Editor's Note: The Third Seminar of the International Commercial Expert Committee of the Supreme People's Court and Reappointment Ceremony of the First Group of Expert Members was held successfully on Augest 25, 2022. Over 40 experts from more than 20 countries and regions focused on the theme of the Development, Challenges and Countermeasures of Cross-Border Commercial Disputes during the seminar. Extensive and in-depth discussions were held within the framework of four specific issues. The texts of speeches delivered by the participants would be posted on the CICC's website. 

DEVELOPMENTS, CHALLENGES AND COUNTERMEASURES IN INTERNATIONAL COMMERCIAL LITIGATION

Philip Yang

Chairman of Shanghai Arbitration Centre Academy, 

Honorable Chairman of the Hong Kong International Arbitration Centre

The topic I intend to address today is corruption in international commercial activities. Commercial transactions involving corruption will often be huge national projects with a lot of money at stake, often going into billions of US dollars. It is a hot and sensitive topic at the forefront in recent arbitral developments. I venture to say that there may be a role for the international commercial courts to play in the future.

Let me begin by making a few points to bring out further discussion.

(1) RCEP focuses mainly on harmonizing tariffs and increasing the opening of markets for products, services and investments. But has been criticized for not addressing other social issues, such as labor, the environment and corruption. It is nowhere near to the Organization for Economic Co-operation and Development (OECD) in its focus on the fight against corruption. Nor even comparable to the Comprehensive and Progressive Trans-Pacific Partnership (TPP).

(2) The problem of corruption in international commerce has seriously affected developing countries in recent years. The majority of the 15 members of the RCEP are developing countries, including China. Many of the notable international arbitration cases reported in recent years involving corruption. To name but a few:

- Nigeria v. Process & Industrial Developments Limited (2020) (involving the development of Nigerian oil field, awarded up to US$10 billion to a BVI company with no assets [Nigeria's annual national health expenditure is US$1.1 billion]); 

- National Iranian Oil Company v. Crescent Petroleum Company International Ltd & Ors (2016) (gas supply and purchase contract involving Iran, awarded US$2.4 billion); 

- Fiona Trust & Holding Corp v. Privalov (2007) (charter and sale of vessels involving Russia, this case was only part of the transaction, but the amount of the freezing order that Russia applied at the beginning of the case was US$225 million); 

- Tekron Resources Limited v. Guinea Investment Company Limited (2003) (involving a bauxite project in Guinea with a US company through a BVI company intermediary, paying the intermediaries to the tune of US$90 million. The trial judge criticized that it's objectionable on moral grounds that such large sums should be earned for this kind of services, in particular in the context of the impoverished state of Guineathatsale limited natural resource for a small profit. However, the contract was still a valid one and must be strictly performed); 

- Westacre Investments Inc v. Jugo import SPDR Holding Co Ltd (2000) (involving the sale of military equipment in Kuwait), etc.

- Others.

(3) Today, almost all cases involving corruption and bribery in international commercial matters are heard privately and confidentially in international arbitration administered by arbitral institutions like ICSID, ICC, LCIA, SIAC and HKIAC. In the Fiona Trust, Justice Longmore (confirmed by the House of Lords) held: “no argument for saying that a separable arbitration clause cannot be invoked for the purpose of resolving the issue whether bribery occurred. In this connection an allegation of bribery is (and should be) no different from the allegation of initial illegality in Harbour v Kansa.”

This is a drastic change of policy in England: see s. 24(2) of the Arbitration Act 1950 and in Permavox Ltd v. Royal Exchange Assurance (1939) 64 Ll. L. Rep 145, Justice Greaves-Lord said:“(fraud) should be tried in open court and in the light of day.”

(4) The “golden rules” developed in recent years in international arbitration such as “separability principle”, the “arbitrability principle”, “one-stop shop for dispute resolution”, “finality of arbitration”, “confidentiality/privacy”, paved the way for international commercial corruption cases to be settled privately by international arbitration, without attracting the attention of the public and the international community.

(5)It is well-known that developing countries have a very high rate of losing in international arbitration cases. Corruption cases are more likely than not to meet the same fade. This has nothing to do with morality, but a combination of poverty, ignorance of the complexities of international business environment and lack of a sound system, makes the developing countries easy prey to the “sugar-coated” tactics of foreign companies or their intermediaries/agents.

(6) All corruption cases will operate covertly, hence direct and unambiguous evidence is often lacking. However, international arbitral tribunals usually treat the allegation of fraud and corruption should demand a higher burden of proof than general civil case. For example, in Jus Mundi's article of “Corruption” (17 February 2022), it is said that the arbitrators in international arbitration demands different standard of proof for corruption cases, usually higher burden: “Several tribunals have applied a balance of probabilities (or preponderance of evidence) standard of proof with caution, often requiring robust evidence of corruption. Some tribunals applied a ‘heightened’ standard of proof for allegations of corruption or required ‘clear and convincing’ evidence of corruption. Fewer tribunals have applied a criminal law standard of proof ‘beyond reasonable doubt.’ ...”

(7) Article V(2)(b) of the 1958 New York Convention stated expressly that the national court may refuse to enforce an international Convention Award if it is contrary to the public policy of that State. However, the English court nowadays adopted a policy of:

(a) In Westacre Investments Inc v. Jugo import SPDR Holding Co Ltd (2000) QB 288, Justice Colman said: “On balance, I have come to the conclusion that the public policy of sustaining international arbitration awards on the facts of this case outweighs the public policy in discouraging international commercial corruption.”

(b)In R v. V (2008) EWHC 1531, Justice Steel said: “the public policy of sustaining international arbitration awards on the facts of this case outweighs the public policy of discouraging international commercial corruption.”

(8)The US Foreign Corrupt Practices Act 1977 and the UK Bribery Act 2010, unfortunately, are more for self-interest and perceived as politically motivated, rather than to deter international corruption for the benefit of the world, especially the developing countries.

(9)While the Western countries are not monolithic, France seems to be different. Most recently, in Sorelec v. Libya (Paris Court of Appeal, 17 November 2020), a case involving corruption in Libya, the Paris Court of Appeal decided to reopen the case and having gone through the evidence and the relevant facts, refused to enforce the Award. The main grounds were:

(a) The OECD Convention Against Corruption 1997, saying: “the prohibition of bribery of public officials is one of the principles which violation cannot be disregarded by the French legal system, even in an international context. It is therefore a matter of international public policy”.

(b) The fact-finding of corruption is established by circumstantial evidence or a “Red Flags test” (which is the practice of regulatory bodies, such as the US Department of Justice).

Summary

The above brings me to some thoughts on this serious topic:

(A) The developing countries in RCEP need to be better protected against international corruption by establishing a dispute resolution mechanism to deter corrupt practices within the RCEP framework. Relying on current international arbitration (including ICSID arbitration) is not, as I see it, working well.

(B) Perhaps corruption cases to be heard in the International Commercial Court in the RCEP region, applying the ‘Red Flags test’ and a procedure which is more open, transparent and accountable (to the public).

(C) Greater effort on education of anti-corruption and participation in establishing a fair, open, good, and law/rule-abiding business environment in RCEP region.

(D) To show solidarity with the recent practice in handling cases involving international corruption adopted by the French court. Through international public opinion and pressure, to change the attitude of other Western countries, led by the UK and US, in the deterrence of international corruption and the promotion of good ethics and order in international business.

(Undetermined)

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*The original text is Chinese and has been translated into English for reference only. If there is any inconsistency or ambiguity between the Chinese version and the English version, the Chinese version shall prevail.