Some remarks regarding fraud and corruption in arbitration

After two years of absence, the Dutch Arbitration Association will hold its eighth conference on Thursday 2nd of June 2022. During this year’s Dutch Arbitration Day, fraud and corruption in arbitration will be discussed in a broad sense, as fraud and corruption can occur in various ways and contexts. It will be discussed why it is important for the arbitration community to be aware of the occurrence of fraud and corruption, and how the community should deal with fraud and corruption in arbitration if and when it arises. UNUM is proud to be sponsor of this event.

(DAA Dutch Arbitration Day 2022 | DAA – The Dutch Arbitration Association)

Looking ahead to this event, Erik Witjens, criminal defence attorney at De Reede Advocatuur B.V. in Rotterdam who specialises in financial and economic criminal law and in punitive administrative law, makes some interesting remarks:

Arbitrators can interface with allegations of corruption in multiple ways, for instance when they are called upon to decide business conflicts in which evidence for (attempted) corruption is the reason for claimant to want to annul a contract. That evidence will as a general rule have to be gathered by the party that invokes the annulment. The threshold for the standard of proof tends to be problematic, because (very) little direct evidence of corruption can be gathered.

In this article, I’ll outline developments in the European Union that lead me to pose the question, whether this dynamic could stand to change in the future. The European Union has multiple offices that are tasked with combating corruption. From June 1st, 2021, the European Public Prosecutor’s Office (EPPO) has started its activities in this field. EPPO investigates criminal offences in the EU, such as corruption, that damage the finances of the EU. It joins the European Anti Fraud Office (OLAF), that is tasked with the administrative investigation of fraud, including corruption.

The sheer amount of money that is associated with corruption in the EU – the loss to the GDP throughout the EU is calculated to be hundreds of billions of euros each year – illustrates that in the present circumstances, few cases are uncovered. The EU has been slow to combat corruption in the past, but with the start of EPPO one can expect increased ambition on the subject. Especially given the current state of world affairs – i.e., sanctions against Russian oligarchs – one might continue to see a tougher stance on corruption. To see how that could affect international arbitration, it’s interesting to look at developments in another field.

In May 2022 the European Parliament will discuss a hotly contested proposal of the European Commission according to which internet companies will have to monitor everything people share, to combat specific abuse. This means for instance that WhatsApp or Instagram will have to oversee all content its users transmit. To be able to do so, companies effectively will have to end all forms of encryption on the internet. This, in turns, means confidential communication via the internet will become a thing of the past.

The European Commission, judging by the abovementioned proposal, has little qualms in cancelling confidentiality for the purpose of combating serious crime. This is a trend that gives rise to concern. Under the guise of a worthwhile goal, legitimate interests of the general public are tossed aside. With the fight against corruption gaining importance and a new agency on the scene, the problematic lack of direct evidence might lead to new avenues to uncover instances of corruption.

To uncover corruption, one needs be made aware of corruptive practices. Perhaps in a given case an anonymous tip reaches the OLAF, which is then shared with EPPO. But it is highly unlikely this will lead to the uncovering of a majority of cases, as none of the parties involved with the corruptive practices will have an interest in uncovering it.

But what if the corruptive practice is part of a hypothetical case in which annulment of a contract is being sought through arbitration? The EU could require arbitrators who adjudicate in international business to file a report on business dealings that they suspect might be linked to corruption. It would amount to mandatory tipping of the authorities.

Equally, one could imagine the situation in which either the claimant or the defendant alleges corruption but does not have direct evidence to back it up. Perhaps EPPO and/or OLAF are already investigating the entity involved. A mandatory tip by an arbitrator could ultimately yield evidence that was lacking.

It might be hard to fathom such an infraction on arbitration, in which public interests to combat corruption would overrule the actual conflict parties are seeking to resolve. But is it really unthinkable, judging from the above example that sacrifices encryption on the internet for combating a specific crime? I wouldn’t be too sure of that.

