The Case Of Westacre Law Commercial Essay

Published Date: 02 Nov 2017

INTRODUCTION

Nowadays, the concept of arbitrability has expanded significantly as a result of a general policy favouring arbitration. Article V (2) (b) sets out the provisions where infringement of a country`s public policy can lead the State and its courts to exercise decisive control over the arbitral process. There are actually very few cases where enforcement of an award is rejected due to violation of an international public policy of a country. Actually, there are cases where a foreign award will not be enforced by an English court if it is seen as contrary to the public policy of the country or if there is a situation where the award is based on an illegal contract. However, it is not obligatory that in all instances the enforcement of a foreign award would be refused. This point of view is clearly illustrated in the case of Westacre Investments Inc v Jugoimport-SPDR Holding Co. Ltd, where a focus is made on a situation where illegality defeats enforcement and when it does not. We can note that in making the balance between the public policy of supporting international arbitration awards and public policy in discouraging international commercial corruption, the court of appeal had a preference for form rather than substance.

Concept of Public Policy

In accordance to the New York Convention awards, section 103(3) of the 1996 Act provides that "recognition or enforcement of an award may be refused if it would be contrary to public policy to recognize or enforce the award." Nevertheless, the English courts cannot rely on any specific rule in relation to the intensity of the review when public policy issues are raised.

Under the existing system, courts do not go behind the facts established by the arbitrator unless the basic rules of ascertaining the facts have been violated. They decide on the basis of the facts established by the arbitrator whether the award violates public policy. In these circumstances errors of fact may lead in certain cases to the enforcement of illegal contracts. In England this threat is considered to be so minor that predominant weight is given to the public policy of sustaining the parties’ agreement to arbitrate their disputes [1] .

Soleimany v Soleimany

The case of Soleimany v Soleimany (1999) demonstrates that only once, the application of public policy has been successfully invoked before the English courts by a losing party against an arbitral award. The arbitral tribunal found on the face of the award that there was smuggling of Persian carpets out of the country of Iran illegally under Iranian law. Actually, this relevant case demonstrates that if there is prima facie evidence of illegality, it is then that the reviewing court would conduct a preliminary inquiry to determine whether to give "full faith and credit" to the arbitral award or else to conduct a full-scale trial into the question of illegality. The arbitral tribunal of the London Beth Din, considered the illegality to be irrelevant because the Jewish law was being applied. However, the English Court of Appeal rejected the enforcement of the award as it was based on a contract to commit acts of smuggling in Iran and hence enforcement of the award was refused as it found to be contrary to English public policy and it was considered as an improper conduct which might have an effect on the rights of the parties.

It is worthy to note that under section 68 (2) (g) of the English Arbitration Act 1996, the court has a power to set an award aside when there is "serious irregularity which affects the award for being contrary to public policy".

Westacre

The court of appeal reviewed the same facts in the case of Westacre but the arbitral tribunal did not find any illegality or breach of public policy. The court of appeal came to the point that the enforcement of the award should not be refused as neither corruption nor influence peddling were proven. Furthermore, we can denote that there must be persuasive reasons for an enforcement of a Convention award to be rejected on public policy grounds. The reasons should not however be extreme, but it must contain a minimum of valid justification for setting aside a domestic judgment or award.

THE FACTS of the case of Westacre

In regards to the case of Westacre Investments Limited v Jugoimport, the defendants tried to resist the enforcement and recognition of an award which was based on a contract in Switzerland. He was actually to the view that the relevant award to the payment of outstanding fees was possibly under the exercise of "personal influence" and was supposedly obtained by bribery in Kuwait. The tribunal was to the view that the defendant has not succeeded in prove its case and hence an award of $50m was made in favour of the plaintiff. Therefore, the defendant made an application to have the award set aside based on the argument of public policy and he raised a new claim that the plaintiff has acted as a vehicle for one of the member of the Kuwaiti government. As a matter of fact, the Federal Court of Swiss upheld the award and it detained that it would not go against the tribunal's finding of fact. Thus, Westacre obtained leave for the enforcement of the award in England and on the other hand, the defendant sought to resist enforcement. The Judge, Colman J. was in favour of the plaintiff and thus the defendant consequently appealed.

Comments of the case

Hence, the appeal of Jugoimport was dismissed and the Court of Appeal unanimously came to the conclusion that in no way the award offended any rule or public policy and that the award did not infringe the public policy of Swiss in accordance to the defendant`s allegations of corruption and also the parties` agreement [2] . Hence, the application to overturn the award has been rejected by the Swiss federal court as it was believed that the ICC tribunal has correctly treated the issue in relation to the governing Swiss law. Moreover, the judges pointed out that the consultancy agreement did not offend the international public policy and moreover contracts to carry out such activities were not illegal.

