Alexander Brothers Ltd (Hong Kong SAR) v Alstom Transport SA & Anor

This is the application of the Defendants (“Alstom”) to set aside the without notice Order of Teare J enforcing an arbitration award (“the Award”) in favour of the Claimant (“ABL”) on the basis that it was contrary to public policy; alternatively for a trial of the public policy issue.

The Award orders Alstom to make payments under certain consultancy agreements, by which ABL was to and did assist Alstom in obtaining government railway contracts in China.

Alstom relies on two grounds. First, although this was not the major issue in the submissions before me, it submits that there was a failure to make full and frank disclosure on the without notice application.

Secondly, and in reality its primary case, Alstom says that the public policy ground under section 103(3) Arbitration Act 1996 is engaged. In essence, it contends that the underlying consultancy agreements are tainted by illegality in ABL’s performance. Alstom places considerable reliance on the fact that enforcement in France has already been refused by the Paris Cour d’Appel, which held in May 2019 that there were “serious, precise and consistent indicia” that payments made to ABL by Alstom under the consultancy agreements had been used to bribe Chinese government officials and that the sums held to be due under the Award were “intended to finance or remunerate acts of bribery”.

One central issue before me is the extent to which this argument is available to Alstom in the light of the fact that there is a crossover between the public policy argument and the documents in play and submissions made in the arbitration. ABL contends that the Tribunal had this argument before it and rejected it; and that on the authorities this means that I am bound to reject Alstom’s argument.

There is also a dispute as to whether any issue estoppel arises out of the decision of the Cour D’Appel.

The First Defendant (“Alstom Transport”) is a company incorporated in France. The Second Defendant (“Alstom Network”) is a company registered in England. Both are wholly-owned subsidiaries of the Alstom group, which has its headquarters in France. The Alstom group, primarily through Alstom Transport, is engaged in the business of the supply of railway locomotives and stock, in many countries worldwide.

ABL is a family run company incorporated in Hong Kong and managed by Ms Guo Qi, a highly qualified former employee of the Alstom Group.

In 2003, Ms Guo Qi was approached by Alstom to assist in the group’s negotiations with the Chinese Ministry of Railways. Following completion of “rigorous” and “lengthy” due diligence and approval procedures, ABL and Alstom signed five consultancy agreements, in relation to various railway projects in China. Pursuant to these agreements, ABL was engaged to provide services and assistance in respect of Alstom’s tenders for these projects and, if the tenders were successful, to assist in the performance of the resulting projects.

22.By April 2014 the Tribunal had circulated the draft Procedural Order and draft Terms of Reference. The Terms of Reference defined the issues which the Tribunal understood to be before it. As recorded in the Award they were these:

“i.

Can the fact that Respondents are subject to an investigation by the UK Serious Fraud Office influence their payment obligations towards Claimant and, if so, in which way? Is it necessary that payments under the Consultancy Agreements are officially cleared by the Serious Fraud Office? Is Claimant's alleged failure to provide a satisfactory level of information to Respondents in connection with the criminal investigation, and its alleged refusal of a complementary audit, of relevance to Respondents' payment obligations and, if so, in which way?

ii.

Is Respondents' internal compliance policy in relation to anti-bribery standards of relevance to Respondents' payment obligation under the Consultancy Agreements, and, if so, in which way, i.e. are Respondents allowed to withhold payment of the amounts claimed by Claimant?

iii.

Are Respondents under an obligation to pay the outstanding invoices under the Consultancy Agreements in case Claimant is not able to provide proof of the content of its service? Can the - alleged - nonfulfillment of this obligation be a valid reason for not paying the invoices?

iv.

Are Respondents under an obligation to pay these invoices if there is evidence of or arguments for corruption?

v.

What are the costs of the arbitration and how should they be borne by the Parties?”

During the course of these events, Alstom’s case shifted ground somewhat. In its First Memorandum it withdrew its request for a stay. Its first defence was that “the suspension of Payment of Claimant’s fees … is justified by issues identified during the different audits”. It then referred to concerns arising out of accounting errors and internal control weaknesses, to insufficiency of proofs of services submitted and third party payments made by ABL. These were summarised as matters which “constitute serious indications of possible corrupt practices” preventing payment to ABL.

It continued to hinge its defence on corruption, submitting that: “It remains that the issues identified by the [Defendants] during the different audits conducted raised serious doubts on potential corrupted practices and a breach by ABL of its contractual obligations. Therefore, in the absence of satisfactory clarifications from [ABL] its claim for payment of consultancy fees shall be dismissed by the Arbitral Tribunal.”

