Alexander Brothers Limited (Hong Kong SAR) v (1) Alstom Transport SA; (2) Alstom Network UK Limited [2020] EWHC 1585 (Comm)
Introduction
On 18 June 2020, Cockerill J refused an application by the Defendants – two members of the Alstom group – to set aside a without notice Order of Teare J enforcing an arbitration award (“the Award”) in favour of the Claimant (“ABL”) on the basis that it was contrary to public policy, alternatively to allow a trial of the public policy issue.
The parties had entered into five consultancy agreements for various railway projects in China. The Alstom Group supplies railway locomotives and stocks worldwide. ABL was a family run business incorporated in Hong Kong and was managed by Ms Guo Qi, a former employee of the Alstom Group. In 2003, Ms Guo Qi was approached by the Alstom Group to assist them in the negotiations with the Chinese Ministry of Railways.
Under the consultancy agreements, each governed by Swiss law, ABL was to provide services and assistance to the Defendants in relation to their tenders for the railway projects in China and if those tenders were successful, in the performance of the resulting projects. Each of the consultancy agreements contained an arbitration clause providing for disputes to be referred to ICC arbitration in Switzerland.
The Defendants made full payment under two out of five consultancy agreements and only partial payment in relation to the remaining three agreements (“the Agreements”), the first two entered into in 2004 and the third one in 2009.
In 2009 the Alstom group was investigated by the SFO, arising from which Alstom Network was ordered to pay £16.4 million in fines and costs for a conspiracy to corrupt in relation to a contract in Tunisia. Some inquiries were made of Alstom’s businesses in China but no charges were brought. In 2010, members of the Alstom Group pleaded guilty in a US prosecution to acts of corruption and were fined. Those matters did not relate to activities in China.
In 2013, ABL commenced arbitration against the Defendants seeking punitive and compensatory damages of €5,475,480 in respect of unpaid amounts alleged to be due under the Agreements.
The Tribunal rendered the Award, by which it dismissed ABL’s claim. The Defendants had argued inter alia that ABL had the burden to prove that it had not acted in a corrupt way [29] as there were “serious indications of possible corrupt practices”, and that the Defendants were entitled to refuse payment which, if made, would expose them to criminal liability by virtue of the Claimant’s corruption.
The Award and Challenges in the Swiss and French Courts
The Arbitral Tribunal’s Reasoning
The SFO’s investigation of the Defendants featured prominently in the Tribunal’s Terms of Reference. The Tribunal had to consider inter alia whether and how the ongoing investigation would influence the Defendant’s payment obligation to ABL, whether it was necessary that such payments were officially cleared by the SFO and whether the Defendants’ internal compliance policy in relation to anti-bribery standards allowed them to withhold payment [22]. On the issue of corruption, the issue arose as to whether the Defendants were obliged to pay these invoices if there was evidence of or ‘arguments for’ corruption. [22]
On the last question, the Tribunal considered the effect of corruption on the Agreements under Swiss law, finding that “a contract may be tainted by corruption if one of the parties has engaged in corrupt practices in the execution of the contract” [40]. Alstom had argued that “it had concerns that ABL may have engaged in corrupt practices (the payment of bribes) in the execution of the Agreements” [41]. The Tribunal did so of its own motion, as permitted under Swiss law [39].
The Tribunal found no evidence of corruption [43] and concluded that the claim itself was “not a conclusive claim of corrupt activities or other criminal conduct, let alone there being conclusive evidence of any illegal activity” [43]. Highlighting the need for clear and conclusive evidence when allegations of corruptions are raised, the Tribunal stated that “a mere suspicion of corrupt practices would not suffice to provide Alstom with a defence to ABL’s claim to payment”.
Alstom’s Public Policy Challenge of the Award in the Swiss Court
The Defendants challenged the Award in the Swiss court on the basis that inter alia the award was incompatible with public order as a matter of Swiss law, as the Defendants faced a risk of prosecution if they paid the Award debt and breached their compliance policies [47]. Notably, the Defendants did not suggest that their case had been a solely contractual one and the Tribunal had therefore been wrong to consider corruption issues [48]. This could be seen as an implicit admission that a corruption argument, be that a fluid one, had already been raised by the Defendants and considered by the Tribunal.
The Swiss Federal Court therefore refused to annul the Award, declining to investigate facts concerning corruption, noting that it lacked jurisdiction to rectify or complete findings of fact. Further “the implicit allegation of corruption” advanced by the Defendants had already been considered by the Tribunal and found to be not proved, which meant that there was no public policy ground for annulling the Award [49-50].
ABL’s Blocked Enforcement in the Paris Cour d’Appel
ABL sought enforcement of the Award in France, obtaining permission from the Paris District Court. The Defendants appealed to the Paris Cour D’Appel, which took a more permissive approach on the issue of corruption and overruled the enforcement order. In its decision of 10 April 2018, it made it clear that, on the issue of enforcement of the award in accordance with the French principles of relevant public policy, it was not bound by the Award nor by Swiss Law [54]. As part of its decision-making process, the Paris Cour D’Appel heard submissions and considered detailed evidence, including contemporaneous documents. It looked carefully at inferences to be drawn from the documents produced and the surrounding circumstances, finding that the sums that Alstom had paid to ABL had “financed and remunerated the bribery of public officials”[56]. This judgment is currently under appeal to the Cour de Cassation [59].
