I am going to take a narrow view of a narrow subject: less of a keynote speech, more of a keyhole speech. Indeed, it is through a keyhole that I will ask you to join me in a voyeuristic peer into the room of what I call broken arbitrations, the room into which I have stuffed myriad examples of how the process of arbitration can too easily become corrupted.
And ‘keyhole’ is apt, in that privacy and confidentiality – and I hope we understand that they are very different things – prevent the door to arbitration from ever fully opening. It is merely through a keyhole that we form our impressions and understandings of what happens in actual cases.
I do not mean to address corruption as a substantive issue. That gets talked about these days ad nauseam. I am talking about the corruption that dare not speak its name; corruption of the system of arbitration and the seemingly taboo subject of our blind trust in the norms, practices and assumptions of the process of arbitration that give us the very confidence we need to use it.
To put this in context, we can all agree that the continued use of arbitration is wholly dependent on the users’ confidence in the system. We need transparent processes for appointing arbitrators; fair and impartial arbitrators; fair processes; honest evidence and honest disclosure; court support from fair, impartial and honest judges; participants for whom integrity and reputation within the system is more important than the temptation of self interest in individual cases; and systems to detect and protect against any abuse of these confidences.
The unashamedly provocative question I put to you today is whether our blind faith in gentlemanly conduct and the assumption of fair play is justified in contemporary international arbitration.
When we look through the keyhole, do we see the participants playing nicely with each other? Do we see a level playing field? Does the keyhole allow us to see all that we need to see to maintain our faith in the system? I submit to you that it does not. If I am right about this, it concerns our ability to sell arbitration into emerging markets, into hitherto resistant industries such as banking and finance, how we might reform arbitration – and of course it has obvious general implications for the practice of both commercial and investor-state disputes.
We all recognise that arbitration has been growing rapidly in popularity and that the size, value and importance of disputes submitted to arbitration is increasing. The irresistible corollary of this is that there are now many more users of arbitration with the motivation, resources and willingness to corrupt the process – and, moreover, with ever increasing degrees of sophistication as to how they achieve this corruption and then conceal it.
‘There are many more users of arbitration with the motivation, resources and willingness to corrupt the process – and with ever increasing degrees of sophistication.’
For us in the trade, surely no single arbitration is more important than our reputation and our careers. The likelihood of us being willing participants in any corruption of the process is remote. But it would be naïve in the extreme to assume that every participant in every arbitration everywhere, especially those who do not make their careers in arbitration, will share this view.
Consider the landscape in which we operate. It is international business. There is no shortage of corruption in business. In an ever-growing number of cases, corruption arises as a substantive issue. In an ever growing number of cases, we find evidence of those with money and power buying their way in to benefits and out of trouble. We see coercion, duress, undue influence, extortion and blackmail. We see increasing sophistication of the obtaining and concealment of ill-gotten gains and the use of entrapment techniques to give A an advantage over B.
Arbitration and corruption
Why, therefore, as an industry, are we not asking ourselves with real concern whether such tactics are not being deployed to secure advantage by corruption of the process of arbitration?
This is not scaremongering, and nor is it jumping at shadows. In my own practice as counsel, I have seen evidence of untold wrongdoings and abusive tactics. I have been personally threatened. It did not affect me, because I am a six-foot-seven Kiwi – or perhaps because I am stupid – but I wonder how often other counsel in other cases are affected by personal threats. We cannot all be six-foot-seven Kiwis, and I know we are not all stupid.
I have been in many cases where I have been convinced that one of the arbitrators has been corrupted. In one, I was presented with evidence of it. That case involved unusual circumstances that led to the uncovering of such evidence, but I wonder how many arbitrators have been or are being corrupted – but we just do not have the skills, techniques or powers to find out.
Consider also the following. With an increasing number of arbitrations, we are seeing increasing numbers of arbitrators. Now, diversity, of course, is to be welcomed as an objective in arbitration, just as it is to be welcomed in any other form of human endeavour. But with diversity comes new challenges, including unknown arbitrators, sometimes with no outward signs of any primary concern for the integrity of arbitration as a process above their own short term self interest in the case to which they have been appointed.
Just as this may be said of interloping arbitrators, it might also be said of interloping counsel or interloping experts. When I peer through the keyhole, I see a world of increasing moral hazard. That is concern enough, but I see a worryingly inadequate system to identify when that hazard is in play and a worrying inability to deal with it when it is detected – a worrying inability, in other words, to police the participants. When I look through the keyhole, I see cowboys in saloons – but I see no sheriffs.
‘We must wonder how much of our beloved arbitration is corrupted in ways we will never know. We must wonder what abuses go undetected.’