So far as concerned insufficiency of proof of services, this was described as “not an issue of financial consideration but a compliance issue since paying a large amount of money without proof of relevant work is a potential sign of bribery activity.”

Other grounds were raised (such as contractual conditions for payment not having been met) but it is fair to say that these were subsidiary to the main issue.

By the Second Memorandum the ground had shifted somewhat, but not markedly. The Second Memorandum has as Issue 1: “The issue at stake is the performance by the Claimant of its ethics and compliance obligations”. It then goes on to argue that Alstom’s Ethics and Compliance Policy was enforceable through the provisions of the Agreements, and ABL had breached those obligations by: (i) third party payments to a Chinese State-owned entity known as SITICO; (ii) “the concerns arising out of ABL’s proofs of services”, one of which was the insufficiency of proofs of services submitted by ABL and (iii) “the concerns arising out of the accounting errors and internal control weaknesses”.

Alstom made clear that it was not trying to allege that it had proof of acts of corruption, but rather said that whether ABL had performed what it claimed were ABL’s Ethics and Compliance Obligations was the central issue. Rather than proving corruption, it asserted that ABL had to prove the opposite. Corruption therefore remained at the heart of the claim, but no positive case was run. Alstom claimed that in the circumstances it was entitled to refuse payment because making payment would expose it to a risk of criminal liability. I note here that it is not clear why Alstom did not run an overt and positive case of bribery and corruption.

During the course of these submissions perhaps most attention was given to the SITICO argument. This was the argument that ABL had, unbeknownst to Alstom, entered into a consultancy agreement of its own with a state-owned company called SITICO for SITICO to provide to ABL services in relation to the same government contract in relation to which ABL was providing services to Alstom. Alstom argued that this was a breach of a previous consultancy agreement between ABL and Alstom, in that it amounted to subcontracting without consent, which was not permitted under that consultancy agreement. Alstom argued that this breach of contract amounted to a wilful deceit.

All three subheadings of the argument were explored in detail. During the course of this exploration, reference was made to most of the documents which underpin the arguments made before me, and the Paris Cour D’Appel, that there are “indicia of bribery”.

In essence the points on which Alstom relies as “indicia”, and which were addressed in the evidence before the Tribunal (though not in this collected form) are the following allegations:

I should make clear that, as Mr Harris QC for ABL noted, the inferences sought to be drawn from those points were disputed. The submissions included detailed rebuttal evidence. To give one example, as to influence Ms GuoQi gave evidence as to how that influence was brought to bear in a particular case, and that it comprised what one might term ordinary commercial advocacy, emphasising the negative effects on a local company which was involved as a joint venture. Another example is that there were detailed submissions on the SITICO contract.

At the hearing of the arbitration it appears that ground had shifted again. Alstom’s counsel certainly placed greater stress on the contractual defences than had been done in the written briefs. He said in terms:

However at the same time it is clear from the transcript and from the Award that at no point did Alstom formally resile from the case which it ran as to corruption. It did not seek to have the Terms of Reference amended.

To deal with that fact it was submitted before me, at least in writing, that “Alstom’s case on the SITICO contract and also the breach of the obligation to provide sufficient proof of services necessarily involved showing how the circumstances appeared suspicious”, I do not accept that submission. It was open to Alstom to run a purely contractual case. It did not do so. The impression which I have received from the materials is that the case began as a case which was all about bribery and corruption. Although it did not formally raise an illegality argument, Alstom relied upon indicia of bribery as giving rise to a legal justification for refusing to pay. There was a tacit case of bribery.

By the time of the hearing Alstom may (subjectively) have lost faith in that argument, but it did not withdraw it. Its original case remained before the Tribunal. Further it continued to rely upon the indicia of fraud, albeit essentially by way of prejudice, to assist its contractual case.

This conclusion seems to be reflected in the way the matter is handled by the Tribunal in the Award. The Tribunal summarised the submissions made to it, and plainly considered that all of the issues in the Terms of Reference were still live and required to be determined by them. It was left with the dilemma of working out how Alstom’s original case on bribery translated into Swiss Law and whether it was capable of affording a defence.

Accordingly the Tribunal, having reviewed the facts and the parties’ submissions, turned at paragraph 257 and following of the Award to consider what legal routes that might offer Alstom as a matter of Swiss Law. I should make clear that this was not a passage which reflected the parties’ own legal submissions. Under Swiss Law the Tribunal takes much of the burden of legal analysis upon itself, under the principle jura novit curia, by which courts and tribunals freely assess the legal consequences of acts and may rule based on rules of law other than those cited by the parties. That approach is not insignificant given the fact that the tacit bribery case was left to the Tribunal - it was plainly open to the Tribunal (and it would not be surprising if they considered it their duty) to consider that point as a live issue.

