Abstract
At its 90th session (9–11 May, 2011), the Governing Council of UNIDROIT adopted the 3rd edition of the UNIDROIT Principles (2010 Principles), whereby it introduced a new section devoted to the issue of “illegality”. This paper analyzes the civil law consequences of corruption in international commercial arbitration under the new section on illegality in light of current arbitration practice. After drawing a distinction between contractual and restitutionary remedies, the authors concluded that, under the 2010 Principles, while parties to a contract tainted with corruption would still be denied any contractual remedies in most (if not all) of the possible instances, the same is not true with respect to the right to obtain restitution of what they have paid or rendered under the illegal agreement. In fact, the new section on illegality responds to concerns that have become more compelling in international commercial transactions and which must be recognized by international arbitral tribunals.
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Notes
- 1.
The Principles are available at www.unidroit.org/english/principles/contracts/main.htm
- 2.
MJ Bonell, ‘Model Clauses for Use of the UNIDROIT Principles of International Commercial Contracts in Transnational Contract and Dispute Resolution Practice’ (2013) Study L – MC Doc 1 Rev, para 1 (www.unidroit.org/english/documents/2013/study50/mc/s-50-mc-01rev-e.pdf).
- 3.
JM Perillo, ‘Unidroit Principles of International Commercial Contracts: The Black Letter Text and a Review’ (1994) 43 Fordham Law Review 315.
- 4.
P Lalive, ‘L’arbitrage international et les Principes UNIDROIT’ in MJ Bonell and F Bonelli (eds), Contratti commerciali internazionali e Principi UNIDROIT (Milan, Giuffré, 1997) 71, 80.
- 5.
Bonell (n 2).
- 6.
Governing Council 84th session (March 2005) C.D. (84) 19 rev. 2, 4 (www.unidroit.org/english/governments/councildocuments/2005session/cd84-19rev2-e.pdf).
- 7.
Previously, illegality was expressly excluded from the scope of the Principles. According to the official commentary to the 1994 and 2004 editions of the Principles, the reason for this exclusion lied “both in the inherent complexity of questions of status and of public policy and the extremely diverse manner in which they are treated in domestic law”.
- 8.
This paper does not deal with many of the issues concerning illegality in international commercial arbitration, such as applicable law, standard of proof, duties and inquisitorial powers of the arbitral tribunal, and enforcement issues. For a more extensive account of these topics, see RH Kreindler, Competence-Competence in the Face of Illegality in Contracts and Arbitration Agreements (The Hague, Martinus Nijhoff Publishers, 2013); A Sayed, Corruption in International Trade and Commercial Arbitration (The Hague, Kluwer Law International, 2004); AS Kosheri and P Leboulanger, ‘L’arbitrage face à la corruption et aux trafics d’influence’ (1984) Rev. Arb. 3; P Mayer, ‘Le contrat illicit’ (1984) Rev. Arb. 205; P Lalive, ‘Ordre public transnational (ouréellement international) et arbitrage international’ (1986) Rev. Arb. 329; B Oppetit, ‘Le paradoxe de la corruption à l’épreuve du droit du commerce international’ (1987) 1 J.D.I. 5; P Mayer, ‘La règle morale dans l’arbitrage international’, Etudes offertes à Pierre Bellet (Paris, Litec, 1991) 379; V Heuzé, ‘La morale, l’arbitre et le juge’ (1993) 2 Rev. Arb. 179; JG Wetter, ‘Issues of Corruption before International Arbitral Tribunals: The Authentic Text and True Meaning of Judge Gunnar Lagergren’s 1963 Award in ICC Case No 1110’ (1994) 10 Arb. Int’l 227; Y Derains, ‘La lutte contra la corruption – Le point de vue de l’arbitre international’ Contribution au Congrès AIJA (Montreux, 1996); J Rosell and H Prager, ‘Illicit Commissions and International Arbitration: The Question of Proof’ 15 Arb. Int’l 329.
