{"id":436,"date":"2009-11-01T18:54:00","date_gmt":"2009-11-01T23:54:00","guid":{"rendered":"http:\/\/itn.mattrock.ca\/2009\/11\/01\/icsid-tribunal-confirms-that-allegations-of-corruption-must-be-substantiated-by-%e2%80%9cclear-and-convincing-evidence%e2%80%9d\/"},"modified":"2013-02-01T03:52:09","modified_gmt":"2013-02-01T09:52:09","slug":"icsid-tribunal-confirms-that-allegations-of-corruption-must-be-substantiated-by-clear-and-convincing-evidence","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2009\/11\/01\/icsid-tribunal-confirms-that-allegations-of-corruption-must-be-substantiated-by-clear-and-convincing-evidence\/","title":{"rendered":"ICSID Tribunal Confirms that Allegations of Corruption Must Be Substantiated by “Clear and Convincing Evidence”"},"content":{"rendered":"

By Elizabeth Whitsitt<\/span><\/p>\n

November 3, 2009<\/span><\/p>\n

On October 8, 2009 an ICSID<\/span> tribunal, composed of Professor Piero Bernardini, Mr. Arthur W. Rovine, and Mr. Yves Derains, confirmed that allegations of corruption against a state will not be taken lightly.\u00a0 In dismissing all claims by EDF (Services) Limited (\u201cEDF\u201d) against Romania, the tribunal\u2019s decision affirms that allegations of corruption must be substantiated by \u201cclear and convincing\u201d evidence.<\/span><\/p>\n

Seeking over US $130 million in damages, EDF commenced arbitration against Romania in the summer of 2005.\u00a0 EDF asserted that it was invited by Romania to invest in the country and to establish a sale of goods business (i.e. duty-free sales) in several of Romania\u2019s airports and also on board Romanian airplanes.\u00a0 To establish this business EDF entered into joint venture agreements with Romanian state-owned entities to form EDF ASRO S.R.L. and SKY SERVICES (ROMANIA) S.R.L.\u00a0 After its joint venture partners refused to renew those agreements, EDF contended that Romania had violated numerous provisions of the UK-Romania Bilateral Investment Treaty.\u00a0 In particular, EDF claimed that Romania had unlawfully expropriated its investment and had treated its investment unfairly, inequitably, arbitrarily and unreasonably.<\/p>\n

The heart of EDF\u2019s case revolved around allegations of corruption.\u00a0 EDF asserted that its relationship with Romania began to sour in the summer of 2001 when it refused to comply with demands for bribes from senior Romanian government officials.\u00a0 After refusing to meet such demands, EDF alleged that numerous state entities, including its joint venture partners and Romania\u2019s judiciary, legislature, and taxing authorities, took concerted measures to destroy EDF’s investment in Romania.\u00a0 EDF\u2019s evidence substantiating this allegation included testimony from an EDF Director and EDF\u2019s managing partner, as well as a tape-recording of a meeting between an EDF agent and a member of the Romanian Prime Minister\u2019s staff.<\/span><\/p>\n

The tribunal rejected EDF\u2019s allegations of corruption after finding that EDF had failed to produce \u201cclear and convincing evidence\u201d that a bribe had been requested on behalf of the Romanian government.\u00a0 In so finding, the tribunal determined that testimony by EDF\u2019s director was of \u201cdoubtful value\u201d given inconsistent factual statements by EDF\u2019s director about the alleged bribery solicitation.<\/span><\/p>\n

The tribunal also declared EDF\u2019s tape-recording inadmissible.\u00a0 In a procedural order* the tribunal refused admission of the tape-recording because: (i) the circumstances surrounding its creation were uncertain, (ii) the tape-recording lacked authenticity, and (iii) it was obtained illegally.<\/span><\/p>\n

In declining to admit the tape-recording as evidence, the tribunal seemed particularly troubled by EDF’s conduct and the circumstances under which it submitted the tape-recording into evidence.\u00a0 Twelve days before the hearing of this case, EDF claimed that it learned of the tape-recording\u2019s existence and immediately applied to have the tape-recording admitted into evidence.\u00a0 However, based on evidence submitted to the tribunal by EDF, the tribunal found that EDF \u201cwas aware from the time the [tape]-recording was created of its existence.\u201d\u00a0 Addressing this contradiction, the tribunal concluded that EDF\u2019s behavior was \u201c\u2026contrary to the duty of fairness imposed upon the Parties to an international arbitration.\u201d<\/span><\/p>\n

In addition, the tribunal noted that EDF never provided the original version of the tape-recording despite Romania\u2019s requests.\u00a0 As a result, the tape-recording could never be authenticated making it unreliable and inadmissible.\u00a0 The tribunal also found that the tape-recording \u201cwas obtained illegally according to Romanian law.\u201d\u00a0 Apparently, the tape-recording was created \u201cin [a Romanian government official\u2019s] home without her consent in breach of her right to privacy.\u201d\u00a0 As a result, the tribunal held that admitting the evidence under these circumstances \u201cwould be contrary to the principles of good faith and fair dealing required in international arbitration.\u201d\u00a0 Accordingly, the tribunal unanimously refused to admit the tape-recording into evidence.<\/span><\/p>\n

Having concluded that the admissible evidence tendered by EDF in support of its corruption allegations was \u201cfar from clear-and-convincing\u201d, the tribunal unanimously went on to dismiss all of EDF\u2019s claims against Romania.\u00a0 In so doing, the tribunal observed that there was no evidence to support EDF\u2019s claim that \u201c\u2026a kind of \u201cconcerted attack\u201d was organized and designed to bring about the taking and destruction of its investment in Romania.\u201d<\/span><\/p>\n

The majority of the tribunal also awarded Romania US$ 6 million in costs.\u00a0 In so doing, the majority noted that its preferred approach to costs reflected the \u201c\u2026principle that the losing party pays, but not necessarily all the costs of the arbitration or of the prevailing party.\u201d\u00a0 Arthur Rovine, the arbitrator appointed by EDF, dissented from this decision.\u00a0 In direct contrast to the majority, Mr. Rovine was of the opinion that one party should not bear a greater share of the costs unless aggravating circumstances are present suggesting bad faith or abuse of process.\u00a0 Accordingly, Mr. Rovine would have preferred to split costs between the parties evenly without consideration of which side prevailed.<\/span><\/p>\n

Sources:<\/span><\/p>\n

* Procedural Order No. 3 in EDF (Services) Limited v. Romania is available at:
\n<\/span>http:\/\/ita.law.uvic.ca\/documents\/EDFPO3.pdf<\/span><\/a><\/p>\n

Award and Dissenting Opinion in EDF (Services) Limited v. Romania is available at:
\n<\/span>http:\/\/ita.law.uvic.ca\/documents\/EDFAwardandDissent.pdf<\/span><\/a><\/p>\n