At paragraph 257 and following the Tribunal concludes that there are three routes whereby corruption can, as a matter of Swiss Law, have an effect on contractual agreements: contracts for a corrupt purpose (not applicable), contracts procured by corruption (also not applicable), and “a contract may be tainted by corruption if one of the parties has engaged in corrupt practices in the execution of the contract”. This was plainly a possible fit.

As to this, the Tribunal noted that “it has not been argued in this arbitration that the three Consultancy Agreements were procured by corruption”, but that Alstom had argued in the arbitration that it had concerns that ABL may have engaged in corrupt practices (the payment of bribes) in the execution of the Agreements. It concluded that “the actual existence of corrupt practices has to be established by sound evidence”. The Tribunal considered whether a reverse burden of proof could be applicable, given the difficulties of proof and the policy considerations; but concluded that it could not.

It evaluated the documents which Alstom claimed gave rise to suspicions of corruption and noted that they had been submitted by ABL to Alstom many years before the commencement of the arbitration, and there was no attempt by ABL to disguise or conceal its activities. It also noted that ABL had submitted to two audits by the Alstom group’s internal auditors, and no evidence of corruption was found.

Paragraph 273 then records that “Respondents did not allege that Claimant was actually engaged in bribery, corruption or some other form of criminal conduct.” Paragraph 275 records that “[t]his, however, is not a conclusive claim of corrupt activities or other criminal conduct, let alone conclusive evidence of any illegal activity.”

It considered that the documentation referred to by Alstom did “not establish evidence of any acts of corruption or criminal conduct.” In particular, the Tribunal referred to Alstom’s audit report dated 15 January 2013 and the fact that it did not record any unsolicited payments or other established evidence of criminal conduct. It noted the absence of any evidence as to what the second audit report found. It also noted that the documents relied on had been provided to Alstom approximately ten years before.

The Tribunal also noted at paragraph 272 that under Swiss law “the seriousness of the accusation of corruption moreover requires specifically clear and convincing evidence”. It referred elsewhere to the high standard of proof: “conclusive evidence” in the context of “the necessary threshold of proving corrupt or otherwise criminal conduct” (paragraph 275) and the “high burden of proof under Swiss law” (paragraph 276). The Tribunal held at paragraphs 277 and 280 that a mere suspicion of corrupt practices would not suffice to provide Alstom with a defence to ABL’s claims to payment.

The result is that the Tribunal decided the question effectively in limine; it considered the hurdles which Alstom would have to cross to succeed on a corruption argument and concluded that it did not advance the case it would need to advance as a matter of law and could not begin to approach the standard of proof. The result was that the Tribunal did not engage in any detail with the facts said to give rise to Alstom’s suspicions. They did however evaluate the factual evidence for the purposes of gauging where, in the scale of evidential value, it stood. I shall revert to the significance of this approach further below.

Alstom then applied to set the Award aside in the Court of the seat in Switzerland on two grounds, one of which was that the Award was incompatible with public order, within the meaning of Article 190(2)(e) of the Swiss Federal Private International Law Act. The way in which this was put was that the Tribunal had “rendered an award incompatible with public policy”. The basis for this was, effectively as before the Tribunal, on the basis of risk of criminal prosecution if Alstom paid, and based on alleged breaches of the Alstom compliance policies.

In addition Alstom argued that the Tribunal had committed a procedural irregularity by violating Alstom's right to be heard. This related to the Tribunal's approach to proofs of services - in other words to the contractual claim. Alstom did not suggest that the Tribunal had been wrong to consider the corruption issues at all or that its sole case had been a contractual one.

In November 2016 the Swiss Federal Court held that it was limited to ruling based on the facts found by the Tribunal as recorded in the Award, noting that it lacked jurisdiction to rectify or complete findings of fact even if the facts “were established in a patently inaccurate manner or in violation of the law”. It therefore did not look at facts outside those found in the Award. The Swiss Court said that what it described as Alstom’s “implicit allegation of corruption” had been held by the Tribunal not to have been proven and that it could not re-examine that decision. The Court also noted that Alstom did not claim to have proof of acts of corruption committed in relation to the agreements in dispute. The Swiss Court rejected Alstom’s argument that it was contrary to public policy for it to have to make payments which did not conform with Alstom’s own compliance rules.

