Westacre Investments Inc. v (1) Jugoimport-Skrp Holding Company Ltd (2) Beogradska Banka (3) The Federal Directorate of Supply and Procurement of The Federal Republic of Yugoslavia (4) Beogradska Banka Dd (5) The State Owned Company Yugoimport Spdr
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MANTELL,SIR DAVID HIRST,Lord Justice Waller |
| Judgment Date | 12 May 1999 |
| Docket Number | QBCMI 1998/0485/3 |
| Date | 1999 |
| Year | 1999 |
| Court | Court of Appeal (Civil Division) |
[1999] EWCA Civ J0512-13
Lord Justice Waller
Lord Justice Mantell
Sir David Hirst
QBCMI 1998/0485/3
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(MR JUSTICE COLMAN)
Royal Courts of Justice
Strand
London WC2
MR J GAISMAN QC with MR S KENNY (Instructed by Messrs Holman Fenwick & Willan, London EC3N 3AL) appeared on behalf of the Appellant
MR V VEEDER QC with MR C HOLLANDER QC (Instructed by Messrs Forsters, London W1X 9DB) appeared on behalf of the Respondents
Wednesday, 12 May 1999
The appellants are Beogradska Banka DD and the State-Owned Company Yugoimport-SDPR (the appellants). They are the present successors of Udruzena Beogradska Banka (the Bank) and The Federal Directorate of Supply and Procurement of the Socialist Federal Republic of Yugoslavia (the Directorate). The respondents are Westacre Investments Inc, a Panamanian company (Westacre).
Westacre, the Directorate and the Bank entered into a written contract dated 12 April 1988 (the Agreement) whereby the Directorate appointed Westacre its consultant with respect to the sale of military equipment in Kuwait. In return for its services, Westacre was to receive a substantial percentage of the value of the contracts entered into by the Directorate with, principally, the Kuwaiti Ministry of Defence. The Bank guaranteed the payment of all fees due to Westacre under the Agreement under Clause 6 of the Agreement. The Agreement was expressly governed by Swiss law and contained an arbitration agreement. That agreement provided for all disputes being settled in accordance with the rules provided for in the Arbitration Rules of the International Chamber of Commerce with the arbitration's seat to be in Geneva.
In July 1989 the Directorate, after it had secured a sale contract with the Kuwaiti Ministry of Defence dated 29 May 1989 for $500,546,000 and £11,440,329.29 repudiated the agreement and in the result an arbitration was commenced by Westacre.
The Arbitration Tribunal consisted of three lawyers appointed by the International Chamber of Commerce Court of International Arbitration under the ICC Rules (The Tribunal): Dr Reaschke-Kessler of Germany (chairman), Professor Perret who later resigned and was replaced from March 1993 by Me Jean Patry of Switzerland, and a Yugoslav arbitrator, Professor Dr Mitrovic.
The Tribunal and the parties agreed and signed terms of reference at a procedural hearing in Geneva on 21 October 1991 which provided for Geneva to be the place of arbitration. The Tribunal conducted oral hearings in Geneva in 1993 on 27–28 January, 13–16 May, 30 June-1 July, and 26–27 August.
By an award dated 28 February 1994, by a majority, the Tribunal awarded Westacre the sums of $50,010,093.36 plus £1,029,629.37. Various issues arose in the arbitration but the only relevant point so far as this appeal is concerned relates to the contention of the Directorate and the Bank that the Agreement was void on the grounds that it violated "ordre public international" or "bonos mores". The point was not taken in any pleading but was taken in opening by counsel for the Directorate. The suggestion of the Directorate was that Westacre had bribed persons in Kuwait for the purpose of persuading those persons to exercise their influence in favour of entering into a contract with the Directorate. It was not suggested that the Directorate had entered into the Agreement with the intention that Westacre would bribe persons in Kuwait or that Westacre was in fact a vehicle for receiving a bribe. The majority of the Tribunal found that the Directorate had not established that there was any bribery and had not established that the activities of Westacre were illicit or that there was anything which rendered the Agreement as unenforceable as violating "bonos mores". Their finding was in the following terms:—
"The majority also holds that bribery renders an agreement invalid. In arbitration proceedings, however, bribery is a fact which has to be alleged and for which evidence has to be submitted, and at the same time constitutes a defence, nullifying the claims arising from a contract. The consequences of this are decisive.
