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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1. THE AGREEMENT GIVING RISE TO THE DISPUTE
a) "Agency" agreements
Under such agreements, a principal confers on an agent the task of assisting the principal in obtaining the award of a (main) contract, usually a construction, engineering, supply, erection or turn-key contract, called for tender by an employer or owner (in general a State entity or public agency) in a given importing country.
Although such an agreement contemplates - in substance - the use of an intermediary, international practice refrains from using the word intermediation when defining the relationship. The parties refer to it, instead, as an agency or consultancy relationship or call their agreement an assistance agreement or sponsorship or brokerage agreement, or the like.
The reason why reference to an intermediary is avoided is twofold. First, recourse to an intermediary in the award of a public works contract can be prohibited, and sometimes severely sanctioned, by the procurement laws of the importing country. Second, the parties are unwilling to disclose the genuine object and nature of their agreement and tend to present it as a different or ordinary commercial operation. [Page109:]
International practice shows a great degree of uniformity in the agreements here at issue.
Notwithstanding the many names they go under, all such agreements are entered into in writing, an indication that both parties intend to define their reciprocal rights and obligations through an instrument capable of being formally enforced in case of dispute. Moreover, the contents and structure of the clauses are drawn up according to standard forms.
b) The kinds of services assigned to the agent
The agent undertakes to render certain services in view of obtaining the award of one or more main contracts to the principal in the importing country. The services which are formally indicated in the agreement may include market research, assistance in the preparation of the offer, organization of meetings, supply of information concerning the tendered project, consultancy as to local legislation or regulations in areas affecting the cost of the tendered project, investigations of a technical, or contractual or economic nature and whatever other kinds of assistance may be deemed necessary to enhance the principal's likelihood of winning the tender.
Irrespective of the list or number of services assigned to the agent, the agreement contains a clause expressly linking the services to their underlying purpose, that is, the award of the main contract to the principal.
The language of the relevant clauses may in some occasions reveal that, in addition to the services overtly assigned to the agent by the express terms of the agreement, other and more substantive or fundamental services are undertaken by him, implicitly. Such services, in short, consist of a trafic d'influence to be exerted in the interest of the principal.
The express and implied terms correspond more closely and transparently if, in the importing country, an agency relationship is permitted when the bidder is a foreign contractor or are even made mandatory by local procurement laws (e.g., the Gulf area).
Frequently, the nature of the agent - in general an off-shore company having no corporate structure - is in apparent contradiction with the quantity or[Page110:] types of services listed in the agreement, which may include costly investi-gations impossible to perform without an appropriate organization and that are normally performed by the principal himself. In such cases, the long list of nominal services serves the purpose of justifying the amount of the agent's remuneration, more than that of establishing the true performance obligations to be satisfied by the agent.
c) Remuneration of the agent
The agent is remunerated through a percentage fee applied to the value of the main contract awarded to the principal. As a rule, payment of the agent's fee is strictly contingent on the award of the main contract to the principal. The agreement typically states clearly that no payment is due to the agent if there is no award, not even reimbursement of costs. In other words, the agent assumes the risk not only of not earning his fee, but also of bearing the costs of his services if the principal is not the successful bidder.
If the main contract is awarded to the principal, the fee due to the agent is generally calculated as a pro-rata portion of the payments made to the principal by the employer under the main contract. Therefore, payment is not linked to the quality of the performance rendered by the agent or to the quantity of his services. Payment is linked exclusively to events concerning the life of the main contract, i.e., the commercial success of the trade operation. Of course, commercial success also depends on the professionalism of the agent. However, the agent could deploy his best efforts, but remain unpaid if the main contract is awarded to another bidder.
These are further confirmations that the agent is, in reality, an intermediary. Were the agent a mere service provider, such as a provider of consultancy or professional advice, he would be paid on the basis of the services actually rendered, irrespective of the commercial outcome of the main operation.
If the agent is, in reality, an intermediary, it must be logically inferred that he has been entrusted by the principal, expressly or tacitly, with procuring contacts from a third person or entity, who must be a person or entity capable of playing a role or exerting an influence in the decision concerning the award of the main contract.
d) Amount of the remuneration
The most striking feature in this kind of agency agreement is the clause establishing the quantum of the agent's remuneration or commission.
It normally consists of a substantial amount, out of all proportion with the content and nature of the services listed as those to be undertaken by the agent under the official terms of the agreement. No such service could per se justify that amount, which in practice usually corresponds to a very significant portion of the price of the main contract.
One is inevitably led to infer that this remuneration covers the interest of some other entity, which can only be an entity connected with the persons who have the power to award the main contract to a certain bidder, rather than to another.
e) Governing law clause
A further traditional feature of such agreements is that they invariably have a governing law clause that stipulates the applicable law to be the law of a third country, different from the country of performance of the main contract (unless in the country of performance of the main contract, the services of an intermediary are permitted or even required, e.g., the Gulf area).
In many cases, the foreign law chosen by the parties is Swiss law. The reason is, perhaps, that Swiss law does not prohibit the (proper) use of agents in public procurements (although corruption, of course, is punishable) or that the venue of the arbitration foreseen in the agreement is frequently Switzerland.
f) Arbitration agreement
The agreement contains a clause submitting disputes to international arbitration, the venue of which is in a third country, different from the country of performance of the main contract and from the countries of the parties.
This constant preference is probably explained by the fact that arbitrators do not have the same investigative powers as a national judge or may apply a standard of proof different from that applied by a national judge. [Page112:]
Principal and agent are undoubtedly aware that a national judge may be more willing to inquire ex officio into the nature of their agreement, whether or not the parties raise the issue either in their agreement or during the proceedings. The parties may wish to avoid such an outcome and prefer that any dispute be settled through an arbitral award which is, inter alia, confidential and issued at the end of confidential proceedings, whilst judicial proceedings before national courts are not protected by confidentiality.
2. HOW DISPUTES ARISE
In practice, disputes are referred to arbitration in one of the following cases:
• the agent initiates arbitration because the principal refuses to pay the commission, objecting that services were not rendered or that the agreement was illegal and invalid;
• the principal initiates arbitration in an attempt to recover a commission paid in part or in full to the agent, disputing the legality of the contract; or
• a dispute arises in connection with the main contract between the principal and the employer, whereby the employer claims that the main contract was induced by corruption or bribery and is therefore illegal.
3. PARTIES' BEHAVIOR BEFORE THE ARBITRATORS
With regard to the issue of whether the agency agreement entailed bribery, the parties' behavior falls, in general, into one of two patterns:
• The parties superficially agree that there was to be no bribery, but the principal refuses payment to the agent on other grounds, e.g., the services were not rendered by the agent, the agent was inefficient or the award of the main contract was not the result of the agent's efforts and the agent deserves no credit for it, that is, there was no cause-and-effect link between the award of the contract and the agent's intervention. As for the agent, he claims payment of the agreed fee, maintaining that his entitlement to payment derives automatically from the successful award of the main contract to the principal, to the exclusion of any other conditions.
