INTERNATIONAL ARBITRATION 1/3LY
US POSITION
BURDEN OF PROOF: HIGHER OR LOWER? The very nature of corruption makes it difficult to identify and detect. It is often the case that an allegation of corruption cannot be supported by documentary evidence and rises or falls on a witness’s oral testimony. Similarly to allegations of fraud in many jurisdictions, such is the seriousness of allegations of bribery and corruption that they generally demand clear evidence over and above the balance of probabilities test . As such, they have tended to gravitate towards the criminal standard of being “beyond reasonable doubt”. The difficulty in meeting such a high standard is that those engaging in corruption tend to destroy and conceal evidence from those investigating. Indeed, law enforcement bodies face these issues all the time when trying to establish instances of corruption and fraud. The difficult task of proving corruption is heightened in arbitration proceedings as a tribunal does not have any powers of subpoena or the inherent powers of a court to permit the searching of premises and seizure of documents. In an attempt to tackle these inherent difficulties, the tribunal in ICC case 6497 (1994) went as far as to suggest a lowering of the burden of proof below the balance of probabilities, therefore allowing parties to adduce evidence of corruption without such evidence being necessarily conclusive. The tribunal highlighted that such a change in the burden of proof was only to be made in special circumstances and for very good reasons.
IT IS NOTABLE THAT THE POSITION ADOPTED BY THE COURTS IN THE ABOVE THREE CASES IS CONSISTENT WITH THE REQUIREMENTS TO ESTABLISH CORRUPTION OR FRAUD UNDER THE US FEDERAL ARBITRATION ACT (FAA). SECTION 10 OF THE FAA PROVIDES GROUNDS FOR VACATING AN AWARD WHERE: 10(a)(1): “The award was procured by corruption, fraud or other undue means.” and/or 10(a)(2): “There was evident partiality or corruption in any or all of the arbitrators.” A criteria for establishing fraud has been formulated and set out in Dogherra v Safeway Stores, Inc 679 F.2d 1293, 1297 (9th Cir. 1982) (Gary B. Born: International Commercial Arbitration Vol II): “The fraud must not have been discoverable upon the exercise of due diligence prior to the arbitration... The fraud must materially relate to an issue in the arbitration... [and] must be established by clear and convincing evidence.” In 2013, the US Court of Appeals for the Second Circuit decision in the case of Kolel Beth Yechiel Mechil v YLL Irrevocable Trust , ruled that: “…vidence of corruption must be abundantly clear in order to vacate an award under §10(a)(2) [of the FAA]” The Court found in the Kolel Beth case that this high burden had not been met in circumstances where the only evidence of the alleged corruption and bias was an affidavit from an impartial witness who overheard the arbitrator promise the Claimant a favourable ruling. As the Defendants were unable to show abundantly clear evidence of corruption, the burden of proof was not met.
In the Court of Appeal, Sixth Circuit case of Thomas Kinkade Company v White LLC during the same year, the Court had to consider Section 10(a)(2) FAA and found as follows: “Here, Kinkade established a convergence of undisputed facts that, considered together, show a motive for [the arbitrator] to favour the Whites and multiple, concrete actions in which he appeared to actually favour them... nearly five years into this arbitration, and in the space of eight weeks, the purportedly neutral arbitrator’s law firm – of all the law firms that practice in Michigan – was hired... for engagements that by all appearances would be substantial.” This does seem to be an abundantly clear finding of partiality or “flagrant, effective and concrete” in the language of the French Courts. The criteria set out in these US Court of Appeal judgments accords with the decisions referred to in this article, particularly the requirement to establish that the fraud was not discoverable prior to the arbitration (as per the Meydan decision) and the establishment of clear and convincing evidence (Schneider and Goldenray).
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