Court refuses bribery-based application to set aside arbitration enforcement

In a recent decision the High Court refused the application of a party alleging bribery to set aside an order granting permission to enforce a Dubai International Arbitration Centre (DIAC) arbitration award. The court held that the applicant’s submissions on invalidity and public policy had no real prospect of establishing the relevant grounds for refusing enforcement.

Background

Honeywell International Middle East LTD v Meydan Group LLC (formerly Meydan LLC) [2014] EWHC 1344 (TCC) involved a Dubai company (M) which sub-contracted a Bermudan company (H) to perform work on a Dubai racecourse. M failed to meet its ongoing payment obligations, leading H to suspend its work and commence arbitration proceedings in Dubai pursuant to a contractual arbitration clause. M did not take part in the arbitration and the tribunal ultimately made an award in favour of H.

While enforcement proceedings were pending before the Court of Appeal in Dubai, H obtained an order granting permission to enforce the award through the English courts, which M applied to set aside on the basis that the award was invalid. M asserted, amongst other things, that H had won the underlying contract by using tender payments to bribe M’s agent in Dubai, and that any enforcement of the award in such circumstances would be contrary to English public policy.

Decision

The court dismissed the application, ruling that M could not substantiate the alleged bribery. M relied on Fiona Trust v Yuri Privalov [2010] EWHC 3199 (Comm) which summarises the civil wrong of bribery as being a payment, which is kept secret from the principal, made to an agent by a third party with knowledge of the agency relationship.

The tendering agent’s request for the relevant payments formed part of the Invitation to Tender, which was copied to M. H raised its suspicions over the payment requests with M but no action was taken. The court considered that, even if the large sums requested for “lithography charges” were an attempt by the agent to conceal from M its requests for bribes, H’s prompt disclosure of its concerns made M’s allegation of a secret payment unlikely to succeed.

The court held that M’s knowledge of the alleged fraud at the time of the arbitration should preclude it from raising the fraud in its application, given its opportunity to do so before the tribunal; and that the principle of separability under the DIAC arbitration rules meant any finding of fraud would not affect the contract’s arbitration clause, which would be treated as a distinct agreement.

The court disagreed that enforcement of the award even if bribery were made out would conflict with English public policy. First it held that, whilst contracts to commit bribery are contrary to English public policy and unenforceable, contracts resulting from bribery are voidable, not unenforceable, given the principal’s right to choose whether to rescind provided any benefit received under the contract can be returned to the fraudulent party. Second, it held that public policy should be invoked only in clear cases and with caution where no established principle applies.

M sought to rely on other grounds typically submitted by parties in the UAE to stall the enforcement of DIAC awards, including that:

• the award was invalid as H’s Request for Arbitration named Meydan LLC (a predecessor entity to Meydan Group LLC) as Respondent, which M alleged deprived it of its right to nominate an arbitrator and present its case;
• the award dealt with a termination claim which did not form part of the Request for Arbitration but subsequently featured in H’s Statement of Claim; and
• the award was suspended by the competent authority in the UAE pending the result of M’s challenge before the Court of Appeal at the seat of the Arbitration.

M did not make out any of the grounds for refusal of an international arbitration award under Section 103(2) of the Arbitration Act 1996 (giving effect to Article VI of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958). Where no such grounds are made out the court has to order enforcement of the award.

Comment

An overriding objective of international arbitration is to allow parties to obtain a swift determination of their dispute at a ‘one stop shop’ and then move to enforcement through the usually efficient mechanism of the New York Convention. Allegations of bribery are not uncommon in disputed contractual arrangements. The correct forum to make such allegations is the arbitration itself unless, unusually, the bribery (or fraud) touches the arbitration agreement. Leaving such allegations until enforcement and refusing to participate in the substantive arbitration is an unwise tactic, as proved to be the case here.