I. Can allegations of corruption serve as a bar to jurisdiction of arbitral tribunals or admissibility of claims?

Under German law, arbitration agreements are not per se rendered null and void in cases of allegations of corruption. If alleged corruption directly affects the arbitration agreement as such, e.g., if the parties attempt to use fictitious arbitration proceedings as a means of money laundering, the arbitration agreement would be void due to illegality or unconscionability. In this event, parties can argue that the alleged corruption bars jurisdiction of the arbitral tribunal. Before the arbitral tribunal is constituted, the invalidity of the arbitration agreement can be asserted before national courts. In these exceptional cases, allegations of corruptions can therefore bar jurisdiction of arbitral tribunals. If the arbitral tribunal is constituted, it is generally up to the tribunal issue an interim decision on its jurisdiction. Ultimately, the decision on the arbitral tribunal’s jurisdiction then rests with the domestic courts in potential annulment procedures.

This is, however, not the typical case. Like other jurisdictions, German law accepts the doctrine of separability which ensures that an arbitration clause survives any invalidity of the main contract. The doctrine of separability holds true even if the main contract is invalidated due to alleged corruption. Typically, allegations of corruption will relate to the main contract and not to the arbitration agreement. Such allegations of corruption cannot bar jurisdiction of arbitral tribunals.

Allegations of corruption also do not render a claim inadmissible. Any claim involving an economic interest or on which parties could legally reach a settlement is arbitrable. This includes claims based on tortious acts as well as claims arising out of contracts which are void due to illegality or unconscionability.

II. Can allegations of corruption affect the validity of an arbitral award?

Yes, allegations of corruption can affect the validity of an arbitral award, especially if they amount to a violation of ordre public.

In annulment or enforcement proceedings, German courts review whether the recognition or enforcement of the arbitral award would contradict ordre public, i.e., whether the award and its enforcement would lead to a result which is manifestly incompatible with the essential principles of German law. An arbitral award ordering, e.g., the respondent to make what amounts to bribe payments to the plaintiff would be in violation of the ordre public. Such arbitral award would be set aside in annulment proceedings and declared unenforceable in enforcement proceedings.

Parties may also raise the objection that alleged corruption renders the arbitration agreement invalid due to illegality or unconscionability. If the court agrees with this assessment, the arbitral award will also be set aside or declared unenforceable.

III. In annulment or enforcement proceedings, can the court review the award and the merits to determine whether corruption or related offences affect the underlying dispute?

When assessing whether the recognition or enforcement of the award would lead to a result which is manifestly incompatible with the essential principles of German law, German courts are not bound by the findings of the arbitral tribunal. Domestic courts can therefore review the award and the merits to determine whether corruption or related offences affect the underlying dispute to such an extent that acknowledging and/or enforcing the award would be a manifest violation of ordre public. The argument of an ordre public violation due to corruption can be brought forward in annulment and enforcement proceedings in Germany.

IV. Can courts review corruption allegations which have not been raised in the arbitration?

German state courts have broad jurisdiction to review potential violations of ordre public and are not bound by the findings of the arbitral tribunal or the arguments presented during the arbitration proceedings. Therefore, courts can examine corruption allegations that were not raised in arbitration, provided these allegations are invoked to substantiate a violation of ordre public. The right to argue a violation of ordre public cannot be forfeited.

V. Do courts defer to the arbitral tribunal’s finding that no corruption acts were committed?

German courts are arbitration-friendly and hesitate to conduct a full factual review of cases decided by an arbitral tribunal. However, most recently, the Federal Court of Justice mandated a comprehensive legal and factual review of an arbitral award in a case involving alleged under-enforcement of antitrust law. Whether this decision signals a shift in how courts review cases in other legal domains remains uncertain, but so far continued adherence to the prohibition of révision au fonds appears to prevail.

However, to the extent a violation of ordre public is alleged in annulment or enforcement proceedings, German courts are not bound by the findings of the arbitral tribunal. If there is an objective violation of ordre public, the state court may even supplement any insufficient investigation and determination of the facts. Therefore, in the case of corruption allegations, German courts do not necessarily defer to the arbitral tribunal’s finding that no corruption acts were committed.

VI. Is there a standard of proof used by arbitrators and reviewing courts to assess the existence of corruption?

There are no general guidelines specifying which evidence is necessary or sufficient to prove corruption in German arbitral, annulment or enforcement proceedings. The applicable standard of proof in German arbitration proceedings depends on the lex arbitri. Under German lex arbitri, evidence of the relevant facts must be provided to the satisfaction of the arbitral tribunal, i.e., doubts must be silenced, but not completely excluded. This same standard of proof applies in annulment and enforcement proceedings.

VII. Which method do arbitrators and reviewing courts employ to establish evidence of corruption?

Given that the facts surrounding corruption are often deeply concealed, circumstantial evidence plays a crucial role in establishing its presence. Such evidence may include discrepancies between fees received and services provided, opaque structures, or the use of aliases. Arbitrators would also be in a position to order broad document production so that the opposing party can demonstrate corruption and allow for detailed (cross-)examination of witnesses.

In addition, the principles of the secondary burden of proof can lead to the party alleging corruption needing only to present sufficiently concrete suspicious circumstances, shifting the onus on the opposing party to refute this suspicion with their own evidence. This requires that the party with the primary burden of proof makes every reasonable effort to clarify the facts, e.g., by naming the recipients of bribes if known to them. Failure by the party with the secondary burden of proof to rebut the suspicion results in establishing sufficient evidence of corruption.

VIII. Are arbitrators seated in your jurisdiction bound by criminal proceedings on issues that could impact the underlying arbitration dispute?

No, arbitral proceedings are independent proceedings and not bound by criminal proceedings regarding the underlying issues, in particular if no final criminal court decision has been rendered (in dubio pro reo). Instead, the principle of free assessment of evidence applies in arbitral proceedings. However, in practice, arbitrators will feel a high hurdle to hold different from final criminal court decisions.

IX. To what extent do they rely on or defer to findings from parallel criminal investigations?

Arbitral tribunals decide autonomously how to respond to parallel criminal investigations.

Unless otherwise agreed by the parties, arbitral tribunals are not bound by the parties’ submissions of evidence and may therefore conduct investigations ex officio. This allows arbitral tribunals to consider findings from parallel criminal investigations even if these facts are not introduced into the proceedings by the parties. Arbitral tribunals can gain access to the case files from law enforcement authorities by requesting access directly or seeking judicial assistance from a competent state court.

Moreover, unless otherwise agreed by the parties, arbitral tribunals have the discretion to temporarily stay the arbitral proceedings until one party requests their continuation and/or until the conclusion of related criminal proceedings. Such a stay of proceedings can be beneficial for fact-finding purposes, as criminal investigations are generally more effective in investigating allegations of corruption compared to arbitral proceedings.

X. Are remedies available when an arbitral tribunal rules that there is no evidence of corruption but subsequently a criminal ruling decides otherwise?

Apart from annulment and enforcement proceedings, German law does not offer remedies against arbitral awards. An arbitral award may be set aside or declared unenforceable if corruption proven in criminal proceedings resulted in the recognition or enforcement of such arbitral award contradicting ordre public. However, annulment proceedings cannot be initiated after the arbitral award has been declared enforceable.