The Swiss Federal Court rejected Alstom’s application for annulment, declining to investigate the facts concerning corruption. In respect of the public order argument, the Swiss Federal Tribunal explained that:

“the Arbitral Tribunal, after having analysed the elements of proof that the appellants had provided to it in order to support their implicit allegation of corruption aimed at the respondent, considered that this allegation had not been proved… Such a conclusion arises from an assessment of the evidence that this Court cannot re-examine.”

ABL then sought enforcement in France.

At first instance in France, the Paris District Court granted exequatur (i.e. an order enforcing the Award). Consequently, ABL took steps to enforce the Award in France and on 23 November 2016 obtained an order requiring Alstom to transfer c.€1.8 million to ABL pending the outcome of Alstom’s appeal to the Paris Cour d’Appel.

In February 2017 Alstom transferred this sum to an account of ABL’s French lawyers. ABL was entitled to take those funds, but in the event left them in the account pending the determination of the appeal.

On appeal to the Paris Cour d’Appel, that Court, in a decision dated 10 April 2018, noted that the arbitrators had held that Alstom “did not allege that ABL had actually paid bribes”. It further noted that Alstom’s argument was that mere non-compliance with contractual rules aimed at preventing corruption would by itself give rise to a public policy ground to refuse enforcement. It held that it was for the French Court to assess whether enforcing the Award met the French conception of relevant public policy and that in this regard it was not bound by the Award, nor by Swiss law. The Court invited the parties’ submissions on various potential indicia which might

Having received those submissions and evidence, in its decision dated 28 May 2019, a differently-constituted Cour d’Appel went into the facts relating to bribery and corruption in some detail, on the basis of the set of indicia set out in the 10 April 2018 decision. It noted that Alstom argued, in the light of the first Paris decision, “there are serious, precise and consistent indications that ABL, without its knowledge, bribed Chinese public decision-makers”.

It further noted that “due to the concealed nature of acts of bribery” it was permissible to approach the question of whether there had been bribery “solely on the basis of a set of indicia” and it was not necessary to find “precisely identified corrupt acts”.

The Cour d’Appel looked in detail at the contemporaneous documents and the inferences to be drawn from them and the surrounding circumstances and held that the facts “provided serious, precise and consistent indicia that the sums Alstom paid to ABL financed and remunerated the bribery of public officials”.

The Cour d’Appel ordered ABL to return the sum of €1.8m to Alstom. Thus funds which had previously been held by ABL’s French lawyers were frozen and transferred to a neutral escrow account on 9 July 2019. These funds were subsequently transferred to Alstom via its French bailiff on 29 January 2020.

The judgment of the Paris Cour d’Appel is currently under appeal to the Cour de Cassation.

ABL issued an Arbitration Claim Form seeking enforcement on 11 October 2019. In the usual way this was dealt with on the documents without notice to Alstom. Mr Justice Teare made an order for enforcement on 15 October 2019.

On 10 January 2020 Alstom applied to set aside that Order on the basis of (i) failure to give full and frank disclosure and (ii) the public policy ground under section 103(3) of the Arbitration Act 1996. Both parties served evidence. I do not need to deal with that evidence in any detail here except to note the evidential position on the merits of the bribery allegation. So far as ABL is concerned, much was made in oral submissions by Alstom of the fact that Ms Guo Qi had not given a statement specifically denying bribery. However, Mr Fussell's second statement deals in some detail with the “indicia”, summarising the arguments advanced for ABL in the arbitration.

Before me the argument has centred very much on the questions of law as to whether enforcement should be impeded by arguments which were or could have been raised before the Tribunal. Little oral or written argument was addressed to the evidential value of the indicia. I therefore address the legal arguments first, though the evaluation of the indicia is something which requires to be considered in due course.

The Arbitration Act gives effect to Article V(2)(b) of the New York Convention by section 103 which provides:

“103 Refusal of recognition or enforcement

(1)

Recognition or enforcement of a New York Convention award shall not be refused except in the following cases.…

(3)

Recognition or enforcement of the award may also be refused if the award is in respect of a matter which is not capable of settlement by arbitration, or if it would be contrary to public policy to recognise or enforce the award.”

As Merkin & Flannery note at paragraph 103.14.12 of The Arbitration Act 1996, the public policy exception dates back to the 1927 Geneva Convention. There was some discussion about the terms in which it should be translated into the New York Convention, the original proposal (objected to by inter alia the UK) being “clearly incompatible with public policy or fundamental principles of the law (“ordre public”)” of the country in which the award is sought to be enforced.

