False Testimony in Arbitration: Incentives and Solutions
Wilmer Cutler Pickering Hale and Dorr LLP
If I could change one thing about arbitration, I would make parties more accountable for presenting false testimony. Many a practitioner has witnessed perjured testimony in arbitration. And many a practitioner has likely been frustrated when those who testify falsely in a high-stakes proceeding face no consequences for doing so.
Perjury is a recognized problem in international arbitration as it is in court proceedings.1 Arbitration, like any other form of adjudication, cannot function if witnesses lie with impunity. Yet a witness who testifies falsely in an arbitration will experience few personal repercussions, even if exposed during cross-examination. Nor, in most cases, will penalties befall the party on whose behalf the witness has testified, or the counsel who presented the testimony. This essay explains why the various theoretical safeguards against false testimony in arbitration are weak constraints on perjury. It then proposes a new way for arbitrators to discourage false testimony, if they are given the power to do so.
I. CURRENT SAFEGUARDS AGAINST FALSE STATEMENTS ARE INADEQUATE
In theory, multiple deterrents should discourage arbitration witnesses from making false statements, and discourage parties and representatives from presenting such testimony. In practice these supposed disincentives are either weak or nonexistent.
A. Criminal Prosecution Is Not a Deterrent
The archetypal risk facing a witness who testifies falsely is a prosecution for perjury. The fear of criminal prosecution is certainly a powerful impetus for witnesses to tell the truth. But in reality, perjury prosecutions based on arbitration testimony are exceedingly rare. In many places, such prosecutions are not legally possible, and even where they are allowed they rarely happen. In almost all U.S. jurisdictions, for example, criminal perjury statutes do not clearly apply to testimony given in private arbitrations.2 Likewise, Singapore’s perjury statute only covers testimony in “open court”.3 The German, Austrian, and Swedish penal codes criminalize false testimony before a court or another agency competent to administer oaths,4 but their respective arbitration laws do not authorize arbitrators to administer oaths.
Other national perjury laws, including those of England, Canada, and Switzerland, theoretically encompass arbitration testimony.5 But even where a witness can legally be prosecuted for perjury, this does not mean she will be. Criminal prosecutions for perjury in civil litigation are quite rare in most jurisdictions, and prosecutions for perjury in arbitration are nearly unheard of. An arbitrator is quite unlikely to notify law enforcement that a witness in a confidential proceeding has testified falsely. An unhappy opposing party may blow the whistle on a dishonest witness, but authorities will likely look askance at a disgruntled party that complains about a witness for the other side. Police and prosecutors have many higher priority targets than a witness in a private civil action—particularly where the alleged perjury occurred in another country, or where the witness has already left the country where the arbitration took place.
B. Civil Liability Is Not a Deterrent
If criminal liability is not a significant risk for witnesses who lie in an arbitration, what about civil liability? If anything, a successful private action against a dishonest arbitral witness is even less likely than a perjury prosecution—particularly in common law jurisdictions. For more than 400 years, common law courts have refused to recognize a civil claim for perjury.6 Nor does a witness have much to fear from the arbitrators themselves; arbitrators cannot hold individual witnesses in contempt or personally fine them. The most an arbitrator can realistically do to a dishonest witness is criticize the witness’s honesty in a (likely confidential) award.
C. Attorney Discipline Is Not a Deterrent
Nor are party representatives likely to face professional consequences for presenting false witness testimony. Although numerous jurisdictions—and, more recently, international arbitral institutions—restrict attorneys from knowingly presenting false testimony,7 attorneys are unlikely to be disciplined for violating these professional rules in an international arbitration. Proving that a lawyer knows his witness is testifying falsely is a high bar to meet. There is a fine line between knowing certain evidence is false and merely suspecting it to be false, particularly where—as is usually the case—a witness has more firsthand knowledge of the facts than the lawyer does. Moreover, even if counsel violates a rule against presenting false testimony, the lawyer’s professional disciplinary body will probably never hear of it—particularly given the confidentiality of most arbitrations.
Thus, if an attorney is going to face consequences for misbehavior in an international arbitration, they will have to be imposed by the arbitral tribunal itself rather than any external disciplinary body. But even under the arbitration-specific guidelines recently established by the LCIA and IBA, those consequences are unlikely to be severe and unlikely to have repercussions for counsel beyond the ongoing arbitration itself.