• Alternatively, the principal denies payment to the agent, arguing that the real intent of the agency agreement was to corrupt or influence the authorities or public officials responsible for awarding the main contract, while the agent counters by arguing that no bribery has been proven and that the agreement is fully enforceable in law. [Page113:]
4. ARBITRATORS' REACTION
As is clear from the awards summarized hereinafter, the arbitrators' approach varies from case to case, following one of several patterns:
(i) they refuse to arbitrate the dispute; or
(ii) they accept jurisdiction on the theory of severability of the arbitration agreement, but uphold ex officio international standards of public policy and declare the agency agreement invalid and dismiss the claim for payment submitted by the agent; or
(iii) either on request of a party (the respondent) or ex officio, they find in the agency agreement itself certain "indicia" that the agency conceals a bribery case; or
(iv) if an allegation of bribery is raised by the respondent, they require a "low standard" of proof or resort to a "presumption" in order to declare the agency agreement invalid; or
(v) if an allegation of bribery is raised, they require a "high standard" of proof of corruption and, failing such proof, declare the agreement valid and uphold the agent's claim to payment; or
(vi) they do not find bribery to have been established by the evidence, but dismiss the agent's claim for payment and refuse to enforce the agency agreement on the ground that the agreement is illicit under mandatory provisions of the procurement law of the importing country, prohibiting recourse to intermediaries when contracting with the State or State entities; or
(vii) they apply the public policy rules of the national law which, by the parties' choice, governs the agreement, disregarding the equivalent public policy rules of the law of the importing country; or
(viii) they inquire whether the arbitration agreement contained in the main contract awarded to the principal has been, as such, induced by corruption and fraud.
5. THE CASE LAW
Among the twenty-five cases collected in the attached exhibit:
In only one case was jurisdiction refused by the arbitrator (Case No. 1 of the attached collection). This is the oldest arbitral decision in this matter, known[Page114:] by the name of the arbitrator, Mr Lagergren.
He declined jurisdiction on the basis that a dispute arising from bribery inevitably results, in his opinion, in its non-arbitrability.
(ii) In three cases, the agreement was ex officio declared illegal and invalid, either because its purpose was illicit according to the law chosen by the parties to govern their agreement (Case No. 2) or because it contravened international public policy (Case No. 3) or because an award enforcing the contract would be contrary to the public policy of the country in which the award would be enforced (Case No. 5).
(iii) In three cases, the arbitrators applied direct or indirect "indicia" showing that the agreement was illegal.
In Case No. 10, the arbitrators ruled that there was a conflict between the apparent or alleged intention and the real intention of the parties.
In Case No. 11, the arbitrators concluded that the violation by an engineering firm of the special fiduciary duty owed by it to an employer, for the purpose of accommodating the contractor's desire for undue payments, was contrary to public international policy and to bonos mores under Swiss law, the substantive law applicable to the agreement.
In Case No. 23, the arbitral tribunal identified and applied four "indicia" to prove illegality, namely: the inability of the agent to justify performance of his obligations, the duration of the agent's intervention, the method of remunerating the agent and the amount of the agent's remuneration as compared to the advantages obtained by the principal.
(iv) In just one case, a "low" standard of proof was applied in order to establish the existence of corruption: see Case No. 11 (a violation of fiduciary duty contrary to public international policy and to bonos mores under Swiss law).
(v) There were fourteen cases in which a "high" standard of proof was applied, i.e., more than 50% of the cases.
In Case No. 4, the arbitral tribunal ruled that "direct or even circumstantial evidence" was needed. Although the "consultancy price was very high," this element was not sufficient, alone, to prove corruption. [Page115:]
In Case No. 6 (Hilmarton case, first award), the arbitrator concluded that the evidence (witness statements and the amount of the commission) was not sufficient to establish "with certainty" the existence of corruption. He decided, however, that the agreement was in violation of Swiss public policy and hence invalid, since the agent was appointed in patent violation of Algerian law, forbidding intermediaries in administrative contracts.
In Case No. 12, the arbitral tribunal required clear proof that the amounts paid to the agent "were intended" to bribe officials to trade on their influence to obtain favors. No such proof was provided, so bribery and corruption were deemed not to have been present.
In Case No. 13 (the Westinghouse/President Marcos case), the arbitrators applied the standard of proof required in the three States (the Philippines, New Jersey and Pennsylvania) of the parties, that is, "clear and convincing evidence" of bribery. The U.S. Court applied, in the parallel case, a "lower" standard of proof, which permitted to the Court to conclude that the agent's commissions were intended to be paid, at least in part, to President Marcos.
In Case No. 14, the arbitral tribunal stated that "allusions not supported by evidence and based on suppositions" are not sufficient to prove corruption.
In Case No. 16, the proof that the agent was hired to influence the employer's award was deemed lacking. The Paris Appeals Court confirmed that no proof of traffic of influence had been provided.
In Case No. 17, "no direct or circumstantial evidence of bribery" was found.
In Case No. 18, several agency agreements were disputed, but "conclusive evidence" of bribery was not found to have been provided in the case of the vast majority of the agreements, notwithstanding the disproportion between the price paid to and the costs borne by the agent. A "high degree of probability of bribery" was, however, found in relation to one of the agreements, in which the commission amounted to the "extremely unusual" fee of 33.33%.
In Case No. 19, the majority of the arbitral tribunal ruled that "a mere suspicion by a member of the arbitral tribunal is entirely insufficient" to prove the presence of corruption. The clause "exonerating the agent from proving his actual services" was not considered a sufficient indication of an illicit intent. [Page116:]
In Cases Nos. 20, 21, 22, 24 and 25, the arbitrators ruled that "clear and convincing" evidence was needed in order to declare the agreement invalid because of corruption.
(vi) In only one case (Case No. 6: first award; annulled), the agency agreement was declared null and void, notwithstanding the lack of direct proof of bribery. Indeed, the Tribunal found the agreement to be contrary to the mandatory prohibitions of the law of the importing State (Algeria) and "therefore" contrary to international public and internal (Swiss) policy.
(vii) In five cases, the arbitrators applied the public policy principles of the law that the parties had selected to govern the agreement, rather than the public policy rules of the country in which the main contract would be performed.
In the second award in Case No. 6 (Hilmarton) and in Case No. 7, Swiss public policy was applied, instead of Algerian public policy, and the agency agreements were not deemed contrary to Swiss law.
In Case No. 8, the arbitrator affirmed that (translation) "the interests of State X are not so preponderant in relation to Swiss law that they should be taken into consideration and invalidate the contract."
In Case No. 9, the arbitrator stated that brokerage is not prohibited under Swiss law and that any prohibition of intermediaries under foreign public law is not mandatory for arbitrators sitting in Switzerland and applying Swiss law.
In Case No. 24, a violation of the US Foreign Corrupt Practices Act was not considered relevant insofar as Swiss public policy was not breached.
(viii) In one case (Case No. 15), the dispute arose between a contractor and an employer, and the latter objected that the arbitration agreement included in the main contract was invalid on the grounds that it had been induced by corruption and fraud. The arbitrators concluded that the arbitration clause could, as such, be invalid and not enforceable when it is proved that the clause itself was entered into solely because of corruption and fraud, irrespective of the possible invalidity (due to corruption) of the rest of the contract's clauses, which is a different matter. [Page117:]
6. CONCLUSIONS
The case law shows that international arbitrators:
• accept jurisdiction;
• consider that their primary duty is owed to the parties and is to settle their dispute in accordance with the parties' agreement, and not a duty to be an "organ" of the international community entrusted with enforcing morality in trade operations;
• require clear proof of bribery before invalidating an agency agreement, notwithstanding any suspicions they may have;
• only in a minority of cases search for indicia of bribery on their own initiative; and
• only in few cases accord primacy to mandatory legal provisions prohibiting use of intermediaries in force in the State most closely linked to the trade operation in question, preferring generally to give precedence to the public policy rules established by the governing law as designated by the agreement between principal and agent.
