin Lim assert in a recent paper endorsing this sua sponte practice, “Tribunals must remain vigilant and alert to the possibility of corrupt dealings being hidden by one or both parties, otherwise they may become unwitting accessories to heinous acts.” But in fact, the approach adopted by the tribunal in Metal-Tech, might do more harm than good. Indeed, by engaging in sua sponte considerations of corruption, arbitral tribunals might unwittingly perpetuate corruption under several different scenarios: Continue reading →