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In RBRG Trading (UK) Limited v Sinocore International Co Ltd [2018] EWCA Civ 838 an Award debtor (“RBRG”) argued that enforcement of an international arbitration award (an “Award”) under the New York Convention would be contrary to English “public policy”.
Finality is one of the key advantages of arbitration. However, if enforcing an Award would offend English public policy then enforcement may be refused by the English Courts. For example, Awards obtained by perjury or fraud can be susceptible to challenge. If an Award is otherwise tainted by illegality (for example, if the underlying contract is illegal), its enforcement may also offend English public policy. The determination of illegality and its effect on enforcement is a matter on which judicial guidance is always welcome.
RBRG was ordered to pay substantial damages to Sinocore pursuant to an Award, which was issued by the China International Economic and Trade Arbitration Commission (“CIETAC”).
Pursuant to the contract at issue, Sinocore agreed to sell rolled steel coils to RBRG. Payment was to be made by an irrevocable letter of credit (the “LOC”) opened by RBRG. The contract was governed by Chinese law and provided for CIETAC arbitration, seated in China.
The LOC was opened shortly after the contract was entered into. RBRG then, however, instructed its bank to purport to amend the letter of credit. Once the steel was shipped, Sinocore provided shipping confirmation to RBRG which stated the genuine date of the bills of lading. Shortly after shipment, Sinocore’s bank sought payment under the LOC but presented forged bills of lading in support of its payment request. The forgery purported to show that the date of the shipment date complied with the contract (as amended a fortnight after it was entered into). RBRG’s bank did not honour the LOC, leading to the arbitration (among other proceedings). In that arbitration, amongst other things, Sinocore issued a counterclaim for damages alleging that RBRG’s initial instruction to its bank to amend the LOC was a breach of the underlying contract. The tribunal agreed and found that the fundamental cause of the termination of that contract, and Sinocore's failure to obtain payment, was that initial non-conforming letter of credit. This resulted in an Award in favour of Sinocore. Sinocore sought enforcement of the Award in England.
The English High Court ordered enforcement. RBRG applied to set aside that order pursuant to Section 103(3) of the Arbitration Act 1996, on the ground that enforcement would be contrary to public policy as Sinocore’s claim for breach of contract was based on forged bills of lading. That application was dismissed.
RBRG appealed the dismissal of its application to the Court of Appeal. RBRG argued that the High Court:
The Court of Appeal reiterated the following principles to be considered when a “public policy” challenge arises:
Having summarised the relevant principles, the Court of Appeal found that the English law test of illegality (set out in Patel v Mirza) does not affect the principles to be applied when considering recognition and enforcement of an Award.
The considerations of “public policy” to be taken into account may overlap with the principles relevant to determining illegality under English law, but the English law illegality test is not the test to be applied to the “public policy” determination. Among other reasons for this conclusion, the Court of Appeal held that “there are sound justifications for taking a different approach to substantive claims and enforcement claims, reflecting the different role performed by the court in each circumstance” (par 26(3)). Consequently, the Court of Appeal rejected RBRG’s argument that the High Court applied the wrong legal test.
The Court of Appeal found that the degree of connection between Sinocore’s fraud and enforcement of the Award was not sufficient to engage public policy. Even if it had been, it would not be sufficient to justify refusal of enforcement of the Award.
The reasons for this finding included:
Interestingly, the Court of Appeal held that “there is no public policy to refuse to enforce an award based on a contract during the course of performance of which there has been a failed attempt at fraud” (par 37). In this case the “failed attempt” was fairly clearly delineated and it will be interesting to see the application of this principle in cases where the distinction between an attempted fraud and committed fraud may not be entirely clear cut.
29 May 2018
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