The final jurisprudential trend summarized above - i.e., that of giving little weight to the mandatory provisions of any law of the importing country forbidding the use of intermediaries in public contracts tendering, and relying decisively instead on the law chosen by the parties - is open to criticism.
Indeed, this trend is in contradiction with Article 3, paragraph 3, of the Rome Convention, pursuant to which the parties' choice of a foreign law cannot, where all other points of attachment are to another specific country, result in a derogation from the imperative rules of law of that country, and with Article 7, paragraph 1, of the same Convention, providing that effect may be given to the imperative rules of law of a country whose law is not that chosen by the parties, but with which the contract at issue has close ties, to the extent the parties wish such rules of law to be applied to the contract in question pursuant to the law of that country.
International arbitrators should accept that, in order to establish the legality or validity of an agency agreement submitted to them, the cannot simply disregard the mandatory legal provisions of the importing country. They should not ignore the possibility that the principal and agent elected to stipulate their agreement to be subject to the law of a different country precisely because they sought to escape from the mandatory prohibitions of the importing country. [Page118:]
AWARDS
1. ICC case no. 1110 of 1963
ARBITRAL TRIBUNAL: Sole arbitrator G. Lagergren (Sweden)
PARTIES: Claimant: Agent from Argentina Respondent: Contractor from UK
PLACE OF ARBITRATION: Paris
LAW APPLICABLE TO MERITS: Argentinian law
SUBJECT MATTERS: Bribery and lack of jurisdiction of arbitrator. Non-arbitrability of disputes arising from a contract violating bonosmores and international public policy. Direct proof of bribery unnecessary.
SUMMARY OF FACTS: The case concerns a contract under which a British company had engaged an Argentine intermediary to obtain a public works contract in Argentina, in return for which the intermediary was to receive a commission of 10% of the value of the contract. When the British company refused to pay the commission, the dispute was referred to Mr. Lagergren, as sole arbitrator.
REASONING OF THE TRIBUNAL: Mr. Lagergren stated that it was "[…] in [his] judgement, plainly established from the evidence taken by [him] that the agreement between the parties contemplated the bribing of Argentine officials […]." In order to prove bribery, the arbitrator relied, firstly, on the true intention of the parties as determined by himself and on common knowledge, according to which "[…] during the
Peron regime everyone wishing to do business in the Argentine was faced with the question of bribes […]." Referring to "[…] general principles denying arbitrators to entertain disputes of this nature rather than […] any national rules on arbitrability," he declined jurisdiction. He stated that "parties who ally themselves in an enterprise of the present nature must realize that they have forfeited any right to ask for assistance of the machinery of justice (national courts or arbitral tribunals) in settling their disputes."
AWARD: The Claimant's claim was rejected for lack of jurisdiction. [Page119:]
PUBLISHED IN:
Yearbook Commercial Arbitration XXI (1996), p. 47.
2. ICC case no. 3913 of 1981
PARTIES: Claimant: English company Respondent: French contractor
LAW APPLICABLE TO THE MERITS: French law
SUBJECT MATTER: Contract whose purpose is the payment of "kickbacks" is null and void.
SUMMARY OF FACTS: A French contractor asked a British company to assist it, for a fee, in obtaining certain contracts to be awarded by the government of an African country. The Claimant undertook to provide to the Respondent a number of services consisting of information and assistance aimed at facilitating to the extent possible the award of the contract to the Respondent. In exchange, the Respondent undertook to pay to the Claimant a fee of 8% of the amount of the contracts awarded, after deducting certain supplies and services included in the contracts.
REASONING OF THE TRIBUNAL: According to the arbitral tribunal, the evidence (that is, certain documents produced and certain testimony of representatives of the parties or witnesses) showed that the commission stipulated to be due to the Claimant was to be used to pay what are commonly called "kickbacks." The arbitral tribunal concluded, accordingly, that the purpose of the agreement was illicit and immoral under French law. This rendered the agreement null and void and prevented the parties from asserting rights under it both as a matter of French domestic public policy and under (translation) "the concept of international public policy as recognized by most nations."
AWARD: The claim was rejected.
PUBLISHED IN: Bruno Oppetit, "Le paradoxe de la corruption à l'épreuve du droit du commerce international." Journal Droit International, 1987, pp. 9, 11; Yves Derains, Journal Droit International, 1984, p. 920 (notes concerning ICC case no. 2730). [Page120:]
3. ICC case no. 3916 of 1982
ARBITRAL TRIBUNAL: Sole arbitrator
PARTIES: Claimant: Director of a department of the State of Iran Respondent: Greek company
SUBJECT MATTER: Contract that violates public policy and moral standards is null and void.
SUMMARY OF FACTS: A Greek company and a director of a department of the State of Iran concluded a contract whereby the Iranian Claimant, acting on behalf of a "group," offered "its information and advice" to the Respondent to help it obtain orders from various Iranian authorities. The Respondent was obliged to pay to the Claimant a commission on all orders placed in the context of the contract, with a minimum of 2% of the amount of each agreement that was concluded. The Respondent was awarded several contracts by Iranian authorities, but the 1979 Iranian revolution put an end to the Respondent's activities in Iran. The Respondent paid the Claimant only a part of the promised commissions on the payments it received from the State of Iran.
REASONING OF THE TRIBUNAL: The arbitral tribunal pointed out that it was (translation) "a matter of public knowledge that, for years [when the Greek company was working in Iran], corruption or at least the trafficking of influence was the rule […] [and that it] was extremely difficult or impossible to be awarded public works contracts without recourse to these methods." After remarking on the surprising rapidity with which the Claimant was able to obtain contracts for the Respondent and underscoring that the Claimant had refused to provide any explanation of the nature of its intercession or the composition of its group, the arbitrator concluded that the Claimant's activities could only have been to exercise influence over those who decided with whom the State of Iran would contract. After applying French and Iranian law, the arbitrator made reference (translation): "to a legal principle generally recognized by civilized nations according to which agreements that are in serious violation of moral standards or international public policy are null and void or at least cannot be performed." [Page121:]
AWARD: The arbitrator rejected the Claimant's claim.
PUBLISHED IN: Journal Droit International, 1984, p. 930 (with observations of S.J.);
S. Jarvin and Y. Derains, Recueil des sentences arbitrales de la CCI 1974-1985, p. 507.
4. Interim and final awards in ICC case no. 4145 of 1983, 1984 and 1986
PARTIES: Claimant: Establishment of Middle Eastern country X Respondent: South Asian construction company
PLACE OF ARBITRATION: Vienna
LAW APPLICABLE TO THE MERITS: Swiss law
SUBJECT MATTERS: Severability of arbitration clause. No evidence of bribery.
SUMMARY OF FACTS: A South Asian construction company, eager to be a successful bidder on a tender called by a Middle Eastern country, entered into a consultancy agreement with the Claimant, an establishment of the said country. The agreement described the services to be rendered by the Claimant as follows: "Consultant shall, in consideration of the compensation hereinafter agreed to be paid to it by Company, provide Company with such counsel, guidance liaison assistance, facilities, value engineering, complete tender studies […] and shall, in general use its best efforts to promote and further the sale of the Projects." The Claimants alleged that the Respondent had failed to pay the entire sum owed to it under the consultancy agreement (50 million US$ were paid, but 16 million US$ were not) and initiated an arbitration against the Respondent.
