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Tuesday
Jan072014

Are integrity-related issues, like bribery, appropriate for arbitration?

An interesting aspect of the dispute that has arisen between AgustaWestland and the Indian government for the supply of 12 helicopters is the status of the arbitration agreement.

As the FCPA Blog has reported, the Indian government has rejected AgustaWestland's contentions that the contract cannot be terminated until the conclusion of arbitration on the grounds that integrity-related issues are not subject to such dispute resolution.

Under English law, an arbitration agreement is entirely separate from the substantive contract of which it forms part. Mere unenforceability of the contract, perhaps for bribery and corruption-related issues, will not of itself result in the uneforceability of the arbitration agreement. (See the Fiona Trust case, [2007] UKHL 50 and s.7 of the Arbitration Act of 1996.)

Under the doctrine of separability, an arbitration agreement may be rendered void only if it is directly impeached on grounds relating to the arbitration agreement. 'Allegations that are parasitical to a challenge to the validity to the main agreement will not do.'

The policy reasons for upholding arbitration are based on the desirability of giving effect to the parties' right to choose a tribunal to resolve their disputes and the practical advantages of one-stop adjudication. These considerations may well be desirable in standard commercial cases, but aside from the confidentiality in arbitrations, the desirability of arbitration tribunals determining serious and far-reaching corruption and bribery issues is far from obvious.

This is true especially given the lack of effective and readily responsive sanctions, the difficulties in obtaining full disclosure and the potential tribunal costs.

One possible solution would be for the parties to adopt the approach that was recently highlighted in the case of Guidance Investments Ltd. [2013] EWHC 3413 (Comm). This case concerned whether or not to grant a stay of legal proceedings on the grounds that the disputed issues fell within an arbitration agreement.

The judge, having referred to the general presumption of one-stop adjudication, refused to grant a stay on the grounds that the parties had provided only for termination disputes to be arbitrated and for the remaining issues to be litigated. As the issues did not involve termination, the stay was refused.

Perhaps this is similar to the dispute resolution machinery at work in the AgustaWestland case.

Consequently, and depending on the particular circumstances and available jurisdiction, it may be sensible for parties to consider carving out from arbitration agreements any disputes relating to bribery and corruption and leave such issues to be determined through a court-based litigation process.

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Alistair Craig is a commercial barrister practicing in London.

Alistair Craig is a commercial barrister practicing in London. - See more at: http://www.fcpablog.com/blog/2013/5/22/as-dimon-vote-shows-us-companies-fall-short-in-corporate-gov.html#sthash.alGsgFja.dpuf
Alistair Craig is a commercial barrister practicing in London. - See more at: http://www.fcpablog.com/blog/2013/5/22/as-dimon-vote-shows-us-companies-fall-short-in-corporate-gov.html#sthash.alGsgFja.dpuf