Corruption in International Commercial Arbitration: The Arbitrator's Role
When the use of international commercial arbitration to resolve disputes is on the rise, arbitral tribunals must play a significant part in achieving an international anti-corruption effort. Tribunals and arbitrators encounter several challenges when dealing with corruption cases. Therefore, a clear understanding of the arbitrator's role in investigating corruption, especially in the absence of party allegations should be addressed and tackled.
Corruption is regarded as a significant and important problem in international commercial arbitration, focusing on its prevention, detection, and resolution in commercial sectors. As a result, it has raised questions about what defines the arbitrator's function when accusations of corruption are raised, or allegations of corruption develop because it has been acknowledged as a subject of global and transnational public policy.
This alarming topic caused scholars in the legal field to produce various perspectives on this matter, leading to differing theories. For example, the contractual theory considers arbitrators as agents of the parties, and originate their rights and duties from their contracts. This approach suggests that instead of looking at criminal law, arbitrators should focus on the parties' commercial responsibilities and rights. Conversely, the status theory gives arbitrators judicial authority, defining their functions according to applicable jurisdictional law. This theory also states that arbitrators must ensure that their actions do not conflict with the principles of the national laws (Born 2009, 1598).
Court's interpretations of these theories vary. Some courts subscribe to the first theory and show a hesitancy to combat corruption, while other arbitrators who follow the second theory take hold of both stated and presumed corruption cases. This is due to the lack of a universally accepted understanding of the arbitrator's position in the context of corruption, making it even more crucial to address the arbitrator's role in investigating corruption cases, particularly when there is no party allegation.
Therefore, this blog endeavors to address this alarming issue and debate that leave arbitral tribunals and arbitrators in a difficult situation every time they are faced with corruption cases.
Defining the role of arbitrators in investigating corruption cases and determining their authority to address corruption even without explicit allegations from parties has long been debated in the field of arbitration. This lack of a widely accepted understanding has led to various studies and theories.
The first theory is the contractual theory. This theory believes that arbitrators derive their rights and responsibilities solely from the parties' contractual agreement (Fan 2017, 5). According to this theory, arbitrators are appointed by the parties and are expected to operate within the boundaries set by the parties' agreement.
While, on the other hand, the status theory challenges the contractual perspective (Fan 2017, 4). Advocates of this theory believe that arbitrators' rights and duties are not solely tied to party agreements, but are also derived from applicable jurisdictional or national laws. According to this theory, arbitrators have a broader role beyond party contracts. They are seen as serving not only the parties' interests but also upholding the international rule of law. In this view, arbitrators are considered "servants of truth" rather than just "servants of parties" (Uluc 2016, 245).
However, from a legal approach, arbitrators are obligated to settle disputes fairly, adhere to the arbitration agreement, prevent delays through suitable procedures, issue enforceable awards, and make good faith efforts to investigate potential criminal law violations. They must follow the arbitration process protocol set by the parties, but they can also diverge from it when necessary for fairness or efficiency. Article 18 of the UNCITRAL Model Law Act stated clearly that “the parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.” (UNCITRAL Model Law 2006, 14).
Arbitrators have certain vested powers, such as determining language, venue, expert and fact witnesses, and documents. The power to investigate is a debated issue, varying under different national arbitration laws. Some laws grant arbitrators the authority to gather evidence not provided by parties, especially in cases involving corruption.
For example, Article 184 of the Swiss Federal Statute on Private International Law grants arbitrators the power to conduct evidence-taking (Swiss Federal Statute on Private International Law 1987, 62). Also, norms empower arbitrators to inquire, classify issues, evaluate facts, and request additional evidence, as seen in the LCIA Arbitration Rules (Article 22) and IBA Rules on Evidence (Articles 3(10) & 4(10)).
In addition to what is stated above, and from a social perspective, it is important to state that corruption is a significant problem in modern societies, causing harm to the economy, society, and justice systems. It's viewed as a deep-rooted issue in social structures, affecting numerous countries worldwide, including those in the EU (European Commission 2014, I). According to a survey conducted by the European Commission in March-April 2022, a majority of Europeans consider corruption unacceptable, though this belief has slightly declined since December 2019. The idea that giving presents or favors for public services is acceptable has gained popularity but is held by fewer people. Legal scholars note that attitudes towards corruption vary across countries, including within the EU (Special Eurobarometer 523 2022, 30).
A recent European Commission survey from July 2022 suggests that federal authorities should encourage trust in authorities and encourage reporting of corruption cases. Although around 6% of Europeans claim to have witnessed corruption in the past year, only 15% of these cases were reported. Nearly half of the respondents believe that corruption cases are hard to prove and investigate (European Commission 2022, 3rd paragraph).
