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15 May, 2018
The Court of Appeal in London has enforced a Chinese arbitration award against a claim of illegality in what is being reported as a 'first' for a UK court.
The decision will provide commercial parties arbitrating in China and other New York Convention signatory states with welcome reassurance that England is an arbitration-friendly jurisdiction, according to Richard Dickman of Pinsent Masons, the law firm behind Out-Law.com.
English courts are pre-disposed to enforce foreign arbitration awards under the New York Convention, which governs the ability to enforce international arbitration awards. However RBRG, which had applied to the English courts to have the $4.8 million damages award against it in this case set aside, had argued that the award had been tainted by fraud, and should be set aside on public policy grounds.
The award, issued by the China International Economic and Trade Arbitration Commission (CIETAC) on 30 June 2014, concerned an alleged breach by RBRG of a contract for the sale of rolled steel coils. The deal broke down after it emerged that the seller, Sinocore, had forged the bills of lading required for the goods to be shipped. Both companies brought claims for breach of contract in CIETAC arbitration proceedings, and the tribunal ultimately found in favour of Sinocore.
Sinocore then applied to enforce the award in the English courts. This was upheld by the High Court in February 2017. The judge, Mr Justice Phillips, pointed out the there was no suggestion that the sale contract was fraudulent or otherwise contrary to public policy. The award was for breach of the sale contract by RBRG, and not a claim for payment against the presentation of the forged bills of lading, he said.
The Court of Appeal agreed. Giving the unanimous judgment of the court, Lord Justice Hamblen found that there was no sufficient "degree of connection" between Sinocore's fraud and its claim for enforcement of the award to justify interference by the court on public policy grounds. CIETAC had "expressly considered", and dismissed, the arguments put forward by RBRG, he said.
The case was also, "at most", one of attempted fraud, rather than actual fraud, the judge found. Neither RBRG, nor its bank, was actually deceived. The forged bills of lading did not go into circulation, and Sinocore obtained no benefit from its attempted wrongful act, the judge said.
"Sinocore's claim did not succeed because of its wrongful act, but rather it succeeded despite its wrongful act," the judge said.
"In enforcing the award, the court is not allowing its 'process to be used by a dishonest person to carry out a fraud'. In the event, there was no fraud; only an attempt at fraud. There is no public policy to refuse to enforce an award based on a contract during the course of the performance of which there has been a failed attempt at fraud," he said.
Dickman said that the courts would only rely on the public policy exemption to refuse enforcement "sparingly, and only in a clear case".
"Here, the court was satisfied that the tribunal had considered – and dismissed – the argument that the forged bills of lading were the cause of the termination of the contract and the seller's loss," he said. "Rather, the loss was caused by the buyer's attempt to amend the letter of credit unilaterally. That was a decision for the tribunal to make and it was not appropriate, at the enforcement stage, for the court to review that finding."
"This may be the first reported case of a Chinese arbitration award being enforced in England, although there may well be many previous cases of such awards being enforced without publicity. It is nevertheless welcome reassurance that England is an arbitration-friendly jurisdiction," he said.
"Indeed, one of the main advantages of arbitration is the relative ease of enforcement of awards in New York Convention signatory states. Whether or not the parties accept the tribunal's decision, they chose to submit their dispute to arbitration in China in the knowledge that the award would be binding and enforceable around the world, including in England," he said.
For further information, please contact:
Richard Dickman, Pinsent Masons
richard.dickman@pinsentmasons.com
