Summary and implications
Arbitration is a confidential and consensual dispute resolution process and there are question marks around how suited it is to deal with disputes that raise issues around illegal conduct. Regrettably, issues of fraud, bribery and corruption do arise in the context of commercial disputes between international parties and this article looks at how arbitral tribunals deal with such matters.
Jurisdiction of the tribunal
It is well established that allegations of illegal conduct will not mean that a dispute is incapable of being referred to arbitration. The doctrine of separability means that even if a contract were to have been procured by fraud, the arbitration agreement contained within that contract should survive as a standalone agreement to arbitrate, giving the arbitral tribunal the right to decide whether it has jurisdiction to consider the dispute.
How tribunals approach issues around illegal conduct
In some cases, fraud, bribery or corruption will be alleged by one or other of the parties or even admitted. The International Centre for Settlement of Investment Disputes (ICSID) case of World Duty Free v Kenya is an example of a claimant admitting that it made a facilitation payment of US$2m to secure a contract. As a result, the tribunal set the contract aside and dismissed the claim.
In other cases, the parties will not allege wrongdoing but the tribunal may suspect illegal conduct based on the evidence before it. The question then is what steps the tribunal should take to investigate matters further. There is no prohibition on the tribunal's rights to investigate suspected illegal conduct. However, some tribunals may feel restricted by their procedural powers to do so and question whether it is appropriate to go beyond the legal issues arising in the commercial dispute. However, the ICSID case of Metal Tech v Uzbekistan is an example of a tribunal becoming concerned about evidence given at a hearing and ordering further disclosure from the parties around possible illegal payments. Ultimately, the tribunal decided that illegal payments had been made and dismissed the claim.
Impact of parallel proceedings
Where allegations of illegal conduct arise in a commercial dispute, there may well be parallel criminal or regulatory proceedings afoot. Whilst there is no obligation on it to do so, a tribunal may well decide to stay an arbitration if there is a clear overlap in the issues being considered by parallel criminal or regulatory proceedings and the timeline for concluding such proceedings is reasonable.
Impact on enforcement of an arbitral award
One of the limited grounds for refusing to enforce an arbitration award under the New York Convention is breach of public policy. Under English law, where an arbitral tribunal has considered an allegation of fraud and decided no illegal act has occurred, it is likely that the award would be enforced without the English court examining the allegations of fraud afresh. However, a failure by the tribunal to consider and determine allegations of fraud where such issues have been raised may provide more fruitful grounds for challenge at the enforcement stage.
Issues of fraud, bribery and corruption will sometimes arise in the context of international arbitration. It is important that such behaviour is identified where possible and not swept under the carpet in the context of private dispute resolution procedures. Tribunals should not feel constrained about determining such issues when they are raised by the parties or proactively requesting further evidence where "red flags" arise in the course of proceedings. Indeed, a full consideration of such matters should be encouraged to reduce the risk of challenge to an award at the enforcement stage.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.