Document-Id: 938000, Please cite as: "http://www.trans-lex.org/938000"

Principle

No. IV.7.2 - Invalidity of contract due to bribery

(a) Contracts based on or involving the payment or transfer of bribes ("corruption money", "secret commissions", "pots-de-vin", "kickbacks") are void.

(b) Any intentional offer, promise or transfer of any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official or person who directs or works, in any capacity, for a private sector entity, for the benefit of that official or private party or for a third party, in order that the official or private party acts or refrains from acting in relation to the performance of his official or other duties, in order to obtain or retain business or other improper advantages in the conduct of international business constitutes bribery.

CommentaryReferencesContract ClausesDiscussion

Commentary

1 The prohibition of bribery is derived from Principle IV.7.1. Bribery as defined in subsection (b) means any intentional offer, promise or transfer of money or of other advantages such as goods, property, privileges, objects of value, shares/stock options, promotion, sponsorship, donations etc. to a public official or the employee of a private party or for the benefit of a third party with the expectation that this official or employee favours the offering party or its principal, e.g. with respect to the awarding of a contract.

2 Subsection (a) makes it clear that the Principle applies both to contracts which have as their subject matter the payment or transfer of bribes (see infra para. 5) and to contracts which, even though their subject matter does not involve the payment or transfer of bribes, were concluded because of bribery.

3 In view of the detrimental effect of bribery to companies and national economies, this rule applies irrespective of the fact that corruption was and still is endemic in many countries. Like the prohibition of racial discrimination, child labour, money laundering, anti-competitive practices, terrorism or drug trafficking, the prohibition of bribery belongs to those fundamental values of morality and justice which are widely recognized by civilized nations around the globe. The Principle is therefore part of transnational public policy. The values and standards of transnational public policy reflect a minimum standard of conduct and behaviour in international commercial relations. The fact that the prohibition of bribery belongs to these fundamental values is reflected by the increasing criminalization of bribery and the increasing number of anti-bribery laws and international anti-bribery recommendations and conventions. As a result of this dual significance of the prohibition of bribery, a violation of this rule not only leads to the invalidation of a contract which is based on or involves the payment or transfer of bribes. Arbitral awards involving such contracts can be set aside and their enforcement can be refused based on the public policy defence contained in, e.g. Art. 34 (2) (b) (ii) UNCITRAL Model Law on International Commercial Arbitration of 1986 and Art. V (2) (b) New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. Also, because of its very strong public policy nature, arbitral tribunals which are faced with an issue of bribery must examine this issue ex officio, even if it is not argued by either side.

4 In arbitration proceedings where a case of corruption is alleged, the crucial issue typically is whether corruption has been demonstrated and proven by the party who is alleging it. Usually, direct evidence of corruption, such as contemporaneous documents or witness testimony, is available only in rare cases. Because arbitral tribunals are devoid of any power to compel third party witnesses or to open a criminal investigation, they must rely on circumstantial evidence in order to decide whether a case of corruption has occurred. Such circumstantial evidence may include the nature of the contractual obligation to be performed by the party that claims the payment of the money, the amount of the fee agreed upon by the parties and its relation to the value of the performance owed by the other party, the way in which this fee is to be calculated (lump sum or percentage fee), the payment terms (cash payments, payments to unrelated third parties) or the fact that the party claiming the money refuses to disclose information about its nature, organizational or personal structure. Sometimes payments under the contract are to be made to payment agents which are not identical with the receiving party or banks in off-shore jurisdictions which are known to have no or only very weak financial supervisory or legal enforcement authorities or the involvement of foundations of a non-commercial nature as payment-agents for the party which is to receive the money under the contract. Such factors may be taken into account by the arbitral tribunal in determining whether a contract is based on or involves the payment or transfer of bribes.  

5 Often, the payment of bribes is disguised by the conclusion of a "consultancy" or "agency" agreement which contains the obligation of one party to pay a sum of money ("commission") for the performance of certain consultancy services by the other side. Such contracts are concluded, e.g. in the area of public procurement. In some cases, such agreements do not contain specific contractual obligations for the party which is to receive payment under the contract by the other party, but rather very vague "best efforts" undertakings. In such a case, a claim for payment based on the contract fails if the party claiming the payment is not in a position to prove the performance of the contract (i.e. his activities owed to the other side) as a contractual prerequisite for the payment. In such a case, the arbitral tribunal can dismiss the claim without having to rule on the invalidity of the contract under the present Principle. If the arbitral tribunal decides to rule on the invalidity of the contract, the vagueness of the contractual obligations of the party which is claiming the money under the contract is another factor (see supra para. 4) to be taken into account by the tribunal.

