K1 (a company incorporated in Kuwait) & Ors v B

On 10 April 2024, an LCIA arbitral tribunal (the “Tribunal”) made an award for US$3.2 million against the Claimants and in favour of the Defendant (the “Award”). The amount awarded was found to be payable as a success fee for services pursuant to a contract by way of letter of engagement signed by the Defendant on 28 May 2018 (the “LOE”).

The LOE contained this provision on arbitration and governing law:

There is a pending challenge as to the jurisdiction of the Tribunal, brought by the Claimants by arbitration claim dated 8 May 2024 under section 67 of the Arbitration Act 1996 (“the 1996 Act”). This is listed to be heard in late October 2025. The Claimants summarise their case in the section 67 challenge as being that none of them was bound by the LOE, either because the US law firm that signed the letter had no authority to bind the Claimants to it or because the first two Claimants lacked capacity, as a matter of Kuwaiti law, to enter into an arbitration agreement.

By application dated 16 April 2025 the Claimants now apply for permission to amend the arbitration claim form to introduce a further challenge, this time under section 68(2)(g) of the 1996 Act and on the basis of alleged serious irregularity.

The application also seeks orders that the related time limit under section 70(3) be extended and for relief from sanctions. Section 70(3) of the 1996 Act requires an application under section 68 to be brought within 28 days of an award. By the time of the application the period that has lapsed in the present case is just under one year.

The Claimants’ contention is that the LOE was what it describes as “a contract for fraud”. It was, the Claimants contend, a contract for provision of services to “obtain information from targets by deception”, and was performed in that way. The “targets” were foreign state officials or authorities possessing confidential information about a foreign Ministry and Authority.

The Defendant does not accept that the LOE “was a contract for an illegal purpose or that its performance involved any illegality”. It recognises that this “issue cannot be determined on a summary basis” and does not seek a determination of this aspect on the present application.

The contention that the LOE was “a contract for fraud” was not raised in the arbitration. The Claimants’ evidence is that they never considered the point during the arbitration because they were not themselves signatories to the LOE. Rather, the LOE was entered into by legal counsel “who had not raised any concern in relation to legality”. Further, the Defendant had given an undertaking in the LOE that its activities were lawful.

The Claimants add, in the witness statement of their current solicitor:

Section 68 of the Arbitration Act 1996 provides in material part:

“Challenging the award: serious irregularity.

(1)

A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award. A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).

(2)

Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—

… (g) the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy.”

In Federal Republic of Nigeria v Process & Industrial Developments Limited [2023] EWHC 2638 (Comm) at [475]-[476] I said of section 68:

“475.

The section is founded on the principles set out in section 1 of the Act (set out in full in the Annex to this judgment) and is to be construed accordingly. Those principles are:

"(a)

the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;

(b)

the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;

(c)

in matters governed by this Part the court should not intervene except as provided by [Part I of the Arbitration Act 1996]".

476.

The objection under consideration in section 68(2)(g), that of "the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy", is of fundamental character to the arbitration process because it goes to the integrity of that process. No policy of arbitration law calls for section 68(2)(g) to be given other than its plain meaning. An award obtained by fraud or contrary to public policy (or procured in a way that was contrary to public policy) and which has caused or will cause substantial injustice is not what the parties agreed to when they agreed on arbitration. To support it in the name of supporting arbitration as a process achieves the opposite. Unless the right to object is lost for reasons of finality (the business of section 73, below), and subject to the procedural restrictions in section 70(2) and (3), there is no sanctuary. This architecture meets the requirements of justice.”

Taking the language of section 68(1), the Claimants seek to advance, by the proposed amendment, the case that there was “serious irregularity affecting … the award”. Taking the language of section 68(2), the serious irregularity is said to be of the kind described by section 68(2)(g). Mr Mark Wassouf for the Claimants argued that if the LOE was, as the Claimants contend, a “contract for fraud” then the Award is within the language “the award … being contrary to public policy”.

With respect, I cannot accept the argument. The Claimants’ proposed case is a case on the merits of the contract claim that (if the Tribunal had jurisdiction) the parties had agreed should be for the Tribunal to decide. This is so even though the Claimants did not raise it before the Tribunal. The consequences of accepting the Claimants’ argument that its proposed case is within section 68 would be very substantial for the relationship between the Courts and arbitration.

I held in Nigeria v P&ID (above) at [474]that the focus of section 68 is not on the claim on which an award is based or the cause of action on which the claim is based, but is on the parties’ conduct in the arbitration and the process by which the award is obtained:

“The section is concerned with serious irregularity "affecting the tribunal, the [arbitral] proceedings or the award". Subsection (2) lists nine "kinds" of irregularity. In the present case our focus is on kind (g). That is concerned with "the award" and "the way in which it was procured". For irregularity kind (g), it is the award that must be "obtained by fraud"; it is the award or the way in which the award is procured that must be "contrary to public policy". The focus is not on the claim on which the award is based or the cause of action on which the claim is based. Lord Wolfson KC submitted:

‘The s. 68 jurisdiction is structured and circumscribed and, for sound reasons of policy, requires a close focus on the parties' conduct in the arbitration and the process by which the award was obtained.’

I respectfully agree.”

See further [480], [484]-[486].

In the present case there is no suggestion that the arbitration process was interfered with. According to the Claimants, the Tribunal should have declined to award the sum it did to the Defendant because the LOE was a contract for fraud and illegal. But the Tribunal did not find that the LOE was a contract for fraud and illegal.

