The Investment Treaty Arbitration Review: Evidence and Proof
Remarkably little has been written on evidence and proof in the specific context of investment arbitration. This is not because evidence plays a different or even smaller role in investment arbitration than in commercial arbitration, but rather because there are no major differences in the collection of evidence in investment arbitration. In fact, when the International Bar Association (IBA) Rules on the Taking of Evidence in International Commercial Arbitration of 1999 were revised in 2008, their title was changed to the IBA Rules on the Taking of Evidence in International Arbitration.2
The same applies with regard to the burden of proof. However, the specificities of investment arbitration, with claimants asking for compensation for expropriation and – given the involvement of state parties – a higher incidence of allegations of corruption, have led several tribunals to specifically address the degree of burden of proof in such circumstances.
i Statutory provisions and institutional rules
It is generally accepted that, in international arbitrations, tribunals enjoy broad discretion as to evidentiary matters. Strict evidentiary rules typical for domestic evidential systems apply just as little to international arbitrations as domestic procedural rules.
The discretion of arbitrators is expressly provided for in the various national arbitration laws (lex arbitri) and many institutional arbitration rules. Article 19 of the UNCITRAL Model Law on International Commercial Arbitration provides for the 'Determination of rules of procedure' as follows:
- Subject to the provisions of this Law, the Parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.
- Failing such agreement, the arbitral tribunal may, subject to the provision of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality, and weight of any evidence.
However, many national legislators that do not follow the UNCITRAL Model Law have also made similar provisions, such as Sections 34(1) and (2)(f) of the English Arbitration Act of 1996:
Procedural and evidential matters.
- It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter.
- Procedural and evidential matters include–
. . .
- whether to apply strict rules of evidence (or any other rules) as to the admissibility, relevance or weight of any material (oral, written or other) sought to be tendered on any matters of fact or opinion, and the time, manner and form in which such material should be exchanged and presented.
This view is also confirmed by court decisions, in particular in the United States, where courts have repeatedly emphasised the broad discretion of arbitrators in matters of evidence, even in contradiction to domestic evidential rules such as the exclusion of hearsay evidence.3
Subject to the provisions on evidence in the lex arbitri, the parties may, of course, agree on the evidentiary rules to be applied in their arbitration. This is mostly done with reference to the arbitration rules of an arbitration institution, but it is also possible to agree evidentiary rules in the arbitration clause or, once the dispute has arisen, in the context of establishing procedural orders or terms of reference.
Article 27 of the UNCITRAL Arbitration Rules 2013 on 'Evidence' provides, inter alia, as follows:
- Each party shall have the burden of proving the facts relied on to support its claim or defence.
- Witnesses, including expert witnesses, who are presented by the parties to testify to the arbitral tribunal on any issue of fact or expertise may be any individual, notwithstanding that the individual is a party to the arbitration or in any way related to a party.
. . .
- The arbitral tribunal shall determine the admissibility, relevance, materiality and weight of the evidence offered.
The provisions in Article 25 of the International Chamber of Commerce Arbitration Rules are more extensive in describing the collection of evidence, but do not mention issues related to its valuation:
Article 25: Establishing the Facts of the Case
- The arbitral tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means.
- The arbitral tribunal may decide to hear witnesses, experts appointed by the parties or any other person, in the presence of the parties, or in their absence provided they have been duly summoned.
- The arbitral tribunal, after having consulted the parties, may appoint one or more experts, define their terms of reference and receive their reports. At the request of a party, the parties shall be given the opportunity to question at a hearing any such expert.
- At any time during the proceedings, the arbitral tribunal may summon any party to provide additional evidence.
- The arbitral tribunal may decide the case solely on the documents submitted by the parties unless any of the parties requests a hearing.
The International Centre for Settlement of Investment Disputes (ICSID) Rules of Procedure for Arbitration Proceedings (Arbitration Rules) contain more detailed provisions on evidence. After Rule 33 on Marshalling of Evidence, Rule 34 provides for General Principles of Evidence. Its first paragraph states: 'The Tribunal shall be the judge of the admissibility of any evidence adduced and of its probative value'.