Please cite as: "Commentary to Trans-Lex Principle , http://www.trans-lex.org/938000"
 

References

 

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Arbitral AwardsCourt DecisionsDoctrineInternational LegislationMiscellaneousMiscellaneous LegislationModel TermsNational Legislation

Arbitral Awards

Ad Hoc-Award of 1993, [1998] ASA Bull. 210 et seq.CCIG Award, 1989, [1993] ASA. Bull. 216 et seq.Himpurna California Energy Ltd. v PT. (Persero) Perusahaan Listruik Negara, UNCITRAL Ad Hoc-Award of 4 May 1999, YCA XXV (2000), 13 et seq.ICC Award No. 11307 of 2003, YCA 2008, 24 et seq.ICC Award No. 12290, Collection of ICC Arbitral Awards 2008-2011, at Page 831 et seq.ICC Award No. 14470, Collection of ICC Arbitral Awards 2008-2011, at page 945 et seq.ICC Award No. 3916, Coll. ICC Arb. Awards 1982, 507 et seq.ICC Award No. 4145 (Second Interim Award), YCA 1987, at 97 et seq. (also published in: Clunet 1985, at 985 et seq.)ICC Award No. 5622, YCA 1994, at 105 et seq. (also published in: Rev. d. Arb. 1992, at 773 et seq.)ICC Award No. 5943, Clunet 1996, at 1014 et seq.ICC Award No. 6497, YCA 1999, at 71 et seq.ICC Award No. 7047, ASA Bull. 1995, at 301 et seq.ICC Award No. 8891, Clunet 2000, 1076 et seq.World Duty Free Co Ltd v. The Republic of Kenya, ICSID Case No. ARB/00/7 

Court Decisions

BGH RIW 1985, at 653 et seq.Cour d'appel de Paris (1re Ch. C), 30 September 1993, Rev. Arb. 1994, 359 et seq.
 

Doctrine

Albanesi, Christian, Jolivet, Emmanuel, Dealing with Corruption in Arbitration: A Review of ICC Experience, ICC Special Supplement 2013: Tackling Corruption in Arbitration at page 27 et seq.Dalhuisen, Jan H. - Legal Orders and Their Manifestation: The Operation of the International Commercial and Financial Legal Order and Its Lex Mercatoria, (2006) 24 Berk J Intl L  129.Derains, Yves, note to ICC Award No. 2730, Clunet 1984, at 918 et seq.Domingo, Ortega, Rodriguez-Antolin, Zambrana, Principios de Derecho Global, Navarra, 2006Fouchard Gaillard Goldman on International Commercial Arbitration (edited by Emmanuel Gaillard and John Savage) The Hague 1999Gaillard, Emmanuel, Thirty Years of Lex Mercatoria: Towards the Discriminating Application of Transnational Rules, in: van den Berg (ed), Planning Efficient Arbitration Proceedings, at 570 et seq.Hascher, Dominique, Note to ICC Award No. 8891, Cluent 2000, 1083 et seq.Hascher, Dominique, note to ICC Award No.5943, Clunet 1996, at 1017 et seq.Krause, Daniel Marcus/ Vogel, Frank, Bestechungsbekämpfung im internationalen Geschäftsverkehr, RIW 1999, at 488 et seq.Kreindler, Richard, Competence-Competence in the Face of Illegality in Contracts and Arbitration Agreements, Hague Academy of International Law, 2013Levi, Michael/Raphael, Monty, Anti-corruption - a signpost for transactional lawyers, B.L.I. 1999, at 80 et seq.Loquin, La réalité des usages du commerce international, RIDéco 1989, at 163 et seq.Makinwa, O. Abiola, Civil Remedies for International Corruption: The Role of International Arbitration, in: Meyer, Olaf (ed.), The Civil Law Consequences of Corruption, 2009, S. 257.Mourre, Alexis, Arbitration and Criminal Law: Reflections on the Duties of the Arbitrator, Arbitration International, Volume 22 (2006), No. 1 at page 95 et seq.Mustill, Michael, The New Lex Mercatoria: The First Twenty-five Years, Arb.Int'l 1988, at 86 et seq.Nietzer, Wolf M., Die rechtliche Behandlung von Schmiergeldzahlungen in den USA ("Foreign Corrupt Practices Act") und Deutschland, DAJV-NL 2/98, at 43 et seq.Raeschke-Kessler/Gottwald, Korruption undinternationales Vertragsrecht - Rechtliche Aspekte der Korruption im Bau- undInfrastruktursektor mit AuslandsbezugScherer, Matthias, Circumstantial evidence in corruption before international tribunals, in: International Arbitration Law Review, Issue 2, London 2002.Sethe, Rolf, Zivilrechtliche Rechtsfolgen der Korruption am Beispiel von Bankgeschäften, WM 1998, at 2309 et seq. 

International Legislation

Council of Europe Civil Convention onCorruptionOECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. (Fulltext available at: http://www.oecd.org/dataoecd/4/18/38028044.pdf)United Nations Convention against Corruption 

Miscellaneous

World Duty Free Company LTD v. The Republic of Kenya, Application for dismissal of the claimant's claims with prejudice, 19th March 2003, in: Mealey's International Arbitration Report, Vol. 19, Nr. 8, 2004.World Duty Free Company LTD v. The Republic of Kenya, The Republic of Kenya‘s Response, 18 August 2004, in: Mealey's International Arbitration Report, Vol. 19, Nr. 8, 2004. 