It was not contentious that if it is possible to come to a decision on a challenge to enforcement without holding a full hearing, the Court will do so, on the basis of the usual test on summary judgment, i.e. whether there is a real prospect of successfully establishing a ground under section 103, or some other compelling reason why the issue should be disposed of at a trial. However at the same time, issues may arise which can only be decided after disclosure and cross-examination and in such cases a trial of the issue may be ordered: Honeywell International Middle East Ltd v Meydan Group LLC [2014] EWHC 1344 (TCC) at paragraphs 68 to 71; Stati v Kazakhstan [2017] EWHC 1348 (Comm).

Pausing here, it might seem as a matter of first principles that what section 103 requires of this Court is that it refuse enforcement in every case where the evidence adduced before it establishes on the balance of probabilities that there has been conduct which infringes public policy. So if a party challenging enforcement could prove on the balance of probabilities that there was bribery, section 103(3) would bite; and if there was a real prospect of that party successfully establishing bribery, the Court should order a trial of the bribery issue. However, the position on the authorities is far from being this simple. There are a number of factors which come into play.

Before turning to the key authorities in this specific area, I should note the broad effect of the legal backdrop.

First there is the public policy in favour of enforcement. The basic and fundamental policy underlying both the New York Convention and the relevant parts of the Arbitration Act is to promote enforcement of New York Convention awards: “section 103 of the Act reflects and embodies the predisposition in favour of enforcing

That is reflected in the dictum from IPCO (Nigeria) v NNPC [2005] EWHC (Comm) 726, [2005] 2 Lloyd's Rep 326 that the section is “not intended to furnish an open-ended escape route for refusing enforcement of New York Convention awards”.

In order to resist enforcement, a party must show that one of the grounds in sections 103(2) or 103(3) of the Arbitration Act is established. If none is established, section 103(1) makes clear that enforcement of the Award “shall not be refused.” Where a ground for refusing enforcement is established, the Court retains a discretion, albeit a narrow one, to enforce the Award; Carpatsky (No 2) [40].

“Public policy” as referred to in section 103(3) of the Arbitration Act means the public policy of England and Wales (as the country in which enforcement is sought) in maintaining the fair and orderly administration of justice. The classic formulation as to what is seen as contrary to public policy is: “contrary to the fundamental conceptions of morality and justice” of the forum. IPCO (Nigeria) v NNPC [2005] EWHC (Comm) 726, [2005] 2 Lloyd's Rep 326 [13], Deutsche Schachtbau v SIP Ltd [1987] 2 Lloyd’s Rep 246, 254.

The public policy exception in section 103(3) of the Arbitration Act is given a “restrictive interpretation.”: “the public policy exceptions are a safety valve that should only be invoked in a clear case and which must be approached with extreme caution.” Carpatsky (No 1) [41]. However that restrictive approach is not relevant here because

Under the New York Convention regime, as it is applied in England & Wales, significant weight is given to determinations of the Court of the seat. Thus: “a party faces a heavy burden where the competent supervisory courts in that state have previously considered and rejected challenges to the validity, made on grounds which on analysis bear a close resemblance to those deployed on the application in this jurisdiction.” Carpatsky [50], Minmetals Germany GmbH v Ferco Steel Ltd [1999] 1 All ER (Comm) 315.

Perhaps the majority of cases brought under this section concern allegations that the award has been obtained by fraud, or perjury. In such cases it is well established that the Court will not refuse enforcement unless:

These principles are not directly applicable here, but they serve to provide a comparator for the authorities in this specific area.

The first point at issue was whether, because of the decisions of this Court and the Court of Appeal in Westacre Investments Inc. v Jugoimport-SPDR Holding Co. Ltd. and Ors, I am in effect bound to hold that Alstom’s arguments are not open to them.

Another highly contentious, and related, point was whether the following passage from Dicey & Morris correctly represents the law as stated in the authorities:

“ … the court has to perform a balancing exercise between the finality that should prima facie exist particularly for those that agree to have their disputes arbitrated, against the policy of ensuring that the enforcement power of the English court is not abused: the nature of, and strength of the case for, the illegality, and the extent to which it can be seen that the asserted illegality was addressed by the arbitral tribunal are factors in the balancing exercise between the competing public policies of finality and illegality. [Footnoted to Westacre at p 314, R v V [2008] EWHC 1531, Soleimany at p 800”].

These points, to which much argument was addressed, require a close consideration of the judgments.