The provisions in Rule 34(2) give tribunals the power to call upon the parties to produce documents, witnesses and experts, and to visit any place connected with the dispute or conduct inquiries there, at any stage of the proceedings.4 Rule 34(3) obliges the parties to cooperate with the tribunal in the production of the evidence. Rule 35 addresses the examination of witnesses and experts, with some special rules related thereto in Rule 36. Finally, Rule 37 provides, inter alia, details for visits and inquiries.
Although specific evidentiary rules in arbitration clauses are rare, agreeing to evidentiary or procedural rules with a substantial impact on evidentiary matters and questions is very common when tribunals submit to the parties drafts of specific procedural rules, constitution orders and terms of reference. These documents often contain a reference – of higher or lower obligation on the part of the tribunal – to adhere to the IBA Rules on the Taking of Evidence in International Arbitration (the IBA Rules of Evidence).
ii Admissibility of evidence
Whether with an explicit reference – for example, in an arbitration clause (rare) – or within specific procedural rules or terms of reference (more common), the parties are often (indirectly) agreeing on the application of the evidentiary rules contained in the IBA Rules of Evidence. Article 9(1) thereof on 'Admissibility and Assessment of Evidence' is worded almost identically to Article 27(4) of the UNCITRAL Arbitration Rules: 'The Arbitral Tribunal shall determine the admissibility, relevance, materiality and weight of evidence'.
However, it is generally accepted that, even without any statutory provision or private agreement by the parties, be it on the application of arbitration rules, the IBA Rules of Evidence, or in an arbitration clause or subsequent procedural agreement, tribunals have the implied authority to resolve issues of admissibility, relevance and evaluation of evidence.5
Again, national rules on the admissibility of evidence, such as the exclusion of hearsay or the rule that corporate officers may not testify for their company, are not applicable in international arbitration. Nevertheless, arbitral tribunals may limit the evidence, though they are rather reluctant to do so in practice. They sometimes do so with regard to the testimony of witnesses and experts at evidentiary hearings. In this respect, Article 8(3) of the IBA Rules of Evidence provides as follows:
The Arbitral Tribunal may limit or exclude any question to, answer by or appearance of a witness, if it considers such question, answer or appearance to be irrelevant, immaterial, unreasonably burdensome, duplicative or otherwise covered by a reason for objection set forth in Articles 9.2 or 9.3.
Article 9(2) of the IBA Rules of Evidence gives tribunals, not only at the request of a party, but also on their own motion, the power to exclude from evidence or production documents, statements, oral testimony or inspection for reasons such as the lack of sufficient relevance to the case or materiality to its outcome; legal impediment or privilege; unreasonable burden to produce; compelling commercial or technical confidentiality; or even for compelling grounds of special political or institutional sensitivity.
However, even if arbitral tribunals have the right to exclude evidence under these circumstances, they are hesitant to do so in practice – and even more so in investment treaty arbitration. Arbitrators will avoid excluding evidence that could possibly prejudice a party's right to present its case, with no possibility of appeal on substantive grounds, but also the impression that the tribunal is escaping difficult decisions, in particular in highly political matters.6 For these reasons, arbitral tribunals generally admit evidence rather freely, disregard technical rules of admissibility of evidence – in particular, those known in common law – and focus on assessing the weight of the evidence (i.e., its probative value).
As arbitrators have a duty to render an enforceable award, they risk having their award being challenged in set-aside or enforcement proceedings on the ground of a violation of public policy if they neglected to consider indicia of corruption. If they suspect elements of corruption in the dispute, they should raise this sua sponte and ask for further evidence, based on the ex officio powers inherent to an arbitral tribunal, often also enshrined in procedural provisions such as Article 43(a) of the ICSID Convention or Article 25.4 of the International Chamber of Commerce (ICC) Rules of Arbitration.
