International arbitration: A safe harbour for construction disputes involving bribery?

Abstract

Construction contracts are of strategic importance for states’ economic development. The high level of corruption in such projects is facilitated by their complex nature and significant costs. Estimates of economic losses from corruption in construction, including bribery, could be as high as USD 5.7 trillion between 2015 and 2030.

Arbitration has been described as a “safe harbour for corruption”. Disputing parties can limit a tribunal’s scope and specify a confidential process that shields their reputation when bribery is suspected. Conversely, an illegality defence may allow respondents to avoid contractual obligations and defendants to persuade national courts not to recognise or enforce international arbitral awards. Could the presence of bribery partially explain why construction disputes have accounted for up to 25% of ICC disputes submitted to arbitration and 10% of regional investment arbitrations?

Few would envy the tribunal’s task when adjudicating international construction disputes involving bribery. Tribunals must chart a careful course, navigating between the interests of the parties and other stakeholders, including states wishing to protect their ability to attract foreign investment. Tribunals should fly the flag of transnational public policy against bribery, whilst having limited ability to compel evidence to the accepted high standard. Many different laws and codes must be considered in the jurisdictions of the seat, contract and locations where the bribery allegedly occurred. Whilst tribunals adjudicate in a neutral manner, they may also be influenced by precedent from similar disputes, procedural requirements, plus their own professional standards and codes of ethics.

Kenya’s illegality defence in the World Duty Free investment arbitration led to the withdrawal of the machinery of justice from a claim and a windfall for a state where an elected official was bribed to influence the award of the contract. Wide publicity around this outcome could provide the ultimate deterrent for those contemplating bribery. Unsuccessful claimants’ options to obtain compensation or remedies include returning to the stormy seas of commercial negotiation where the other party may have little incentive to steer away from an entrenched position. Alternatively, launching litigation to seek restitution or compensation means they may need to sail against the prevailing winds in national courts which are potentially biased towards local entities or the state.