- 9.
The official commentary to the Principles, at p 3, suggests that “[p]arties who wish to choose the Principles as the rules of law governing their contract” should “combine such choice of law clause with an arbitration agreement” because “the freedom of choice of the parties in designating the law governing their contract is traditionally limited to national laws. Therefore, a reference by the parties to the Principles will normally be considered to be a mere agreement to incorporate them in the contract, while the law governing the contract will still have to be determined on the basis of the private international law rules of the forum. As a result, the Principles will bind the parties only to the extent that they do not affect the rules of the applicable law from which the parties may not derogate”. This commentary notwithstanding, an arbitral tribunal suggested that, even where the parties explicitly choose the Principles as the law applicable to the contract this may not suffice to bind the arbitrators to apply them; see Final Award of September 1998 rendered in ICC Case No 9419, (1999) Vol 10 No 2 ICC Bulletin 104 (“the Unidroit Principles could certainly be used for reference by the parties involved for the voluntary regulation of their contractual relationship, in addition to helping the arbitrator in confirming the existence of particular trade usages, but they cannot constitute a normative body in themselves that can be considered as an applicable supranational law to replace a national law, at least as long as the arbitrator is required to identify the applicable law by choosing the rule of conflict that he considers most appropriate, in accordance with the provisions laid down by the international conventions and as provided for in the rules of arbitration within the scope of which he operates”). By the same token, according to a recent comment (trans by the author): “[t]he Principles do not have an autonomous authority, the vast majority of the legal systems do not consider them as having the necessary standing to govern a contract. In particular, this is the approach adopted by the European legislator, who refused to permit rules other than national laws to govern an international contract. Even if the parties design the principles as the law governing the contract, the domestic law applicable pursuant to the pertinent conflict of laws rules would nonetheless apply” (G Cuniberti, ‘Le nouvel article 3.3.1 des Principes UNIDROIT 2010 sur le contrat violant une règle impérative: un regard critique du point de vue du droit international privé’ (2013) Uniform Law Review 490). For a critical stance, see P Mayer, ‘The Role of the UNIDROIT Principles in ICC Arbitration Practice’ in ICC Special Supp 2002, UNIDROIT Principles of International Commercial Contracts: Reflections on their Use in International Arbitration (Paris, ICC Publishing, 2002) 105, 108.
- 10.
Such as “general principles of law, the lex mercatoria or the like” (Preamble of the Principles).
- 11.
The Preamble also provides that the Principles: “may serve as a model for national and international legislators”.
- 12.
See Mayer (n 8), 105. For an example of an arbitration agreement providing for the Principles as the law applicable to the contract, see Final Award of December 1996 rendered in ICC Case No 8331, (1999) Vol 10 No 2 ICC Bulletin 65: “[t]he parties have agreed that the Arbitral Tribunal shall apply the relevant agreements between the parties and, to the extent that the Arbitral Tribunal finds it necessary and appropriate, the UNIDROIT Principles of International Commercial Contracts of May 1994 shall be applied by the Arbitral Tribunal”.
- 13.
Partial Awards of June 1995, April 1998, and February 1999 rendered in ICC Case No 7110, (1999) Vol 10 No 2 ICC Bulletin 39. In this case, the parties agreed that the nine contracts in dispute were subject to the “laws of natural justice”. Accordingly, the arbitral tribunal: (i) held that, in the circumstances of the case, “reference in the Contracts to natural justice or the like” can only be “reasonably construed as pointing to the application of […] general legal rules and principles regarding international contractual obligations and enjoying wide international consensus”; (ii) specified that “general legal rules and principles enjoying wide international consensus, applicable to international contractual obligations and relevant to the Contract, are primarily reflected by the Principles of International Commercial Contract adopted by the UNIDROIT”; and (iii) concluded that “the Contracts are governed by, and shall be interpreted in accordance [with], the UNIDROIT Principles”.