iii Probative value
Given that admissibility criteria are not often used to exclude evidence, the weighing of evidence by tribunals becomes more important. Most arbitrators consider contemporaneous documents to be the best form of evidence. Witness testimony, unless it has been tested in cross-examination or by an examination of the arbitrators themselves, is usually given less weight. Direct (primary) evidence is usually considered to be more reliable and thus to have more weight than indirect (secondary) or circumstantial evidence. However, a tribunal will look at the reasons why it is impossible for a party to produce direct evidence. Documents may have been lost or destroyed because of armed conflicts or civil unrest.7 In such cases, tribunals will rely on presumptions or inferences, and consider facts proven on the basis of other proven facts or factual knowledge, a series of facts linked together or accepted factual knowledge, such as in the Corfu Channel case of the International Court of Justice.8 However, a presumption or inference may shift the burden of proof to the other party.
Tribunals may also draw negative inferences from a party's procedural conduct, such as not producing documents that should be in its possession or witnesses under its control. However, it is difficult to draw negative inferences in practice, mostly because it is not clear what the inference must actually be. Arbitrators, therefore, usually avoid such situations, particularly in view of the fact that non liquet decisions are not customary in arbitration.9
i Burden of proof
Unlike for the taking of evidence, few provisions on the burden of proof in arbitration exist. Usually, the lex arbitri does not contain any, and only a few arbitral rules mention it, such as Section 27(1) of the UNCITRAL Arbitration Rules, which states that each party shall have the burden of proving the facts relied on to support its claim or defence. This is the general rule in international arbitration: the burden of proving factual assertions and assertions that have been contested by the other side.
In civil law systems, the burden of proof is considered to be a question of the applicable substantive law. Not only are many burden of proof rules contained in substantive law provisions, but they may be inextricably connected to substantive legal rules: for example, a provision for the reversal of the burden of proof.10
In common law jurisdictions, however, it is an issue of procedural law. The common law distinction that the applicable foreign law must be proven like facts has become less important in arbitration as it is now customary for lawyers from civil law systems to provide extensive arguments on the legal points of their case.
This difference raises conflict of law questions – although these are alleviated in international arbitrations by a more pragmatic approach. Even though the inherent connection between the burden of proof rules and the substantive law may favour the civil law system view, in international arbitral practice, additional considerations come into play, such as the availability or unavailability of discovery, which does not exist in civil law systems but gives burden of proof rules a strong procedural aspect as well.11 Therefore, tribunals tend to be flexible when applying the burden of proof rules to a specific case. Generally, international arbitral decisions hinge much less on burden of proof issues than in domestic cases, not least because tribunals try to collect more evidence to have a more complete picture of the case.
In investment treaty arbitrations, questions of burden of proof typically further arise in respect of certain issues specific to investor–state arbitration: nationality, ratione personae scope, expropriation and compensation.
As regards nationality, including dual nationality and foreign control issues, and the ratione personae scope, tribunals traditionally followed the general rule that a party asserting a fact has the burden to prove it.12 More recently, however, as regards nationality issues at the jurisdictional phase of the proceedings, tribunals have begun to differentiate.13 However, so far a general trend to shift the burden of proof for certain nationality issues from the claimant to the respondent cannot be ascertained.
ii Standard of proof
The standard of proof indicates the required degree of proof necessary to show that an assertion of fact has been proven. National laws provide many different definitions of what degree of proof must be met. However, most arbitration laws and institutional arbitration rules do not contain any provisions regarding the standard of proof that must be met. The most common standard in current international arbitration practice is the test of a 'preponderance of evidence' – namely, a fact will be considered as proven if it is more probable than not that it is true (same as 'balance of probabilities'). As with the burden of proof, tribunals should address the standard they apply in their awards.
