Fraudulent Arbitrations: A Few Bad Apples?

Aceris Law

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Aceris Law is a leading boutique international arbitration law firm. It provides the highest-quality legal representation for complex international commercial arbitrations, investor-State arbitrations and international construction disputes, combining competitive legal fees with an outstanding track record. It covers all jurisdictions, arbitral institutions and industry sectors, working for clients globally.
Arbitration offers parties a flexible, efficient and confidential alternative to traditional litigation for resolving disputes. However, under certain circumstances...
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Arbitration offers parties a flexible, efficient and confidential alternative to traditional litigation for resolving disputes. However, under certain circumstances, these positive aspects of arbitration can be manipulated to nefarious ends.

When arbitrations go rogue, it's less "courtroom drama" and more "crime thriller". The following three cases of fraudulent arbitrations serve as illustrations of how both parties and legal practitioners have exploited arbitration for personal or political gain. While fraud in international arbitration is very rare, and the perpetrators of past schemes have faced serious repercussions, it is the duty of all members of the arbitration community to ensure that fraud is stamped out prior to the need for intervention of domestic courts.

The Sheikh Ahmad Al-Sabah Arbitration

In 2018, Swiss authorities charged three arbitration lawyers, including a British lawyer and a Bulgarian-Swiss lawyer, along with Sheikh Ahmad Al-Sabah, a nephew of the Emir of Kuwait and member of the International Olympic Committee, and his aide, with forgery of documents related to a fraudulent arbitration aimed at implicating senior Kuwaiti officials in a coup plot and corruption scandal.

The case revolved around fake videos submitted by Sheikh Ahmad to Kuwaiti authorities in 2013 in an attempt to remove his cousin from politics. As part of his efforts to convince the Kuwaiti authorities of the veracity of the videos, Sheikh Ahmad relied on an arbitral award supposedly rendered in Geneva in 2014 in a non-existent case between the Sheikh and Trekell Group LLC, a shell company with no active business. The award was said to have been drafted by the British lawyer, while the Bulgarian-Swiss lawyer allegedly accepted 10,000 Swiss francs to sign the award as sole arbitrator.1

In September 2021, a Geneva criminal court convicted the three lawyers, Sheikh Ahmad and his aide, of forgery, finding that the British solicitor, in particular, was highly involved at all stages of the fabrication.2

In December 2023, the appeal chamber of the Geneva Court of Justice upheld the lower court's guilty verdicts against the British and Bulgarian-Swiss lawyers, Sheikh Amad and his aide, though reducing their sentences. The third lawyer was acquitted on appeal.3

Contax v. KFH

On 21 June 2023, a claim was commenced by Contax Partners Inc. BVI (Contax), an oil and gas company with offices in Bahrain, against the Defendants, three Kuwaiti companies in a banking group, to enforce an alleged Kuwaiti arbitration award dated 28 November 2022. The award was said to have been rendered pursuant to an arbitration agreement between Contax and the Defendants dated 31 August 2021. Contax claimed that it was owed EUR 53 million as per this award.

The Hon. Mr. Justice Butcher of the High Court initially made an order on 9 August 2023 giving Contax leave to enforce the award if, within 28 days of service, the Defendants did not apply to set the order aside. Contax purported to serve the order on the Defendants and after 28 days applied for third-party debt orders (TPDOs) against the Defendants' banks, which were granted.

As a result of the freezing of the Defendants' bank accounts in compliance with the TPDOs, the Defendants were made aware of the proceedings. The First and Second Defendants applied for and obtained an order to prevent payment under the TPDOs until the Defendants could apply to set aside the August order, claiming that there had never been an arbitration and, thus, that the award was a complete fabrication.

In a judgment issued on 29 February 2024, Justice Butcher set aside his August order and concluded that the award was undoubtedly counterfeit, citing extensive evidence, including substantial plagiarism from a prior British court judgment, the use of non-standard legal terminology and inconsistencies with Kuwaiti legal procedures, particularly that the award was in English rather than Arabic and the names of the judges on the purported Kuwaiti enforcement order were not names belonging to any real Kuwaiti court members. Given the fabricated nature of the award and the absence of a valid arbitration agreement or arbitration, Justice Butcher rescinded his earlier order.