- 14.
See, eg, Final Award of March 2000 rendered in ICC Case No 9875, (2001) Vol 12 No 2 ICC Bulletin 95.
- 15.
See Final Award of December 1996 rendered in ICC Case No 8769, (1999) Vol 10 No 2 ICC Bulletin 75: “Claimant is entitled to interest on the sums awarded pursuant to Art 78 of the Vienna Convention. Art 78 Vienna Convention does not specify a particular interest rate. The sole Arbitrator considers it appropriate to apply a commercially reasonable interest rate (see Art 7.4.9 subs 2 UNIDROIT Principles)”.
- 16.
See Partial Award of October 2000 rendered in ICC Case No 10022, (2001) Vol 12 No 2 ICC Bulletin 100, and Final Award of May 1999 rendered in ICC Case No 9753, (2001) Vol 12 No 2 ICC Bulletin 82.
- 17.
Art 1 of the first and second draft of the Section on Illegality read as follows in the relevant part: a “contract is illegal if, whether by its terms, performance or otherwise, it is contrary to principles widely accepted as fundamental in legal systems throughout the world” (UNIDROIT 2008 Study L – Doc 106, May 2008, 3; and UNIDROIT 2009 Study L – Doc 111, May 2009, 3).
- 18.
Art 3 of the first and second draft of the Section on Illegality read as follows in the relevant part: a “contract, whether by its terms, performance or otherwise, is also illegal if it infringes a mandatory rule applicable under Art 1.4 of these Principles” (UNIDROIT 2008 Study L – Doc 106, May 2008, 5; and UNIDROIT 2009 Study L – Doc 111, May 2009, 10).
- 19.
As to the agreements contrary to fundamental principles, the drafts provided that only the party that did not know (and ought not to have known) of the facts that made “the contract illegal” could have exercised its remedies under the contract (to the extent it appeared reasonable in the circumstances). Instead, as to contracts infringing a mandatory rule, the drafts established that the legal effect of the illegality would have been those “expressly prescribed by” the infringed “mandatory rule”, unless it did “not expressly prescribe the effects of an infringement”. In this case, the parties would have had the right “to exercise such remedies as in all the circumstances” were reasonable. See Arts 1, 2, 3, and 4 of the section on Illegality in UNIDROIT 2008 Study L – Doc 106, May 2008, 1–7; and UNIDROIT 2009 Study L – Doc 111, May 2009, 1–15.
- 20.
See Principles of European Contract Law, Arts 15:101 and 15:102.
- 21.
For a full account of the Working Group works see MJ Bonell, ‘The New Provisions on Illegality in the UNIDROIT Principles 2010’ (2011) Uniform Law Review 517.
- 22.
Arts 1.4 and 3.3.1 of the 2010 Principles.
- 23.
After all, this solution is obvious given that the Principles are a soft-law instrument.
- 24.
Art 3.3.1 reads as follows: “[w]here a contract infringes a mandatory rule, whether of national, international or supranational origin, applicable under Article 1.4 of these Principles, the effects of that infringement upon the contract are the effects, if any, expressly prescribed by that mandatory rule. Where the mandatory rule does not expressly prescribe the effects of an infringement upon a contract, the parties have the right to exercise such remedies under the contract as in the circumstances are reasonable. In determining what is reasonable regard is to be had in particular to: (a) the purpose of the rule which has been infringed; (b) the category of persons for whose protection the rule exists; (c) any sanction that may be imposed under the rule infringed; (d) the seriousness of the infringement; (e) whether one or both parties knew or ought to have known of the infringement; (f) whether the performance of the contract necessitates the infringement; and (g) the parties’ reasonable expectations”.
- 25.
Official commentary to Art 3.3.1 of the 2010 Principles, 128.
- 26.
Official commentary to Art 3.3.1 of the 2010 Principles, 134.
- 27.
Art 3.3.2. The criteria to assess the reasonableness are the same provided for by Art 3.3.1.