Lately, the allegation of corruption has become a prominent defence by state parties. It is thus intensely debated whether criminal acts such as fraud, bribery and corruption require a higher standard of proof than the generally accepted standard of balance of probabilities (e.g., 'clear and convincing evidence'). There is no uniform approach. Recently, the propositions of parties to adopt a heightened standard of proof for corruption were rejected.14 Some even advocate for a lower standard (i.e., that, in cases of corruption, a party only needs to establish a prima facie case of corruption and that the burden of proof then shifts to the other party to prove the absence of corruption). However, this would result in the other party having to prove the negative, which it will not be able to do, particularly in corruption cases. Corruption may be proved by circumstantial evidence.15 Red flags are indicators of possible corruption, but do not by themselves prove corruption.16 A causal link between such flags and the actual events must be proven.
It is sometimes argued that, for the quantum of damages, a different, mostly lower, standard of proof applies, not least because this may be the case under certain civil law provisions. This does not apply generally in arbitration. However, there are other, contractual, situations where the burden of proof or the standard of proof to be applied for the calculation of damages may change. Contractual provisions (e.g., liquidated damages clauses or penalty clauses) may lead impliedly to a different allocation of the burden of proof. With liquidated damages clauses, the claimant only needs to prove the breach by the other party and the existence of the damage, and not the quantum of the damage. This is different from penalty clauses, where the claimant only needs to prove the breach, but the respondent then has the burden of proof to show that the penalty is excessive.
Quantifications of damages are always discretionary. Tribunals may not apply rules of burden of proof and standard of proof in such a way to either award damages or not. Rather, with the assistance of the parties and experts, tribunals have to assess the damages on their own, and thus the compensation to be paid.
Finally, in cases of a limitation of liability for wilful misconduct or gross negligence, the claimant needs to prove not only the existence and quantum of damages resulting from the breach, but also that these were the result of a wilful misconduct or gross negligence of the respondent.
1 Martin Wiebecke is an attorney-at-law at Anwaltsbüro Wiebecke.
2 IBA Rules on the Taking of Evidence in International Arbitration of 29 May 2010.
3 See Born, International Commercial Arbitration, second edn, 2014, Vol II, page 2,308, with references to various US court decisions.
4 Rule 34(2) has largely the same content as Article 43 of the ICSID Convention.
5 Pietrowski, 'Evidence in International Arbitration', 2006, 22 Arbitration International 373, 374.
6 Born, op. cit., page 2,311.
7 See also Article 9(2)(d) of the IBA Rules of Evidence.
8 Corfu Channel case,  ICJ Rep 4,18.
9 cf. Article 42(2) of the ICSID Convention.
10 Such as in Article 97 of the Swiss Code of Obligations.
11 Born, op. cit., page 2,315.
12 Ambiente Ufficio SpA v. Argentina (Decision on Jurisdiction and Admissibility) ICSID Case No. ARB/08/9, IIC 576 (2013) paras 309–319.
13 Siag v. Egypt (Award) ICSID Case No. ARB/05/15, IIC 374 (2009) paras 138–141; Tulip Real Estate Investment and Development Netherlands BV v. Turkey (Decision on Bifurcated Jurisdictional Issue) ICSID Case No. ARB/11/28, IIC 583 (2013) para. 48; Arif v. Moldova (Award) ICSID Case No. ARB/11/23, IIC 585 (2013) para. 357; Lao Holdings NV v. Laos People's Democratic Republic (Decision on Jurisdiction) ICSID Case No. ARB (AF)/12/6, IIC 633 (2014) paras 66–68; Caratube International Oil Company LLP v. Kazakhstan (Award) ICSID Case No. ARB/08/12, IIC 562 (2012) paras 364–368.
14 Niko Resources (Bangladesh) Ltd. v. Bangladesh Petroleum Exploration & Production Company Limited ('Bapex') and Bangladesh Oil Gas and Mineral Corporation ('Petrobangla') (Decision on the Corruption Claim) ICSID Cases No. ARB/10/11 and No. ARB/10/18 (2019) paras 803–806; Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Columbia (Award) ICSID Case No. ARB/16/6 (2019) para. 669.
15 Oostergetel v. The Slovak Republic, UNCITRAL Final Award, 23 April 2012, para. 303; Metal-Tech v. Uzbekistan, ICSID Case No. Arb/10/3, Award of 4 October 2013, para. 243.