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11 February 2021
Corruption allegations have blossomed as an area of interest in international arbitration since at least 2006, when an International Centre for Settlement of Investment Disputes tribunal found that a claimant's conduct in procuring an investment contract through bribery was sufficient as a matter of law and international public policy to render any claim under that contract unsustainable (World Duty Free versus Kenya). Since then, numerous other published awards have shown that states are increasingly relying on allegations of corruption to defend treaty and commercial claims. Despite this trend, no established approach exists for the standard of proof that applies to such allegations. However, recent awards, such as that rendered in Vale versus BSG Resources Limited, show that while corruption is always a serious accusation, the standard of proof applicable in arbitration should be no higher than the standard required in other civil cases.
Institutional arbitration rules contain no clear definitions of corruption or guidelines on how tribunals should examine evidence thereof. In light of this uncertainty, investment and commercial tribunals have developed their own approaches as to the standard required to prove corruption allegations. Published awards have predominantly concerned investor-state arbitrations, where states raise corruption allegations as a defence against investors' claims.
Historically, investment arbitration tribunals view allegations of corruption as a serious matter, requiring a high standard of proof akin to that which would be applied to criminal proceedings. Tribunals have also found that the severe consequences of finding that corruption exists, including that the underlying contract is rendered voidable for illegality and that the investor is deprived of any treaty protections, justify this higher clear and convincing evidence standard.(1) For example, Antonio Crivellaro's 2003 survey of arbitral case law on corruption found that tribunals had applied a clear and convincing evidence (or similar) standard of proof in 14 out of 24 cases in which corruption was raised.
Where a state raises a corruption allegation, a heightened standard of proof may be more readily justified. States have the power to undertake investigations and compel the production of evidence of alleged corruption prior to arbitral proceedings.
However, where corruption allegations are raised by private parties against states, the challenges surrounding this higher standard are revealed. For example, in EDF versus Romania, EDF alleged that a Romanian government official had demanded a $2.5 million bribe to renew its contract. While acknowledging that corruption is notoriously difficult to prove since there is typically little or no physical evidence, the tribunal insisted on the clear and convincing evidence standard because of the seriousness of the accusations in the case, given that it involved officials at the highest level of the Romanian government.
Ironically, the involvement of high-level government officials in corruption is precisely one of the flaws of insisting on the clear and convincing evidence standard. As noted in the UN Anti-corruption Toolkit:
[s]enior officials actively engaged in corruption are often in a position to impede investigations and destroy or conceal evidence, and pervasive corruption weakens investigative and prosecutorial agencies to the point where gathering evidence and establishing its validity and probative value becomes problematic at best.
Even in cases between two private parties, any party alleged to have received bribes is unlikely to admit to doing so when questioned as a witness before a tribunal because they risk subsequent criminal prosecution should state authorities discover the confession. Written evidence is often equally as scarce as parties seldom memorialise their agreements to give and receive bribes in written contracts admitting these purposes.
Since tribunals also lack the powers of courts or the police to seize documents, compel the attendance of a party's witnesses or force relevant third parties to participate in proceedings, any heightened standard of proof would render a plea of corruption unsustainable despite the existence of credible evidence in support.
These and other challenges have prompted tribunals in numerous recent cases to reject a higher standard of proof in favour of a more pragmatic approach. In a 2013 dispute over a molybdenum joint venture, the tribunal in Metal-Tech versus Uzbekistan, after hearing argument on the applicable standard of proof, found that the standard of proof was because the facts of the corrupt lobbying payments had emerged in oral evidence given by the claimant's own primary witness, and the tribunal itself sought further evidence of the nature and purpose of such payments. The tribunal held that the factual matrix did not require it to resort to presumptions or rules of burden of proof. Instead, the tribunal was to make its determination as to whether corruption had been established with reasonable certainty based on the evidence before it. The tribunal also noted that, in this context, "corruption is by essence difficult to establish and that it is thus generally admitted that it can be shown through circumstantial evidence". The tribunal ultimately conducted an enquiry into the facts using a red-flag analysis of indicators of corruption.
Similarly, in its 2019 decision on alleged corruption, the tribunal in Niko Resources versus Bapex refrained from deciding between the heightened standard of proof proposed by the claimant and the preponderance of evidence standard proposed by the respondent. Quoting Aloysius Llamzon, the tribunal noted that:
[b]ecause corruption is a serious charge with serious consequences attached, the degree of confidence a tribunal should have in the evidence of that corruption must be high. However, this does not mean that the standard of proof itself should necessarily be higher.
As helpful as these more pragmatic approaches may be, these tribunals appear deftly to dodge the central question – what is the most appropriate standard of proof? While the red-flag analysis adopted in Metal-Tech can assist a tribunal in recognising indications of corruption in evidence provided by parties where a thorough investigation may be impossible, it cannot detract from the widely accepted principle in international arbitration that each party must prove the facts on which it relies. Likewise, the Niko Resources tribunal only tacitly affirmed the balance of probabilities standard.
On the other hand, the 2019 Vale versus BSG Resources Limited award explicitly affirmed the balance of probabilities standard as the starting point in determining the standard of proof.
Once this base of departure was established, the tribunal drew adverse inferences from BSG Resources' failure to respond substantively to evidence which Vale had presented to demonstrate a prima facie case of the alleged corrupt acts. The tribunal then addressed the need to attach sufficient seriousness to corruption allegations by insisting on a high evidentiary threshold for the tribunal to find fraud against BSG. The high evidentiary threshold or high degree of confidence requires parties to produce strong evidence without requiring that the entire body of evidence points overwhelmingly towards the facts, as would be required should the clear and convincing evidence standard be applied.
Recent decisions signal a return to the traditional standard of balance of probabilities – at least as a starting point – in determining corruption claims. The tribunals' awards in Metal-Tech, Niko Resources and Vale demonstrate that, contrary to early consensus, the clear and convincing evidence standard is no longer the default standard of proof for corruption allegations in international arbitration.
For further information on this topic please contact Paul Stothard or Lolan Sagoe-Moses at Norton Rose Fulbright by telephone (+971 4 369 6300) or email (email@example.com or firstname.lastname@example.org). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.
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