Pavlo Byelousov, partner, head of international arbitration at Aequo Law Firm

Roman Hryshyn-Hryshchuk, associate at Aequo Law Firm

Case against Dishonesty in International Arbitration: Adapting to the Present-Day

Needs and Trends
“Every dispute resolution system needs to adapt to the changing needs of
society…That means an almost constant process of procedural reform. In the
world of litigation, procedural reform is a political process. By contrast, arbitral
institutions can and do respond swiftly to the changing needs of their users”.
Sir Rupert Jackson1

Introduction

Development and increase of international arbitration tails after the growth and evolution of
international trade and commerce.

While international arbitration continues flourishing with a rapid growth of arbitral institutions
and a stable increase of commercial and investment cases, one may wonder whether prospects
of further expansion of arbitration are indubitable and an arbitration’s fate is pre-determined.
In the meantime, international trade and commerce, global politics are the upper hand setting
new trends, tools, innovations and, respectively, challenges which require new approaches to
resolution of the disputes arisen out of the evolution and development.

In this “to hunt or to be hunted” situation, Professor Born embraced the former without
hesitation and encouraged the arbitration community to stress and further evolve critical
advantages of arbitration, the so-called “five E’s: efficiency, expedition, expertise, even-
handedness and enforceability”.2 In the light of the mentioned proclamation, it seems a
convenient time to point to certain unsettled issues that could undermine the advantages of
international arbitration and to explore possible solutions that could foster its attractiveness for
global community.

One of those issues that demands further determination and could be re-examined by the
arbitrators is the burden and standard of proof in cases concerning allegations of dishonesty.
Dishonesty is a broad category which may take various forms like corruption, malicious
arrangement, fraud, bribery, lying, etc. In 2017 the UK Supreme Court has clarified the test for
dishonesty rendering that in determining whether the person was acting dishonestly, a judge
must decide whether according to the ordinary standards of a reasonable and honest person
what was done was dishonest3.

In recent years, allegations of corruption as one of the forms of dishonesty are more and more
frequently raised in arbitration disputes, usually as jurisdictional issue (in the context of

1
Keynote speech by Sir Rupert Jackson at the 11th International Conference on Construction Law and Alternative Dispute
Resolution in Mauritius on 23rd May 2018.
2
Alison Ross, “Born takes “Game of Thrones” message to Freshfields”, Global Arbitration Review, 16 November 2018.
3
“Re-defining criminal dishonesty: why does it matter?” Allen & Overy Litigation and Dispute Resolution Review, 6 November
2017
investment cases) or that of merits (in the context of commercial cases).4 However, arbitral
tribunals seem to be reluctant to grant claims on establishing facts of such dishonest as a
threshold for an evidential burden of proof in allegations of dishonest is quite often high and
therefore, is rarely achieved.

In this article, we will analyze a traditional approach as to dealing with dishonesty (primely
focusing our analysis on allegations of corruption or collusion in international arbitration), and
elaborate on a nuanced approach through relevant Ukrainian legislation and jurisprudence that
may contribute to a better understanding of the burden and standard of proof in course of
proving dishonesty in international arbitration.

Traditional Approach

The traditional approach to the burden of proof has its roots in Ancient Rome where the general
principle actori incumbit probation was firstly invented. According to Article 24 of the
UNCITRAL Rules, each party shall have the burden of proving the facts relied on to support
his claim or defence. The principle equally applies to a party alleging corruption in arbitration
proceedings:

“As a general rule the party alleging fraud or corruption, as with all factual issues,
bears the burden of proving the fraud and corruption”.5

In numerous cases, international tribunals have emphasized that the burden of proof for
corruption allegations lies with the alleging party. For instance, in Liman v. Kazakhstan case
the ICSID tribunal stated that

“The Tribunal is aware that it is very difficult to prove corruption because secrecy is
inherent in such cases. … However, the Tribunal considers that this cannot be a reason
to depart from the general principle that Claimants must fully comply with their
undisputed burden to prove that in the case at hand there was corruption”.6

Even though arbitral tribunals traditionally back the position that the burden of proof for
existing corruption allegations lies with the alleging party in the arbitral proceedings, the
arbitrator may shift the burden of proof once prima facie evidence is presented.7 For instance,
in ICC Award No. 6497, the tribunal explained the possibility of shifting the burden of proof
with respect to corruption allegations in the following manner:

