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Court of Appeal upholds enforcement of Chinese arbitration award in England & Wales despite allegation of attempted fraud

05 July 2018

One of the attractive features of arbitration is the ease of enforcement of arbitral awards in other jurisdictions. The New York Convention (the “Convention”) provides a regime by which an award made in one Convention state should be enforceable against any assets in any of the other Convention states around the world. A recent Court of Appeal decision shows that the English court will only exercise its power to refuse to recognise or enforce an arbitral award on public policy grounds in limited circumstances.

Background

RBRG Trading (UK) Limited -v- Sinocore International Co. Ltd [2018] EWCA Civ 838 concerned a contract under which Sinocore was to sell rolled steel coils to RBRG, which were to be shipped from China to Mexico. The contract had a CIETAC (China International Economic & Trade Arbitration Commission) arbitration clause, with a Chinese governing law clause and a Chinese seat. RBRG was to make payment by an irrevocable letter of credit.

On RBRG’s instructions, RBRG’s bank tried to amend the letter of credit to change the shipping date, without Sinocore’s consent. Sinocore shipped the steel coils prior to the amended date. Sinocore then presented forged bills of lading bearing the amended shipping date in an attempt to obtain payment. RBRG stopped its bank from making payment, which led to Sinocore terminating the contract for RBRG’s repudiatory breach. Sinocore then sold the steel coils to a third party, at a loss on the contractual price.

RBRG started CIETAC arbitration proceedings alleging that Sinocore had breached an inspection clause in the contract, with Sinocore counterclaiming for the difference between the contract price and the price ultimately paid by the third party buyer. The tribunal dismissed RBRG’s claims, and found in Sinocore’s favour, holding that RBRG had breached the contract by its unilateral attempt to vary the shipment date under the letter of credit. Under the award Sinocore was awarded US$4.8million in damages. It then obtained an order to enforce that award in England & Wales.

Section 103 of the Arbitration Act 1996 sets out limited grounds on which an English court may refuse to recognise or enforce a Convention award, one such ground being that it would be contrary to public policy to do so. RBRG applied to set aside that order under s. 103 of the Arbitration Act 1996, on the grounds that Sinocore had procured the award by fraud and that the English court should not assist a seller who presented forged documents under a letter of credit.

Mr Justice Philips rejected RBRG’s application, and RBRG appealed.

The decision

The Court of Appeal unanimously upheld the first instance decision, and rejected RBRG’s appeal. It held that the degree of connection between Sinocore’s presentation of the forged bills of lading and its claim for enforcement of the award was not sufficient to engage public policy, or, if it was engaged, to justify the Court refusing enforcement on public policy grounds.

The court held that the CIETAC tribunal had made findings on the causal significance of the forged bills of lading, and had found that there was none as RBRG had not been deceived and had in fact prevented payment under the letter of credit. Rather the tribunal had held that RBRG was in breach of contract by attempting to unilaterally vary the shipping date in the letter of credit, and it was this earlier action by RBRG which had caused Sinocore loss. The court held that it was not appropriate for it to go behind these findings, with causation being a matter of Chinese (not English) law in any event.

The court also stressed that it considered that (i) this was at most an attempted fraud, as RBRG and its bank were not deceived; and (ii) Sinocore had succeeded before the tribunal despite its wrongful act rather than because of it. In enforcing the award the court was not allowing its “process to be used by a dishonest person to carry out a fraud”. There was no question of the original contract, which contained the arbitration agreement, or its required performance involving any illegality under Chinese or English law.

Comment

In its decision, the Court of Appeal demonstrated that there is no public policy to refuse enforcement of an arbitral award based on a contract where there has been a failed attempt at fraud during the performance of that contract.

The decision re-affirms the English court’s robust approach to the enforcement of arbitral awards. Faced with an application to refuse enforcement of an award, it will not re-open the factual findings of the original tribunal. The Court of Appeal has stressed that the public policy exception should be given a restrictive interpretation. It shows that it will take an extreme case for the English court to refuse to enforce an award made in a New York Convention State on public policy grounds.

 

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