- 28.
Official commentary to Art 3.3.1 of the 2010 Principles, 34.
- 29.
In very broad terms, an objection to jurisdiction has been described as “a plea that the tribunal itself is incompetent to give any ruling at all”, while an objection to the substantive admissibility of the claim has been described as “a plea that the tribunal should rule the claim inadmissible on some ground other than its ultimate merits” (G Fitzmaurice, The Law and Procedure of the International Court of Justice (Cambridge, Grotius Publications, 1986) 438). In this regard, K Highet, in his Dissenting Opinion in Waste Management Inc v United Mexican States, distinguished jurisdiction and admissibility as follows: “[j]urisdiction is the power of the tribunal to hear the case; admissibility is whether the case itself is defective – whether it is appropriate for the tribunal to hear it” (Waste Management, Inc v United Mexican States, ICSID Case No ARB(AF)/98/2, Dissenting Opinion of Keith Highet on Jurisdiction, May 8, 2002, para 58; www.italaw.com/sites/default/files/case-documents/ita0894.pdf). The delineation of the two concepts is not clearly considered in every legal system and not always acknowledged by arbitral tribunals. The confusion derives mainly from the circumstance that both jurisdictional and admissibility objections, if upheld, prevent courts and tribunals from rendering a decision on the merits. However, ending the case because the tribunal finds it has no jurisdiction to hear the claims, or because the claims are deemed inadmissible, may have very different consequences. By way of example, consider that decisions of “tribunals which do not respect jurisdiction limits may be invalidated by a controlling authority” (eg, a domestic court), while, “if the parties have consented to the jurisdiction of a given tribunal, its determination as to the admissibility of claims should be final” (J Paulsson, ‘Jurisdiction and Admissibility’ in G Aksen, KH Böckstiegel, PM Patocchi and AM Whitesell (eds), Global Reflections on International Law, Commerce and Dispute Resolution, Liber Amicorum in honour of Robert Briner (Paris, ICC Publishing, Publication 693, 2005) 601).
- 30.
For an exhaustive list of the issues that international arbitral tribunals are called upon to solve when dealing with corruption, see A Crivellaro, ‘The Courses of Action Available to International Arbitrators to Address Issues of Bribery and Corruption’ (2013) 10 Transnational Dispute Management 1.
- 31.
Final Award of 1963 rendered in ICC Case No 1110 (1994) 3 Arb Int’l 282. By way of background, the dispute arose between: (i) an Argentine engineer, active as businessman in Buenos Aires since the 1930s and having “considerable influence in governmental as well as in commercial and industrial circles” (the claimant); and (ii) a British company (the respondent) that, knowing the Argentine authorities’ intention to increase “the production of electrical power in the region of Buenos Aires”, became interested “in this undertaking as potential supplier of electrical equipment” and “asked the claimant […] to promote the placing of an order (or orders) for electrical equipment with the respondent”. In this context, the parties entered into a commission agreement pursuant to which respondent was to pay a percentage of the consideration received for any contracts concluded with the Argentine authorities. Eventually, out of several contracts entered into by the Argentine authorities in connection with their project in the Buenos Aires region, only one was awarded to the respondent. As a result, the respondent refused to pay the commission to the claimant and the parties eventually entered into a submission agreement providing for arbitration in Paris under the ICC Rules.
- 32.
Final Award of 1963 rendered in ICC Case No 1110, 47 (n 31).
- 33.
Final Award of 1963 rendered in ICC Case No 1110, 51 (n 31).
- 34.
ibid.
- 35.
ibid.
- 36.
JD Lew, LA Mistelis and S Kröll, Comparative International Commercial Arbitration (The Hague, Kluwer Law International, 2003) paras 9–79.
- 37.