FIRST INTERIM AWARD: In a first interim award, rendered in 1983, the arbitral tribunal decided the issue of jurisdiction. As the validity of the agreement in itself was an issue raised in the arbitration, the tribunal had to decide whether the arbitration agreement was affected by the alleged nullity of the contract. The tribunal ruled that the question of nullity of the contract, for reasons of public policy, illegality or otherwise, belongs to the merits and does not affect jurisdiction. [Page122:]
The validity of the arbitration clause has to be considered separately from the validity of the contract in which it is contained (severability of arbitration clause). The arbitral tribunal held that it had jurisdiction to decide the case.
SECOND INTERIM AWARD: In a second interim award, rendered in 1984, the arbitral tribunal stated that the allegation of bribery was "not supported by direct evidence or even circumstantial evidence to be retained as convincing." It furthermore declared that "a fact can be considered as proven even by the way of circumstantial evidence. However such circumstantial evidence must lead to a very high probability." It stated that neither the language of the contract nor the Defendant's own witness mentioned or supposed any bribery. The arbitral tribunal stated further that, even though the consultancy price was very high, this was not "due to a sheer increase in the price [in the main contract], without counterpart-which would certainly have been suspect-but to a considerable increase in quantity and quality of the work offered by defendant in its first bid. Finally, the arbitrators did not "find sufficient reasons to arrive at the conclusion it was an agreement for bribery," stressing that the nullity implies that both parties agree on the immoral purpose to be achieved or on the immoral means to be used in order to achieve a certain result, which was not, according to the tribunal, the case in the matter in question.
The arbitral tribunal held that the agreement was valid under Swiss law and rejected the Respondent's motion to dismiss the claim on the ground of bribery.
FINAL AWARD: In the final award, rendered in 1986, the arbitral tribunal dealt with quantum and ordered Respondent to pay a certain amount to the Claimant.
PUBLISHED IN: Yearbook Commercial Arbitration XII (1987),p. 97; Journal Droit International, 1985, p. 985 (with a comment of Yves Derains).
5. ICC case no. 4219
SUBJECT MATTER: Disregard of international public policy in favour of U.S. public policy
SUMMARY OF FACTS: The Respondent, a party to a contract for the construction of a hotel in Egypt, challenged the arbitral tribunal's jurisdiction, claiming that the contract involved bribery of Egyptian officials through the payment of commissions to an intermediary. [Page123:]
REASONING OF THE TRIBUNAL: The arbitral tribunal apparently dismissed or ignored any reference to international public policy and concentrated exclusively on determining whether U.S. public policy would be violated by an award on the merits and thus whether such an award would ultimately be enforceable in U.S. courts. The tribunal concluded that international contracts are scrutinized by U.S. courts with "special considerations," thus suggesting the existence of a doctrine of reluctance to enforce such contracts on public policy grounds.
UNPUBLISHED, MENTIONED BY: Magnus Eriksson, "Arbitration and Contracts Involving Corrupt Practices: The Arbitrator's Dilemma, "American Review of International Arbitration", 1993, pp. 409.
6. ICC case no. 5622; award of August of 1982 (annulled) and second award of April 1992 (Hilmarton matter)
PARTIES: Claimant: English company, Hilmarton Respondent: French company, OTV
PLACE OF ARBITRATION: Geneva
SUBJECT MATTERS: Whether corruption was proved or not. Whether a violation of the Algerian law prohibiting recourse to intermediaries in public contracts also violated Swiss public policy.
SUMMARY OF FACTS: OTV, desirous to be a successful bidder on a tender called by the Algerian authorities, entered into a protocol of agreement with Hilmarton, under which Hilmarton was to give legal and fiscal advice to OTV, thereby helping it to obtain the contract with the Algerian authorities. In exchange, OTV undertook to pay Hilmarton fees in an amount equal to 4% of the total amount of the primary contract. OTV was awarded the primary contract, but paid Hilmarton only 50% of the agreed commission. [Page124:]
FIRST AWARD: The arbitrator examined two questions: whether it had been proved that kick-backs were paid and whether the violation of the Algerian law prohibiting the trafficking of influence implied a violation of international public policy or of Swiss public policy, with the effect of rendering the agreement null and void. As regards the question of proof, the arbitrator concluded that the evidence (testimony and the amount of the commission) not sufficient to conclude with certainty the payment of kickbacks. As regards Algerian law, the arbitrator noted that the prohibition on using intermediaries in contracts with the public authorities had almost certainly been violated and that this violation implied a violation of international public policy, as well as of moral standards contemplated in Article 20 of the Swiss Code des Obligations. As a result, he declared the agreement null and void and rejected the claim made by Hilmarton.
ANNULMENT: On November 17, 1989, at the request of Hilmarton, the Court of Justice of the Canton of Geneva annulled the award, stating that in the present case the violation of a foreign law did not imply the violation of moral standards in Swiss law, particularly since no kickbacks were contemplated in the agreement nor proved in the arbitration. Further, the Court declared that the arbitral award was arbitrary, because the two parties had signed the agreement in full knowledge of the fact that Hilmarton would act in violation of Algerian law. It was thus unacceptable that OTV invoked, in its favour, a violation of Algerian law allegedly violating Swiss moral standards, when the said violation was an implicit part of the agreement right from the beginning. The Swiss Federal Tribunal approved the annulment on April 17, 1990.
SECOND AWARD: Following the annulment of the first award, Hilmarton resumed ICC arbitration under Swiss law. The first arbitrator resigned and was replaced by another arbitrator, who rendered his award in April 1992. He reached a decision in conformity with the rulings of the Swiss tribunals and declared the litigated agreement valid. Hilmarton's claim was accepted.
ENFORCEMENT: The first award was enforced in France, notwithstanding that it had been annulled in Switzerland. The second award was enforced not in France, but in Great Britain.
PUBLISHED IN: Yearbook Commercial Arbitration XIX (1994), p. 105 (first award); Revue de l'arbitrage, 1993, p. 327 (first award); Revista dell'Arbitrato, 1992, p. 773 (first award, with a note by Andrea Giardina) [Page125:].
Revue de l'arbitrage, 1993, p. 315 (Court of Justice of the Canton de Geneva, Swiss Federal Tribunal); Yearbook Commercial Arbitration XIX (1994), p. 214 (Swiss Federal Tribunal); Rivista dell'Arbitrato, 1992, p. 735 (Court of Justice of the Canton of Geneva); Rivista dell'Arbitrato, 1992, p. 739 (Swiss Federal Tribunal).
Yearbook Commercial Arbitration XX (1995), p. 663 (Cour de Cassation); Journal Droit International, 1996, p. 120 (Court of Appeal of Versailles); Rivista dell'Arbitrato, 1997, p. 391 (Court of Appeal of Versailles with a note by Andrea Giardina); Rivista dell'Arbitrato, 1992, p. 743 (Court of Appeal of Paris).
For references to the second award and its enforcement in England, see E. Brown, "Illegality and Public Policy - Enforcement of Arbitral Awards in England: Hilmarton Limited v. Omnium de Traitement et de Valorisation S.A.," International Arbitration Law Review 2000, p. 31.
7. CCIG (Chambre de Commerce et d'Industrie de Genève) award of February 23, 1988
PARTIES:
Claimant: X (UK)
Respondent: Y (France/Algeria)
AWARD:
Prohibition of intermediaries under Algerian law is not mandatory for
arbitrators sitting in Switzerland and applying Swiss law. Violation of such
prohibition does not imply violation of Swiss law.