It was believed that the award did not infringe any domestic public policy of English law and any curial law or proper law of the contract even if English public policy might have taken a different view [3] . Nonetheless, it is worth noting that the English court would in no circumstances enforce awards which give effect to contracts relating to; drug trafficking, terrorism, prostitution, corruption or fraud in international commerce. If in most cases, the court finds that the a party is resisting enforcement of the award due to issues such as corruption and so on, the court will deem it important to go behind the tribunal`s award and to re-open the case. However, in the case of Westacre, the court of Appeal was to the view that it is not appropriate to do so.

Moreover, the court argues that the party resisting the award may only raise a defence if he can prove that that the evidence was not available at the time of the hearing before the arbitrators. In addition, he should be able to show that the evidence of perjury was so strong as to be decisive. Despite the strength of the new evidence the defendant did not show that he could not have produced it to the arbitrators or the Swiss court [4] .

Comment

We can denote that all three judges in Westacre argued that a balancing exercise was required between the competing public policy considerations of finality and illegality. Hence, at first instance, Colman J, as well as the majority of the judges had a strong favour for the enforcement of the foreign awards unless there was convincing evidence or a very firm suspicion of serious illegality. The court, in effect, applied an international public policy standard.

It is worth noting that, many doubts arose as to whether the court should conduct a preliminary inquiry in relation of prima facie evidence that the award was based on an illegal contract. Nevertheless, it was found that the contract was based on a straightforward commercial contract and hence the competent arbitrators found no serious illegality. It was found that the illegal allegation was not a factor to be taken into consideration in deciding whether or not to hold a preliminary inquiry. Thus, the defendants could not challenge the arbitrators’ findings of fact on the bribery issue [5] . While Colman J, largely reviewed the issue of public policy, he pointed out that the "survival of the arbitration agreement was based upon the determination of the illegal allegation and as to whether it will fall within the jurisdiction of the arbitrators". He was to the view that there was an absence of general rule to prevent arbitrators from considering and deciding whether the underlying contract is affected by public policy objections or illegality.

The issue of illegality will actually depend on the nature of the public policy. This is so because it can prevent arbitrators of their jurisdiction to consider the matter if the matter is not consistent with public policy. In this case, despite the arbitral tribunal has considered the question of illegality, the challenge to the award was however based on evidence that was not before the tribunal. As such, the public policy of finality in international arbitration had to be balanced against the public policy which the underlying agreement offended.

Thus, in the case of Westacre, Colman J. posits that despite the fact that there was a strong public policy against corruption in international trade; the existence of a strong policy was however more in favour of enforcing arbitration awards. A decision in relation to the preliminary issue was asked to be made by the court because if the consultancy contract was void, enforcement of the award would be contrary to English public policy at common law and under section 5(3) of the Arbitration Act 1975. [6] 

However, Colman J. considered the decision of Phillips J. in Lemenda Trading Co. Limited v. African Middle East Petroleum Co. Limited [1988] Q.B. 448. The case actually points out at a contract which was not enforced because it would have infringed the public policy of the country. Colman J. highlights on the case of Lemenda in relation to the fact that if one assumes that the "agreement did not involve corruption, but merely the use of personal influence" it would not be contrary to the English public policy nor to the international comity to enforce the Swiss award.

As a matter of fact, Colman J. was to the opinion that in accordance to contracts which are formed abroad, only the most serious universally condemned activities such as terrorism, drug trafficking, fraud, prostitution and would infringe the English public policy.

Moreover, a question arose as to whether the defendants should be granted the right to re-amend the defence by relying on the matter of perjured evidence so as to support the resistance of the award. Nonetheless, Colman J. point out that if the defendants do so, they would "try to consider an issue again that has already been viewed by the arbitrators". In fact, the new arguments of the defendants could have very well been presented to the tribunal or before the Swiss Federal Court; nonetheless they failed to do so. Furthermore, it was argued that if the new evidence was indeed not possible to be available for the presentation to the arbitral tribunal, the defendants could have applied to the Swiss court for an order so that the award can be revised within 90 days. Nevertheless, the defendants have also failed to make use of this procedure.

Furthermore, Colman J. reviewed the laws which arose under the Brussels Convention concerning the jurisdiction and enforcement of judgements in Civil and Commercial Matters 1968; because Article 27 (1) of the Brussels Convention provides that "A judgment shall not be recognised if such recognition is contrary to public policy in the state in which recognition is sought". Hence, it portrays the public policy exception to enforcement under the New York Convention.