See, eg, the Final Award of May 4, 1999 rendered by an ad hoc UNCITRAL tribunal in case Himpurna California Energy Ltd v PT. (Persero) Perusahaan Listruik Negara, (2000) XXV Yearbook of Commercial Arbitration 13, paras 116–120. In this case, the arbitral tribunal also discussed the issue of burden of proof in corruption cases. In the words of the tribunal, the “point is simply that there is a presumption in favor of the validity of contracts; that this presumption is healthy; that it is strengthened when contracts have provided the basis upon which many persons have acted over time; and that a finding of illegality or other invalidity must not be made lightly, but must be supported by clear and convincing proof” (emphasis added). Accordingly, the allegation of corruption was eventually dismissed since it was found that there was “no evidence of corruption in this case”. For a more extensive discussion of general approaches to the burden of proof and its allocation, see Kreindler (n 8), 257–259.
- 38.
Separability of arbitration clauses is a far-reaching principle in most jurisdictions, and is reflected in Art 16(1) of the UNCITRAL Model Law: “A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”
- 39.
First Interim Award of 1983 rendered in ICC Case No 4145 (1987) XII Yearbook of Commercial Arbitration 97, para 8.
- 40.
See RH Kreindler, ‘Aspects of Illegality in the Formation and Performance of Contracts’ in AJ van den Berg (ed), International Commercial Arbitration: Important Contemporary Questions, ICCA Congress Series No 11 (London 2002) (The Hague, Kluwer Law International, 2003) 209; and P Leboulanger, ‘The Arbitration Agreement: Still Autonomous?’, in AJ van den Berg (ed), International Arbitration 2006: Back to Basics?, ICCA Congress Series No 13 (Montreal 2006) (The Hague, Kluwer Law International, 2007) 3.
- 41.
See, eg, Premium Nafta Products Limited (20th Defendant) et al (Respondents) v Fili Shipping Company Limited (14th Claimant) et al, House of Lords, October 17, 2007, [2007] UKHL 40 (www.publications.parliament.uk/pa/ld200607/ldjudgmt/jd071017/ship.pdf); and Tribunal Fédéral, National Power Corporation v Westinghouse, 2 September 2003, BGE 119 II 380.
- 42.
See, eg, Premium Nafta Products Limited (n 41).
- 43.
See, eg, Harbour Assurance Co Ltd v Kansa General International Insurance Co Ltd, Tapiola International Insurance Co Ltd et al, Court of Appeal (1995) XX Yearbook of Commercial Arbitration 787.
- 44.
See, eg, ICJ, Case Concerning Maritime Delimitation and Territorial Questions between Qatar and Bahrain (Qatar v Bahrain), (2001) 40 International Legal Materials 847.
- 45.
See, eg, ICC Case No 6401 Westinghouse and Bruns & Roe (USA) v National Power Company and the Republic of the Philippines, (1992) 7 Mealey’s International Arbitration Report 31.
- 46.
See, eg, TTMI Sarl v Statoil ASA [2011] EWHC 1150 (Comm).
- 47.
See, eg, PV Tytell, ‘The Detection of Forgery and Fraud’ in AJ van den Berg (ed), International Commercial Arbitration: Important Contemporary Questions, ICCA Congress Series No 11 (London 2002) (The Hague, Kluwer Law International, 2003) 315.
- 48.
Kreindler (n 8), 213.
- 49.
See, eg, the Final Award of 4 October 2006 rendered in the ICSID Case No ARB/00/077, World Duty Free Company Limited v Republic of Kenya, para 179: “[i]n conclusion, as regards public policy both under English law and Kenyan law (being materially identical) and on the specific facts of this case, the Tribunal concluded that the Claimant is not legally entitled to maintain any of its pleaded claims in these proceedings on the ground of ex turpi causa non oritur action”. In this case, the arbitral tribunal held that the acts of bribery committed by the investor were contrary to international public policy. In so doing, it cited the opinion of Kerr LJ in Euro-Diam: It would be an “affront to public conscience’ to grant to the Claimant relief which it seeks because this Tribunal “would thereby assist and encourage the plaintiff in his illegal conduct” (ibid, para 178). The question that arises is whether jurisdiction could be considered to be independently lacking because a claimant is estopped by reason of “unclean hands” from accepting respondent’s offer. In this context, the arbitral tribunal in World Duty Free held that “[i]f, from the plaintiff’s own stating or otherwise, the cause of actions appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted” (ibid para 181).