If a claimant asserts claims arising from a contract, and the defendant objects that the claimant's rights arising from the contract are null due to bribery, it is up to the defendant to present the fact of bribery and the pertaining evidence within the time limits allowed to him for presenting facts. The statement of facts and the burden of proof are therefore upon the defendant. The word "bribery" is clear and unmistakable. If the defendant does not use it in his presentation of facts an Arbitral Tribunal does not have to investigate. It is exclusively the parties' presentation of facts that decides in what direction the arbitral tribunal has to investigate.
If the claimant's claim based on the contract is to be voided by the defence of bribery, the arbitral tribunal, as any state court, must be convinced that there is indeed a case of bribery. A mere "suspicion" by any member of the arbitral tribunal, communicated neither to the parties nor to the witnesses during the phase to establish the facts of the case, is entirely insufficient to form such a conviction of the Arbitral Tribunal."
The Directorate and the Bank appealed to the Swiss Federal Tribunal for the annulment of the Award under Swiss law. The Swiss Federal Court, by order dated 6 January 1995, dismissed the Directorate and Bank's appeal against the Award. On the appeal the Directorate (and indeed the Bank) sought to suggest not simply that Westacre had performed their contract by bribing, but that in fact Westacre was a vehicle of Mr Al-Otaibi, a member of the Kuwaiti government. The allegation was that in seeking to enforce the Agreement Westacre were claiming on behalf of Mr Al-Otaibi a bribe from the Directorate. [See the Directorate's brief to the Swiss Federal Trial Bundle D, pp3–40]. On being requested for their comments the majority arbitrators in summary stated that the Directorate never put their case that way during the arbitration; never asserted that Mr Al-Otaibi played the key role now contended for; and indeed if anything the Directorate played down Mr Al-Otaibi's role. They said, for example, "the court had therefore given no significance to the person of Mr Al-Otaibi in the issue and refrained from its own interpretation." (Trial Bundle D. p.98). The Swiss Federal Court held that the nature of its review of arbitration required it to base its decision on the facts found by the Tribunal. The Swiss Federal Court recognised that the Directorate's allegations, if proved, would make the Agreement void under Swiss law, but held that ….
"Thus, the appellants' claim that the agreement, owing to its illegal or immoral purpose, is void does not at all events accord with the factual finding made by the arbitral tribunal. As has already been stated, the truth is that this argument consumes itself in a feckless criticism of the arbitral tribunal's findings of fact and of the procedure applied, considering that no violation of mandatory rules of procedure occurred. In the last analysis, the arbitral tribunal did not at all contravene public policy in upholding the validity of the April 12, 1988, agreement, the substance of which was determined in the course of the proceedings. Thus, to the extent that it is founded on Article 190(2)(e) LDIP, the appeal is without grounds."
On 15 August 1995 Buxton J (as he then was) granted an ex parte order that Westacre be at liberty to enforce the Award in the United Kingdom. That led to the defendants serving on Westacre a summons dated 15 November 1995 to set that order aside.
That application was ultimately supported by an affidavit sworn by Miodrag Milosavljevic dated 13 December 1995. That affidavit was of considerable length but the judge's summary of it is as follows:—
"(i) The consultancy agreement was entered into in the wider context of the negotiation between Yugoslavia and Kuwait of a so-called debt-swapping agreement or memorandum of understanding under which the outstanding debts of Yugoslavia to Kuwait would be reduced by the supply of goods and services to Kuwait.
In the course of the negotiation of that agreement the Secretary General of the Council of Ministers of Kuwait, Mr Al-Otaibi, attended apparently in his private capacity a meeting in Yugoslavia with the Yugoslav Minister of Finance and the then General Manager of the old Directorate.
In the course of a visit to Kuwait by an official Yugoslav delegation in early March 1988 there was agreement in principle to a debt-swapping arrangement but it was made clear by certain high-placed Kuwaiti officials that no contracts for military equipment would be placed unless a consultancy agreement with a nominated consultant was first entered into.
(ii) the plaintiffs, as the old Directorate's exclusive consultant, were to receive a commission of 15 per cent of the value of all contracts entered into during the term of the agreement (three years renewable) for military products and for related training services (whether actually provided or not) and a commission of 20 per cent on all contracts for the supply of spare parts for 20 years from the date of the first supply of military equipment.
(iii) At paragraph 33 of the...
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