Westacre was a case with some fairly obvious parallels to the present one. The parties entered into a Swiss law consultancy agreement, pursuant to which the Claimant was engaged to assist the Defendant in procuring contracts - in that case for the sale of military equipment in Kuwait. The Defendant refused to pay the Claimant’s invoice, resulting in an ICC arbitration seated in Switzerland.

In the arbitration (part of the award is fortuitously published in the ICC's Yearbook of Commercial Arbitration Vol XXI 1996), a number of defences to payment were advanced, including purely contractual ones such as the effect of termination. There was an argument as to whether the agreement was “invalid due to the alleged illicit activities of the claimant”. One part of this argument was that the Defendant argued that the parties had intended the use of personal influence and that it had suspicions (but no intention) that the Claimant intended to use part of the expected fees to bribe officials in the Kuwaiti Ministry of Defence. It was later argued that the Claimant had in fact bribed officials to exercise their influence. The Defendant also denied the jurisdiction of the Tribunal to deal with such issues.

The Tribunal rejected all of the Defendants’ arguments and upheld the Claimant’s claim for unpaid invoices. It rejected any argument of joint illicit intentions on the merits. It rejected an argument that the agreement was invalid because it was for lobbying, deciding that lobbying was not proven to be illegal under Kuwaiti Law. It held that it regarded the allegations of bribery, which emerged in its Final Brief (which appears to have been submitted after the submission of the initial written briefs and after the examination of the witnesses), as “speculative, and insufficient to convince the majority of the Arbitral Tribunal…”. It referred to the fact that “bribery is a fact which has to be alleged and for which evidence has to be submitted.”

The Defendant challenged the Award before the court of the seat in Switzerland on grounds that it would be contrary to public policy to enforce the Award because it was a contract to pay bribes or because the contract was illegal by the law of Kuwait. As in the present case, the Swiss Federal Tribunal dismissed the challenge as an attempt to rehear the issues before the Tribunal.

The Claimant then sought to enforce the ICC Award in England. The Defendant resisted enforcement on grounds of public policy, raising three issues: (i) the legality of the underlying consultancy agreement under Kuwaiti law in that the parties intended that personal influence should be used to procure the contracts; (ii) an allegation (supported by fresh evidence) that a number of witnesses called by the Claimant at the hearing had given perjured evidence and that the ICC Award had therefore been obtained by fraud; and (iii) an allegation of bribery, in part based on material before the Tribunal and in part supported by the fresh evidence.

A part of the debate was about an issue referred to as “the Lemenda issue” that:

This Court, via Colman J, [1999] QB 740 refused the Defendant’s application to set aside on grounds of public policy and refused permission to adduce fresh evidence of fraud. One important point to bear in mind is that despite the considerable similarities in the facts of the case, the issues there were somewhat different. Here there is no jurisdiction argument, there is no question of the Award being obtained by fraud, and there is no question of reliance on fresh evidence. There is also a difference as to the precise allegations underpinning the public policy arguments – in that case there were questions as to the contract being one for use of influence as well as actual allegations of bribery.

It is against that background that at p. 767 of the judgment Colman J set out 6 propositions applicable to the enforcement of awards where illegality was alleged in relation to the underlying contract. The first of those propositions, which deal with jurisdiction, were relevant in Westacre, but are not said to be relevant here. But considerable focus has fallen on the latter two propositions:

“(v)

If the court concluded that the arbitration agreement conferred jurisdiction to determine whether the underlying contract was illegal and by the award the arbitrators determined that it was not illegal, prima facie the court would enforce the resulting award. (vi) If the party against whom the award was made then sought to challenge enforcement of the award on the grounds that, on the basis of facts not placed before the arbitrators, the contract was indeed illegal, the enforcement court would have to consider whether the public policy against the enforcement of illegal contracts outweighed the countervailing public policy in support of the finality of awards in general and of awards in respect of the same issue in particular.”

He then went on to consider the issue of whether English law should, in effect, run the risk of allowing arbitrators to have got such an important question wrong before saying:

“I have no doubt that an English Court would give predominant weight to the public policy of sustaining the parties' agreement to submit the particular issue of illegality and initial invalidity to ICC arbitration rather than to the public policy of sustaining the non-enforcement of contracts illegal at common law. The importance of the former consideration would be held to outweigh the need to protect against the risk that arbitrators might by uncorrectable errors of fact enforce an illegal contract.”

He then considered the new evidence saying:

“In substance they seek to use the public policy doctrine to conduct a re-trial on the basis of additional evidence of illegality when it was open to them to adduce that evidence before the arbitrators. Such an exercise would appear to be clearly in conflict with the principles of issue estoppel.”