Perjured evidence

Moreover, he argues that if a party is able to claim that the foreign award was obtained by perjured evidence,that party will not usually be permitted to present additional evidence in the English courts for supporting his allegation. However, this is possible unless he is able to prove that the evidence which he wants to illustrate is of sufficient persuasive relevance and weight for concretely influencing the arbitrators' conclusion had it been advanced at the hearing. Furthermore, at the time of the hearing of the dispute, the evidence was neither available nor reasonably obtainable at such time. Otherwise, this would have enabled the party concerned to adduce it in the court of supervisory jurisdiction for supporting an application to reverse the arbitrators' award if such procedure were available.

As a matter of fact, for these reasons, the defendant was not allowed to present the new evidence and to enable its application to re-amend the defence and to set aside the leave to enforce the award were refused.

Moreover, if an arbitrator demonstrates that new evidences have come into light but it was not possible to show these evidences before the courts of the arbitration, then there is a chance that the award would not be enforced.

Held

It has been claimed that a contract which is found illegal and void could prevent the enforcement of an award, however it is not necessary. In each case, the court must make a decision in relation to the natures of both the dispute and illegality, whether the relevant law has the effect of challenging the arbitration agreement as well as the fundamental contract. It also has to decide whether the disputes about the underlying contract should be referred or not to arbitration due to the public policy issues.

The case of Westacre lays emphasis on the idea that although arbitrators have jurisdiction but eventually they decide that the contract was not illegal, at first instance the court will enforce the award. Nevertheless, if enforcement is challenged on the basis of new evidence, the court will have to make a comparison between public policy and enforcement of illegal contracts with particular favour of enforcing awards.

Hence, in Westacre v Jugoimport, the arbitrators had jurisdiction but the defendant failed to show that it he has not been able to produce the new evidence before the court at the seat of the arbitration. As a matter of fact, the public policy of sustaining the award outweighed that of discouraging corruption [7] .

Comment

The provision of the Arbitration Act 1996 corresponding to section 5(3) of the Arbitration Act 1975 is section 103(3). Therefore, we may point out that the case would not have been decided differently under the 1996 Act.

We notice that in order to protect London`s reputation as a centre for international commercial arbitration, Colman J evaluated the conflicting policies of the case of Westacre v Jugoimport, by claiming that; "where arbitrators had the power and made a positive decision upon their own jurisdiction, the court should "prima facie" not deny enforcement of the award on that ground". It may be that the nonintervention is only said to be "prima facie" because of the possibility of new evidence. However, counsel for the plaintiff conceded that if, on the face of the award, it could be seen that the underlying contract was void, the court may refuse enforcement of the award on public policy grounds.

As such, we can make the distinctions between first the enforcement of awards which on their face do not disclose the illegality of the underlying contract, where the parties would be taken to have accepted the risk of a mistake by the arbitrators, and also between the enforcement of awards where the illegality is evident from the face of the award, where they will not.

Arguably, it would be worth noting that the difference in the latter case is apparently more to do with the court's inability to resist interfering rather than any lack of acceptance of risk by the parties.

If for instance a policy against smuggling is strong and valid enough to exclude the arbitrators' jurisdiction, it seems that this is not applicable for matters like corporate corruption. Hence, it appears that the weight of the nature of the dispute will actually depend on the extent to which the dispute will relate to the illegality. For example, if it has a direct effect to the illegality of public policy, there will be more resistance to the enforcement of the award.

International Arbitration Law Review, 1999, Case Comment, Whether enforcement of a foreign award should be refused as being contrary to English public policy, on the ground that the underlying agreement concerned the procurement of personal influence?, Audley Sheppard-journal westlaw

Actually, we observe that there exists no general principle of law that can distinguish if the international public policy is invalid or unenforceable. In accordance to Judge Lagergren views, the allegations of bribery will not only affect the main contract but it will also make the dispute non-arbitrable. Moreover, he believes that the arbitration tribunal lacks jurisdiction to hear the dispute and investigate into the truth of those allegations of bribery. Nevertheless, we find that in Europe in particular, the new prevailing view of international arbitration practice supports the enforcement of awards which implicates allegations of corruption and bribery.

Hence, we observe that although the international public policy implications, national courts retain control over contracts involving bribery and corruption at the enforcement stage.