MENTIONED BY:
Matthias Scherer, "Circumstantial Evidence in Corruption Cases before
International Arbitral Tribunals, "International Arbitration Law Review",2002,
p. 29 (A.S.A. Bulletin, 1988, p. 136).
8. 1989 ICC case
ARBITRAL TRIBUNAL: Sole arbitrator[Page126:]
PARTIES: Claimant: English "Off-shore" company Respondent: Swiss company
SUBJECT MATTERS: No proof of corruption. No violation of Swiss law due to violation of a foreign law.
SUMMARY OF FACTS: The Respondent replied to an international call for tenders issued by a State enterprise in Country X relating to the sale of 25,000 machines to that enterprise. Subsequent to the submission of its bid, the Respondent was contacted by the Claimant and the parties concluded a contract pursuant to which the Claimant, acting as a "consultant," had to advise and assist the Respondent by supplying to it all information available and necessary in order to facilitate the Respondent's selection as supplier. In exchange, the Claimant was entitled to a commission calculated on the total number of machines ordered. The Respondent was awarded contracts for the supply of 17,000 machines. The Respondent refused to pay the commission requested by the Claimant and the Claimant commenced arbitration.
REASONING OF THE TRIBUNAL: The issue of corruption was raised during the proceedings, but the Respondent failed to show that the purpose of the contract with the Claimant was to obtain the sales contract by means of corruption of an official of State X or an agent of a State X body. The arbitrator stated that, in principle, he could have declared the contract null and void, but that no probative evidence of acts of corruption or of an intent to corrupt was submitted in the proceedings. The tribunal was thus obligated to declare the contract valid and not contrary to moral standards. With respect to a possible nullity of the contract under the laws of State X, which prohibit intermediaries, the arbitrator held that (translation): "it is not shown in the present case that the interests of X are so preponderant in relation to Swiss law that they must be taken into consideration and invalidate the contract. The arbitral tribunal observes, furthermore, in this regard, that the parties have not raised this argument nor requested the invalidation of the contract on this basis; it will thus consider the contract as valid notwithstanding the regulations of State X prohibiting intermediaries." [Page127:]
AWARD: It is interesting to note that, notwithstanding the foregoing reasoning, the Claimant's claim was rejected on the grounds that it failed to prove that it had satisfied its obligations under the contract. In other words, the arbitrator decided that the agent did not fulfill its mandate (the services contemplated in the contract) and was thus not entitled to remuneration.
A.S.A.Bulletin,1993, p. 216.
9. Ad Hoc award of 1989
PARTIES: Claimant: Company from Panama Respondent: Company from Switzerland
AWARD: Brokerage is not prohibited under Swiss law. The prohibition of intermediaries under foreign public law is not mandatory for arbitrators sitting in Switzerland and applying Swiss law.
MENTIONED BY: Matthias Scherer, "Circumstantial Evidence in Corruption Cases Before International Arbitral Tribunals," International Arbitration Law Review, 2002,
p. 29 (A.S.A. Bulletin, 1991, pp. 239).
10. ICC case no. 5943 of 1990
LAW APPLICABLE TO THE MERITS: Korean law
SUBJECT MATTERS: Conflict between stated (but fictitious) terms of an agreement and the true intention of the parties, which was to pay an intermediary for a completely different type of service. [Page128:]
Falsity of the declared intention renders the contract null under Korean law. Arbitral jurisdiction as not affected by the nullity of the agreement containing the arbitration clause.
SUMMARY OF FACTS: The two parties concluded a contract, declaring their intention to establish a joint venture company having as its purpose the construction and management of a hotel. Certain payments were made by the Claimant, ostensibly as a contribution to the company's joint venture capital, but the money was in reality paid to a consultant engaged by the Claimant's parent company in order to obtain a successful armaments contract between the Claimant's parent company and country X. The hotel contract was conceived in order to create a vehicle for the payment of a commission on the acquisition of the armaments contract. The contract not having been obtained, the Claimant sought to be repaid.
AWARD: The arbitrator found that, under a provision of the Korean Civil Code, a fictitious declaration of intention made in collusion with the other party was null and void. He therefore declared the payment provision in the agreement null and inapplicable and dismissed the Claimant's claim on the ground that the Claimant had no legal entitlement to restitution of an illicit or undue payment. Even though the Respondent introduced the notion of bribery in order to avoid reimbursement, the arbitrator did not apply international public policy principles or other international law principles condemning corruption. He simply denied the Claimant's right to reimbursement on the basis of Korean Civil Code.
PUBLISHED IN: Journal Droit International,1996, p. 1014 (with comments by D. H.)
11. ICC case no. 6248 of 1990
PARTIES: Claimant: Consultant of undisclosed nationality Respondent: Contractor of undisclosed nationality
PLACE OF ARBITRATION: Zurich
SUBJECT MATTERS: Nullity of contract violating bonos mores under Swiss law. Violation of international public policy by means of a commission agreement violating special fiduciary obligations to a third party. [Page129:]
SUMMARY OF FACTS: Respondent contracted with an employer (party D) for the construction of a project. Party D also concluded a supervision and design contract with an engineering consulting firm (the engineer) to supervise Respondent's performance of the project. In the context of the project, Respondent hired the Claimant (a firm linked to the engineer), ostensibly as a "consultant" for the Respondent, but in fact for the purpose of persuading the engineer to exercise influence over the decisions of party D for Respondent's benefit and to disregard the special fiduciary duty owed by the engineer under the engineering contract between it and party D. Payments to be made to the Claimant under the cover of the "consultancy" arrangement were intended to be also of benefit to the engineer for his favours to the Respondent.
REASONING OF THE TRIBUNAL: The Respondent provided some evidence that its contract with the Claimant was made for the purpose of obtaining illicit favours from the engineer, and the Claimant was incapable of seriously contesting it. The arbitral tribunal found the evidence sufficient to establish the truth of the allegation.
Applying Swiss law, the arbitral tribunal ruled that the contract between the Claimant and the Respondent was a secret commission agreement which constituted a particularly offensive violation of the rights of a third party (party D) to the proper performance of the fiduciary duties owed to it by the engineer. The contract between Claimant and Respondent was therefore declared null and void according to Swiss law. Pursuant to Swiss law, the secret commission did in fact constitute not only a "traitor's reward" through "bribes" or "corruption money" or "kickbacks," but also an intolerable breach of the distinct fiduciary obligations assumed by an architect/engineer towards an employer acting as principal. The arbitral tribunal added that Swiss law concerning secret commission agreements covering bribes was in accordance with international public policy requirements.
AWARD: The arbitral tribunal rejected the Claimant's claim in its entirety.
PUBLISHED IN: Yearbook Commercial Arbitration XIX (1994), p. 124.
12. ICC case no. 6286 of 1991 (partial award)
PARTIES: Claimant: Consortium partner (US) Respondents: Partner 1 and consortium leader (Germany), Partner 2 (Germany), Partner 3 (Germany) and Partner 4 (Canada)
PLACE OF ARBITRATION: Geneva[Page130:]
SUBJECT MATTERS: Revocation of management authority by a consortium partner. Legality of consultancy agreements. No proof of bribery.
