The institute for making an adverse inference
Adverse Inference in International Arbitration
General introduction
Inverse Inference is a procedural mechanism by which an arbitration tribunal can relieve a party of the burden of proving a fact if the other party refuses to disclose or provide evidence in the case [1].
As a rule, such a mechanism is used as part of the evidence disclosure procedure in cases where a party, despite having a corresponding obligation or instructions from the tribunal, intentionally does not disclose documents or other materials that such a party possesses and that are relevant to resolving the dispute.
Thus, the annulment of an arbitral award allows arbitrators to take measures that may eliminate the grounds for annulment and make the annulment of the award itself impractical.
The annulment of an arbitral award is considered as a factor contributing to procedural efficiency.
As a rule, such a mechanism is used as part of the evidence disclosure procedure in cases where a party, despite having a corresponding obligation or instructions from the tribunal, intentionally does not disclose documents or other materials that such a party possesses and that are relevant to resolving the dispute.
Thus, the annulment of an arbitral award allows arbitrators to take measures that may eliminate the grounds for annulment and make the annulment of the award itself impractical.
The annulment of an arbitral award is considered as a factor contributing to procedural efficiency.
An incorrect arbitration award is submitted for review to an arbitration court to eliminate the defect, which reduces the financial and time costs of the parties, in contrast to the cancellation of the decision and the subsequent resumption of proceedings.
The concept of exemption from liability should not be confused with the procedural mechanism provided for in article 33 of the Model Law, which is the correction of an award by an arbitral tribunal that does not jeopardize its enforcement.
The main difference is that the correction is initiated by the arbitration court itself and is aimed at correcting minor technical errors [2]. While the correction takes place on the initiative of the national court and may lead to significant changes in the decision.
The mechanism of exemption from liability is provided not only by the Model Law. Some jurisdictions that do not follow the Model Law also apply similar provisions.
The concept of exemption from liability should not be confused with the procedural mechanism provided for in article 33 of the Model Law, which is the correction of an award by an arbitral tribunal that does not jeopardize its enforcement.
The main difference is that the correction is initiated by the arbitration court itself and is aimed at correcting minor technical errors [2]. While the correction takes place on the initiative of the national court and may lead to significant changes in the decision.
The mechanism of exemption from liability is provided not only by the Model Law. Some jurisdictions that do not follow the Model Law also apply similar provisions.
Criteria for application
There is no single and generally accepted approach to the application of inverse inference in arbitration practice. Articles 9(6) and 9(7) of the 2020 IBA Rules on the Presentation of Evidence confirm that the Tribunals have the right to draw "unfavorable conclusions" from a party’s refusal to disclose documents, but do not contain specific criteria or any methodology [2].
Interestingly, the corresponding provision was present in the 1996 UNCITRAL notes on the organization of arbitration proceedings, but it was deleted in the 2016 edition. In turn, Article 26 (b) of the IBA Guidelines on the Conduct of Representatives of the Parties allows for the possibility of making "appropriate conclusions — appropriate inferences" in case of unfair actions by a representative of the party in relation to evidence [3].
The doctrine identifies three key conditions for the use of inverse inference.:
1. The party had control over the evidence;
2. This evidence was relevant and relevant to the resolution of the dispute;
3. The refusal of the party to provide evidence has no convincing justification [4].
Interestingly, the corresponding provision was present in the 1996 UNCITRAL notes on the organization of arbitration proceedings, but it was deleted in the 2016 edition. In turn, Article 26 (b) of the IBA Guidelines on the Conduct of Representatives of the Parties allows for the possibility of making "appropriate conclusions — appropriate inferences" in case of unfair actions by a representative of the party in relation to evidence [3].
The doctrine identifies three key conditions for the use of inverse inference.:
1. The party had control over the evidence;
2. This evidence was relevant and relevant to the resolution of the dispute;
3. The refusal of the party to provide evidence has no convincing justification [4].
Cases
• Metal-Tech v. Uzbekistan (2013): The plaintiff refused to provide witness testimony, arguing that the safety of witnesses would presumably be at risk if they testified against Uzbekistan. The Tribunal found that such a justification for not providing testimony was inconclusive, since none of the witnesses lived in Uzbekistan, and issued an adverse inference against the Plaintiff [5].
