Westacre Investments Inc. v Jugoimport-SDPR Holding Company Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J |
| Judgment Date | 19 December 1997 |
| Date | 19 December 1997 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Colman J.
V Veeder QC and Charles Hollander (instructed by Frere Cholmeley) for the plaintiffs.
Jonathan Gaisman QC and Stephen Kenny (instructed by Holman Fenwick & Willan) for the defendants.
The following cases were referred to in the judgment:
Abouloff v OppenheimerELR (1882) 10 QBD 295.
American Safety Equipment Corp v J P Maguire & Co (1968) 391 F 2d 821.
Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp LtdELR [1981] AC 909.
Dalmia Dairy Industries Ltd v National Bank of PakistanUNK [1978] 2 Ll Rep 223.
Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co LtdUNK [1992] 1 Ll Rep 81; [1993] QB 701 (CA).
Henderson v HendersonENR (1843) 3 Hare 100; 67 ER 313.
Heyman v Darwins LtdELR [1942] AC 356.
House of Spring Gardens Ltd v WaiteELR [1991] 1 QB 241.
Interdesco SA v Nullifire LtdUNK [1992] 1 Ll Rep 180.
Israel Discount Bank of New York v HadjipaterasWLR [1984] 1 WLR 137.
Jet Holdings Inc v PatelELR [1990] 1 QB 335.
Kaufman v GersonELR [1904] 1 KB 591.
Kok Hoong v Leong Cheong Kweng Mines LtdELR [1964] AC 993.
Lemenda Trading Co Ltd v African Middle East Petroleum Co LtdELR [1988] QB 448.
Macartney, ReELR [1921] 1 Ch 522.
Man (E D & F) (Sugar) Ltd v Yani Haryanto (No. 2)UNK [1991] 1 Ll Rep 429.
Mitsubishi Motors Corporation v Soler Chrysler-Plymouth Inc (1985) 87 L Ed 2nd 444.
Montefiore v Menday Motor Components Co LtdELR [1918] 2 KB 241.
Norske Atlas Insurance Co Ltd v London General Insurance Co LtdUNK (1927) 28 Ll L Rep 104.
Owens Bank Ltd v BraccoELR [1992] 2 AC 443.
Owens Bank Ltd v Etoile Commerciale SAWLR [1995] 1 WLR 44.
Prodexport State Company for Foreign Trade v E D & F Man LtdELR [1973] QB 389.
Royal Boskalis Westminster NV v Mountain [1997] CLC 816; [1997] 2 All ER 929.
Smith Coney and Barrett v Becker Gray & Co (1915) 112 LT 914.
Société d'Informatique Service Realisation Organisation v Ampersand Software BVUNK [1994] ILPr 55.
Soleimany v SoleimanyUNK (unreported, 21 March 1997, Judge Langan QC)
Taylor (David) & Son Ltd v Barnett Trading CoWLR [1953] 1 WLR 562.
Vadala v LawesELR (1890) 25 QBD 310.
Vervaeke v SmithELR [1983] 1 AC 145.
Whiteman v Newey (1912) 28 TLR 240.
Arbitration — Enforcement of Swiss award — Defendants resisted enforcement on grounds of English public policy because underlying agreement was allegedly corrupt — Arbitrators held that agreement was not illegal under Swiss law — Whether agreement illegal under law of place of performance, Kuwait — Whether public policy of upholding international awards outweighed public policy against commercial corruption — Arbitration Act 1975, s. 5(3).
This was a preliminary issue in proceedings by which the plaintiffs claimed to enforce an International Chamber of Commerce arbitration award and the defendants resisted enforcement on the ground that it would be contrary to public policy for recovery to be permitted in the English courts.
The plaintiffs obtained leave ex parte to enforce the award as a judgment and also brought an action on the award itself. The defendants applied to set aside the enforcement order and served defences in both proceedings.
The arbitration award was made in respect of amounts due under a consultancy contract made in 1988 under which the first defendants appointed the plaintiffs as consultants in respect of the procurement of contracts for the sale of military equipment by Yugoslavia to Kuwait. The defendants alleged that the plaintiffs' servants or agents intended to exercise personal influence over and bribe officials of the Kuwait Government in order to procure such contracts, and that performing the consultancy agreement would have violated Kuwaiti law or been contrary to Kuwait public policy.