SUMMARY OF FACTS: The Claimant and all Respondents entered into an Operating Agreement creating a consortium in order to exploit a raw materials concession granted by the government of a Middle Eastern country. Under the Operating Agreement, the first Respondent was designated as manager (leader) for the joint operation. In order to resolve certain issues related to the relationship between the government and the consortium, the first Respondent, acting in its capacity as Operator or leader, entered into several consultancy agreements, two of which were made with a Panamanian company as intermediary. The president of the Panamanian company was a diplomatic agent of the Middle Eastern country. A dispute arose between the consortium leader (Respondent) and one partner (Claimant), who revoked the authority of the leader on the ground that it had allegedly concluded an illicit consultancy agreement with the Panamanian intermediary. The Claimant refused to pay its share of the intermediary's commission and initiated arbitration proceedings against the other partners requesting dissolution of the consortium and recovery of damages.
REASONING OF THE TRIBUNAL: As to the required standard of proof, the arbitral tribunal ruled that proof of bribery may be "adopted only if it is established that the amounts paid were intended to bribe officials to trade on their influence to obtain favours." Corruption was not proved, since it was not established that the beneficiary (the Panamanian intermediary) of the commission "had effectively played a part in respect of the concessions. On the contrary, the concessions have not been granted yet, as the Government continues the negotiation only as a result of a decision of arbitral nature." Moreover, the arbitral tribunal found that the amounts pertaining to the agreements with the intermediary were never paid. Hence, no corruption could have been committed.
AWARD: The arbitral tribunal held that the first Respondent had behaved legally and that its management authority had not been validly revoked by the Claimant.
PUBLISHED IN: Yearbook Commercial Arbitration XIX (1994), p. 141. [Page131:]
13. ICC case no. 6401 of 1990/1991 (Westinghouse)
PARTIES: Claimants: Westinghouse and Burns & Roe (US) Respondents: National Power Co. and the Republic of the Philippines
SUBJECT MATTERS: High standard of proof required in order to establish corruption. No evidence of bribery.
SUMMARY OF FACTS: National Power Co. of Philippines agreed upon two engineering and consulting contracts, one with Westinghouse and one with Burns & Roe, concerning the construction of a nuclear plant in the Philippines. In order to obtain the award, Westinghouse paid commissions to an associate of the former President Ferdinand E. Marcos. The associate acted as local agent for both Claimants. The dispute arose when the Claimants sought recovery of certain outstanding claims, but the two Respondents denied payment on the ground that the Claimants had paid bribery money to the former President Marcos.
REASONING OF THE TRIBUNAL: The arbitral tribunal discussed the required standard of proof. It held that the standard to be applied in weighing the evidence was the "preponderance of evidence" standard as generally understood in the three states of the parties (the Philippines, New Jersey and Pennsylvania). With respect to the allegation of corruption, a higher standard of "clear and convincing evidence" would however apply: fraud in civil (as compared to criminal) cases must be proven to exist by clear and convincing evidence amounting to more than a mere preponderance, and cannot be justified by mere speculation. Even though evidence existed that Westinghouse intended to bribe President Marcos by paying the local agent, the arbitral tribunal stated that the Respondents failed to carry their burden of proof, since they neither provided evidence of payments to Marcos nor proved the existence of an agreement between President Marcos and Westinghouse.
AWARD: The arbitral tribunal stated that the (main) contracts were valid and rejected any allegation of bribery. [Page132:]
US COURTS' DECISIONS: The Respondents also filed multiple tort and contract claims with the US Courts. The US District Court for the District of New Jersey held that the standard of proof applied by the ICC arbitral tribunal was different from the standard applied by a state court. According to the Court, the ICC arbitral tribunal "applied a significantly heavier burden of proof than would be applied at trial." The Court added that "by compartmentalizing and segregating the categories of evidence the Tribunal deprived it as a whole of its natural collective force in a way in which the evidence might not be so deprived in this Court." As a result, the judge ruled that "there is ample evidence to permit a reasonable jury to find that the [local agent's] commissions were intended to be paid in whole or in part to President Marcos and were in fact paid in whole or in part to him or upon his direction."
The judge did not criticize the conclusions in the ICC award. He stressed that the ICC tribunal "was considering somewhat different issues and applying a different standard of proof."
MENTIONED BY: Mealey Publications, February 1992, Vol. 7, pp. 3 and A-1; Matthias Scherrer, "Circumstantial Evidence in Corruption Cases Before International Arbitral Tribunals," International Arbitration Law Review, 2002, pp. 29; Journal Droit International, 1996, p. 1056 (Ruling on the procedure to be followed); Journal Droit International,1998, p. 1058 (Ruling on the procedure to be followed, comment by D. H.).
14. ICSID case no. ARB/84/3 of May 1992
PARTIES: Claimants: Southern Pacific Properties (Middle East) Limited (Hong Kong) and Southern Pacific Properties Limited (Hong Kong) Respondent: The Arab Republic of Egypt
SUBJECT MATTER: No proof of corruption
SUMMARY OF FACTS: The parties were involved in a joint venture intended to develop two international tourist projects at the Pyramids area in Cairo. Disputes arose as to the obligations of the Respondent and compensation to the Claimants for cancellation of the investment project.
AWARD: Among various other contentions, the Respondent's pleadings contained repeated allusions to irregular contacts and improper business connections on the part of the Claimants. The Respondent also alleged that certain[Page133:] former Government servants were employed by the Claimants and that the Claimants by-passed normal Government channels of communication and "went right to the top." On these grounds, the Respondent requested the Tribunal to declare that the Claimants' claims were (translation) "unfounded by reason of the corruption revealed by the actions of SPP and SPP (ME)."
However, the Tribunal found that the allusions were "not supported by the evidence in the record and are based on suppositions […]. On such grounds, it is simply not possible to reach the findings of fact and conclusions requested by the Respondent."
In particular, the Tribunal noted that the Respondent admitted the lack of concrete evidence in this respect when, on request of the Tribunal, the Respondent stated that "nothing we have said in our memorials should be construed as an accusation, or allegation of misconduct regarding any particular Egyptian Official referred to […]" and the particular persons whom the Respondent had exempted from any allegation of misconduct were the very same persons who established the initial contacts with the Claimants.
Yearbook Commercial Arbitration XIX 1994, p. 51; International Legal
Materials,1993, p. 933
15. ICC case no. 6474 of 1992: partial award on jurisdiction
Claimant: Supplier from a European country
Respondent: State X
SUBJECT MATTERS:
Arbitration clause valid notwithstanding an allegation of fraud or corruption
affecting the validity of the contract containing the clause.
The arbitration clause as such could be invalid if it were proved that such clause was induced by corruption and fraud. [Page134:]
SUMMARY OF FACTS:
A European supplier entered into several contracts to supply agricultural
products to the Republic of X. A dispute arose, and the Claimant initiated
arbitration relying on the ICC arbitration clause contained in the contracts.
The Respondent objected to jurisdiction on the ground that the contract
was induced by corruption and fraud.
AWARD ON JURISDICTION: According to the arbitral tribunal, in the context of a discussion of jurisdiction, it must be alleged and shown through proper evidence that the arbitration clause "was entered into solely because of corruption and fraud." In the present case, the arbitral tribunal found that not even a prima facie case of corruption, fraud or illegality (possibly invalidating the arbitration clause) on the part of the government officials had been established by the Respondent.
The question of whether corruption and fraud were present and, in the affirmative, the issue of their effects upon the validity of the contracts in general were not decided in this partial award and were reserved for a further award.
The arbitral tribunal decided that it had jurisdiction and that the claims were admissible.
PUBLISHED IN: Yearbook Commercial Arbitration XXV (2000), p. 279
16. ICC case of March 31, 1992
PARTIES: Claimant: Westman International Ltd. (UK) Respondent: European Gas Turbines SA (France)
SUBJECT MATTERS: Contract contrary to French international public policy and to the ethics of international business due to the fact that it results from and has the purpose of selling influence and paying bribes. Lack of proof.
