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Ms Trisha Mitra

Associate, International Arbitration - Shearman & Sterling LLP

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Adverse inference

I. Definition

1.

An adverse inference is a discretionary1 tool available to tribunals, and a remedy for the parties to seek, to discharge a party from its burden of proof in the face of non-disclosure of evidence by the opposing party. This tool is usually employed when a party is silent or fails to disclose despite having the obligation or being order to do so.

II. Test for adverse inference

2.

A commonly accepted test for drawing adverse inferences does not exist. Articles 9(5) and 9(6) of the 2010 IBA Rules on The Taking of Evidence confirm that tribunals may draw adverse inferences, but does not provide further guidance. Notably, the 1996 UNCITRAL Notes on Organizing Arbitral Proceedings contained a provision on adverse inferences, but the 2010 UNCITRAL Notes did not carry it forward.2 Article 26(b) of the IBA Guidelines on Party Representation allows drawing “appropriate inferences” in case of a misconduct by a party representative vis-à-vis evidence in the arbitration.

3.

Rule 34(3) of the ICSID Arbitration Rules allow tribunals to “take formal note” of the failure of a party to produce evidence, which arguably could result in an adverse inference. The ICSID tribunal in Churchill Mining v Indonesia found that Rule 34(3) does not however “necessarily imply specific consequences in cases of non-compliance, such as the drawing of adverse inferences”.3

III. Jurisprudence

A. International Court of Justice

4.

In the Corfu Channel case, the ICJ requested the UK to produce documents referred to in its submissions. The UK refused citing naval secrecy. The Court decided not to draw from the UK’s refusal “any conclusions differing from those to which the actual events gave rise.”4 

B. Iran-US Claims Tribunal

5.

A study by Jeremy Sharpe of the jurisprudence of the Iran-US Claims Tribunal led to the “Sharpe test” for drawing adverse inferences:5 

  • the party seeking the adverse inference must produce all available evidence corroborating the inference sought;6
  • the requested evidence must be accessible to the inference opponent;7
  • the inference sought must be reasonable, consistent with facts in the record and logically related to the likely nature of the evidence withheld;8
  • the party seeking the adverse inference must produce prima facie evidence;9 and
  • the inference opponent must know, or have reason to know, of its obligation to produce evidence rebutting the adverse inference sought.10

C. Investment arbitration tribunals

6.

Unlike in domestic litigation where the drawing of adverse inference could affect the entire merits of the case, investment tribunals have limited their reasoning on adverse inference to issues/sub-issues specific to the impugned evidence.11 

7.

The ICSID tribunal in OPIC Karinum Corporation v. Venezuela drew an adverse inference when the Respondent’s explanation for the non-production of documents were “less than fully convincing.”12 Nonetheless, the tribunal held that the inferences themselves could not fulfil the burden of proof required to prove the issue, in that case, consent to ICSID jurisdiction.13 In that case, the documents in question were material relating to the preparation of the Investment Law, which the Respondent failed to produce. The tribunal raised questions inter alia about the efforts made to search for the documents, to which the Respondent only stated that it had not searched for the documents afresh for the purpose of the arbitration and believed that other custodians of the documents would not cooperate to disclose them either.14 The tribunal in Metal-Tech v. Uzbekistan found that the investor’s explanation for not producing evidence was “not convincing”, made an adverse inference and stated that it would keep “this inference in mind when further assessing the facts.”15 The missing evidence in question was witness testimony from the Claimant regarding the legitimacy of services rendered by its contracted consultants, on the ground that the witnesses’ safety would allegedly be at risk if they were to testify against Uzbekistan. However, the tribunal was not persuaded since none of the witnesses lived in Uzbekistan.16 Similarly, the NAFTA tribunal in Feldman v. Mexico observed that the Respondent had failed to produce evidence directly relevant to the issue of discrimination - in this case any proof that (like the Claimant) another company had not received rebates - and also “never been explained why it was not produced.” This led the tribunal to draw an adverse inference against the Respondent.17

8.

The ICSID tribunal in Europe Cement v. Turkey drew an adverse inference against the investor when it failed to produce “any direct evidence” to rebut the Respondent’s objections to jurisdiction, which ultimately became one of the grounds on which jurisdiction was denied.17 The question at hand was whether the Claimants had purchased a shareholding in two Turkish companies that were subject to the impugned measures by Turkey. The Claimants represented they were in possession of share certificates, but failed to produce them despite being ordered to do so by the tribunal. This led the tribunal to conclude that the Claimants did not own shares in the Turkish companies.18

9.