“The 'alleging Party' may bring some relevant evidence for its allegations, without these
elements being really conclusive. In such case, the arbitral tribunal may exceptionally
request the other party to bring some counterevidence, if such task is possible and not
too burdensome. If the other party does not bring such counter-evidence, the arbitral

4
Mark W Friedman, Floriane Lavaud and Julianne J Marley "Corruption in International Arbitration: Challenges and
Consequences", Global Arbitration Review, 29 August 2017.
5
C. Lamm et al., Fraud and Corruption in International Arbitration, 10 TDM 3
6
Liman Caspian Oil BV and NCL Dutch Investment BV v. Republic of Kazakhstan, ICSID Case No. ARB/07/14, Award, para. 423
(22 June 2010).
7
Alekhin, Sergey and Shmatenko, Leonid, Corruption in Investor-State Arbitration - It Takes Two to Tango (March 31, 2018).
Новые Горизонты Международного Арбитража - New Horizons of International Arbitration, Issue 4, Collection of Articles; 2018.
 tribunal may conclude that the facts alleged are proven (Art. 8 Swiss Civil Code).
However, such change in the burden of the proof is only to be made in special
circumstances and for very good reasons”.8

Although the possibility of shifting the burden of proof remains a viable option for the
arbitrators, as one of the legal inquiries demonstrates, shifting of burden of proof from the
alleging to opposing party in the cases concerning corruption allegations remains more
theoretical rather than practical tools for arbitration tribunals.9

Meanwhile, the issue of standard of proof is even more complicated, since arbitration rules tend
to provide no provision regulating this issue. In other words, by their applied powers the
arbitrators have inherited discretion and freedom to fill the lacunas of the regulation by
determining which standard of proof is needed in particular case where the allegations of
dishonesty are risen. Therefore, even if there are some missing pieces, “in the right
circumstances, arbitrators should not hesitate to make the logical deduction simply because the
allegation is serious”.10

In ICSID Tokios Tokelės v. Ukraine case, the arbitral tribunal distinguished three possible
approaches to a standard of proof that are relevant in the context of corruption allegations:

(1) standard which requires the party making an assertion to persuade the decision-maker
that it is more likely than not to be true;
(2) where the dispute concerns an allegation against a person or body in high authority the
burden may be lower, simply because direct proof is likely to be hard to find;
(3) the standard is higher than the balance of probabilities.11

It is a common practice for the arbitrators to choose the “safest” third option and to apply the
heightened standard of proof. For instance, the EDF v. Romania tribunal stated that the party
alleging corruption should produce “clear and convincing evidence” to prove its allegation of
solicitation of a bribe.12 Likewise, in the Fraport v. Philippines award, the tribunal found that
“evidence must be clear and convincing so as to reasonably make-believe that the facts, as
alleged, have occurred”.13

The analysis of the investment cases where allegations of corruption were raised illustrates that
only in five out of twenty-five cases the corruption charges were granted.14

Nuanced approach

8
ICC Case No. 6497, Final Award, para. 4 (1994)
9
Alekhin, Sergey and Shmatenko, Leonid, Corruption in Investor-State Arbitration - It Takes Two to Tango (March 31, 2018).
Новые Горизонты Международного Арбитража - New Horizons of International Arbitration, Issue 4, Collection of Articles; 2018.
10
Michael Hwang and Kevin Lim "Corruption in Arbitration— Law and Reality", page 25.
11
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18 Award, para. 124 (26 July 2007).
12
EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, para. 232 (8 October 2009).
13
Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No. ARB/11/12, Award, para. 479
(10 December 2014).
14
Alekhin, Sergey and Shmatenko, Leonid, Corruption in Investor-State Arbitration - It Takes Two to Tango (March 31, 2018).
Новые Горизонты Международного Арбитража - New Horizons of International Arbitration, Issue 4, Collection of Articles; 2018.
Although it is common practice to dismiss allegations of dishonesty due to unsubstantiated
corruption claims under the heightened standard of proof, for the purposes of revision of
traditional approach it is important to stress that dishonesty is a broad category that include both
criminal offences (crimes) and civil offences (torts) and therefore requires the arbitrator to
enquire whether allegations of dishonesty concern civil or criminal offence under applicable
laws and in no way mix dishonest practices which may be close in nature, but different in legal
regulation.