For example, the new LCIA Rules, adopted in 2014, list several possible penalties for violating the institution’s guidelines for party representatives, including its prohibition on knowingly presenting false evidence.8 But even the most extreme measure contemplated under these provisions, the disqualification of the attorney from the remainder of the arbitration, would have no effect outside the proceeding. The remaining penalties, which provide for merely a “written reprimand” or “written caution,” would have little tangible effect on attorneys— particularly as those “punishments” would remain confidential with the rest of the arbitration.
D. Vacating an Award Is Not a Deterrent
“Fraud,” including perjury, is a ground for vacating an arbitral award under some national laws9 and is a generally recognized ground for setting aside an award under the “public policy” exceptions in the New York Convention and the UNCITRAL Model Law.10 But a party that asks a court to annul an award based on false testimony still faces long odds. Normally a court will not disturb an arbitrator’s finding of fact as to a witness’s credibility. If a party unsuccessfully argues during the arbitration that the other side is presenting false testimony, a court will not revisit the tribunal’s factual finding.11
Moreover, even where a court does vacate an award on the basis of fraud, the party whose witness committed perjury is still not necessarily worse off than it would have been absent the false testimony. The worst case scenario for such a party is that its favorable award will be vacated and the dispute arbitrated in a new proceeding where, this time, the witness might be forced to tell the truth. That is, in principle, no worse for the dishonest party than if the witness had told the truth in the first place. When a party faces a stark choice of either losing now by telling the truth, or risking not winning farther down the road by testifying falsely, it may choose dishonesty as the best policy.
E. Cost-Shifting Is Not a Deterrent
Finally, shifting of costs is often identified as a key deterrent to misbehavior by parties and arbitration counsel12—including, theoretically, false witness testimony. But in international commercial arbitration, the losing party—by practice and often by rule—is typically responsible for the other side’s costs even in the absence of wrongful behavior during the proceeding.13 Where paying costs and fees is the likely result of a losing effort in any event, the risk of owing these fees as a sanction for false testimony provides little marginal deterrent to counsel or parties. Indeed, if a party believes that truthful testimony by its witness will likely cause it to lose the case, the possibility of cost shifting may actually weigh in favor of dishonesty.
II. AN ACTUAL DETERRENT
If criminal prosecution, civil liability, professional discipline, vacating an award, and cost-shifting are all inadequate deterrents to witness perjury, then what is left? Surely there are ways to keep arbitral witnesses honest. A solution to the problem of witness dishonesty must change the incentives within the arbitral structure. And in international commercial disputes, no incentive works better than a financial one.
A. A Monetary Sanction
When a witness testifies falsely in an arbitration, the arbitrator should have the power to modify the size of the overall award to penalize this misbehavior. Because shifting the costs of a proceeding will often be an inadequate measure, a monetary sanction independent of legal fees and costs should be an option for arbitrators.
A party should be better off as an “honest loser” than as a dishonest winner. A sanction for false testimony would directly counteract the substantial motivation parties often have to shade the truth. The risk of a large penalty will make a party think twice about presenting perjured testimony even where truthful statements (or no testimony) could damage the party’s chances of prevailing on the merits.
A party may argue that it should not be punished for the sins of its witness. But the complaint that parties do not control their witnesses has less weight in arbitration than in court. Most arbitration witnesses are affiliated in some way with the party on whose behalf they testify and are often under the party’s direct control. Impartial, “bystander”-type witnesses with little stake in the outcome are the exception in arbitration—and often have the least incentive to lie. In any event, arbitrators can take this concern into account when determining a penalty for perjured statements: the “closer” the witness is to the party, the more severe the punishment should be.
The form of the penalty would depend on which side has presented the false evidence. If the claimant wins the case and the respondent is found to have presented false testimony, the tribunal can adjust the award upward by a certain amount—say, 25 percent—to reflect this wrongdoing. Where a witness for the claimant lies and the respondent wins the case on the merits, there will be no monetary award to modify and a straight fine of the claimant might be appropriate. Or, if the tribunal decides to award costs to the winning side, that cost award can be adjusted upward.
As a practical matter, it will usually be the losing party, rather than the winning side, that is found to have presented false testimony. But in the rare case where the panel believes that the winning side presented perjured testimony, it can also modify the award accordingly. For example, if a claimant wins on the merits but presents false testimony, the tribunal could sharply reduce the award, or even zero it out if the conduct is sufficiently egregious. If the respondent wins the case but presents a dishonest witness, the tribunal could reduce or eliminate the cost award the respondent would normally receive, or assess a separate penalty.
