An insight into corruption in international arbitration by Bashar Fteiha.
Despite the global initiatives designed for combating corruption worldwide, corruption remains a persistent challenge in international business. According to Transparency International’s Corruption Perception Index of 2019, on a scale from zero (very corrupt) to one hundred (very clean), more than two-thirds of the 180 assessed countries score 50. This strongly suggests that the majority of the countries around the world are failing to achieve significant progress in tackling corruption in the public sector. Although there exists certain international regulations tailored for tackling corruption practices in international business, these regulations are usually enforced at the national level. Therefore, the majority of the corruption claims are handled at the national level and pursuant to national laws by the local anti-corruption or enforcement authorities.
In recent years, however, there has been an increase in the number of corruption allegations in international commercial arbitration. In essence, states and their own bodies constantly attempt to rest their defence on the presence of corruption in order to frustrate the claims brought against them. Nonetheless, unlike in the domestic regulations, arbitration laws and regulations do not provide clear guidelines or rules on how arbitral tribunals should address allegations of corruption. In essence, arbitral tribunals will have to examine several issues that are of great significance to the final outcome of the arbitration case. In fact, much of the controversy in the corruption claims is usually centred around the arbitrability of such claims in international arbitration. This concerns whether allegations of corruption are capable of being settled through arbitration. Put it differently, is arbitration the right legal mechanism for deciding issues of corruption?
In essence, any analysis of the approach taken by arbitral tribunals in addressing allegations of corruption should begin with reference to the famous 1963 decision of Gunner Lagergren J. In this case, Lagergren J. clearly held that he had no jurisdiction to hear the parties’ claims and settle their dispute. He reasoned his finding on the basis that agreements which plainly disregard the principle of international public policy can not be settled by courts or arbitrators. Therefore, in cases where the contract in question involves allegations of corruptions, the contracting parties automatically lose their right to have their dispute settled by any judicial mechanism.
Therefore, it comes as no surprise that the arbitrability of corruption in international arbitration is commonly linked to the notion of public policy. In fact, it has been argued that corruption claims cannot be submitted to arbitration because they usually involve matters of public policy. In spite of the fact that the notion of public policy is vague and difficult to define, it could be possibly stated that the principle of public policy contains mandatory rules and laws that are designed to ensure the utmost respect and protection to the social, economic and political interests and values of a given community. Therefore, such interests and values must always be prioritized regardless of the law applicable to the contract.
Given that issues of corruption have a significant bearing on the society at large, the principle of public policy implies that corruption claims can not be settled by a private settlement process such as arbitration. While it is commonly accepted that arbitrators must perform their duties in a proper manner and achieve the parties’ needs and expectations, the allegations of corruption put them in a bit of a moral and legal dilemma. Such dilemma stems directly from the fact that when faced with issues of corruption, arbitrators are usually required to comply with their judicial obligations and uphold public policy.
The case of Silica Investors Ltd. v. Tomolugen Holdings Ltd., decided by the High Court of Singapore, provides a clear-cut example of the close connection between the principle of public policy and the arbitrability of corruption claims in international arbitration. One of the main issues that the Court had to address is whether the claimant’s claim was capable of being referred to arbitration. In this context, the Court clearly held that certain claims are non-arbitrable when they involve matters that significantly impact the interests of third parties who have no connection with the dispute in question, or the resulting award will directly affect the general public. Therefore, it appears that in situations where the principle of public policy overlaps with the concept of arbitrability, corruption claims will fall outside the scope of arbitration when they directly affect the interests of third parties and the general public. This clearly indicates that the corruption claim will be deemed as a public matter rather than a private one.
Having said that, it must not go without saying that the above discussion has been heavily criticised for ignoring the principle of separability under which the arbitration clause is deemed to have a separate legal existence and value from the agreement in which it is contained. Accordingly, the common view is that the arbitration agreement is untainted by the allegations of corruption pertaining the underlying agreement, insofar the arbitration agreement was not procured by any corrupt practices. Therefore, it is generally accepted that the fact that claims involving allegations of corruption are normally condemned by criminal law and prosecuted by the state does not deprive the arbitrators of their power to decide and settle such claims. Furthermore, the doctrine of kompetenz-kompetenz allows arbitrators to decide whether they have jurisdiction over claims involving issues of corruption. As a consequence, the arbitrator’s jurisdiction to decide and settle corruption disputes is no longer in question provided that these allegations of corruption do not extend to the arbitration agreement.
Having concluded that corruption claims can be properly submitted to arbitration, the question that remains unanswered is whether national courts will enforce the resulting award. In fact, the principle of public policy kicks in again when the enforcement of the final award is sought by the prevailing party. Much of the controversy is centred around the refusal of national courts to enforce arbitral awards on the basis of public policy grounds. While it is submitted that the arbitrability of corruption claims in international arbitration is no longer hindered by the principle of public policy, it is worthwhile to note that public policy grounds are still relevant to the enforcement of the resulting award.
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