Miscellaneous Legislation

ICC Rules of Conduct to Combat Extortion and Bribery in International Business Transactions 

Model Terms

Joint Operating Agreement For UKCS Licence No. P. [ ... ] Block [ ... ] (see: http://www.oilandgas.org.uk/issues/stdagreements/worddocs/joint_operating_agreement.doc) 

National Legislation

Spanish Código Civil 

Contract Clauses

 

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1. Anti-Bribery Contract ClauseSales & Purchase ContractMerger Agreement
1. Anti-Bribery Contract ClauseSales & Purchase ContractAnti-bribery Contract Clause
Option (1): Supplier/agent/representative shall comply with applicable laws and regulations relating to anti-corruption, including, without limitation, (i) United States Foreign Corrupt Practices Act, (ii) the UK Bribery Act 2010 irrespective of the place of performance, and (iii) laws and regulations implementing the Organization for Economic Cooperation and Development's Convention on Combating Bribery of Foreign Public Officials in International Business Transaction, the U.N. Convention Against Corruption, in supplier's country or any country where performance of this Contract will occur / Option (2): in performing this Contract, supplier/agent/representative warrants that supplier/agent/representative: (a) has not paid, offered, promised to pay or authorized and will not pay, offer, promise to pay, or authorize the payment directly or indirectly of any monies or anything of value including, entertainment, gifts, gratuities, kickbacks or otherwise, for the purpose of obtaining or rewarding favorable treatment as a X Company supplier/agent/representative. (b) Has not paid, offered, promised to pay or authorized and will not pay, offer, promise to pay, or authorize the payment directly or indirectly of any monies or anything of value to (i) any person or firm employed by or acting for or on behalf of any customer, whether private or governmental, or (ii) any government official or employee or any political party or candidate for political office for the purpose of influencing any act or decision or inducing or rewarding any action by the customer in any commercial transaction or in any governmental matter or securing any improper advantage to assist X Company in obtaining or retaining business or directing business to any person. (c) No owner, partner, officer, director or employee of supplier/agent/representative or of any parent or subsidiary company of supplier/agent/representative or of any parent or subsidiary company of supplier/agent/representative is or will become an official or employee of the government or of an agency or instrumentality of a governmnt or a candidate for political office or a political party official during the term of this Contract, unless such person obtains the prior written approval of X Company. (d) Has not made and will not make, either directly or indirectly, any improper payments, including but not limited to facilitation payments, gratuities or kickbacks. (e) Has established and will maintain an effective business ethics and compliance program and procedures to prevent corruption and ensure compliance with the Bribery Act. Supplier/agent/representative's program and procedures shall implement guidance published by the United Kingdom Ministry of Justice relative to compliance with the Bribery Act. (f) Supplier/agent/representative's will promptly disclose to X Company together with all pertinent facts any violation, or alleged violation in connection with the performance of this Contract. (g) Supplier/agent/representative shall include this clause or equivalent in subcontracts related to this Contract - (International Contracting: Law and Practice - Larry A. DiMatteo- 5.19 A - S. 184)
Gratuities/Kickbacks
Seller shall not offer or give a kickback or gratuity (in the form of entertainment, gifts, or otherwise) for the purpose of obtaining or rewarding favorable treatment as a Purchaser supplier - (International Contracting: Law and Practice - Larry A. DiMatteo - 8.10 - S. 292)
Legal Compliance and Foreign Corrupt Practices Act Clause
Distributor agrees to comply with all applicable law and regulations that may pertain to the sale or distribution of the Products pursuant to this Agreement. Distributor represents, warrants and covenants that it is familiar with 49 U.S.C. 78 dd-1, et seq., (the Foreign Corrupt Practice Act) and that it will comply with the provisions of this law - (International Contracting: Law and Practice - Larry A. DiMatteo - 9.03 - S. 330)
 Merger AgreementForeign Corrupt Practices Art
To the Company's Knowledge, neither the Company or its Subsidiaries nor any of their respective directors, officers, Employees, agents, Representatives or any other person acting for or on behalf of the Company or any of its Subsidiaries has paid, promised to pay or authorized the payment of any money, or offered, given, promised to give or authorized the giving of anything of value, to any Government Official or any other person under circumstances where it was known, or reasonably should have been known (after due and proper inquiry), that all or a portion of such money or thing of value would be offered, given or promised, directly or indirectly, to a Government Official or any other person for the purpose of: (i) influencing any act or decision of a Government Official or any other person in their official capacity; (ii) inducing a Government Official or any other person to do or omit to do any act in violation of such person's lawful duties; (iii) securing any improper business advantage; or (iv) inducing a Government Official or any other person to influence or affect any act or decision of any Governmental Authority, any company, business enterprise or other entity owned, in whole or in part, or controlled by any Governmental Authority, any political party, any commercial company or any person in a manner that would constitute or have the purpose or effect of public or commercial bribery, acceptance of or acquiescence to extortion, kickbacks or other unlawful or improper means of obtaining business or any improper advantage.
2013
 

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