Therefore, this debate on the role of arbitrators in investigating and combating corruption, even without specific allegations, will be explored and further discussed in the upcoming section.
In the context of the arbitral process, when a party alleges corruption to challenge the validity of an agreement, the arbitrator is obligated to investigate this claim to determine the presence of corruption. However, a key question arises when the arbitrator comes across evidence indicating that the parties might be involved in corruption or have altered the arbitration process for unlawful purposes, without any explicit claims from the parties themselves. The central debate revolves around defining the arbitrator's role in investigating corruption cases in the absence of party allegations.
It is important to note that arbitrators face significant challenges when encountering corruption cases that have not been raised by parties' claims, particularly when their authority is derived from the parties' agreement. Unlike judges in national courts, arbitrators are appointed by parties to resolve contractual disputes, giving rise to distinct expectations regarding their role in addressing corruption. The rise of corruption within arbitration demands that arbitrators not only fulfill their standard role as defined by parties' agreements but also adopt a role dedicated to serving international public policy. This transformation positions arbitrators as truth-seekers who scrutinize all aspects of a dispute, including potential corruption.
Nevertheless, the increasing global emphasis on combating corruption encourages arbitrators not to disregard evidence pointing to corrupt practices. Scholars have observed a growing trend of arbitral tribunals feeling a duty to investigate suspected corruption cases in order to protect broader public interests (de Navacelle & Musso 2022, I B). Several reasons contribute to this trend. Firstly, arbitral institutions' regulations, such as Article 42 of the ICC Arbitration Rules, mandate arbitrators to issue enforceable awards (ICC Arbitration Rules 2017). Rendering an award that acknowledges a corruption case would conflict with worldwide anti-corruption laws and policies. For instance, in France, arbitral tribunals are prompted to take up corruption cases proactively to prevent awarding decisions that involve corruption.
Secondly, experts argue that arbitrators are not solely private decision-makers; their rulings have substantial public implications (de Navacelle & Musso 2022, paragraph 19). Ignoring corruption cases, whether suspected or raised by parties, would imply a refusal to engage in the global anti-corruption movement, which could adversely affect the public interest.
Arbitrators possess the necessary authority and tools to investigate corruption cases, even those not formally alleged by parties. Various laws governing arbitral institutions confer general investigative authority upon arbitrators to establish case facts. For instance, Article 25 (1) of the ICC Arbitration Rules mandates arbitrators to ascertain case facts using all relevant means (ICC Arbitration Rules 2017). Similarly, Article 22.1 (iii) of the LCIA Arbitration Rules empowers arbitrators to investigate case facts, classify issues, and apply relevant laws (LCIA Arbitration Rules 2020).
Moreover, it should be stated that additional powers granted to arbitrators to aid in investigating corruption cases include the ability to request testimony from impartial witnesses and demand relevant documents from parties. If parties refuse to comply with such requests, the arbitrator can interpret this refusal as a lack of document production.
Therefore, arbitrators possess the authority to investigate corruption cases, even when not prompted by parties' claims. They play a role in the global fight against corruption and must uphold their jurisdiction, even if parties contest their competence in dealing with such matters. This approach aligns with the increasing emphasis on combatting corruption and serves broader public interests. In other words, the trend indicates that arbitrators are increasingly inclined to investigate corruption even when not explicitly alleged by parties. This transformation is driven by a commitment to fairness and the protection of international public policy. As a result, arbitrators are evolving into truth-seekers who delve into all facets of disputes, including potential corruption.
We can deduce that when claims or suspected evidence of corruption appear, arbitral tribunals, arbitrators, and the institutions charged with managing them encounter challenging situations, however, they do not all follow the same technique, approach, or outcomes. Some argue that arbitrators should only investigate corruption if parties bring allegations, while others believe arbitrators should actively pursue any suspicious evidence to maintain impartiality and uphold global public policy, given their authority to examine corruption cases. These variations illustrate the tremendous difficulties that several tribunals and arbitrators encounter when trying to solve corruption issues.
Due to the alarming nature of this topic, it is observed that arbitrators are becoming the servants of truth in investigating corruption cases even if they are not raised by parties’ allegations or even if parties try to claim that the tribunal is not competent to deal with corruption cases in order to have a fair decision and protect international public policy.
The success in combating corruption is based on how arbitrators handle such cases. Arbitrators who actively investigate corruption cases demonstrate adherence to international law and public policy, showcasing the potency of international commercial arbitration in upholding the global legal framework against corruption. Noting that this balancing of devotion and dedication, coupled with the proactive involvement of arbitrators in investigating corruption, will significantly contribute to international commercial arbitration's survival as an effective dispute resolution system.
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Author: Layan Al Fatayri, PhD student, Marton Géza Doctoral School of Legal Studies, University of Debrecen