It is then that I ask whether we are right to maintain our blind trust in the system. Absent sheriffs, are we comfortable with a system of arbitration that provides sufficient protection against other corrupting events – not just the disturbance of arbitrator objectivity – such as the wilful destruction of evidence, the manufacture of evidence, witness tampering, including witness intimidation, or outright false testimony? In my career, I have encountered multiple examples of each of these corrupting influences. Yes, I hear you thinking that arbitration can self-police against this form of corruption – that the cowboys can be trusted in the saloon.
But is that the case? I mean really? Is it really sufficient to rely on co-arbitrators to detect a corrupted arbitrator and to marginalise them? What if the corruption is subtle or skilfully concealed? What is the sanction of marginalising an arbitrator in deliberation? What does that even mean? How can we depend on that which we do not even understand? Is it right that the party disadvantaged by a corrupted arbitrator should be required to persuade 100% of the remaining arbitrators? What they signed up to was the need to persuade only two thirds of an impartial tribunal? What about corrupted sole arbitrators or presiding arbitrators?
The more we contemplate this problem, the deeper it becomes. Perhaps I have tested enough for now the sufficiency of our faith in the integrity of arbitrators. What about our faith in other key parts of the process? For example, when documents or witnesses are not produced, is it enough that we rely on the tribunal’s power to draw inferences from the absence of that evidence?
Logic dictates that if evidence one reasonably expects to exist is not produced, then it is not produced because it would be more damaging to the case than the sanction for its non-production. In other words, it is likely to be evidence that could have a decisive effect on the outcome of the case.
Yet it is a rare case indeed – so rare that I have not encountered a single one – where an inference drawn by a tribunal has been determinative or where the existence of the so-called empty chair, the missing witness, has swung the deliberations. But if the system was fully functioning, we would see this – but we do not, and yet we do not seem to be asking ourselves why not.
I put it to you that from almost every perspective one looks at arbitration, from wherever the keyhole may be found, there are other potential abuses. Consider, for example, the case where a witness withdraws their evidence on the eve of a hearing citing, as often happens, intimidation. What we know is that in such a case someone is doing violence to due process. What we also know is that the tribunal has no power to investigate the perpetrator of this violence, who for all we know could be the witness themselves.
Why is it that we stand by as a community and do not even acknowledge, much less propose solutions to, such corruption. I have known cases where witnesses have produced written statements without ever intending to have their evidence tested at a hearing. That is corruption of the process.
I have seen cases where the expert witness has been deliberately instructed not to consider certain evidence or issues in a dispute, thus enabling them to hide their true opinions behind their instructions. That is also a corruption of the process.
I have known cases where evidence was fabricated. I have seen compelling evidence that the opponent party has offered bribes to a presiding arbitrator. I have seen what appear to be kick backs and other favours passed between appointing authorities and the arbitrators they appoint. These are all corruptions of the process.
Now, there is an additional problem. The things that I have seen I have sometimes only seen by accident or good fortune – or through the stupidity or negligence of others. But accident, good fortune and the mistakes of others are not a safeguard. It is certainly not effective self-regulation.
We must wonder how much of our beloved arbitration is corrupted in ways we will never know. In those cases that are not visited by dumb luck, we must wonder what abuses go undetected. I do not know; you do not know; and nor do our clients know.
This, ladies and gentlemen, is what I see through the keyhole. Thank you for allowing me to share this unashamed voyeurism and provocation. But before I place you into the more comfortable hands of the first panel, may I declare that I have no desire to become the poster boy for those who seek to undermine arbitration? In fact, I am one of its greatest supporters. I have even been accused of being an arbitration evangelist.
I have stood in arbitration’s corner; I have worn arbitration’s trunks. I have fought in serious debate for the effectiveness and attractiveness of arbitration over litigation. I have won not just through good advocacy – though there was some pretty good advocacy involved. I have won because I am right, and on the side of angels. I do believe in the power of arbitration and the incalculable good it has achieved in the global economy and in the peaceable resolution of disputes. A global economy without international arbitration would be the scariest of all worlds.
I declare that I am not saying your arbitration is corrupted or that your opposing counsel are liars and cheats. I am not declaring that your witnesses and experts are not to be trusted or that we can place no weight on documentary or other evidence. I have a strong belief in the honesty, judgement and perceptive powers of arbitrators – well at least those whom I appoint. I am a strong believer in the truth-finding powers of careful, strategic and skilful deployment of disclosure, interim measures requests and witness cross-examination. That is probably true of us all here today.
As we engage in our various subjects today, my challenge to you is not merely to default to evangelical support for arbitration. Let us rather be honest about its shortcomings, for only then can we truly make a difference.
Stephen Jagusch QC is global chair of international arbitration at Quinn Emanuel Urquhart & Sullivan and chair of Legal Business’s 2017 International Arbitration Summit.