• Stans Energy v. Kyrgyzstan (2019): The defendant claimed that the plaintiff had failed to provide documents related to his meetings with government officials, despite the tribunal’s order to disclose evidence. On this basis, the defendant requested the tribunal to draw an unfavorable conclusion that the plaintiffs had engaged in corrupt practices in obtaining licenses. However, the tribunal noted that the plaintiffs stated that it was impossible to provide additional documents after a reasonable search and refused to apply the inverse inference [6].
• Companies from UK v. Tanzania (2023): The Tribunal considered the possibility of using inverse inference in connection with the refusal of one of the parties to provide evidence, but decided not to use inverse inference, citing respect for the confidentiality of criminal investigations and the availability of sufficient evidence to make a decision without providing new ones[7].
From the above cases, it can be seen that the Tribunals approach the inverse inference with caution. They take into account the existence of control over the evidence, the parties' attempts to cooperate in good faith with the tribunal, and the impact of such a finding on the final decision in the case.
Thus, the inverse inference is an important tool in international arbitration, which helps to maintain the procedural equality of the parties during the proceedings. In fact, the inverse inference is one of two (along with the imposition of arbitration costs) ways to influence a party abusing its rights in the process. However, the inverse inference tool should be used only after a comprehensive assessment of the circumstances of the case, taking into account the principles of fairness and procedural integrity.
• Stans Energy v. Kyrgyzstan (2019): The defendant claimed that the plaintiff had failed to provide documents related to his meetings with government officials, despite the tribunal’s order to disclose evidence. On this basis, the defendant requested the tribunal to draw an unfavorable conclusion that the plaintiffs had engaged in corrupt practices in obtaining licenses. However, the tribunal noted that the plaintiffs stated that it was impossible to provide additional documents after a reasonable search and refused to apply the inverse inference [6].
• Companies from UK v. Tanzania (2023): The Tribunal considered the possibility of using inverse inference in connection with the refusal of one of the parties to provide evidence, but decided not to use inverse inference, citing respect for the confidentiality of criminal investigations and the availability of sufficient evidence to make a decision without providing new ones[7].
From the above cases, it can be seen that the Tribunals approach the inverse inference with caution. They take into account the existence of control over the evidence, the parties' attempts to cooperate in good faith with the tribunal, and the impact of such a finding on the final decision in the case.
Thus, the inverse inference is an important tool in international arbitration, which helps to maintain the procedural equality of the parties during the proceedings. In fact, the inverse inference is one of two (along with the imposition of arbitration costs) ways to influence a party abusing its rights in the process. However, the inverse inference tool should be used only after a comprehensive assessment of the circumstances of the case, taking into account the principles of fairness and procedural integrity.
Resource
1. Scharf, M.P. and Day, M., The International Court of Justice's Treatment of Circumstantial Evidence and Adverse Inferences, Chicago Journal of International Law, Vol. 13, No. 1, Article 6, 2012, pp. 123-151.
2. Mitra T. Adverse Inference. Jus Mundi. URL: https://jusmundi.com/en/document/publication/en-adverse-inference
3. Beharry, C.L., Objections to Requests for Documents in International Arbitration: Emerging Practices from NAFTA Chapter 11, ICSID Review – Foreign Investment Law Journal, Vol. 27, Issue 1, Spring 2012, pp. 33-64.
4. Sharpe J.K., Drawing Adverse Inferences from the Non-production of Evidence, Arbitration International, 2006.
5. Metal-Tech Ltd. v. Uzbekistan, Award, 2013, 245, 265.
6. Stans Energy and Kutisay Mining v. Kyrgyzstan, Award, 2019.
2. Mitra T. Adverse Inference. Jus Mundi. URL: https://jusmundi.com/en/document/publication/en-adverse-inference
3. Beharry, C.L., Objections to Requests for Documents in International Arbitration: Emerging Practices from NAFTA Chapter 11, ICSID Review – Foreign Investment Law Journal, Vol. 27, Issue 1, Spring 2012, pp. 33-64.
4. Sharpe J.K., Drawing Adverse Inferences from the Non-production of Evidence, Arbitration International, 2006.
5. Metal-Tech Ltd. v. Uzbekistan, Award, 2013, 245, 265.
6. Stans Energy and Kutisay Mining v. Kyrgyzstan, Award, 2019.
- 7. Companies from UK v. Tanzania, Award, 2023.