The English Court’s judgment
ABL sought enforcement of the Award in England and obtained an enforcement order without notice to the Defendants (as is usual practice) from Teare J of the High Court on 15 October 2019 (“the Order”) [60].
The Defendants applied to set aside the Order on the basis that (i) ABL had failed to give full and frank disclosure and/or (ii) enforcement would be contrary to public policy, namely English public policy pursuant to s.103(3) of the Arbitration Act 1996 and/or EU public policy pursuant to decisions such as Eco Swiss China Time Ltd v Benetton International NVCase C-126/ 97, [1999] ECR I-3055, Claro v. Cenro Movil Milenium SA Case C-168/ 05; [2006] ECR I-10421 and Accentuate Ltd v Asigra Inc [2009] EWHC 2655 (QB). This article focuses solely on the High Court’s decision on English public policy.
Section 103 of the Arbitration Act 1996 gives effect to Article V(2)(b) of the New York Convention:[1]
“103 Refusal of recognition or enforcement
- Recognition or enforcement of a New York Convention award shall not be refused except in the following cases….
- ……
- Recognition or enforcement of the award may also be refused if the award is in respect of a matter which is not capable of settlement by arbitration, or if it would be contrary to public policy to recognise or enforce the award”
In essence, s.103 requires that the court refuse enforcement where it has been proved on the balance of probabilities that there has been conduct which infringes public policy, in the sense that is “contrary to the fundamental conceptions of morality and justice” of the forum IPCO (Nigeria) v NNPC [2005] EWHC (Comm) 726 [ para 71]. Bribery and corruption fall within that definition and in the current case it was common ground that the alleged conduct, if established, would be contrary to the UK’s Bribery Act 2010.
The Court stated, however, that as a matter of law, where the arbitral tribunal had jurisdiction to determine the relevant issue of illegality on the facts and had already determined that there was no such illegality on the facts, the Court would only exceptionally re-open the issue of illegality [105(1)]. That established approach was the result of the inherent balancing exercise between the public policy of finality and the public policy against illegality and it would generally preclude the need for a bespoke detailed balancing exercise in any given case. [105 (2)]
In this case, however, Cockerill J decided that the Tribunal had not already determined the relevant question of bribery “on the facts” [106]. Such a finding seems to have been supported by her analysis of the application of the doctrine of estoppel, which prohibits re-litigation of an identical issue [109]. In her view, there were cases where the standard of burden of proof changed significantly between the law applied by the arbitral tribunal and English law to the extent that the subject matter becomes a different issue [113]. In the current case, it appeared that the Tribunal had rejected the arguments on bribery without detailed evaluation on the evidence because of the high burden of proof required by the governing law [114] and therefore that the Tribunal had touched on the question of bribery in the broad sense but had not determined on the facts whether there was bribery. That was because it had had found that the suspicions and inferences relied upon could not meet the high standard of proof under Swiss law, the lex arbitri. As a consequence, witnesses were not been cross-examined on that issue [115] and there had been no detailed consideration of the evidence [117]. As a result, the issue was not “properly ventilated” because of the difference between the questions asked and the process followed to answer it [125].
Cockerill J then went on to consider whether the Defendants’ application amounted, in any event, to a Henderson v Henderson abuse of process on the grounds that the Defendants had deliberately not taken the point in the arbitration despite having been in a position to do so, instead saving it for the enforcement stage in attempt at forum-shopping. Under English law, such conduct is regarded as prima facie abusive. The Court found that the Defendants had chosen not to run a fully-fledged illegality case before the Tribunal, as it had concluded there would be no point because it would not be able to meet the high standard of proof required under Swiss Law. Nevertheless, the Defendant had provided no formal explanation to the Court as to why the point had not been squarely taken before the Tribunal, how far the Swiss law burden of proof diverged from the balance of probabilities nor why the Defendants’ decision not to raise corruption in those circumstances should fall outside Henderson principles [149].
The Defendants argued that, nonetheless, they should be allowed to have what the Court regarded as “two bites of the cherry” because these were exceptional circumstances as the issue was “the most serious kind of illegality… that there is a worldwide, near-universal public policy against” [150]
On the issue of public policy, the Court reiterated the position that, regardless of the determination of the curial court – i.e. the courts of the seat – it would refuse enforcement where the illegality reflects “universal principles of morality”. However, Cockerill J stated that “…to take a “one size fits all” approach to corruption is to elide a number of different possibilities of differing degrees of seriousness” [159] and that for example, “incidental bribery- not planned, not contracted for, not suspected” would be regarded as less serious so that the type of corruption may be of significance [162]. The Court reiterated the classic illustrative example of the difference between a contract to bribe, which would be unenforceable because of ex turpi causa, and a contract which has been procured by bribes which is enforceable (see para 49 of the National Iranian Oil v Crescent Petrolium [2016] 2 Lloyd’s Rep 147 ).[2] [169]
Applying the above principles, Cockerill J decided that the current case was of the lesser category of seriousness and that “it would seem odd if the contract procured by bribery could stand, whereas a contract to do something which could have been legitimately, but was incidentally done with the use of bribery, should be unenforceable”[164]. The Court found that there were no exceptional circumstances which should allow the court to consider a bribery case which was deliberately not taken before the arbitral tribunal [165].