Therefore, every party that values arbitration as a quick and high-quality solution for dispute resolution has an interest in making sure (allegations of) corruption in the setting of arbitration are dealt with in a decisive manner. For an innovative arbitration institute such as UNUM, that has been leading the way in digitalization and arbitration, such a challenge is par for the course. It is always on the lookout for changes in the regulatory framework that need addressing. Best practices on a wide array of subjects are therefore available or under construction.

What will we focus on in the coming period?

UNUM Arbitration & Mediation makes itself heard again. We would like to show you the possibilities of settling disputes through UNUM by means of arbitration or mediation. And, of course, we will be highlighting developments in the field of dispute resolution, both in the Netherlands and internationally.

What will we focus on in the coming period?

First and foremost, we are going to use the opportunity to visit people again at their companies and talk about their wishes to use arbitration procedures or mediation to solve any issue, and how UNUM can play a role in this.

We are looking at ways in which the UNUM Arbitration Rules can be improved. In that respect we will pay attention to various possible alterations. Parties and their counsel and arbitrators have made suggestions on basis of their experience when using the UNUM Arbitration Rules, which we shall consider carefully.

We are participating in the symposium organised by the law faculties of the universities of Groningen, Maastricht, Leiden and Rotterdam in cooperation with the Dutch Arbitration Association (DAA) to mark the fifth anniversary of the current Dutch arbitration law. This symposium was to be organised in 2020, 5 years after the new Dutch Arbitration Act came into force, but had to be postponed due to the pandemic. With two years more experience with this law, the discussions will be even more interesting. UNUM Chairman Marcel Verhagen will participate in the panel discussion “Annulment and Remission”.

This symposium will be held on 17 March 2022 from 1330-1730 hrs.
For more information please contact the aforementioned universities, the DAA or UNUM ( T +31 70 2051295 / E secretary@unum.world ).

On Thursday 21 April 2022, also in The Hague, UNUM, in cooperation with the DAA Maritime & Transport Committee, will organise a seminar with the topic “New insights on arbitration after the EVER GIVEN”. This event also promises to be very interesting in terms of content, with two renowned keynote speakers and a room full of critical listeners and questioners.

Keep following UNUM via the website www.unum.world , via Twitter ( @UMedarb ) or LinkedIn ( @ UNUM Transport Arbitration & Mediation ).

Please do not hesitate to contact us at secretary@unum.world or T +31 70 2051295, if you would like to learn more about what UNUM can mean for your company in regard to dispute settlement. UNUM is a professional, transparent, independent and reliable platform that might unite parties in finding a solution to resolve their dispute in mediation or provide a decision by rendering an arbitral award in order to relieve parties from an unresolved issue.

James Turner: successful international arbitration is about bridging cultural differences

To build bridges between (international) parties in dispute, knowledge, experience and a sensitivity to cultural differences are key elements for success. According to James Turner, barrister at Quadrant Chambers in London, the quality of international arbitration is highly dependent on these traits. Turner has been a barrister since 1990 and was appointed Queen’s Counsel in 2013. During his practice as counsel, he has been instructed in hundreds of arbitrations, mostly maritime and other cross-border commercial disputes.  Alongside this, he has also been accepting appointments as arbitrator for over twenty years.  This article elaborates on his vision for maritime and transport arbitration.

Turner spent the last year of his studies in Germany. There he met the (Dutch) woman who, less than four years later, became his wife. Not only did this result in him adding Dutch to his fluency in German, but it ignited his enthusiasm for The Netherlands and the “natte praktijk” conducted here. This was aided by his grounding in German law, which broadened his legal perspective well beyond the English common law. According to Turner, this has not only helped him deal effectively with international clients from different legal traditions, but also improved his qualities as an English lawyer.

