The Very Naughty List: What Happens If Arbitrators Suspect Criminal Activity By The Parties

What should an arbitrator in an English-seated arbitration do (legally and/or ethically) when they suspect one or both parties to the arbitration has committed, is committing or intends to commit a criminal offence?

The issues an arbitrator might face

There are various ways in which an issue as to a criminal offence might arise in the context of an arbitration.

Sham arbitrations. Is an arbitrator who grants the award sought in the following scenarios guilty of any offence? Is the arbitrator under any obligation to report the matter?:

Sham arbitration as a means of laundering money. The dispute has been fabricated as a means of obtaining an award to justify the payment of money, which represents the proceeds of crime, from one party to another, typically through the client accounts of the respective parties' law firms. Sham arbitration as a means of re-characterising a payment. There might also be cases where the money or property in issue is not the proceeds of any criminal activity. For example a deal between the parties whereby one is to pay the other certain monies or transfer certain property. Alternatively, one party simply wishes to gift money or other property to the other. Simply gifting the money, or paying the money or transferring the property in settlement of an obligation, would give rise to some tax liability (e.g. inheritance tax, VAT, a capital gain) which the parties wish to avoid. The parties fabricate a completely different claim (e.g. a claim in libel) refer it to ad hoc arbitration, settle it for the same amount as the 'real' payment, have the settlement recorded in an award, and then use the award as the pretext for paying the money. Sham arbitration as an instrument of fraud. There may be even more elaborate schemes, where a fraudster makes a fabricated arbitration claim against a party, and the fraudster's accomplice, who is an employee or director of the respondent, uses his authority to settle the unwarranted claim contrary to his employer's interests, or otherwise ensures that the claim succeeds. Should the arbitrator render an award giving effect to the contract in the following scenarios?:

Contract obtained by criminal means. It comes to light in the course of the arbitration that the contract which is sought to be enforced in the arbitration was obtained by way of bribery or the threat or use of violence, such as to constitute a crime. Neither party takes the point that the contract is void for bribery or duress. Contract is illegal. It comes to light in the course of the arbitration that the contract which is sought to be enforced is void for illegality (e.g. a price fixing agreement). Neither party takes the point that the contract is void for illegality. Should the arbitrator render an award giving effect to the contract? Evidence of incidental wrongdoing. In the course of the arbitration, evidence emerges of some wrongdoing having been committed, or as being planned, by a party, witness, counsel or someone else. Is the arbitrator ever under a positive legal duty to pass the information to the authorities? If the arbitrator has no such duty, and elects to report the matter anyway, are they in breach of any duty of confidentiality owed to the parties? Obviously evidence of all sorts of things might come to light in an arbitration: Evidence of conduct which constitutes a criminal offence as a matter of English law. Evidence of conduct which constitutes a criminal offence in some other jurisdiction, and which would, had it been committed in England, also have constituted a criminal offence as a matter of English law. Evidence of conduct amounting to a criminal offence in some other jurisdiction, which would not, had it occurred in England, constitute a criminal offence as a matter of English law. Breach of a professional or industry regulatory requirement. It comes to light in the course of the arbitration that a party operating in a regulated industry or profession (e.g. financial services, power, medicine) has committed or will commit a breach of the regulations imposed by the regulator. Breach by lawyer of a professional obligation. In the course of the arbitration, the lawyer acting for a party acts in breach of a relevant professional obligation. Evidence of unpaid tax. In the course of the arbitration, evidence emerges to show that a party has not paid the correct amount of tax (such that, as well as being liable to pay the tax and interest, they would also be liable to pay a fine). A threat to public health or the environment. A breach of planning law. For example, that a building was constructed without the necessary planning permission. Section 33 duty and duty not to resign without reasonable cause

The only duties to the parties which are imposed on the arbitrator by the Arbitration Act 1996 (the "1996 Act") are:

The general duty in section 33 (act fairly and impartially, give each party a reasonable opportunity of putting its case, adopt suitable procedures). The effect of Article 29 is that, even if the arbitrator breaches this duty, provided the arbitrator was in good faith, an affected party will have no recourse against the arbitrator. The affected party's only remedy for breach of this duty is to have the award set aside under section 68(2)(a), and then only if the arbitrator's breach of section 33 has caused the party substantial injustice. A duty not to resign? Section 25 provides that the arbitrator and the parties may agree what is to happen if the arbitrator resigns. Absent such agreement, the Act seems to contemplate that the arbitrator who withdraws might be liable for breach of some duty owed to the parties - presumably the contractual duty to provide the services of an arbitrator. Section 25(3) and (4) seem to contemplate that it will be a defence to such a claim to show that it was "reasonable" to have resigned. In practice, the institutional rules generally seek to exclude any liability which might otherwise arise out of an arbitrator's decision to resign. The ICC Rules provide:

"Article 40: Limitation of Liability

The arbitrators, any person appointed by the arbitral tribunal, the emergency arbitrator, the Court and its members, the ICC and its employees, and the ICC National Committees and Groups and their employees and representatives shall not be liable to any person for any act or omission in connection with the arbitration, except to the extent such limitation of liability is prohibited by applicable law."

The LCIA Rules provide:

"Article 31 Limitation of Liability

31.1 None of the LCIA (including its officers, members and employees), the LCIA Court (including its President, Vice-Presidents, Honorary Vice-Presidents and members), the Registrar (including any deputy Registrar), any arbitrator, any Emergency Arbitrator and any expert to the Arbitral Tribunal shall be liable to any party howsoever for any act or omission in connection with any arbitration, save: (i) where the act or omission is shown by that party to constitute conscious and deliberate wrongdoing committed by the body or person alleged to be liable to that party; or (ii) to the extent that any part of this provision is shown to be prohibited by any applicable law."

An implied duty of care owed to the parties?

Does an arbitrator owe the parties a duty to exercise reasonable care and skill? Arguably the answer is yes.

Section 13 of the Supply of Goods and Services Act 1982 provides:

"In a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill."

Arbitrators undoubtedly supply a service to the parties. There might be some instances where arbitrators do not act in the course of a business (for example, when religious or community leaders act as arbitrators on a not-for-profit basis). There might also be some instances where the parties have no direct contractual nexus with the arbitrators (for example, in an ICC arbitration, is there a contractual nexus between the parties and the arbitrators, or is the only contract with the institution?).

It seems sensible to assume that an arbitrator does owe the parties a duty to exercise reasonable care and skill. It might be that such a duty is implied into a contract between the parties and the tribunal, either under section 13 of the 1982 Act or at law. It might be that there is no contractual nexus between parties and arbitrators, but such a duty nonetheless arises because of an 'assumption of responsibility' by the arbitrator.

Any such duty would, however, be covered by the immunity in section 29 of the 1996 Act, with no liability flowing from a breach of the duty unless the arbitrator acted in bad faith.

Arbitrator's contractual duty of confidence to the parties

The 1996 Act does not contain any express provision about the confidentiality of arbitration proceedings.

In Emmott v Michael Wilson & Partners [2008] EWCA Civ 184 Collins LJ held:

"81. ... there is ... an implied obligation (arising out of the nature of arbitration itself) on both parties not to disclose or use for any other purpose any documents prepared for and used in the arbitration, or disclosed or produced in the course of the arbitration, or transcripts or notes of the evidence in the arbitration or the award, and not to disclose in any other way what evidence has been given by any witness in the arbitration, save with the consent of the other party, or pursuant to an order or leave of the court".

84. The implied agreement is really a rule of substantive law masquerading as an implied term. ...

88. The English courts have...