The first defendant cancelled the consultancy agreement in 1989. The agreement was governed by Swiss law and provided for ICC arbitration in Geneva. The plaintiffs commenced arbitration proceedings in 1990. In 1993 the arbitrators by a majority decided that the defendants were liable. By their award the arbitrators unanimously decided that the arbitration agreement was valid and that the claims against the defendants were governed by Swiss law. The arbitrators held that the consultancy agreement was not invalid due to an infringement of bona mores. They held that the defendants had failed to establish that the consultancy agreement was a nullity on the grounds that the parties had intended that the plaintiffs were to procure a contract with the Kuwait Government by illicit means, such as bribery. Accordingly, the consultancy agreement did not infringe the ordre public international.
The defendants appealed against the award to the Swiss Federal Tribunal. The main basis of the appeal was that the award was contrary to public policy. The court rejected the defendants' submissions because they were founded on what it described as “a rehearing of the facts on which the contested award is based”.
The defendants' case relied on fresh evidence sworn in 1995 by “MM” and the primary facts and the inferences drawn by MM in his affidavit were to be assumed to be proved for the purposes of the preliminary issue. Accordingly, that issue was essentially whether, if the parties intended that in order to obtain the armaments contract the plaintiffs should exercise personal influence over the officials of the Government of Kuwait and contemplated that for that purpose such officials would be bribed, the enforcement of the award would be contrary to English public policy.
The defendants submitted that under the Arbitration Act 1975, s. 5(3) and the New York Convention, art. V.2 the award should not be enforced because to do so would be contrary to English public policy, just as it would be contrary to English public policy to enforce the consultancy agreement on the facts to be assumed. The defendants argued alternatively that the consultancy agreement was contrary to the public policy of the place of performance, i.e. Kuwait (which had the same public policy as England). It was therefore contrary to English public policy to enforce an award giving effect to such an agreement. The defendants also sought to re-amend their defence to allege that witnesses called by the plaintiffs at the arbitration perjured themselves, and thus that the award was obtained by fraud and/or manifestly dishonest evidence and that it would be contrary to public policy to enforce it.
The plaintiffs submitted that the public policy in the finality of an enforcement of an international arbitration agreement displaced any public policy against enforcement of the award. There was a valid award under the applicable law (in this case Swiss law) and the enforcement court was precluded from going behind that award in order to examine the merits of the dispute. The arbitrators had determined in a reasoned award that the underlying contract was not illegal, and the award should be enforced.
Held deciding the preliminary issue in the plaintiffs' favour and refusing the defendants' application for leave to re-amend their defence:
1. Where an underlying contract was illegal and void ab initio (under a statute or at common law) an agreement to arbitrate disputes arising under it would not necessarily also be void ab initio nor would it necessarily be valid so that awards made under the agreement would be enforceable. It was necessary to determine in each case whether the nature of the illegality was such as to invalidate the agreement to arbitrate as well as the underlying contract. At common law that question had to be answered by reference to the public policy of the court in relation to the particular nature of the illegality involved. (Heyman v Darwins LtdELR[1942] AC 356, Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp LtdELR[1981] AC 909andHarbour Assurance Ltd v Kansa LtdELR[1993] QB 701considered.)
2. The arbitration proceedings and the hearing before the Swiss Federal Tribunal were conducted on the basis that the arbitrators did have jurisdiction to determine whether the underlying contract was immoral and a nullity because it was a contract to purchase personal influence and to pay bribes. The English courts also would have held that the arbitrators had jurisdiction to determine the question whether the consultancy agreement was illegal and void on the grounds alleged, giving predominant weight to the public policy of sustaining the parties' agreement to submit the particular issue of illegality and initial invalidity to ICC arbitration. (Harbour Assurance Ltd v Kansa LtdELR[1993] QB 701considered.)
3. The enforcement court then had 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, in a case where the defendants sought to use the public policy doctrine to conduct a re-trial on the basis of additional evidence of illegality. The public policy of sustaining international arbitration awards on the facts of the case outweighed the public policy in discouraging international commercial corruption. Accordingly, the defendants' primary point did not bring them within the public policy exception to enforcement of the award under s. 5(3) of the Arbitration Act 1975. (Henderson v HendersonENR(1843) 3 Hare 100, E D & F Man (Sugar) Ltd v Yani Haryanto (No. 2)UNK[1991] 1 Ll Rep 429, andKok Hoong v Leong Cheong Kweng MinesELR[1964] AC 993considered.)
4. The defendants' alternative case did not put forward any justification for declining to enforce the award. It did not follow that, merely because an underlying contract was void at common law because direct enforcement would be contrary to public policy, enforcement of an international arbitration award which treated that...
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