The refusal of the court of appeal to reopen the matter of this case was based on the fact "that the public policy of sustaining the finality of the international arbitration awards outweighed the public policy of discouraging international commercial corruption." We can denote from this idea that there are conflicting approaches concerning the different weight which are granted to the various public policy issues involved in those disputes. Clearly, there exists a divergent view between the public policies of sustaining the parties` agreement to arbitrate all their disputes and not enforcing illegal contract. The fact that bribery is not treated as an illegal issue by the arbitral tribunals seems to be quite dangerous for the states as the enforcement of those awards can eventually encourage minded culprits to enter into illegal contracts.

However, we find that where tribunals have made wrong decisions and have issued awards which have upheld illegal practices, the courts have refused to enforce those awards.

http://books.google.co.uk/books?id=b1OgnDQ2UnwC&pg=PA215&lpg=PA215&dq=of+public+policy+in+the+case+of+westacre+v+jugoimport+1999&source=bl&ots=l5XiIC9pTU&sig=4cz2N2Rd5adZE4UWrcuEL4SyVgU&hl=en&sa=X&ei=hZR5UeGiEYur0gXTzoCIDw&ved=0CD8Q6AEwAw#v=onepage&q=of%20public%20policy%20in%20the%20case%20of%20westacre%20v%20jugoimport%201999&f=false

http://www.morganlewis.com/pubs/F62C5755-596B-4203-98D31226436BA225_Publication.pdf

Public policy actually varies from state to state. We can note that public policy is like ‘an unruly horse’. Hence, the determination of the public policy will depend on the legal system of the country. In UK, we find that there is no public policy which requires matters of fraud to be decided by the courts and nowadays it is becoming quite common for arbitral proceeding to deal with fraud allegations. In some cases, it has been demonstrated that the award remains final and conclusive if the fraud is considered as a mere issue during the arbitration. Nevertheless, there are instances where fraud leads to a public policy issue.

The Soleimany case is different from the Westacre case where the award is silent about the alleged fraud, or where the arbitrators have been successfully able to demonstrate that there was no fraud, which could give rise for the court to inquire about a preliminary question.The defendants were declined the opportunity of proving their factual allegations of bribery and dishonest case [8] .The fact that there was absence of ‘fresh evidence’ the court did not find any valid justification in relation to public policy on bribery to refuse enforcement of the award under the New York Convention.

If in the case of Soleimany v Soleimany, there were dicta in view of the illegality allegation, these dicta were not considered as favourable by the majority in the case of Westacre Investments Inc. v.

Jugoimport. The judges unanimously refused to apply the common law approach on foreign judgements. Since the perjury allegations had been noticed by the arbitrators and the court at the seat of the arbitration, the courts considered that for the purpose of the enforcement proceedings under the New York Convention, there should be no opportunity to review the case as

there need to be fresh evidence.

According to section 103(3) of the Act and section 5(3) of the Arbitration

Act 1975, it was established that, "Recognition or enforcement of the award may also be refused if … it would be contrary to public policy to recognise or enforce the award. It is the public policy ground alone which will permit refusal of the award if there is an allegation that the award has been obtained by fraud.

Hence the case of Westacre lays down the criteria’s about what ‘normally’ should be shown before there can be an inquiry concerning the merits of a perjury allegation in enforcement proceedings under the convention. The decision of the case rests on a refusal not to enforce the award because the public policy defence based on dishonest case and perjury was inconsistent with the award and the Swiss court decision, and as there was an absence of fresh evidence, there should not be an investigation into the underlying facts before the award was

enforced.

Personal opinion

The decisions in Westacre can be criticised for its inflexibility. This is so because the matters should have at least been litigated once and on the other hand, ‘fresh evidence’ has nothing in particular to do with the refusal of the new litigation. A new point could have been decided, or could have been taken into consideration with reasonable diligence and notwithstanding that the award was made or under the law where the arbitration took place, the primary tribunal for deciding the fraud issue ought to have been that court.

The decisions of both the Westacre and Soleimany cases were made in accordance to the Arbitration Act 1996. Waller L.J. argues that "the law on challenges to enforcement of arbitration awards on the grounds of public policy was not affected by the introduction of the Arbitration Act 1996" [9] . In Westacre, the decision of the majority of the Court of Appeal did little to develop the law beyond the statements of Colman J. at first instance. The majority maintained the decision of Colman J. without pointing at any comment.