Cultural differences

“Because of the nature of the maritime and transport industry, almost all disputes have an international character. So, to conduct arbitration in this arena successfully you must be sensitive to cultural differences. For this, you need to be aware of your own assumptions, for example, as to how a witness is expected to behave – and to understand that the witness may have very different expectations. You then have a far greater chance that these differences will not interfere with your assessment of their evidence. In China, for example, it is morally important that you are loyal to your employer, and this affects how some Chinese give evidence. The Dutch, on the other hand, with their legendary bluntness, can be more prone to argument,” Turner explains.

Turner clearly sees an increased popularity for arbitration as a means of dispute resolution instead of going to court. One reason for this is that UK court judgments are no longer as readily enforceable in the EU after Brexit. Arbitral awards are not affected by this because of the New York Convention. This convention ensures that arbitral awards are enforceable in more than 150 jurisdictions, including countries that don’t have bilateral judicial enforcement treaties. According to Turner this is one of the reasons for arbitration’s popularity.  “Arbitration has always been popular in the maritime sector,” he says, “Brexit is only going to reinforce that.”

Advantages of arbitration

Another advantage of arbitration, in most jurisdictions, is that it is administered under full confidentiality, unlike court proceedings (again, in most jurisdictions). This makes it easier to maintain client confidentiality and avoid bad press. In addition, arbitrators remain involved for the entire length of the procedure. This leads to in-depth case knowledge. In court proceedings – certainly in the common law tradition – different judges may be involved at different stages of the process, with the result that important decisions regarding expert evidence, for example, are not (necessarily) taken by the trial judge. This less specific case knowledge can result in inefficiency. Turner’s experience of arbitration is also that it is more flexible and efficient than Court-based litigation.

As an example, Turner cites a specific shipbuilding dispute. During sea trials the vessel could not attain the contractual minimum speed. The buyer immediately purported to cancel the contract and started arbitration, claiming the return of the pre-paid instalments of the contract price. The shipbuilder disputed the cancellation, on the basis that it was entitled and obliged to try and solve the problem, which it then proceeded, over the following months, to do.  When it had corrected the problem, it then tendered delivery, which the buyer refused, after which the builder sold the vessel – giving rise to a yet further element of the dispute regarding the accounting procedure laid down in the contract.  In short, the facts of the case continued to develop in parallel to the arbitration procedure, necessitating successive amendments of the shipbuilder’s case. The arbitration procedure was sufficiently flexible to cope with this, which would have been harder and more expensive to accomplish in Court.  Indeed, one likely outcome in Court would have been a stay of the action until the facts had “finished”, whereas in the arbitration the final hearing took place only a few weeks after the vessel had been sold.

Invest in increasing knowledge about arbitration

Although London is a very popular arbitration venue, Turner notes that certain features of it are not universally admired.  Most tellingly, costs can be high, fuelled in part by the Anglo-Saxon “disclosure” process, the single “final hearing” – which can last weeks or even months – and the primary role afforded to cross-examination as a means of testing each party’s evidence.  On top of that, of course, Dutch parties may find themselves having to translate documents not for their own benefit, but because language skills are relatively rare among London arbitrators.

Turner notes that one consequence of these factors of which he has become aware is the willingness of Dutch companies, particularly those active in the offshore industry, to adapt standard BIMCO contracts by naming Rotterdam as the arbitration venue and Dutch law as the governing law. Turner states that parties benefit from the excellent legal infrastructure in Rotterdam and the relative cost efficiency of the Dutch legal and arbitration systems. One drawback of this approach, he notes, is the potential mismatch between an agreed governing law and a contract form that assumes a different one.

Whatever the advantages and disadvantages may be of different approaches, Turner believes strongly that all involved in maritime dispute resolution should be better informed as to what approaches are available, their strengths and their drawbacks.  “We should invest in informing lawyers involved with maritime law about the differences between arbitration in the UK and the Netherlands. If we succeed in educating colleagues, clients and P&I Clubs about the differences between Dutch and English procedures, they will be better placed to make informed and deliberated decisions about where best to conduct disputes arising from the particular contract at hand.”

 

 

 

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