ICSID Tribunal Confirms that Allegations of Corruption Must Be Substantiated by « Clear and Convincing Evidence »
By Elizabeth Whitsitt
November 3, 2009
On October 8, 2009 an ICSID 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. In dismissing all claims by EDF (Services) Limited (“EDF”) against Romania, the tribunal’s decision affirms that allegations of corruption must be substantiated by “clear and convincing” evidence.
Seeking over US $130 million in damages, EDF commenced arbitration against Romania in the summer of 2005. 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’s airports and also on board Romanian airplanes. 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. 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. In particular, EDF claimed that Romania had unlawfully expropriated its investment and had treated its investment unfairly, inequitably, arbitrarily and unreasonably.
The heart of EDF’s case revolved around allegations of corruption. 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. After refusing to meet such demands, EDF alleged that numerous state entities, including its joint venture partners and Romania’s judiciary, legislature, and taxing authorities, took concerted measures to destroy EDF’s investment in Romania. EDF’s evidence substantiating this allegation included testimony from an EDF Director and EDF’s managing partner, as well as a tape-recording of a meeting between an EDF agent and a member of the Romanian Prime Minister’s staff.
The tribunal rejected EDF’s allegations of corruption after finding that EDF had failed to produce “clear and convincing evidence” that a bribe had been requested on behalf of the Romanian government. In so finding, the tribunal determined that testimony by EDF’s director was of “doubtful value” given inconsistent factual statements by EDF’s director about the alleged bribery solicitation.
The tribunal also declared EDF’s tape-recording inadmissible. 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.
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. Twelve days before the hearing of this case, EDF claimed that it learned of the tape-recording’s existence and immediately applied to have the tape-recording admitted into evidence. However, based on evidence submitted to the tribunal by EDF, the tribunal found that EDF “was aware from the time the [tape]-recording was created of its existence.” Addressing this contradiction, the tribunal concluded that EDF’s behavior was “…contrary to the duty of fairness imposed upon the Parties to an international arbitration.”
In addition, the tribunal noted that EDF never provided the original version of the tape-recording despite Romania’s requests. As a result, the tape-recording could never be authenticated making it unreliable and inadmissible. The tribunal also found that the tape-recording “was obtained illegally according to Romanian law.” Apparently, the tape-recording was created “in [a Romanian government official’s] home without her consent in breach of her right to privacy.” As a result, the tribunal held that admitting the evidence under these circumstances “would be contrary to the principles of good faith and fair dealing required in international arbitration.” Accordingly, the tribunal unanimously refused to admit the tape-recording into evidence.
Having concluded that the admissible evidence tendered by EDF in support of its corruption allegations was “far from clear-and-convincing”, the tribunal unanimously went on to dismiss all of EDF’s claims against Romania. In so doing, the tribunal observed that there was no evidence to support EDF’s claim that “…a kind of “concerted attack” was organized and designed to bring about the taking and destruction of its investment in Romania.”
The majority of the tribunal also awarded Romania US$ 6 million in costs. In so doing, the majority noted that its preferred approach to costs reflected the “…principle that the losing party pays, but not necessarily all the costs of the arbitration or of the prevailing party.” Arthur Rovine, the arbitrator appointed by EDF, dissented from this decision. 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. Accordingly, Mr. Rovine would have preferred to split costs between the parties evenly without consideration of which side prevailed.
Sources:
* Procedural Order No. 3 in EDF (Services) Limited v. Romania is available at:
http://ita.law.uvic.ca/documents/EDFPO3.pdf
Award and Dissenting Opinion in EDF (Services) Limited v. Romania is available at:
http://ita.law.uvic.ca/documents/EDFAwardandDissent.pdf