The civil and common law countries are essentially different in their perspectives on standard
of proof. The common law system (e.g. United Kingdom, the United States of America, Hong
Kong) distinguishes two standards of proof applicable in criminal and civil matters (“beyond
reasonable doubt” and “preponderance of the evidence” respectively). In civil law countries
(e.g. Ukraine, Switzerland, France) the standard of proof in both civil and criminal matters can
be referred to as the “conviction raisonnée” i.e. inner (full) conviction of the judge.15 For
instance, both Civil and Criminal Procedural Code of Ukraine provides that the inquiry whether
evidence is sufficient for establishing any facts relevant to a case shall be decided based on a
comprehensive, full, unbiased, and direct examination of evidence by a court at its own
discretion.16

However, civil law system does not formally distinguish the standard of proof in criminal and
civil matters, the different approaches do apply in the process of establishing dishonest
behaviour in the criminal and civil matters. Ukrainian legislation is a suitable example.

Under Article 1 of the the Law of Ukraine “On Preventing Corruption”.

“Corruption is an activity of public officials and other subjects of liability aimed at

unlawful use of their powers and related opportunities to obtain unjustified benefits or
accept such benefits, or accept a promise/offer of such unjustified benefits for
themselves or other individuals, as well as a promise/offer of unjustified benefits to
public officials and other subjects of liability or provision of unjustified benefits to them
or, at their demand, to other individuals or legal entities, aimed at persuading public
officials and other subjects of liability to unlawfully use their powers and related
opportunities”17

One would not find such offence as “corruption” either in Criminal or Civil Code of Ukraine.
Meanwhile, there are various dishonesty offences punishable either under the Criminal Code
(e.g. exercising undue influence; receiving unjustified benefits; receiving the offer or promise
of unjustified benefits) or Civil Code (e.g. malicious arrangement (collusion), fictitious
transaction). Thus, depending on particular allegations (whether it is an institute of civil law or
criminal law), a judge or an arbitrator accordingly adjusts his (her) decision-making process.

The recent court practice of the Supreme Court and Constitutional Court of Ukraine on proving
dishonest behavior (collusion and illicit enrichment respectively) demonstrates the above
inference.
15
Schweizer, Mark. "The civil standard of proof—what is it, actually?." The International Journal of Evidence & Proof 20.3 (2016):
217-234.
16
Article 80 and 89 of the Civil Procedural Code of Ukraine; Article 94 of the Criminal Procedural Code of Ukraine.
17
Cf. Article 1 of the Law of Ukraine “On Preventing Corruption”.
Ukrainian Civil Code provides for invalidity if a contract is concluded as a result of a malicious
arrangement between a representative of one of the parties and the other party (cf. Article 232
of the Civil Code). In order to identify a malicious arrangement, the following criteria shall be
applied: a) the representative understands that he/she enters into a contract contrary to the
interest of his/her principal, b) the representative wishes for the negative consequences for the
principal to come about, or he consciously allows them to come about, c) the collusion
(arrangement) between the representative and another party causes negative consequences for
the principal.18

Akin to arbitration practice, it was common practice for Ukrainian courts to dismiss allegations
of collusion due to the lack of evidence. In the predominant part of the mentioned cases, the
courts referring to the lack of evidence de facto meant the lack of criminal conviction that would
affirm the intent of the parties to commit malicious arrangement. However, as the recent
practice of the Supreme Court demonstrates the heightened standard of proof was lowered and
now the courts may establish the malicious arrangement solely on circumstantial evidence.

For instance, in January 2018 the Supreme Court lowered applied standard to proof in the case
concerning malicious arrangement by reiterating that the criminal conviction shall not be
considered a sole evidence to prove collusion.19 Furthermore, in another case the Supreme
Court elaborated that the courts analyzing collusion allegations should examine the
circumstantial evidence of the past, present and future behavior of the parties who concluded
an agreement in the light of fundamental principles of good faith and reasonableness. In the
case concerning the invalidation of the assignment agreement due to collusion, the cassation
court supported the alleging party based on the above facts:

• the cost of the assignment agreement was equal to 0,5% of the assign right;
• the assignor received the payment under the agreement after the assignee enforced its
assign right;
• the assignor received compensation under the agreement in the rear of commencement
of the court proceedings against the assignee;

In the opinion of the Supreme Court, the above facts proved that behavior of previous director
of the company (the assignor) contradicted the interests of the company by violating the
requirements of bone fide and reasonable actions which the court defined as “actions which,
specifically, shall not worsen financial state of a legal person, especially, deprive a legal person
of a right to receive profit”. 20

The above examples of Ukrainian court practice clearly indicates that the Supreme Court
supports the nuance approach in the cases dealing with civil dishonesty and does not require
undue standard to prove dishonest behavior.

