CHAPTER 12 INTERNATIONAL ARBITRATION AND CORRUPTION: AN EVOLVING STANDARD
| Jurisdiction | United States |
(Feb 2002)
INTERNATIONAL ARBITRATION AND CORRUPTION: AN EVOLVING STANDARD
Nexen inc.
Calgary, Alberta, Canada
INTRODUCTION
International arbitration, in one form or another, has been around a long time. As one noted commentator has remarked: "Commercial arbitration must have existed since the dawn of commerce."1 Unfortunately, another side of business transactions has been around a long time also: corruption.2 This vice has been present throughout history. Inevitably, it has appeared in international commercial arbitration cases. This article will review those cases and analyze some of the evolving trends on how international arbitrators have dealt with this difficult issue.
Most countries in the world have laws dealing with corruption. However until recently, they have dealt primarily with corrupt activities within a country's own borders. They have historically not been extraterritorial in nature. That formally changed with the enactment of the Foreign Corrupt Practices Act 3 ("FCPA") in the United States in 1977 which criminalized the bribery of foreign government officials. Even though there was a growing body of opinion and jurisprudence (as can be seen in the international arbitration cases attached) that there was a moral consensus or international public order on the illicit nature of foreign corruption, it has only been in recent years that a large number of countries have formally agreed, through treaties, to enact similar laws to make it a criminal offence for their nationals to bribe foreign public officials.4 There are now several major treaties ratified by more than 60 countries addressing this significant international issue, including:
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• OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Dec. 18, 1997, 37 I.L.M. 1 (1998)
• OAS Inter-American Convention Against Corruption, Mar. 29,1996, 35 I.L.M. 724 (1996)
• Council of Europe Criminal Law Convention on Corruption, Jan. 27,1999, European Treaties, ETS No. 173
Until now the cases enforcing these laws have been strictly American.5 There have been nearly 40 prosecutions and settlements and about 35 opinions or "review releases" concerning the bribery sections of the FCPA. There have not yet been any reported prosecutions under the foreign bribery laws of other countries, simply because these laws are relatively recent in origin. While this particular case law dealing with the prosecution of corruption has developed over the last twenty-five years, there has been another area of jurisprudence which has quietly and separately evolved in dealing with international corruption. That area is international commercial arbitration. Over the last forty years there have been at least twenty cases that have dealt with this issue. A significant number of these cases are summarized in the attached Appendix. They are not well known or reported on, given the rules around confidentiality of arbitration proceedings. But they are becoming more significant given the increase in global trade and the future impact of the various international conventions that make corruption in foreign countries illegal.
EVOLVING STANDARDS
There are a number of principles that continuously arise in international arbitration cases dealing with corruption. There is a growing consensus on how to deal with some of these issues but for many of the issues, there is no finality on how to deal with them.
Kompetenz — Kompetenz
The competence or jurisdiction of the arbitral tribunal to decide upon a contract involving corruption has been challenged in a number of arbitral awards. Probably the most well known case is ICC Case No. 1110 where the sole arbitrator, Judge Lagergren, disqualified himself as not having jurisdiction. That case has been subsequently distinguished6 on the grounds that the arbitration agreement was entirely separate and distinct from the contractual relationships of the parties.
Other than the above mentioned case, all of the arbitral awards reported have proclaimed their jurisdiction over the dispute. As eloquently stated in the Westinghouse case; "...it is well established that the Tribunal has jurisdiction to determine its own jurisdiction, a
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proposition that is not disputed by the parties. This basic principle is reflected in both the ICC Rules and Swiss law.... Furthermore, the doctrine of Kompetenz — Kompetenz has been consistently confirmed by various decisions and commentators, which similarly recognize their own competency is an inherent attribute of international tribunals."7
Doctrine of Separability
The issue of the separability or autonomy of the arbitration agreement or clause has been challenged in many corruption arbitral awards. Under this doctrine, the arbitration clause is separate and independent from the contract in which it is contained. The result or effect of this doctrine is that the arbitration clause will survive and continue to be valid, even if the arbitral tribunal decides that the main contract is null and void because it involves bribery.
There is universal support for this principle: "Acceptance of this autonomy of the arbitration clause is a conceptual cornerstone of international arbitration."8 All of the reported arbitral awards, except for ICC Case No. 1110, consistently adhere to this principle. Otherwise, it would undermine their ability to investigate allegations of corruption and ultimately decide upon the validity of a contract with corruption as its purpose. The tribunal in the Westinghouse case took a slightly different approach to this issue when it stated that there are certain instances, such as a contract obtained by threat, that go to the root of an agreement and effect the validity of both the contract and the arbitration clause. However, they got themselves out of this corner by remarking that "...the Tribunal does not have to solve this delicate issue since it has found on the facts presented to it that the Defendants have failed to prove their allegations of bribery."9
This logic appears somewhat convoluted. What if they had found evidence of bribery? Does this invalidate the entire arbitration and if so, who pays for this expensive folly? Logic and justice support the application of the doctrine of separability in all instances. The parties have chosen international arbitration as their forum of dispute resolution. International treaties and national courts recognize and enforce arbitral awards. Therefore, one can only conclude that it is the arbitral tribunal's responsibility to recognize the validity of the arbitral clause in these cases. Otherwise, one can only conclude that another forum, other than an arbitral tribunal, is better suited to decide upon a contract founded on bribery.
International Public Order
The arbitral tribunals and the courts that have enforced or annulled their arbitral awards have consistently stated that there is an international public order which makes bribery contracts invalid and contrary to bonos mores. Many tribunals have found that national
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laws also hold such contracts to be illegal. However until now, these cases have not been able to cite specific international laws that support this view.
That situation has now dramatically changed with the ratification of the various international conventions referred to above which make the bribery of foreign public officials illegal and subject to criminal prosecution. There is now no question that a bribery contract is illegal and not just a breach of moral standards. More than sixty countries have laws which make it illegal to bribe a foreign official and most sovereign nations have laws which make it illegal to bribe domestic public officials. The ramification of these treaties should be far reaching on arbitral awards. In effect an arbitrator now has a duty to uphold this international law and this should effect how he conducts his arbitration.
Role of Arbitrator
An arbitrator, unlike a judge in a national court, is appointed at the request of the parties having the contractual dispute. His role can therefore be viewed quite differently than a judge. The arbitrator may assume that he only needs to address the particular interests of the parties in the arbitration and need not be concerned with international policy issues.
That may no longer be the case in the area of corruption. Given the ratification of these corruption treaties, it is clearly the international rule of law that bribing government officials is illegal and those charged with the administration of justice, including international arbitrators, have the responsibility to ensure that such laws are applied properly.
This may place an arbitrator in a dilemma. He can naturally accept that if bribery is proven, then he should declare such a contract illegal and invalid. But what if all the parties are circumspect on the purpose of the contract and are unwilling or unable to produce such evidence? If the arbitrator is suspicious and detects clues or "red flags" that corruption is behind the parties' behaviour and their contract, should he wait for one of the parties to produce the evidence or should he take a more proactive role?
The tribunal in the Westacre case took the position that "If the defendant does not use it in his presentation of facts, an Arbitral Tribunal does not have to investigate. It is exclusively the parties' presentations of facts that decides in what direction the arbitral tribunal has to investigate." This approach contrasts with the initiative shown in other arbitral cases where the tribunal listed a series of indicators it was looking for and once they had been ascertained, determined that there was bribery and declared the contract null and void.
Given the clear confirmation that bribery is...
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