SUMMARY OF FACTS: In the context of a petrochemical project in Iran, the Respondent entered into an agreement with the Claimant under which the Claimant was to promote the sale of the Respondent's gas turbines in Iran, transmit as much information as possible and provide useful advice for obtaining a contract under the best possible conditions. The agreement provided for the payment to the Claimant of a commission that was to cover (translation) "all expenses of any nature whatsoever that the Claimant may have to incur to carry out its duties." It was also stipulated that the commission would not be due if the Respondent did not receive any contracts during the term of the agreement. [Page135:]
The Respondent was pre-qualified before the expiration of the agreement, but the order for the gas turbines was signed by the owner only after the expiration of the agreement. The Respondent refused to pay the commission to the Claimant.
AWARD: The arbitral tribunal concluded, primarily, that a valid contract existed between the parties and declared that it was not apparent from the terms of the contract that the Claimant had to exercise influence with the owner to obtain the pre-qualification of the Respondent. Its role was solely to(translation) "promote the Respondent's gas turbines." During the proceedings, the Claimant produced a statement of its expenses, including notably the payment of its personnel and its general expenses.
The Respondent was ordered to pay the agreed commission, that is, 4% of the amount of the supply contract.
DECISION OF THE PARIS : The Respondent sought the annulment of the arbitral.
COURT OF APPEAL Award before the Paris Court of Appeal, following a complaint that the arbitrators had considered as valid an international brokerage agreement that was prohibited by the law of the importing State. The Court decided that neither the agreement, the parties' behavior, the existence of a Swiss bank account into which the commission was to have been paid, nor the fact that the Claimant did not report on all the services provided by it, constituted facts supporting the supposition that there was a sale of influence under French law, which the arbitrators were required to apply. The arbitral award was in the end partially annulled, but not on the grounds of corruption.
PUBLISHED IN: The arbitral award is not published. Only the decision of the Paris Court of Appeal, mentioning the award, is published in the Revue de l'Arbitrage, 1994, p. 359, and in Bulletin A.S.A., 1994, p. 105 (with a summary by Adel Nassar).
17. ICC award of 1993
PARTIES: Claimant: X Respondent: Y[Page136:]
AWARD: No direct or circumstantial evidence of bribery. Y was ordered to pay to X the 5% commission agreed in the contract.
MENTIONED BY: Matthias Scherer, "Circumstantial Evidence in Corruption Cases Before International Arbitral Tribunals," International Arbitration Law Review,2002,
p. 29 (A.S.A. Bulletin, 1998, pp. 210, 442)
18. ICC case no. 6497 of 1994
PARTIES: Claimant: Consultant (Liechtenstein) Respondent: Contractor (Germany)
SUBJECT MATTERS: Multiple "consultancy" agreements. What standard of proof applies to prove bribery•What evidence is admissible•Absence of proof for most of the agreements. Sufficient degree of probability of bribery in one of the agreements.
SUMMARY OF FACTS: Over a period of approximately ten years, the parties entered into a number of consultancy agreements. The main purpose of those agreements was for the Claimant to assist the Respondent in obtaining construction contracts in a number of countries, including a certain Middle Eastern country. In addition to these basic agreements, the parties entered into a great number of specific agreements providing for additional remuneration (up to 5.5%), as well as, in some cases, additional services to be charged to the Claimant. Claimant later sought the payment of the amount due in relation to several contracts awarded to the Respondent. The Respondent refused and the Claimant initiated arbitration. The Respondent contested the claim on the ground that the real purpose of all the agreements was to bribe officials in the Middle Eastern country. [Page137:]
REASONING OF THE TRIBUNAL: According to the arbitral tribunal, the party alleging bribery bears the burden of proof, a burden that, in normal circumstances, cannot be shifted to the arbitrators or to the other party. A civil court, and in particular an arbitral tribunal, has no power to make an official inquiry and has no duty to search independently for the truth. If the demonstration of the party making the allegations is not convincing, the tribunal should reject its argument, even if the tribunal has some doubts about whether the agreements involved bribery. In this case, the Respondent failed to prove conclusively that the real purpose of the agreements was bribery. Considering that the Respondent elected not to disclose the names of the many beneficiaries, which it allegedly knew, it was deemed inappropriate to shift the burden of proof to Claimant. Shifting the burden of proof to the Claimant could be justified if only the Claimant holds the proof, in which case the Claimant could be ordered to disclose that evidence, but such circumstances were not present in the case in point. The arbitral tribunal then found that "although the amounts paid to Claimant were very high, and the effective costs of Claimant have been only a small fraction of such amount, such payment was not perceived as being abnormal for a consultancy agreement, without any bribery nature."
Although this was the reasoning for most of the consultancy agreements, the tribunal found that, in relation to one specific consultancy agreement, a high enough degree of probability existed that its real purpose was to channel bribes to officials in country X for this to be considered a case of bribery. The reasons why the tribunal singled out that specific agreement were: (a) the circumstances surrounding the conclusion of the agreement, (b) the extraordinary size of the commission (33.33%), which was considered "extremely unusual" and (c) the fact that the Claimant himself did not contest that the agreement in question was null and void under Swiss law if the tribunal reached the conclusion that there was a high degree of probability that its real purpose was to corrupt officials in country X having the power to decide upon the award of the contract to the Respondent and upon the payment to the Respondent of the sums mentioned in the contract.
AWARD: The tribunal accepted the claims, except in the case of the specific agreement which was declared null and void as having been induced by bribery.
PUBLISHED IN: Yearbook Commercial Arbitration XXIV (1999), p. 71[Page138:].
19. ICC case no. 7047 of 1994
PARTIES: Claimant: Consultant (State Y) Respondents: State agency (State Z) and State owned bank (State Z)
SUBJECT MATTERS: Evidence of bribery. Burden of proof. Required standard of proof. No violation of the mandatory provisions of the importing State.
SUMMARY OF FACTS: The parties entered into a contract under which Claimant undertook to consult, advise and otherwise assist Respondent in promoting and selling Respondent's military products and services to State X. The agreement provided, inter alia, that any contracts that Respondent entered into during the term of the agreement with third parties in State X were to be considered conclusively and irrefutably the result of the efforts of the Claimant. Later on, the Respondent and a representative of State X signed a contract for the sale of military products (main contract). Prior to signing of main contract, the representative of State X sent to Respondent a public circular advising that contracts for the delivery of arms or other military devices must be concluded directly with representatives of State X without any participation of agents or intermediaries. After receiving of the circular, the Respondent sent it to the Claimant, expressing its wish to terminate the brokerage agreement since it had become impossible to perform it. The Claimant refused the termination and initiated arbitration. The arbitral tribunal found the agreement to be a valid brokerage contract. Even though bribery renders an agreement invalid, bribery is a fact which, in arbitration proceedings, must be alleged and for which evidence must be submitted by the party making the allegation. Furthermore, the tribunal must be convinced that there is indeed a case of bribery. "A mere suspicion by any member of the arbitral tribunal, communicated neither to the parties nor to the witness during the phase to establish the facts of the case, is entirely insufficient to form such a conviction of the arbitral tribunal." The Respondent did not allege that the parties jointly had intended that illicit means be used by the Claimant, nor did the evidence submitted to the arbitral tribunal convince it of such intention. The clause in the agreement which exonerated the Claimant from proving his actual services might in[Page139:] principal imply a joint illicit intention, but in the case under consideration, the clause was not by itself sufficient to prove an illicit intention since the post-contractual correspondence between Claimant and Respondent showed that the Claimant did indeed provide the promised services. The tribunal further held that the amount of fees agreed upon also failed to show joint illicit intentions. The only assertion made by the Respondent - that the stipulated fees were disproportionately high - was not sufficient to invalidate the agreement.
