Corruption in International Commercial Arbitration—domino Effect in the Energy Industry, Developing Countries, and Impact of English Public Policy

Corruption is an important aspect of international commercial arbitration because it reflects the reality of international commercial transactions.¹ Parties are sometimes involved in illegal dealings during commercial transactions. They may be desperate to maximize profits, secure contracts or perhaps perpetrate illegality. This article focuses on the energy industry because it is the mainstay of many developing economies. In this context, non-renewable energy traditionally has been of overarching importance.² However, renewable energy has also become increasingly significant.³ In both aspects of the energy industry, the involvement of governments and corruption are common features that often characterize international commercial transactions which sometimes result in disputes.⁴ In developing countries such as Nigeria, the relationship between the oil and gas industry and citizens’ welfare is critical.⁵ Vast award sums can work hardship on the citizenry, both within the oil industry⁶ and outside.⁷

London remains a hub of international commerce and English courts wield vast influence on the outcomes of international arbitration proceedings. In determining such outcomes, parties may seek to have awards set aside⁸ or frustrate their enforcement abroad.⁹ There is no special public policy dedicated to the oil and gas industry or the energy industry in general. English public policy is applicable to different cases as interpreted by the English courts.¹⁰ In this regard, parties sometimes seek to exploit the narrow interpretation of public policy considering its overlaps with bribery or corruption and fraud. Thus, this article examines the extent to which courts should use public policy to strike a balance between the interests of companies, institutions, governments and citizens. Nigeria is chosen as an example of a developing country in the energy industry and some comparative analysis is then undertaken considering other developing countries that have faced challenges of corruption and fraud in arbitration processes. Relevant cases illustrate the corruption in the procurement of arbitration and how State interests are influenced by notions of public interest or public policy.

This article argues that in cases where contracts are procured or executed through corrupt means, the English courts have enough scope to ensure that English policy meets the expectations of parties involved in international commercial arbitration. This involves focusing on the characterization of corruption where the arbitration took place considering English law on corruption. Such an approach requires a progressive application of public policy especially when parties seek to challenge the enforcement of awards. This accommodating, but progressive, approach can be ensured without any radical change in jurisprudence. The first task is to contextualize public policy.

Public policy is a vague term—its application is imprecise and interpretation can be difficult.¹¹ Most cases provide guidance on how public policy should be applied without explaining the meaning. It is an ‘unruly horse’.¹² A breach of public policy is an affront on the public conscience.¹³ For example, courts traditionally did not support the use of public policy as an instrument to facilitate illegality.¹⁴ The difficulty in interpretating public policy extends to international commercial matters including arbitration. In Maximov v Open Joint Stock Company,¹⁵ the claimant could not persuade the English High Court on what ‘universal principle of public policy’ the arbitrators had breached.¹⁶ There is no universality of public policy,¹⁷ but the expression of public policy in this manner indicates that courts should exercise restraint in its application. In reality, ‘universal principles of morality’¹⁸ is not easily accessible and, practically, ‘the rule of international public policy could be said to be (quite) universal’.¹⁹ The New York Convention would have not been so successful if Contracting States were denied any possible recourse to public policy and this defence was not questioned during the 1958 Conference.²⁰

In any case, it is more appropriate to refer to international public policy rather than transnational public policy. This is because the focus is on how English courts apply public policy to international commercial arbitration, although transnational public policy is an appropriate trajectory if the wider arbitration community is considered.²¹ Neither international nor transnational public policy should permit any unduly restrictive legal interpretation that impliedly permits large scale corruption.²²

This is argued because there is a tendency to use public policy to frustrate the enforcement of awards, even though there is a high hurdle to set aside awards for fraud and breach of public policy.²³ Corruption is an important element in interpreting public policy.²⁴ In Alexander Brothers Limited (Hong Kong SAR) v Alstom Transport SA Alstom Network UK Ltd,²⁵ the defendant sought to set aside an order enforcing the Swiss ICC award on the basis that it violated public policy as payments made by the claimants to the defendants were allegedly used to bribe Chinese officials.²⁶ The English High Court refused to set aside the enforcement even though an application to enforce the award had been refused in France on the grounds of bribery.²⁷ A related issue is what the English courts would have done if the award had been set aside in Switzerland where the award was made. There are different trends. For example, the English courts seem to have had more consistency than the US courts in this regard. Although the US courts enforced awards set aside in Egypt²⁸ and Mexico,²⁹ the US Second Circuit did not enforce an award that had been set aside in Nigeria.³⁰ In considering to what extent courts where the arbitration took place should have any control over proceedings conducted in their jurisdiction vis-à-vis curbing corruption, the real task is striking ‘the correct balance between regulation and laissez-faire’.³¹ The need to strike a balance between various competing interests occurs at different stages of the arbitration process, including the enforcement stage, as this article will demonstrate in discussions concerning corruption and public policy.

Corruption not only permeates international commercial dealings but also has implications for public policy and the welfare of citizens. For example, the balance to be struck between legal and illegal contracts on the one hand and ‘illegal bribery and legal ‘commissions’ on the other can be challenging.³² The process starts from the appointment of the arbitrators and conduct of proceedings—it is fair to assume that arbitrators will not abuse their powers.³³ In practice, however, it is not always a question of abuse of power but also the competence and willingness to use powers in a proactive manner. For example, the assumption that arbitrators in developing countries will adequately and appropriately deal with issues that concern corruption is disputed. There is no guarantee, it has been argued, that such arbitrators will consider the ‘public interest or policy dimension of a matter’.³⁴ The fact that courts consider the arbitrator’s interpretation of laws with public policy implications does not necessarily mean that judges are biased although it may indicate such courts’ approaches to arbitration.³⁵ In Maximov, the claimant sought enforcement of an award of the International Commercial Arbitration Court pursuant to the New York Convention and at common law even though it had been set aside by the Russian court.³⁶ The English High Court dismissed the claimant’s application to enforce the award partly because there was no evidence of corruption or actual bias by the Russian court.³⁷

A distinction between domestic and international public policy (a narrow interpretation is apt in the latter case) is necessary if a pro-arbitration improvement over the Geneva Convention on the Execution of Foreign Arbitral Awards 1927 is to be ensured.³⁸ Otherwise, the pro-arbitration position of the New York Convention and Model Law would be undermined.³⁹ There is no substantive difference between Article V(2) of the New York Convention and Article 1(e) of the Geneva Convention except the latter also specifically mentions the subject matter being capable of settlement by arbitration in Article 1(b). However, the Geneva Convention stated as a requirement for recognition or enforcement of the award that it is ‘not contrary to the public policy or the principles of the law of the country in which it is sought to be relied upon’ (just as it required arbitrability of the subject matter). It does make a significant difference though that under the New York Convention, public policy is a ground for setting aside rather than a requirement for enforcement. This reordering helped to clearly focus a pro-enforcement attitude to international arbitration.⁴⁰ Such attitude required a careful navigation between domestic and international arbitration. In other words, public policy should be a safety valve rather than an underlying consideration in the recognition or enforcement of awards. Thus, public policy should be interpreted and applied in a narrow manner in international arbitration. Otherwise, the speed and efficiency of arbitration would be undermined.

The need for such narrow interpretation of public policy is widely accepted.⁴¹ However, there is no universally accepted definition of what this should be, and guidance is sought from relevant case law and literature. In conceding the lack of universality with respect to international public policy, a consensus had emerged for decades that ‘bribery, corruption and money laundering violate principles of international public policy’.⁴² International public policy cannot be completely...