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Rwandan Court annuls $32 million UNCITRAL award for failing to consider parallel corruption case
Rwandan Court annuls $32 million UNCITRAL award for failing to consider parallel corruption case
4 July 2024
Series
Blogs
4 July 2024
On 12 April 2024, the High Court of Rwanda in Rwanda Energy Group Limited v Kalpataru Power Transmission Limited (RCOM 00049/2021/HCC) annulled a $32 million UNCITRAL award on the grounds that the arbitral tribunal had failed to await the outcome of a parallel corruption case in the Rwandan criminal courts before rendering the award, as required by Rwandan public policy (the “Judgment”).
The Judgment confirms that an arbitral tribunal seated in Rwanda is prohibited from issuing an award while a related corruption case is ongoing.
Background
The underlying dispute between Rwanda Energy Group Limited (“REG”) and Kalpataru Power Transmission Limited (“KPTL”) arose out of a FIDIC contract dated 19 November 2013 for the construction and installation of power transmission towers connecting the Democratic Republic of Congo and Rwanda (the “Project”). During the course of the Project, KPTL submitted a price adjustment claim for $24 million (the “Claim”) and initiated dispute adjudication board (“DAB”) proceedings on 25 October 2017 to determine whether it had exceeded the timeframe to submit the Claim, as alleged by REG. On 1 September 2019, the DAB held that KPTL was entitled to the adjustment.
On 4 November 2019, REG commenced ad hoc arbitration under the UNCITRAL Rules to challenge the DAB’s decision. REG argued that KPTL had exceeded the contractual deadline for submitting the Claim, alleged defects in the quality of the concrete foundations built by KPTL, and accused KPTL of procuring fraudulent concrete test results through bribery.
Arbitration and criminal proceedings
Prior to the commencement of the arbitration proceedings, Rwandan authorities had separately commissioned a criminal investigation into KPTL’s activities in relation to the Project. On 2 March 2021, while the arbitration was ongoing, Rwandan authorities commenced criminal proceedings against senior executives of KPTL and REG (including its subsidiary), and certain consultants connected to the Project (the “Suspects”) for bribery and corruption.
The arbitral tribunal had knowledge of the criminal proceedings but failed to consider the potential impact of those proceedings on the arbitration, despite REG also alleging bribery in the arbitration. On 20 September 2021, the tribunal decided in favour of KPTL and directed REG to pay $32 million. The tribunal also found that REG had failed to prove its bribery allegations against KPTL. Dissatisfied with the award, REG commenced annulment proceedings before the High Court of Rwanda (the “Court”) on 15 October 2021.
On 14 April 2023, a year before the Judgment, the Suspects were found guilty in the criminal proceedings. A senior executive of KPTL, who had given evidence in the arbitration proceedings, was found to have offered bribes to the other Suspects in return for favourable test results, which fraudulently affirmed that certain concrete foundations constructed by KPTL were structurally sound. The verdict reached in the criminal proceedings directly contradicted the findings of the tribunal.
Annulment proceedings
The key issue in the annulment proceedings was whether the arbitration award should be set aside on the grounds that the tribunal had failed to consider the parallel corruption proceedings, contrary to the domestic laws and public policy of Rwanda. The principle “Le pénal tient le civil en état” (“the criminal holds the civil in abeyance”), codified in Article 115 of Law No. 027/2019 of 19/09/2019 of Rwanda, dictates that civil proceedings must be suspended in circumstances where related criminal proceedings initiated prior to the commencement of the civil proceedings have not been concluded. The Court stated that the tribunal should have suspended proceedings once Rwandan authorities began interrogating the Suspects.
The Court noted that, consistent with the New York Convention and UNCITRAL Model Law on International Commercial Arbitration, Article 47.2.b of Law No. 005/2008 of 14/02/2008 empowered it to annul an arbitral award where it contravened Rwandan domestic law. It noted further that, under Rwandan law, arbitrators are obliged to uphold Rwandan law even when it has not been raised by the parties in an arbitration.
Ultimately, the Court, in the Judgment, found that the arbitral tribunal had failed to take into consideration the related corruption proceedings and had not complied with Article 115. It therefore annulled the award due to its non-compliance with Rwandan law and public policy.
Comment
The Judgment serves as a reminder that corruption remains a significant issue in arbitration. When confronted with corruption, tribunals and courts take various approaches. This case demonstrates that, in Rwanda, tribunals must comply with domestic law and await the outcome of related criminal proceedings before making an award. It remains to be seen whether the Judgment will be appealed.
Please note that this article is based on an informal translation of the original judgment.
The authors would like to thank Temitope Badejo for his assistance with the preparation of this article.