He then went on to consider the balance between sustaining the finality of awards and the public policy of discouraging corrupt trading. Referencing mounting international concern, in particular as to contracts for public works, he made a reference to the OECD Convention on Combating the Bribery of Foreign Officials in International Transactions, which was being signed in the week in which judgment was given. He concluded:

“On balance I have come to the conclusion that the public policy of sustaining international arbitration awards on the facts of this case outweighs the public policy in discouraging international commercial corruption … That conclusion is not to be read as in any sense indicating that the Commercial Court is prepared to turn a blind eye to corruption in international trade, but rather as an expression of confidence that if the issue of illegality by reason of corruption is referred to high calibre ICC arbitrators and duly determined by them, it is entirely inappropriate in the context of the New York Convention that the enforcement court should be invited to retry that very issue in the context of a public policy submission.”

The next step is the judgment of the Court of Appeal Soleimany v Soleimany [1999] QB 785. That case was on the facts some way from the present. It concerned an arrangement to illegally export carpets from Iran for sale in the UK or elsewhere. The agreement to arbitrate was one to refer to the Beth Din, which naturally applied Jewish law, under which illegality would have no effect on the rights of the parties. It was however perfectly apparent from the face of the award that the contract was one which was founded on a joint intention to smuggle the carpets illicitly, and would therefore be illegal.

A strong Court of Appeal (Morritt and Waller L.JJ. and Sir Christopher Staughton) considered the issues in some detail, noting at the outset that “there is a distinction, which may not be unimportant in the context of this case, to be drawn between a ‘joint venture’ agreement with an object of committing illegal acts in a foreign and friendly state which will be totally unenforceable, and a contract which does not have that objective”.

They also noted that it was important in that case that the illegality in question was apparent from the face of the award. At p. 795 they noted Colman J's judgment in Westacre before concluding that any judgment which recognised a contract which was entered into with the object of committing an illegal act in a friendly foreign state would not be recognised by the English Courts and that the same principle applied to arbitral awards.

“it is in our view inconceivable that an English court would enforce an award made on a joint venture agreement between bank robbers, any more than it would enforce an agreement between highwaymen, …. Where public policy is involved, the interposition of an arbitration award does not isolate the successful party's claim from the illegality which gave rise to it.”

The critical passage for present purposes is not part of the ratio. It spans pp. 800-803:

“The difficulty arises when arbitrators have entered upon the topic of illegality, and have held that there was none. Or perhaps they have made a nonspeaking award, and have not been asked to give reasons. In such a case there is a tension between the public interest that the awards of arbitrators should be respected, so that there be an end to lawsuits, and the public interest that illegal contracts should not be enforced. We do not propound a definitive solution to this problem, for it does not arise in the present case …

In our view an enforcement judge, if there is prima facie evidence from one side that the award is based on an illegal contract, should inquire further to some extent … Has the arbitrator expressly found that the underlying contract was not illegal? Or is it a fair inference that he did reach that conclusion? Is there anything to suggest that the arbitrator was incompetent to conduct such an inquiry? May there have been collusion or bad faith, so as to procure an award despite illegality?...

Colman J. holds that prima facie the court would enforce the resulting award; and with that too we agree. But, in an appropriate case [the Court] may inquire, as we hold, into an issue of illegality even if an arbitrator had jurisdiction and has found there was no illegality. We thus differ from Colman J., who limited his sixth proposition to cases where there were relevant facts not put before the arbitrator”.

Shortly thereafter a differently constituted Court of Appeal (Waller LJ, Mantell LJ and Sir David Hirst (formerly Hirst LJ)) considered the appeal in Westacre itself ([2000] QB 288). It cannot be said that the decision which resulted is entirely satisfactory, in that the most considered judgment is the partially dissenting one of the only incumbent commercial Lord Justice.

Waller LJ gave a lengthy judgment during the course of which he stated (at p. 305, while dealing with the issue known as “the Lemenda point”, which concerned contracts for influence, not bribery) that:

“The English court takes cognisance of the fact that the underlying contract, on the facts as they appear from the award and its reasons, does not infringe one of those rules of public policy where the English court would not enforce it whatever its proper law or place of performance. It is entitled to take the view that such domestic public policy considerations as there may be, have been considered by the arbitral tribunal. It is legitimate to conclude that there is nothing which offends English public policy if an arbitral tribunal enforces a contract which does not offend the domestic public policy under either the proper law of the contract or its curial law, even if English domestic public policy might have taken a different view.”