The size of the sanction should be proportional to the amount in controversy in the arbitration. The threat of a $10,000 fine will have little impact on party decisions in a billion-dollar case. It could even send the implicit, and perverse, message that false testimony is a minor cost of doing business that rational parties will sometimes be willing to pay. Conversely, a sanction that is many multiples of the amount at issue in the arbitration would probably not be appropriate and may invite an enforcement challenge.
B. Arbitrator Authority To Sanction
With the limited exception of cost-shifting, no major international arbitral institution expressly grants arbitrators the power to sanction parties. Without clear authority under the rules, arbitrators will be reluctant to punish parties for presenting false testimony. Indeed, they may not believe it is an option at all. Thus, institutional rules should expressly allow arbitrators to punish parties for presenting false testimony. A rule could provide simply: “The arbitrator may order appropriate sanctions against a party that has presented false evidence.”
Arbitrators and institutions applying such a rule should make clear that a perjury accusation is a very serious charge and that sanctions will not be imposed without substantial proof. Arbitrators, like judges and juries, are often called upon to weigh the credibility of opposing witnesses. Penalties for false statements should not be the result any time a tribunal harbors doubts about a witness’s story.
Accordingly, a showing of “clear and convincing evidence” that a witness has testified falsely would be an appropriately strict standard to apply before a tribunal penalizes a party. It would provide for sanctions only where the evidence of dishonesty is particularly strong, without setting the bar unreasonably high or likening the arbitration to a criminal case.
In the adversarial forum of an arbitration, effective cross-examination may show that a witness has testified falsely. But such exposure is not always possible, and even when it is, a witness still might gamble that his or her dishonesty will not be revealed. This impunity threatens to undermine arbitration as a fair and legitimate means of dispute resolution. Arbitrators should therefore have the power to hold parties accountable for the dishonesty of their witnesses. To the extent that institutional rules do not provide this power, those rules should be amended accordingly. That way, witnesses, parties, and counsel will know that honesty is not only a moral and legal obligation, but—perhaps more importantly for them—a financial imperative.
The views expressed in this essay are the author’s alone and do not necessarily reflect the views of the author’s firm or clients.
 See generally P.J. MARTINEZ-FRAGA, THE AMERICAN INFLUENCE ON INTERNATIONAL COMMERCIAL ARBITRATION 118-128 (2009); K.M. Blankley, Taming the Wild West of Arbitration Ethics, 60 U. KAN. L. REV. 925 (2012); M. Roth, Consequences and Prevention of False Evidence Under the English Arbitration Act 1996: A Comparative Perspective, 13 ARBITRATION INT’L 391 (1997).
 See Blankley, supra note 1, at 934-937 (surveying state and federal arbitration laws).
 Oaths Act (Ch. 211, 1985 Rev. Ed.) § 11(1).
 Austrian Crim. Code Arts. 153, 154, 156; German Crim. Code Arts. 153, 154, 156; 15 Swedish Penal Code § 1.
 Swiss Crim. Code Art. 307, 309; R.S.C. 1985, c. C-46, § 131(1); English Perjury Act 1911, §§ 1(1), (2).
 See Damport v. Sympson, 78 Eng. Rep. 769 (K.B. 1596); Irish Response Ltd v Direct Beauty Products,  EWHC 37, ¶ 123 (QB) (“there is no tort of perjury in English law”).
 See, e.g., ABA Model Rule 3.3(a)(3); CCBE Code of Conduct § 4; Singapore Legal Profession Act (Ch. 161, § 71, Rev. Ed. 2010), Rule 57; IBA Guidelines on Party Representation in Int’l Arbitration, Guideline 11; LCIA Rules, Annex ¶ 4.
 LCIA Arbitration Rules, Art. 18.6.
 See, e.g., 9 U.S.C. § 10(a)(1); English Arbitration Act 1996, § 68(2)(g).
 See G.B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION 3334, 3703 (2014); H. HOLTZMANN & J. NEUHAUS, A GUIDE TO THE UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION 912-915, 1001-1002 (1989).
 See, e.g., Kirschner v. West Co., 247 F. Supp. 550, 553-554 (E.D. Pa. 1965); Born, supra note 10, at 3704.
 See, e.g., IBA Guidelines on Party Representation in International Arbitration, ¶ 26(c).
 See, e.g., UNCITRAL Arbitration Rules, Art. 42(1); LCIA Arbitration Rules, Art. 28.4; Final Award in ICC Case No. 11670, 22 ASA Bull. 333 (2004).
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