The Claimants’ case by the proposed amendment is, on analysis, that the Tribunal did not arrive at the correct decision in its Award. But “nowhere in section 68 is there any hint that a failure by the tribunal to arrive at the "correct decision" could afford a ground for challenge under section 68”:Lesotho Highlands Development Authority v. Impregilo SpA and others [2005] UKHL 43 at [29], and see also R v V [2008] EWHC 1531 (Comm).

Mr Wassouf recognised that what he termed “the classic case” under Section 68(2)(g) goes to process in the arbitration but argued that the wording in the subsection contemplates that there may be an objection “which is not procedural in nature”; it allowed for the possibility of a “residual case” where “although everything was fine in the arbitration, the resultant award is objectionable on grounds of public policy”.

Mr Wassouf asked rhetorically that if one needs to show procedural irregularity in order to come within Section 68, what effect is left for the wording “an award …. being contrary to public policy”; “what situation would involve an award contrary to public policy, but not a procedure that was contrary to public policy?”

I gave one answer in Nigeria v P&ID at [488]-[492]. This was of the situation where the parties entered into a contract, and the intention of a party was “not to perform it but simply to use it as a device to get an award or settlement.” This was “the very different case” where “[a] contract is a first or early step in carrying out” an overall fraudulent enterprise or plan from the start to procure an award. In those circumstances the award itself would be contrary to public policy as the object of the plan.

As an alternative to his argument that the Award itself is contrary to public policy because it is based on a contract for fraud, Mr Wassouf sought to fit the Claimants’ case into that “very different case” I had described in Nigeria. He argued that the alleged illegality of the contract and of the manner of its performance were matters capable of grounding a challenge to the Award under section 68(2)(g) “because these matters could well lead to the conclusion that the award was procured by fraud, as part of an overall fraudulent enterprise”.

But Mr Wassouf properly made clear that he did not say that the Defendant “necessarily entered into this fraudulent enterprise in order to procure the award”. Instead, he was saying that when the Claimants would not pay, the Defendant advanced the enterprise by obtaining the Award. I do not consider that does fit the “very different case”.

On the facts in Nigeria v P&ID, I reached the conclusion that the “very different case” was also not made out there. However, I found sets of circumstances that did bring the case within section 68(2)(g): see [493]-[497]. Each was concerned with the arbitration process and none has a parallel in the present case.

The first set of circumstances was P&ID's providing to the tribunal and relying on evidence before the tribunal that was material but was evidence that P&ID knew to be false. The second was P&ID's continued bribery or corrupt payment of Mrs Grace Taiga directed to the period of the arbitration in order to suppress from the tribunal and Nigeria the fact that she had been bribed when the contract in that case came about. This was fairly described by Nigeria as bribery "to keep her 'on-side', and to buy her silence about the earlier bribery". The third was P&ID's improper retention of what were defined as Nigeria’s Internal Legal Documents received by P&ID during the arbitration. I found that P&ID retained these (rather than returned them unread) so as to monitor Nigeria’s position and awareness as the arbitration continued, and that this included monitoring whether Nigeria had become aware of the deception being practised by P&ID on the tribunal and on Nigeria as a party before the tribunal.

I also make clear that there is not before the Court on this application the situation where the Tribunal found that the LOE was a contract for fraud or illegal and yet still went on to make the Award. Nor am I dealing with a case where it is said that, even though the allegation was not raised by the Claimants, the Tribunal nonetheless should on its own initiative have inquired into or investigated whether the LOE was a contract for fraud or illegal, but without doing so went on to make the Award.

The fact that section 68 concerns “serious irregularity”, defined to include the requirement for “substantial injustice” further helps confirm the role of the section. In RAV Bahamas v Therapy Beach Club [2021] UKPC 8; [2021] AC 907 Lords Hamblen and Burrows cited at [30] paragraph 280 of the 1996 Report on the Arbitration Bill of the Departmental Advisory Committee on Arbitration Law. Part of the paragraph cited was in these terms:

The question of enforcement of the Award is not for determination by the Court on this application. Section 68(2)(g) is not addressing enforcement of an Award: Nigeria v P&ID at [483].

A passage cited for the Claimants from the decision of Diplock J in London Export Corporation Ltd v Jubilee Coffee Roasting Co. Ltd. [1958] 1 W.L.R. 271 at 277 (which was cited in the Court of Appeal’s decision in Soleimany v Soleimany [1999] EWCA 285; [1999] QB 785) in my view helps show the difference of the enforcement stage to the stage of a section 68 challenge. The passage reads:

In his oral argument, to support the contention that section 68 should be available to the Claimants in the present case, and without conceding the Claimants’ position on enforcement, Mr Wassouf argued that public policy could not be invoked at the stage of enforcement because of the terms of section 66 of the 1996 Act. He referred to the fact that section 66, in contrast to section 103(3), does not refer to public policy in terms.

Again, the question of enforcement is not for determination by the Court on this application, but I respectfully doubt that the Court is required to enforce an award if enforcement would be contrary to public policy: see Soleimany v Soleimany (above) at p 798.

In the circumstances of the present case, I dismiss the application to amend to add a section 68(2)(g) challenge.

In dismissing the application to amend I am not to be taken to have reached any conclusion on the question whether the English Court or any other Court would or would not be prepared to enforce the Award.