- 50.
This concept, which was originally developed at common law, today is found in the laws of many jurisdictions. For a thorough examination of the “unclean hands” doctrine and its implications in international arbitration, see Kreindler (n 8), 390–407; RH Kreindler, ‘Corruption in International Investment Arbitration: Jurisdiction and the Unclean Hands Doctrine’ in K Hobeér, A Magnusson, M Öhrström (eds), Between East and West: Essays in Honour of Ulf Franke (Huntington, Juris Publishing, 2010) 309–327; L Garcia-Arias, ‘La Doctrine des ‘Clean Hands’ en Droit International Public’ (1960) 30 Yearbook of Association of Attenders of Alumni of the Hague Academy of International Law 14; P Wendel, State Responsibility for Interferences with the Freedom of Navigation in Public International Law (London, Springer, 2007) 157. See also Klöckner Industrie-Anlagen GmbH et al v United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No ARB/81/2, Award, 21 October 1983; ICJ, Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, Advisory Opinion, 9 July 2004, 2004 International Court of Justice Reports 163; ICJ, Case Concerning Oil Platforms (Islamic Republic of Iran v United States of America), 6 November 2003, Separate Opinion of Judge Simma, 176–178; ICJ, Arrest Warrant of 11 April 2000 (Democratic Republic of the Congo v. Belgium), 14 February 2002, International Court of Justice Reports 2002, 13.
- 51.
Crivellaro (n 30), 3. The author specifies that the award was rendered on March 23, 2011 and is unpublished.
- 52.
ibid.
- 53.
It is worth noting that this conclusion is not necessarily valid under English law where: “illegal contracts are not devoid of legal effect, but the ex turpi causa maxim entails that no action on the contract can be maintained” (HG Beale, Chitty on Contracts (London, Sweet&Maxwell, 2012) Vol 1 para 16-007).
- 54.
Crivellaro (n 30), 3.
- 55.
AJ van den Berg, Final Award of 1990 rendered in ICC Case No 6248, (1994) XIX Yearbook of Commercial Arbitration 123.
- 56.
ibid, 137.
- 57.
ibid, 138.
- 58.
ibid, 126–127. When employing the concept of public policy, we refer to the “fundamental notions of a particular legal system” (B Hanotiau and O Caprasse, ‘Public Policy in International Commercial Arbitration’ in E Gaillard and D di Pietro (eds), Enforcement of Arbitration Agreements and International Arbitral Awards – The New York Convention in Practice (London, Cameron May Ltd, 2008) 789). However, a precise definition of public policy is “notoriously difficult” (ibid 788) and the concept is also not applied in a uniform fashion. Public policy has been called “one of the most elusive and divergent notions in the world of juridical science” (M Ferrante, ‘Enforcement of Foreign Arbitral Awards in Italy and Public Policy’ in Hommage à Frederic Eisemann, Liber Amicorum (Paris, ICC Publishing, 1978) 86), and a concept so vague and fundamental that it is much easier to feel than to define. There is a variety in the interpretation of public policy from country to country. It is precisely these differences in understanding of public policy between national laws that give meaning to public policy as a limitation to international arbitration, particularly in the commercial area. Furthermore, there is also the concept of transnational public policy, which refers to the generally internationally accepted core principles, which thus are part of the public policy of the majority of states (see, eg, RH Kreindler, ‘Approaches to the Application of Transnational Public Policy by Arbitrators’ (2003) 4 Journal of World Investment 246). International arbitrators often resort to international public policy standards (intended as “an international consensus as to universal standards and accepted norms of conduct that must be applied in all fora”; World Duty Free v Kenya, para 139, n 49) to give substance to their findings under the applicable law. See, eg, the Final Award of 1981 rendered in ICC Case No 3913, cited in the Final Award of 1998 rendered in ICC Case No 8891, (2000) 4 Journal Droit International, 1076–77: holding a contract null and void because its cause was “en droit frainçais, illicite et immorale” and specifying that “[c]ette solution n’est pas seulement conforme à l’ordre public français interne, elle résulte également de la conception de l’ordre public international tel que la plupart des nations le reconnaît”. See also the Final Award of August 1988 rendered in ICC Case No 5622 (1993) 2 Rev. Arb. 334, and the Final Award of 1994 rendered in ICC Case No 7047, (1997) Vol 8 No 1 ICC Bulletin 61 ff.
