Hoffman: Difficult to see what arbitrators could do
The former law lord who presided over the arbitration whose $11bn award was later found to have been obtained by fraud has said there was nothing the panel could have done differently.
Lord Hoffman said a suggested amendment to the Arbitration Bill, which would introduce a general duty on the tribunal to “safeguard the arbitration proceedings against fraud and corruption”, would have had no effect.
He was speaking during the bill’s report stage on Wednesday, at which the amendment was put forward by Labour peer and former lawyer Lord Hacking.
Lord Hacking raised the issue of corruption during the second reading, citing the high-profile ruling last November of Mr Justice Robin Knowles, in which he held that the $11bn arbitral award against the Federal Republic of Nigeria was obtained by fraud.
Last month, justice minister Lord Ponsonby said the government did not intend to amend the bill.
Lord Hacking said his amendment would place “a firm flag in the ground” to show the international community “that corruption or fraud in all arbitrations where the seat is England is quite unacceptable”.
It would work through an arbitrator telling counsel and the parties at the start of the hearing “that there should be no taint of corruption and fraud”, he explained.
“I know this from my days as a counsel and solicitor. When a counsel or solicitor takes instruction from a client and prepares witness statements, there is plenty of opportunity to smoke out potential acts of corruption and fraud.”
Lord Hoffman was the presiding arbitrator in the Nigeria case. While “no one could object to the sentiment” behind the amendment, he questioned what arbitrators were supposed to do.
The claim had been for breach of a 25-year contract for Nigeria to supply gas. “The question was: was that a breach of contract? If it was, what were the damages to be? No objection was made on the validity of the contract.
“We heard the arguments about whether there had been a breach, and we decided there had.”
At the High Court hearing, “it turned out that there had been some bribery and corruption in obtaining the contract and in the conduct of the litigation. None of this was known to us”.
Lord Hoffman continued: “So the question is: what ought we to have done? Should we have said to the parties at the beginning, ‘By the way, can you please assure us that there has been no bribery and corruption?’
“It seems an extraordinary ritual that we would have had to go through, and it would have to be the case in every arbitration.”
Arbitration was “a consensual arrangement” and he suggested it would not be appropriate for the tribunal to “attempt to dig away at a point on which the parties have not relied”.
In a case in which neither party raised the question of corruption, “it is difficult to see what the arbitrators can do”.
The cross-bencher added: “It is also difficult to see why that should not also be the case in ordinary litigation in the Commercial Court. Is the judge in the Commercial Court to say to the parties, ‘Has there been any corruption? Nobody’s mentioned it yet, but can you please tell us and inquire as to whether there’s been corruption?’
“It is quite inconsistent with the way in which litigation and arbitration are conducted that the tribunal should have to take that sort of active investigatory role.”
Such an approach could even provide “a technical ground” for a losing party to challenge an arbitration by saying the tribunal did not do enough to investigate whether there was any corruption, even if the party had no evidence there was.
Lord Hoffman received backing from the other speakers in the debate – Liberal Democrat Lord Beith said the fact the High Court discovered the corruption showed the system could deal with it – and Lord Hacking withdrew the amendment.
Lord Mance, former deputy president of the Supreme Court, suggested that “legal attention might be considered” beyond the bill where corruption was found by an arbitral tribunal.
“There might be something to be said in that context for an express provision permitting disclosure, to interested public authorities, of corruption that has actually been found…
“It seems to me that it is probably already permitted by common law, because there is no privilege in iniquity; on the other hand, I do not believe that arbitrators at the moment would, without express legislative backing, be likely to disclose even corruption that they had found in their award.”
Former Conservative justice minister Lord Wolfson, who acted in the Nigeria case and several other high-profile arbitrations, asked the government to consider this – “a nudge from the relevant arbitral bodies might be helpful”, he suggested.
Lord Ponsonby replied: “They are of course perfectly able to do that. It would be beneficial, and maybe they should remind themselves that they have that responsibility to give a nudge if they suspect corruption in particular cases.”
More broadly, he said the government opposed legislative reform “precisely because it is unclear what additional benefit it would provide over the current regime, which provides both parties and arbitrators with routes to challenge and address corrupt conduct, as well as duties on the arbitrator to ensure fair and proper proceedings”.
I wonder whether more emphasis should be given to the English Arbitration Act Section 34 on procedural and evidential matters at … (2) “Procedural and evidential matters include— … (g) whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law; …”
If Lord Hoffman and his colleagues had taken advantage of that provision, how likely was it that the parties would have agreed to stop them?