But even if the case concerns criminal dishonesty, certain exceptions to the burden and standard
of proof may be allowed. In his dissenting opinion as of 11 March 2019 Judge of the
Constitutional Court of Ukraine. Serhiy Holovaty states that international covenant and court

18
Cf. § 22 of Resolution No. 9 of the Plenum of the Supreme Court of Ukraine
19
Resolution of the Supreme Court in case 910/7527/15-г dated 31 January 2018
20
Resolution of the Supreme Court dated 20 June 2018 in case No. 910/19198/16
practice of European Court of the Human Rights (ECHR) allows imposing additional
obligations on the defendant to prove his bona fide and reasonable behavior in cases concerning
dishonesty.21

Specifically, together with vast majority of United Nations Member States Ukraine has ratified
United Nations Convention against Corruption. According to Article 20 of the mentioned
Convention “illicit enrichment, that is, a significant increase in the assets of a public official
that he or she cannot reasonably explain in relation to his or her lawful income”.22 However,
in the context of proving such dishonest behavior, there is a rebuttable presumption i.e. once
such a case is made, the defendant can then offer a reasonable or credible explanation. 23

According to ECHR case John Murray v. the United Kingdom:

“The question in each particular case is whether the evidence adduced by the
prosecution is sufficiently strong to require an answer. The national court cannot
conclude that the accused is guilty merely because he chooses to remain silent. It is only
if the evidence against the accused "calls" for an explanation which the accused ought
to be in a position to give that a failure to give any explanation "may as a matter of
common sense allow the drawing of an inference that there is no explanation and that
the accused is guilty. Conversely if the case presented by the prosecution had so little
evidential value that it called for no answer, a failure to provide one could not justify
an inference of guilt”24

However Ukrainian Parliament is still in the processes of passing new law on the illicit
enrichment, the above provisions of the status and court practice support the application of the
nuance approach to the burden and standard of proof in matters concerning dishonesty.

Although the majority of arbitrators still prefer the traditional approach, if the purpose of the
rules of evidence is to maintain the proper balance between commercial interests and the
integrity of corruption findings in international arbitration, a higher standard of proof fails to
achieve the desired effect.25

Given the difficulty in proving corruption, a higher (criminal) standard of proof would be
almost impossible to satisfy and plays directly into the hands of unscrupulous parties, who can
simply deny wrongdoing and exploit the high threshold of proof to avoid liability.26 This on the
one hand disempowers arbitral tribunals to effectively solve the modern forms of problems and
disputes referred to intentional arbitration, and on the other discourage parties from referring to
international arbitration in complex cases.

21
Dissenting opinion of Judge Serhiy Holovaty in case № 1-135/2018(5846/17) (Decision of the Constitutional Court of Ukraine
dated 26 February 2019 №1-р/2019)
22
United Nations Convention against Corruption, United Nations Office on Drugs and Crime, Vienna, 2004
23
UNODC/Division for Treaty Affairs: Legislative guide for the implementation of the United Nations Convention against
Corruption. 2006, para.297
24
Judgmenet in Case of John Murray v. the United Kingdom, European Court of Human Rights,Application no. 18731/9, 8
February 1996
25
Corruption in International Arbitration, CIArb News, 08 November 2018.
26
Michael Hwang and Kevin Lim "Corruption in Arbitration— Law and Reality", page 30.
In our opinion, with the application of the lower standard of proof, the tribunal foster one of its
key advantages – even-handedness – by eliminating the risks associated with submitting
international disputes to national courts in those countries where, in words of Gary Born, under
effect “hometown bias” justice may be awarded “to the highest bidder”. In addition, the lower
standard of proof solidifies the legitimacy of the award and award making-process and,
accordingly, it minimizes the chance of judicial intervention on the national level.