- 59.
See the Final Award of 1981 rendered in ICC Case No 3913, 1076 (n 58). See also the note by Y Derains to the Final Award 2730 (1984) Clunet 918 and ff.
- 60.
M Hwang and K Lim, ‘Corruption in Arbitration, Law and Reality’ (2012) 8 Asian International Arbitration Journal 65.
- 61.
See Beale, Chitty on Contracts, Vol 1, para 16-010 (n 53).
- 62.
Final Award of 2003 rendered in ICC Case No 11307, (2008) XXXIII Yearbook of Commercial Arbitration 24, para 34. See also Crivellaro (n 30), 6.
- 63.
See the Final Award of 2003 rendered in ICC Case No 11307, 24–62 (n 62).
- 64.
Official commentary to the Principles, 125.
- 65.
Official commentary to the Principles, 134.
- 66.
Official commentary to the Principles, 125.
- 67.
ibid.
- 68.
Official commentary to the Principles, 128.
- 69.
ibid.
- 70.
Official commentary to the Principles, 125.
- 71.
Art 3.3.1(2)(e).
- 72.
See, eg, the Award of 2003 rendered in ICC Case No 11307, 24 ff (n 62). See also Lord Mustill’s Expert Legal Opinion in World Duty Free v Kenya, para 164 (n 49).
- 73.
Official commentary to the Principles, 131.
- 74.
ibid.
- 75.
ibid.
- 76.
Bonell (n 21), 531.
- 77.
The criteria against which this reasonableness must be assessed are the same as those listed in Art 3.3.1.
- 78.
Official commentary to the Principles, 134.
- 79.
It has been authoritatively pointed out that: “there are differences in approach. Thus, while in common law jurisdiction as a rule no restitution is granted and only a few exception in specific circumstances are admitted (eg, where the party seeking restitution is excusably unaware of the illegal nature of the contract or is otherwise not in pari delicto; where that party withdraws from the contact before its improper purpose is achieved; where denial of restitution would cause that party a disproportionate forfeiture), in most civil law jurisdiction restitution is excluded only where also the party seeking restitution acted ‘consciously’ or ‘intentionally’ in violation of the mandatory rule in question, or even only where both parties were actuated by any ‘immoral’ and not merely ‘illegal’ purpose. However, notwithstanding these conceptual differences, in practice the solutions adopted are basically the same and characterized by a considerable degree of rigidity”. Bonell (n 21), 532.
- 80.
BA Garner (ed), Black’s Law Dictionary, 9th edn (St Paul, West Group, 2009) App B, 1838: “In pari delicto potior est conditio defendentis. Where both parties are equally in the wrong, the position of the defendant is the stronger”. See also Beale, Chitty on Contracts, Vol 1, paras 16-007 and 16-180 (n 53).
- 81.
Final Report – Ascertaining the Contents of the Applicable Law in International Commercial Arbitration (www.ila-hq.org/en/committees/index.cfm/cid/19).
- 82.
ibid at 21 and fn 63 citing to Kreindler (n 58), 239 ff.
- 83.