As to the fraud amendment he said at p 309:

“I would … agree with the judge that normally the conditions to be fulfilled will be (a) that the evidence to establish the fraud was not available to the party alleging the fraud at the time of the hearing before the arbitrators; and (b) where perjury is the fraud alleged, i.e., where the very issue before the arbitrators was whether the witness or witnesses were lying, the evidence must be so strong that it would reasonably be expected to be decisive at a hearing, and if unanswered must have that result.”

On both these points the other members of the Court of Appeal agreed with his reasoning. It was on bribery that they parted company. Here Waller LJ expressed the view at pp. 311 and 314:

“[311] although normally at the enforcement stage a party who brings an action on the award will be estopped from attempting to re-argue the points on which he has lost the arbitration … there are exceptional circumstances where the court will not allow reliance on an estoppel….

[314]…there will be circumstances in which, despite the prima facie position of an award preventing a party reopening matters either decided by the arbitrators or which the party had every opportunity of raising before the arbitrators, the English court will allow a re-opening. The court is in this instance performing a balancing exercise between the competing public policies of finality and illegality; between the finality that should prima facie exist particularly for those that agree to have their disputes arbitrated, against the policy of ensuring that the executive power of the English court is not abused. It is for those reasons that the nature of the illegality is a factor, the strength of case that there was illegality also is a factor, and the extent to which it can be seen that the asserted illegality was addressed by the arbitral tribunal is a factor.”

He then went on to conclude:

“I have reached a different conclusion to that of the judge. I disagree with him as to the appropriate level of opprobrium at which to place commercial corruption. It seems to me that the principle against enforcing a corrupt bargain of the nature of this agreement, if the facts in M.M.'s affidavit are correct, is within that bracket recognised … as being based on public policy of the greatest importance and almost certainly recognised in most jurisdictions throughout the world. I believe it important that the English court is not seen to be turning a blind eye to corruption on this scale. I believe that if unanswered the case at present made on M.M.'s affidavit would be conclusive against Westacre being entitled to enforce the agreement and thus the award as a matter of English public policy. I also believe that the judge did not sufficiently consider the extent to which the case now presented on bribery was examined by the arbitration tribunal. When one examines the circumstances of this case one can see that in truth the bribery issue has not been ventilated properly before the Swiss arbitral tribunal.”

Mantell LJ took a different view both as a matter of analysis of the facts, but also application of the authorities:

“It is of crucial importance to evaluate both the majority decision in the arbitration and the ruling of the Swiss Federal Tribunal, Swiss Law being both the proper law of the contract and the curial law of the arbitration and Switzerland, like the United Kingdom, being a party to the New York

Convention. From the award itself it is clear that bribery was a central issue. The allegation was made, entertained and rejected… Authority apart in those circumstances I would have thought that there could be no justification for refusing to enforce the award..

… in Soleimany v. Soleimany [1999] Q.B. 785, 800, it seems to have been suggested that some kind of preliminary inquiry short of a full scale trial should be embarked upon whenever ‘there is prima facie evidence from one side that the award is based on an illegal contract . . .’. For my part I have some difficulty with the concept and even greater concerns about its application in practice, but,.., it seems to me that any such preliminary inquiry in the circumstances of the present case must inevitably lead to the same conclusion, namely, that the attempt to reopen the facts should be rebuffed. I so conclude by reference to the criteria given by way of example in Soleimany v. Soleimany itself. First, there was evidence before the tribunal that this was a straightforward, commercial contract. Secondly, the arbitrators specifically found that the underlying contract was not illegal. Thirdly, there is nothing to suggest incompetence on the part of the arbitrators. Finally, there is no reason to suspect collusion or bad faith in the obtaining of the award.”

100.Sir David Hirst “entirely” agreed with Mantell LJ (indicating that he agreed as to whether it was open to the defendants to challenge the arbitrators’ findings) and said that if the second question, as to whether enforcement should be allowed, had arisen, he would have answered it exactly as Colman J did.

Claro concerned a provision of Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts and held that it was of sufficient importance to be treated as a matter of public policy. The European Court decided that an award based on a contract that breached the Spanish law giving effect to the Directive had to be annulled. It held at [35] that a national court “must” grant an application to annul “where it is founded on failure to comply with Community rules of [public policy]”.

Accentuate is cited as the sole case where a court in this jurisdiction has followed these authorities as part of the ratio of the decision. Accentuate was a case concerning the Commercial Agents (Council