The fact that the Paris Cour d’Appel had refused enforcement under French law on the basis that there were “serious, precise and consistent indicia of bribery” did not prevent the English court from making a contrary order and making such an order would not raise public policy concerns [170]. Furthermore, Cockeril J held that the decision of the French court did not create an issue estoppel and therefore did not enable the Defendant to surmount the difficult hurdle of exceptional circumstances to enable consideration of a case that “could and should” have been brought in the arbitration.
Discussion
The history of this case demonstrates, that there has been no significant change in the arbitration trend and the defence of corruption in the course of arbitral proceedings. In order for it to succeed on public interest grounds, there must be a robust and clearly pleaded case on which corruption is relied. In the current case, the Defendants’ tentative and nuanced reliance on corruption or potential corruption was not sufficiently well-founded to amount to a defence. It appears that mere allegations of potential corruption or indicia of bribery without admissions to that effect or without evidence of corruption are unlikely to be sufficient ground for excusing non-payment of contractual obligations[3].
In so far as Cockerill J’s enforcement decision is concerned, the judgment is in line with the traditional non-interventionist approach of English courts in relation to the enforcement of arbitral awards.
In contested enforcement proceedings, English courts are likely to dismiss reliance on corruption as an abuse of process if the point was not properly pursued before the arbitral tribunal and that omission is not explained in detail.
Exceptional reasons will always be required to depart from this rule and, in this context, valiant attempts were made by the Defendants to emphasize the heightened importance of English public policy against corruption as an exceptional circumstance, which should prevail over the otherwise difficult legal and factual hurdles. In support of this argument, reference was made to not only the UK Bribery Act 2010 and the Proceeds of Crime 2002 but also to international instruments to which the UK had become a party such as the OECD Convention in Combating Bribery of Foreign Officials in International Business Transactions and the UN Convention against Corruption [ 152]. The Court agreed in principle that public policy was not immutable, that attitudes towards corruption have undergone a change in the last 20 years and that it may be the that the court may draw the lines differently in the future.[4] But the Court held that this was not a factor which operated on the specific facts of the current case [ 173]. Put simply, a heightened awareness of corruption or a more robust public policy against it will not dispense with the need to surmount the established legal hurdles in the way of preventing enforcement of a New York Convention award.
The Court also paid heed to the competing public policies of finality and illegality [para 77] and highlighted the importance of the balancing act between discouraging corrupt trading and sustaining international arbitration awards [89]
Nevertheless, it appears that where the standard of proof on an allegation of corruption varies greatly between English law and the law applied in the arbitration, the English court as the court of enforcement may favour the award-creditor by finding that issue has not already properly been decided by the tribunal. So, the fact that the arbitral tribunal may have already addressed the question of corruption would not necessarily prevent the English courts from re-considering corruption and the evidence of it as part of its deliberations on whether to set aside an order for enforcement.
Finally, the multi-institutional approach to this case demonstrates that there is an increasing interplay between criminal law and international arbitration and a growing role for anti-corruption and anti-bribery legislation in arbitration proceedings, particularly at the enforcement stage.
[1] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).
[2] For an analysis of this case see: Klentiana Mahmutaj: Case Commentary: National Iranian Oil Company v Crescent Petroleum Company International Limited and Crescent Gas Corporation Ltd [2016] EWHC 510 (Comm) in Journal of Alternative Dispute Resolution, Arbitration Center, American Chamber of Commerce, Kosovo, June 2016
[3] See for example, Westacre Investments Inc v. Jugoimport-SDRP Holding Co Ltd, where the tribunal dismissed this argument and made an award in favour of Westacre because it found on the fact that there was no evidence of bribery or other illegality. In the case of Himpurna v California Energy Ltd (Bermuda) v PT (Persero) Perusahaan Listruk Negara (Indonesia)(Final Award 4 May 1999), the tribunal found that there was no evidence of corruption, and that rumours and innuendos would not do. In an enforcement context, La Republique du Congo v S.A. Commissions Import Export, Cour d’Appel, Paris, Pole1, chamber 1, 14 Octobre 2014, no 13/03410, the Paris Court of Appeal found that a “general climate of corruption” without more specific allegations of who the suspects were and in absence of a prosecution of the alleged beneficiaries would be insufficient to mount to a valid ground for resisting enforcement.
[4] On the issue whether public policy should be dynamic see Klentiana Mahmutaj: Case Commentary: National Iranian Oil Company v Crescent Petroleum Company International Limited and Crescent Gas Corporation Ltd [2016] EWHC 510 (Comm) in Journal of Alternative Dispute Resolution, Arbitration Center, American Chamber of Commerce, Kosovo, June 2016