P&ID v. Nigeria

While the previous two cases featured fake awards from arbitrations that never took place, the award in P&ID v. Nigeria was legitimately rendered during a bona fide arbitration. Instead, the fraudulent nature of this arbitration came from the contract on which it was predicated.

In 2010, Process & Industrial Developments Ltd (P&ID), a company registered in the British Virgin Islands and founded by two Irish businessmen, purportedly entered into a Gas Supply and Processing Agreement (GSPA) with the Nigerian Ministry of Petroleum Resources. Under the GSPA, Nigeria was to supply wet gas to P&ID, which would then process it, deliver it to Nigeria for power generation and sell the remaining byproducts.

It was undisputed that neither party performed under the GSPA, and in 2013, P&ID commenced arbitration against Nigeria. The arbitral tribunal was composed of two British arbitrators and one Nigerian arbitrator. In 2017, the tribunal rendered an award in which it found that Nigeria had committed a repudiatory breach of the GSPA and that the GSPA was terminated on P&ID accepting that repudiatory breach. It also found Nigeria liable for damages of USD 6.6 billion, reflecting P&ID's estimated lost profits over 20 years.

Nigeria's initial attempts to contest the award failed due to insufficient evidence. After securing additional evidence through international court orders against P&ID, Nigeria resumed its challenge in 2020, culminating in a final hearing before the British High Court in January 2023.

Before the court, Nigeria alleged widespread corruption involving various civil servants, its internal legal team, and even its counsel in the arbitration, all allegedly influenced by P&ID, while P&ID claimed that regardless of any corruption, Nigeria lost the arbitration on legitimate grounds, primarily due to the government's refusal to participate and to its counsel's incompetence.

In a judgment penned by the Hon. Mr. Justice Knowles, the court set aside the award, finding that it had been obtained by fraud and in a way contrary to public policy. Despite the court's inability to conclusively establish corruption in all aspects, as claimed by Nigeria, it found evidence of P&ID bribing a former legal director involved in the GSPA negotiations. P&ID was also found to have improperly retained and exploited Nigeria's privileged legal documents.

Ultimately, the court determined that these actions constituted serious irregularities under Section 68(2)(g) of the Arbitration Act, leading to the decision to set aside the award. Additionally, the court deliberated on the application of Section 73 regarding the loss of the right to object but ultimately deemed it inapplicable under the circumstances.

As Justice Knowles stressed in his judgment:

This case has [], sadly, brought together a combination of examples of what some individuals will do for money. Driven by greed and prepared to use corruption; giving no thought to what their enrichment would mean in terms of harm for others.

Conclusion

While these cases demonstrate the ways that arbitration can be abused for fraudulent purposes, it is important to remember that fraudulent arbitrations are extremely rare and only make up a negligible percentage of the thousands of legitimate international arbitrations that occur each year.

A few bad apples might spoil the barrel, but a few fraudulent arbitrations should not shake confidence in arbitration as an institution. Cases like this are merely a negative reflection on the actions of a few individuals and not on arbitration, which provides and will continue to provide a flexible, efficient, and confidential alternative for resolving disputes.

Footnotes

1. S. Perry, Lawyers Charged in Geneva Over Fake Arbitration, GAR, 3 December 2018, https://globalarbitrationreview.com/lawyers-charged-in-geneva-over-fake-arbitration.

2. S. Perry, Five Convicted Over Fake Arbitration in Geneva, GAR, 10 September 2021, https://globalarbitrationreview.com/five-convicted-over-fake-arbitration-in-geneva.

3. S. Perry, Four Convictions Upheld in Geneva Over Fake Arbitration, GAR, 22 January 2024, https://globalarbitrationreview.com/article/four-convictions-upheld-in-geneva-over-fake-arbitration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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