Arbitrating Fraud - Arbitrability

A dispute will not be arbitrable if, for example, it concerns something reserved for exclusive resolution by the Courts for reasons of public policy. Even a widely drafted arbitration agreement will have to yield in such cases.

Certain family and employment law claims for example are subject to exclusive resolution by the Courts. However, importantly, claims involving fraud may be and indeed frequently are the subject of arbitration both in the UK and internationally.

Crime

There is a key distinction in relation to criminal proceedings which, since they can potentially lead to a conviction and related penal sanctions, are recognised as being incapable of being referred to arbitration. This distinction is that allegations or claims made in arbitration which may give rise to the potential for criminal sanctions, or reveal that a crime may be committed in the future, are arbitrable. An arbitrator has jurisdiction to find facts which constitute a criminal offence, such as fraud, or in appropriate cases to find that a criminal offence has been committed.

In a case concerning civil and criminal liability for pollution caused by the spillage of oil from a vessel off the Spanish coast in 2002, the English Commercial Court rejected the submission that because an arbitrator cannot convict someone of a criminal offence, civil law claims against the ship owner which involved allegations of criminality were not arbitrable. The fact that they could give rise to separate criminal proceedings did not prevent the claims being arbitrable, because the arbitration concerned the civil claims for damages. Accordingly, a connection to criminal proceedings is not fatal to an arbitration claim.

Fraud

The English Arbitration Act expressly recognises that anarbitration may decide an issue of fraud. Further, the Courts have acknowledged that an arbitrator may determine allegations of bribery against a party to the arbitration in the context of a civil claim for the consequences of that conduct. The same would likely apply to allegations of corruption or money laundering, again in the context of a civil claim.

Allegations of fraud are frequently made in arbitrations, although less frequently proved. Internationally, arbitral tribunals do not always have the same powers to investigate and compel production of documents and evidence as national courts. Arbitrations with their seat in England benefit from powers exercisable by the Court in support of arbitral proceedings. These include the taking of the evidence of witnesses, the preservation of evidence, making orders relating to property which is the subject matter of the proceedings and the granting of interim injunctions to preserve assets.

The trend is for broadening arbitrability. Such an expansion in the range of disputes that are capable of being submitted to arbitration in England and Wales is to be welcomed given the prevalence of arbitration agreements in commercial contracts.