See, eg, Final Award of 1981 rendered in ICC Case No 3913 cited in (1984) Clunet, 918 ff (n 58): “[d]es constatations qui viennent d’être relates, il résulte que la convention liant (l’entreprise britannique) à (l’entreprise français) a un cause illicite, que – pour cette raison – elle est nulle et de nul effet et qu’en conséquence elle rend les parties mal fondées à s’en prévaloir pour exiger tant son exécution que la réparation du préjudice pouvant résulter de son inexécution, de même que la prise en compte, ou le cas échéant, la restitution, des sommes payées ou des avances faites pour son exécution”. See also Award of 1998 rendered in ICC Case No 8891, 1014 and the note by Hascher (n 58).
- 84.
Award of 1998 rendered in ICC Case No 8891, 1083 (n 58). The original French text reads as follows: “[p]ar ailleurs, le Tribunal arbitral est conscient que le nullité d’un contrat de pots-de-vin a pour effet que la partie ayant bénéficié des services de son cocontractant est dispense d’en payer le prix convenu. C’est là, sans nul doute, une coneséquence pour le moins déplaisante. Elle apparaît toutefois insuffisante à légitimer le contrat, soit à en imposer la validité malgré son objet ou sa cause illicite”.
- 85.
ibid.
- 86.
World Duty Free v Kenya, para 181 (n 49) (emphasis added). See also Kreindler (n 58), 239.
- 87.
For a policy-based argument in favor of a balancing test which argues that the burden of dealing with the negative effects of corrupt activities should not be borne solely by the host state, see H Raeschke-Kessler and D Gottwald, ‘Korruption und internationales Vertragsrecht: Rechtliche Aspekte der Korruption im Bau- und Infrastruktursektor mit Auslandsbezug’ in W Moll (ed), Festschrift für Hans-Jochem Lüer zum 70. Geburtstag (Munich, CH Beck, 2008) 39, 49 (advocating as a burden-shifting mechanism possible adaptation of any contract binding the two). Query whether the burden-shifting mechanism advocated herein has any firm grounding in public international law and in view of the Unclean Hands Doctrine. In any event, such remedy may have no place when the investment tainted with fraud was not contract-based.
- 88.
This argument was also indirectly discussed in World Duty Free v Kenya, para 180 (n 49). While the arbitral tribunal did not make the balance of interests part of its reasoning, it stated, “[i]t remains nonetheless a highly disturbing feature in this case that the corrupt recipient of the Claimant’s bribe was more than an officer of state but its most senior officer […] it appears that no attempt has been made by Kenya to prosecute him for corruption or to recover the bribe in civil proceedings. It is not therefore surprising that Mr Ali feels strongly the unfairness of the legal case”. However, as mentioned, the arbitral tribunal then resolved this conflict of interest by holding that the balance should tip in favor of the public interest, ie, the people of Kenya.
- 89.
World Duty Free v Kenya, para 181 (n 49).
- 90.
P Muchlinski, “Caveat Investor’? The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’ (2006) 55 International & Comparative Law Quarterly 527, 539–540 (stating further that “investment tribunals should not countenance illegal behavior by investors or government officials”).
- 91.
Official commentary to the Principles, 135.
- 92.
ibid.
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Kreindler, R.H., Gesualdi, F. (2015). The Civil Law Consequences of Corruption Under the UNIDROIT Principles of International Commercial Contracts: An Analysis in Light of International Arbitration Practice. In: Bonell, M., Meyer, O. (eds) The Impact of Corruption on International Commercial Contracts. Ius Comparatum - Global Studies in Comparative Law, vol 11. Springer, Cham. https://doi.org/10.1007/978-3-319-19054-9_17
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DOI: https://doi.org/10.1007/978-3-319-19054-9_17
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-19053-2
Online ISBN: 978-3-319-19054-9
eBook Packages: Humanities, Social Sciences and LawLaw and Criminology (R0)