Enforcement of arbitral awards

The late Lord Mustill aptly described The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention) as ‘…the most successful international instrument in the field of arbitration, and perhaps… the most effective instance of international legislation in the entire history of commercial law’ (Lord Mustill ‘Arbitration – History and Background’(1989) 6(2) the Journal of International Arbitration 43).

One way in which the convention enables foreign abitral awards to be enforced is by limiting the grounds upon which signatory states may refuse recognition or enforcement. One of those grounds is where recognition and enforcement would be contrary to public policy (article V(2)(b) set out in section 103(3) of the Arbitration Act 1996). That section recently came into question in RBRG Trading (UK) Limited v Sinocore International Co. Ltd [2018] EWCA Civ 838.

Background

Sinocore agreed to sell steel coils to RBRG. An irrevocable letter of credit was opened by RBRG with R Bank. The arbitration agreement in the sale contract provided for arbitration to take place in China, with a seat in China and for the arbitration to be in Chinese.

RBRG purported to issue amendments to the letter of credit so that the shipment period was changed to ‘20-30th July’ to allow for inspection of the goods. On 5-6 July the goods were loaded on a vessel in China, bills of lading dated 5 and 6 July were issued and these documents were sent to RBRG. However, Sinocore presented forged bills of lading which purported to comply with the amended shipment date in the letter of credit. R Bank subsequently obtained a temporary injunction preventing it from making payments under the letter of credit. Sinocore terminated the contract with RBRG for breach of contract which led to RBRG commencing arbitration proceedings against Sinocore.

The tribunal found that Sinocore had not deceived RBRG and the cause of the breach was the non-conforming letter of credit.

English enforcement proceedings

Sinocore successfully obtained a High Court order to enforce the award. RBRG applied to set the order aside pursuant to s103 of the act on the ground that enforcement would be contrary to public policy as Sinocore’s claim was based on forged bills of lading. Mr Justice Phillips dismissed RBRG’s application and held that there was no suggestion that the sale contract itself was fraudulent or contrary to public policy. RBRG appealed on the grounds, inter alia, that the judge had failed to apply the correct test of illegality (he should have applied Patel v Mirza [2016] UKSC 42) and that the judge was wrong to find that Sinocore’s claim was not ‘based on’ its own illegality.

Court of appeal

Giving the leading judgment, Hamblen LJ noted that it was widely accepted that the public policy ground should be given a restrictive interpretation (IPOC (Nigeria) v Nigerian National Petroleum [2005] 2 Lloyd’s Rep 326). It was also clear that where a tribunal has jurisdiction to determine the issue of illegality and has determined that there was no illegality on the facts, the English court should not allow the facts to be reopened save in the most exceptional circumstances. His lordship also explained that the degree of connection between the claim sought to be enforced and the relevant illegality will be important (in Soleimany v Soleimany [1999] QB 785 (CA)).

Hamblen LJ went on to dismiss RBRG’s argument on Patel v Mirza: the Supreme Court did not consider any of the authorities on illegality and public policy in the context of s103(3). His lordship also dismissed RBRG’s contention that there existed a degree of connection between Sinocore’s fraud in presenting the bills of lading and its claim for enforcement of the award was enough to engage the public policy principle. Hamblen LJ held:

(i) the tribunal expressly considered the issue of causation and found that the cause of the termination of the sale contract and of Sinocore’s failure to obtain payment for the goods and resulting losses was the non-conforming letter of credit tendered by RBRG;

(ii) the tribunal found as a fact that the amendment to the letter of credit had not been agreed between the parties;

(iii) in enforcing the award the court is not allowing its ‘process to be used by a dishonest person to carry out a fraud’; and

(iv) whether to refuse enforcement was a matter of discretion for the judge which he exercised correctly.

The case illustrates the cautious approach the English courts will adopt when deciding an application to set aside an arbitral award. As the authorities in this jurisdiction and many other contracting states make clear, the courts will, except in exceptional circumstances, adopt a restrictive approach when interpreting and applying the public policy exception. In doing so, the courts will seek to uphold the pro-arbitration basis upon which the convention was established.

Masood Ahmed is an associate professor at the University of Leicester and a member of the Civil Procedure Rule Committee