'Adverse inference from Claimant's non-compliance with Procedural Order No. 4?

268. Respondent requests the Sole Arbitrator to draw adverse inference from the fact that despite being ordered to do so, Claimant in this arbitration did not disclose its communication with [X] in relation to the negotiations, implementation and service of contracts entered into between Respondent and [X] and facilitated by Claimant in the relevant timeframe.

269. Claimant firstly stated that no such documents were in its possession. I, nevertheless, came to the conclusion that responsive documents were likely to exist since the only point of contact with regard to the negotiations had always been Claimant. Therefore, I ordered the production of documents and requested detailed explanations why the requested documents could not be produced.

270. Claimant, in answer to that request, … stated:

However, and in order to accommodate the Sole Arbitrator's orders, the Claimant has searched its files for the requested contracts in its [head] office to no avail. Upon the Claimant's failure to allocate such contracts, the Claimant has contacted its staff … to search the files kept at its [branch] office. The Claimant's staffs … have failed to allocate the requested documents; however, the Claimant asked the staff to continue the search that was hindered by [local] security measures amidst the preparation for the [local] parliamentary elections.

271. Upon clarification that Claimant not only referred to the "contracts" but also to communication relating to these contracts, Claimant reiterated that no such documents could be allocated [sic]. Up to this Final Award, no such documents were produced by Claimant.

………

274. According to Section 3.1 of the Specific Procedural Directions, the IBA Rules on the Taking of Evidence in International Arbitration (IBA Rules) shall be used as guidelines in these proceedings when the taking of evidence is concerned. Since the arbitration was initiated still in 2009 and the Specific Procedural Directions were signed in 2009, the IBA Rules 1999 apply in the present case as guidelines.

275. Article 9.4 of the IBA provides:

If a Party fails without satisfactory explanation to produce any document requested in a Request to Produce to which it has not objected in due time or fails to produce any document ordered to be produced by the Arbitral Tribunal, the Arbitral Tribunal may infer that such document would be adverse to the interests of that Party.

276. The prerequisites for such an adverse inference are generally the following:

i) the party seeking the adverse inference must produce all available evidence corroborating the inference sought;

ii) the party requesting adverse inference must establish that the requested party has, or should have, access to the evidence sought;

iii) the inference sought must be reasonable, consistent with facts in the record and logically related to the likely nature of the evidence withheld;

iv) the party seeking the adverse inference must produce prima facie evidence; and

v) the inference opponent must know, or have reason to know, of its obligation to produce evidence rebutting the adverse inference sought.1

277. I have difficulties to believe that the security measures in place or being prepared … for the election would in fact hinder a search for documents in Claimant's [branch office] facilities. Claimant has not credibly explained in how far its [branch] office was immediately affected. It did not expressly bring forward that its office is located directly in or adjacent to or near a polling station where security was even stricter than in the rest of the city. It did not specifically state in how far the security measures hindered its search.

278. However, despite my doubts about Claimant's explanations why it did not produce the documents requested, I cannot lightly assume that the documents to be produced would prove that Claimant indeed was involved in the illicit ASSF [after sales service fees] scheme for the following reasons:

279. Western companies have detailed obligations to document in writing their business transactions and to keep books. US-based companies and in particular pharmaceutical and medical companies often even have very strict document retention policies. These regulations and practices are, however, not universally accepted. Particularly in the Middle East and Asia, less emphasis is put on documenting every detail of a business transaction in writing. This difference in business practices has to be carefully taken into account in international arbitration in order not to prejudice from the outset parties from certain cultural areas. I am therefore not prepared to draw adverse inference from the fact that Claimant claims not to be in the possession of certain documents which a European party would be expected to possess almost with certainty.

280. Secondly, taking into account the evidence on file, in particular the witness testimony of both parties, as well as the circumstances in which the illicit ASSF scheme took place, it would be surprising to find direct written evidence of the Claimant's participation in this scheme in the documents which Claimant was ordered to produce.

281. Therefore, I dismiss Respondent's request to draw adverse inference.'

1
See also Jeremy K. Sharpe, "Drawing Adverse Inferences from the Non-production of Evidence", Arbitration International Vol. 22 issue 4, p. 549, 550.