Reinforcement of English law approach to international arbitral process

A report from John Habergham, Myton Law, Hull UK says that the recent decision of the Court of Appeal in Sinocore International v RBRG Trading (Lower court decision reported on by IMN on July 14th 2017) to reinforce the English Law approach to the international arbitral process was “to be respected and supported”

This case involved the sale by the claimant to the defendant of a consignment of steel coils for a price in excess of $12m. A dispute developed in which the seller commenced an arbitration in China subject to Chinese law and obtained an award in respect of the buyer’s breach of contract.

The buyer exhausted the appeals process in China.

The seller then sought to enforce the Chinese arbitration award, making an application that the award be, effectively, converted to a judgment of the English High Court.

The buyer sought to resist the recognition of the award on the ground that it would be contrary to public policy to recognize or enforce it.

The ground was that the seller had, by its own admission, in the course of the transaction, presented false bills of lading to the issuing bank to obtain payment under the letter of credit.

The Chinese arbitral tribunal had found that this fraud was in no way causative, finding instead that it was the buyer who had wrongfully repudiated the sales /purchase agreement when it wrongfully amended the letter of credit, changing the shipment period.

The report does not make it clear why the buyer felt it necessary to do this, but Habergham said that this was largely irrelevant. Wrongfully amending the letter of credit was a breach of the contract. It caused the claimant to be unable to obtain payment and led to the termination of the contract and the losses which followed.

“So, the extent of the fraud was, essentially, that in and amongst the sorry affair, the seller had presented fraudulent bills of lading.  In essence, the buyer’s complaint was that this had tainted the transaction such that the English court should not enforce it”, wrote Habergham.

The High court accepted that the decision would have been different and the English court would refuse to enforce the award if it had been based squarely upon the presentation of fraudulent documents such as bills of lading showing a false shipment date.

This decision of the High Court was appealed by the buyer to the Court of Appeal. The lower court judgment spoke loudly and clearly of the English law approach with regard to finality of arbitration awards, particularly international awards and was reinforced by the appeal court.

The Court of Appeal also echoed the lower court when it spoke in terms of “a predisposition in favour of the enforcement of New York Convention awards” and that references to public policy was “not intended to furnish an open-ended escape route”.

The Appeal Court laid down some general principles:

  • Reliance on public policy to prevent enforcement should be approached with extreme caution
  • If the arbitral tribunal (having jurisdiction) has found there is no illegality, the English court should re-open investigation into the facts in exceptional circumstances.
  • If, on the facts, there is no illegality under the governing law but that there is under English law, public policy requirements to refuse support of enforcement is to be viewed against international public policy not English domestic public policy.
  • For public policy to be relevant, the degree of connection between relevant fraud and enforcement is important.

The seller’s new ground before the Court of Appeal, that the lower court had failed to apply the new more flexible approach to illegality, as propounded by the Supreme Court in the case of Patel v Misra, failed.

Habergham said that the Appeal Court decision was a reinforcement of the English law approach to the international arbitral process and was to be respected and supported.