Hence, while examining the above cases, we can highlight the fact that although the underlying contract is contrary to the English public policy, a foreign arbitral award would still be enforced. However, this is possible only if the award does not infringe any essential rule of the English public policy or it does not offend the public policy of the governing law and if the award is does not offend the public policy of the place of performance [10] . Hence, we can now conclude that issues like bribery or corruption would not put an arbitral award outside the ‘Lemenda’ rule unless the contracts fall under the category of terrorism, paedophilia, carpet smuggling or drug trafficking. It would not be possible to put an award aside even if such lobbying is unlawful in the place where it intended to take place.

Personal opinion

While examining the judgments of the Westacre case, we can note that the rejection of putting an award aside despite of its illegality can be a bad decision. The reason is that wise culprits can easily by-pass morally offensive laws of another country by entering a contract which contains cautiously drafted curial laws and even arbitration clauses. Moreover, we find that the adoption of the New York convention system becomes more dominating than the national laws of the country itself. However, the fact that the finality of the awards cannot be challenged by the parties may lead to a danger for the states in the long run. It can be self-defeating for a country if issues such as bribery and corruption are not considered as contrary to the public policy of the governing law or the place of performance. It would eventually increase the rate of illegality in the states and furthermore the trading commerce would be affected. In addition, we notice that while making the balancing exercise between..................On the other hand, we must also point out that the purpose of arbitration is to save time in the final decisions and hence if everything can be challenged before the court, parties would lose trust in arbitration. What`s the point of going for arbitration if everything can be challenged before the court.arbitration-goes quickly

Conclusion

However, we can denote that the jurisdiction not to enforce the award can act as a kind of safety valve to cater for cases which offend the basic notions of morality and justice.

I believe that competent courts should consider bribery and corruption as a violation of the public policy of a State in order to protect the essential moral beliefs and social stability of a country and to prevent future harms. We observe that the Swiss public policy had adopted a rather narrow approach when it weighed the balance between sustaining the finality of an award and between reducing corruption. However, the Hong Kong Court of Final Appeal is for instance in line with the view that the justifications of setting aside an award must be extreme [11] . On the other hand, the US District Court also agreed to the decision that an offence of a public policy is only valid if it violates "our most notions of morality and justice" [12] .

Personal Opinion

There is a common belief that a foreign arbitral award is final and enforceable. Nevertheless, in all cases, this is not always applicable as the public policy exception acts as one of the main constraints which can prevent the enforcement of an award in international commercial arbitration. Actually, the adoption of an extensive approach to the public policy concept has weakened the finality and enforceability of foreign arbitral awards. In accordance to the New York Convention Article V (2)(b), the tribunals may refuse to enforce an award which offend public policy of a country [13] .

For instance, in Indonesia, the case of Sikinos Maritime Ltd. v. PD Perdata Lot, highlights an example where the court stated that an arbitration agreement contract is null and void if in accordance to article 1320 of the civil code, the contract contains an "illegal cause or an unlawful purpose" [14] . Thus, the award was not enforced because the arbitration agreement would have violated the Indonesian public policy.

Likewise, in Yani Haryanto, the sugar purchase contract was declared null and void. Hence, the arbitration clause, which was incorporated in the invalid contract, was also considered as invalid. As a result, the contract could not be enforced in Indonesia since it was contrary to Indonesian mandatory rule and it fell within the public policy exception.

However, we note that nowadays, common law and European civil law countries have a greater tendency towards judicial statements which favour the pro-enforcement approach. For example, a strong preference towards the principle of "no merits review" is demonstrated in the case of Société Thales Air Defense v. GIE Euromissiles et al. where the French court did not allow review of the awards. According to the French Court of Appeals, the infringement of the public policy should be justifiable in the sense that it must be "flagrant, effective and real". In parallel to the case of Westacre, the court agreed that a simple violation of a state’s public policy will not necessarily entail refusal of enforceability of foreign awards. Similarly, the French court in Westacre v Jugoimport, claimed that "mere violation of EC competition law would not necessarily justify non-enforcement in relation to the public policy exception".

Moreover, the international trend emerging from courts have largely applied the New York Convention for ensuring the enforcement of the foreign award and hence it will be in very limited circumstances that an award may be refused enforcement [15] .

Hence, we can point out that these cases portray a rather narrow approach to public policy exception and they equally exemplify the restrictive approach to judicial review of substantive defences. The fact that the violation of public policy should be very evident, courts are discouraged from reviewing the merits of the dispute in order to determine the refusal of enforcement of the award on grounds of public policy exception. This relevant point has been illustrated in the case of Hainan Machinery Import and Export Corporation and Donald & McArthy Ptd. Ltd, where the court held that "the principle of comity of nations required that a foreign award is enforced unless exceptional circumstances exist".