The arbitral tribunal did not consider any potential effect of the circular on the agreement, since the Respondent did not prove that the circular was part of the mandatory law of State X, nor did it specify the mandatory provisions on which the circular was based.
AWARD: The arbitral tribunal accepted the claim.
PUBLISHED IN: Yearbook Commercial Arbitration XXI (1996), p. 79
20. Ad-Hocaward of July 28, 1995
PARTIES: Claimant: Company from Panama Respondent: Z
PLACE OF ARBITRATION: Choppet, Switzerland
SUBJECT MATTER: Bribery alleged but not evidenced.
AWARD: The fact that the Claimant made payments to a third party did not breach the contract between Claimant and the Respondent and did not constitute proof of bribery. The rendering of services by the consultant was undisputed.
p. 29 (A.S.A. Bulletin, 1995, p. 742). [Page140:]
21. ICC case no. 7664 of 1996
PARTIES: Claimant: Frontier AG & Brunner Soc. Respondent: Thomson CSF
APPLICABLE LAW TO THE MERITS: French law
AWARD: Even though an agent was paid to attempt to influence Chinese authorities so that they would not object to the sale of war ships to Taiwan, no evidence of bribery was found. The agency contract was declared valid.
The award was confirmed by the Swiss Federal Tribunal on January 28, 1997 (A.S.A. Bulletin,1998, p. 118).
p. 29
22. ICC case no. 8113 of 1996
PARTIES: Claimant: Contractor (France) Respondent: Agent (South-East Asian country)
PLACE OF ARBITRATION: Lausanne
AWARD: No allegation of bribery was raised, even though the commission was stipulated to be 8.25% of the contract amount. Fee reduced by the arbitral tribunal for being excessive in light of services rendered.
p. 29 ICC Bulletin,Spring 2001, p. 85[Page141:]
23. ICC case no. 8891 of 1998
PARTIES: Claimant: Consultant Respondent: Exporter to State X
SUBJECT MATTERS: Legal sources (national or international) establishing the validity of the consultancy agreement in question. Application of "four indicia" to prove illegality.
SUMMARY OF FACTS: The parties concluded a consultancy contract under which the Claimant had to assist the Respondent in obtaining an increase in the price of two contracts which the Respondent had already concluded with State X.
REASONING OF THE TRIBUNAL: The arbitral tribunal started by declaring that the illegality of contracts establishing bribery is well recognized by arbitral tribunals, which usually apply national law as their primary source and refer to international general principles as a supplementary source. The tribunal in this case preferred to give precedence to international sources.
Concerning the difficulty of proving illegality, the arbitral tribunal stated that there were four indicia on the basis of which an arbitral tribunal may, in general terms, base its assumption of illegality: a) the inability of the agent to provide evidentiary proof of his activities, b) the duration of the agent's intervention, c) the manner and method of remunerating the agent, and d) the amount of money agreed to be payable to the agent as compared to
the advantages obtained by the principal.
After listing the above standards or indices, the arbitral tribunal applied them to the case in question and concluded that the consultancy contract was entered into with the intent of conducting bribery and was to be declared, pursuant to international public policy, null and void.
AWARD: The arbitral tribunal rejected the claim.
PUBLISHED IN: Journal Droit International, 2000, p. 1076
24. ICC case no. 9333 of 1998
ARBITRAL TRIBUNAL: Sole arbitrator[Page142:]
PARTIES: Claimant: Agent (Morocco) Respondent: Contractor (France)
SUBJECT MATTERS: No proof of corruption. No violation of foreign law in contravention of moral standards under Swiss law.
SUMMARY OF FACTS: The parties had concluded an agency agreement under which the Claimant was to provide services aimed at assisting the Respondent in obtaining a construction contract. The remuneration of the Claimant was paid via a commission. The Respondent is part of an American group and was thus prohibited, under the laws of the United States, from paying commissions to an agent into an account located in a country other than the agent's country and different from the place where the services were rendered. Invoking this prohibition, the Respondent refused to pay the Claimant, on the basis that the Claimant's bank accounts were located in Switzerland.
REASONING OF THE TRIBUNAL: Under exceptional circumstances, a violation of a foreign law may be considered as contrary to moral standards under Swiss law, if it is irreconcilable with Swiss moral standards. In the case under consideration, a violation of the US Foreign Corrupt Practices Act (FCPA) was not established, because (translation) "the ground of corruption was not established by evidence …."
Moreover, the FCPA does not apply to American subsidiaries located abroad, nor may it prevail over the choice of another substantive law made by the parties merely because of the (translation) "powerful and legitimate interest of the United States in applying this law." In this respect, the arbitrator declared that it (translation) "would be slightly inappropriate to apply in this manner the FCPA to companies located outside the United States (…) the fight against corruption, to be sure a laudable objective, not necessarily justifying the exportation of the singular methods or code of conduct of the FCPA to achieve this objective (...)."
AWARD: The arbitrator accepted the claim for payment of commissions.
PUBLISHED IN: ICC International Court of Arbitration Bulletin, 1999, Vol. 10, p. 102[Page143:]
25. Award of May 4, 1999 in an ad-hoc UNCITRAL arbitration
PARTIES: Claimant: Himpurna California Energy Ltd. (Bermuda) Respondent: PT. (Persero) Persuahaan Listruik Negara (Indonesia)
PLACE OF ARBITRATION: Jakarta, Indonesia
LAW APPLICABLE TO THE MERITS: Indonesian law
SUBJECT MATTERS: No violation of mandatory provisions. No evidence of bribery.
SUMMARY OF FACTS: The Claimant entered into an energy sales contract with an Indonesian state-owned electricity enterprise (Respondent) to explore and develop geothermal resources in Indonesia. Pursuant to the contract, the Claimant was to build two power plants in Indonesia and to sell the power to the Respondent. Since the Respondent failed to purchase the power, the Claimant initiated arbitration.
AWARD OF MAY 4: Among the various arguments raised by the Respondent, one concerned the alleged illegality of the energy sales contract due to: (a) non-compliance with mandatory provisions of Indonesian law and (b) an allegation of corruption in the conclusion of the Contract.
The arbitral tribunal stated that it is "contrary to experience that a State-owned institution […], whose director is appointed directly by the Head of State, engages in activities contrary to the mandatory law of that country."
Furthermore, "[…] such a posture puts into question the reliability of undertakings of the country in question […] when a country's reputation as a contractual partner suffers, the terms on which it is able to attract foreign investment and financing are impaired."
As to the allegation of corruption, the arbitral tribunal stated that "[…] a finding of illegality or other invalidity must not be made lightly, but must be supported by clear and convincing proof […]," which was not provided here.
In addition, the tribunal declared that the arbitrators "would rigorously oppose any attempts to use the arbitral process to give effect to contracts contaminated by corruption. But such grave accusations must be proven."
PUBLISHED IN: Yearbook Commercial Arbitration XXV(2000), p. 13; Mealey's International Arbitration Report,Dec. 1999, p. A-1[Page144:]
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