An adverse inference is a finding not rooted in the evidentiary record and therefore, in practice, tribunals rarely draw adverse inferences and reserve them for extreme cases when there are compelling reasons to do so. When tribunals have denied a request for adverse inference, they have looked at the following factors for example:

  • whether the impugned evidence is “likely … to refute the entire rest of the record”,19
  • whether the impugned evidence is necessary, especially if the record contains sufficient evidence,20
  • whether the reasons set forth by the withholding party are “serious” and “fall comfortably within the ‘reasons’ of which an ICSID Tribunal is required "formally to take note’ under Arbitration Rule 34(3)",21
  • whether a decision on merits turns on the evidence withheld;22
  • whether the witness was a private individual;23
  • whether both parties failed to provide evidence,24
  • whether it was single discrepancy in a specific evidence,25
  • whether the inference-seeking party produced prima facie evidence supporting its assertion,26
  • whether either party has refused to produce evidence that is reasonably within its possession or control,27
  • whether the withholding party was seeking to hide information from the tribunal,28
  • whether the withholding party conducted a reasonable search for responsive documents,29 and
  • whether there was “evidence of bad faith or other inappropriate behavior” on the part of the withholding party.30
10.

Where the tribunal did not draw an adverse inference, it has clarified that this does not discharge the withholding party from satisfying its burden of proof and that it must accept the legal consequences of an evidentiary record minus such evidence.31 

Bibliography

Sharpe, J.K., Drawing Adverse Inferences from the Nonproduction of Evidence, Arbitration International, Vol. 22, Issue 4, 1 December 2006, pp. 549-572.

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.

Bedrosyan, A.S., Adverse Inferences in International Arbitration: Toothless or Terrifying?, University of Pennsylvania Journal of International Law, Vol. 38, No. 1, 2016, pp. 241-273.

Polkinghorne, M. and Rosenberg, C.B., The Adverse Inference in ICSID Practice, ICSID Review - Foreign Investment Law Journal, Vol. 30, Issue 3, Fall 2015, pp. 741-751.

Webster, T.H., Obtaining Documents from Adverse Parties in International Arbitration, Arbitration International, Vol. 17, Issue 1, 1 March 2001, pp. 41-58.

Greenberg, S. and Lautenschlager, F., Adverse Inferences in Arbitral Practice, in Kröll, S. and others (eds.), International Arbitration and International Commercial Law: Synergy, Convergence and Evolution, Kluwer Law International, 2011, p. 179.

Van Houtte, V., Adverse Inferences in International Arbitration, in Giovannini, T. and Mourre, A. (eds.), Written Evidence and Discovery in International Arbitration: New Issues and Tendencies, International Chamber of Commerce / Dossiers of the Institute of World Business Law, 2009, p. 195.

Marossi, A.Z., The Necessity for Discovery of Evidence in the Fact-Finding Process of International Tribunals, Journal of International Arbitration, Vol. 26, Issue 4, 2009, pp. 511-53.

Polkinghorne, M.A., The Withholding of Documentary Evidence in International Arbitration: Remedies for Dealing with Uncooperative Parties, Transnational Dispute Management 5, 2005.

O’Malley, N.D., Rules of Evidence in International Arbitration: An Annotated Guide, Informa, 2012, p. 193.

Brower, C.N., Evidence Before International Tribunals: The Need for Some Standard Rules, 28 Intl L 47, 1994, p. 57.

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.

Morel de Westgaver, C. and Zinatullina, E., Will Adverse Inferences Help Make Document Production in International Arbitration More Efficient?, Kluwer Arbitration Blog, 2 August 2017.

Solis, M.J., Adverse inferences in investor–state arbitration, Arbitration International, Vol. 34, Issue 1, March 2018, pp. 79-103.

Solis, M.J., Adverse Inferences in Defense of Good Faith, Kluwer Arbitration Blog, 23 April 2018.

Florou, A., Adverse Inferences and Penalty Default Rules in International Investment Arbitration: A Policy Approach to the Production of Evidence, Journal of International Dispute Settlement, Vol. 10, Issue 3, September 2019, pp. 423-442.

Giemza, W., The Principle of ‘Adverse Inferences' In International Arbitration: Is Cour d'Appel Paving The Way For Civil Law Jurisdictions?, Mondaq, 24 January 2018.

Baizeau, D. and Hayes, T., The Arbitral Tribunal’s Duty and Power to Address Corruption Sua Sponte, in Menaker, A. (ed.), International Arbitration and the Rule of Law: Contribution and Conformity, ICCA Congress Series, Vol. 19, Kluwer Law International, 2017, pp. 225-265.

Schreuer, C., Malintoppi, L, Reinisch, A. and Sinclair, A., The ICSID Convention: A Commentary, 2nd ed., Cambridge University Press, 2009, p. 657.

Sourgens, F., Duggal, K. and Laird, I.A., Part III, Chapter 8: Inferences from Evidence or Its Absence, Evidence in International Investment Arbitration, Oxford University Press, 2018, pp. 147-172.

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