One of the examples where the tribunal diverged from traditional standard of proof in analysis
of the corruption allegations and applied a nuanced approach is Methanex Corporation v.
United States of America case. In the mentioned case, the tribunal espoused an innovative
strategy relating to the standard of proof problem in the face of corruption allegations:

“connect the dots (i.e., while individual pieces of evidence when viewed in isolation may
appear to have no significance, when seen together, they provide the most compelling
of possible explanations of events…”.27

Methanex case is the quintessential example of an arbitral tribunal encountering corruption

allegations and not altering the standard of proof in accord with the seriousness of an allegation.
Unlike other tribunals faced with corruption, the Methanex tribunal preferred to collect
circumstantial evidence and allowed the award to be painted by such evidence.

The methodology espoused in the Methanex case reached far and later determined the outcome
of Metal Tech v. The Republic of Uzbekistan. In that case, Uzbekistan alleged that the claimant
had violated Uzbek law by paying over US$4 million to government officials in return for
approval of its investment and other favourable treatment.28 The Tribunal stressed that:
“corruption is by essence difficult to establish and that it is thus generally admitted that it can
be shown through circumstantial evidence”.

Having applied the standard of “reasonable certainty”, the tribunal concluded that,

“It is true that the outcome in cases of corruption often appears unsatisfactory because,
at first sight at least, it seems to give an unfair advantage to the defendant party. The
idea, however, is not to punish one party at the cost of the other, but rather to ensure
the promotion of the rule of law ...”29

The nuance approach adopted in the above cases seems to be appropriate solution to deal with
the difficulties which relates to the issue of proving corruption in arbitration. The support of the
idea of the nuanced approach, however, does not mean that a party claiming corruption
allegations shall be relieved of the burden to prove its claims with sufficient evidence. Indeed,
in order to avoid situation when alleging party prioritizes “the defense of corruption over pursuit
of the corruption”,30 the party claiming corruption allegation should act in good faith and take
necessary steps to prove corruption (among other things, to pursue domestic remedies with

27
Methanex Corporation v. United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, para.
2,57 (3 August 2005)
28
Mark W Friedman, Floriane Lavaud and Julianne J Marley "Corruption in International Arbitration: Challenges and
Consequences", Global Arbitration Review, 29 August 2017.
29
Ibid, para. 389 (4 Oct. 2013).
30
Getma International and others v. Republic of Guinea, ICSID Case No. ARB/11/29, para. 184 (16 August 2016).
regard to the alleged corruption). At the same time, given the nature of acts of corruption or
collusion that “are specifically designed not to be able to be identified or detected” 31, the
tribunal should be willing to give primary consideration to existing clues including “lack of
evidence, brevity of negotiations, unusual payment arrangements, disproportionately high
remuneration, corruption endemic in country”.32

Concluding remarks

Every dispute resolution system needs to adapt to the changing needs of society. While in the
world of litigation, procedural reform is an obligation of political forces, in the world of
international arbitration, arbitrators themselves are responsible for changing the status quo of
the system in which they operate.

It is not a matter of thinking, but an empirical matter that dishonest whenever form it takes is
an antithesis to the rule of law and level playing field.

While the court or tribunal may universally apply the mentioned “objective” standard in both
civil and criminal cases, it is hardly a matter of contention that depending on a form of
dishonesty and its classification under the law (as a criminal offence or civil tort), the judge in
either common law system and civil law system should apply different burdens and standard of
proof for determining dishonesty. The application of deferential standards is essential for the
proper security of interests of a plaintiff and a defendant in just and fair legal system.

Therefore, the discussed nuanced approach seems to be more flexible in dealing with combating
dishonest conduct and bad faith practice which is a trending need in many jurisdictions. And
the nuanced approach does not relieve a party alleging corruption or collusion allegations of
the burden to prove its claims with sufficient evidence. However, given the nature of corruption
or collusion, the tribunal should be willing to give primary consideration to circumstantial
evidence and existing clues including a lack of evidence, disproportionate or unusual
remunerations, nature of schemes employed for the business.

31
Karen Mills, 'Corruption and Other Illegality in the Formation and Performance of Contracts and in the Conduct of Arbitration
Relating Thereto', Kluwer, ICCA Congress Series No 11 (2003).
32
Christian Albanesi & Emmanuel Jolivet, Dealing with Corruption in Arbitration: A Review of ICC Experience, 24 ICC Bulletin
Tackling Corruption in Arbitration 27, 52 (2013).