In a recent Iranian gas contract dispute, the High Court of England and Wales rejected an attempt to set aside an arbitration award on the grounds of alleged corruption and bribery.[i] This judgment is a helpful reminder of how English courts deal with attempts to have awards set aside on this basis. However, the state of the relevant underlying English common law in this area is such that it should be closely watched.

Yet another oil contract dispute …

In 2001 the National Iranian Oil Company (NIOC) and Crescent Petroleum Company International Limited (Crescent) entered into a contract for the supply and purchase of gas. This was governed by Iranian law with a clause requiring arbitration in England and Wales.

In 2009 Crescent commenced arbitration against NIOC in England, alleging NIOC had failed to deliver gas in breach of the contract. NIOC raised various defences, including claiming the contract had been procured by bribery and corruption.

After extensive submissions and a 30 day hearing, the arbitrators issued an award (by majority) against NIOC, holding it had been in breach of the contract since December 2005. On the corruption point, the tribunal expressly held that the contract had not been procured through bribery. They acknowledged that a corrupt payment had been discussed but found no evidence that one had ever actually been made. There was also nothing in the contract itself that indicated any imbalance between the parties (which would suggest a bribe had been paid).

NIOC challenged the arbitration in the High Court of England and Wales, including on the ground of bribery and corruption. This was dealt with as part of a preliminary issues hearing before Burton J in February 2016.

Arguments

NIOC argued that the Tribunal had been wrong to find no evidence of bribery but, in any event, the evidence that bribes had been discussed sufficiently “tainted” the contract, meaning it should not now be enforced.[ii] It submitted that public and political opinion had “hardened” against bribery and corruption in recent years.

In response, Crescent argued that the Court should not now interfere with the conclusions of the Tribunal on the facts, but, in any event, a mere “taint” of corruption was insufficient.

Judgment: the mere “taint” of bribery is not enough

The Court sided with Crescent. Burton J helpfully distilled his reasoning into four points:[iii]

  1. English courts will refuse to enforce contracts that are illegal under English law, even if not illegal under the relevant foreign law, following the common law principle ex turpi causa (meaning “out of a disgraceful cause an action cannot arise“). Here, however, the ultimate contract entered into was not itself illegal
  2. Whether an English court would enforce a contract procured through bribery, but not itself illegal, would depend on the context. Burton J noted: It is not that the contract is unenforceable by reason of public policy, but that the public policy impact would not relate to the contract but to the conduct of one party or the other.
  3. Where, as here, a contract had been preceded, but was unaffected, by a failed attempt to bribe, there was “certainly” no rule that it should not be enforced on this basis as being “tainted“. This would lead to uncertainty and undermine party autonomy.
  4. Finally, English courts should generally not interfere with an arbitral award on these grounds. This should only occur where there is fresh evidence or “in very exceptional circumstances“. Neither of these situations arose here, so the Tribunal’s finding that the contract itself was unaffected by bribery would stand.

But wait …

The Court’s decision is largely an orthodox approach to attempts to set aside arbitral awards.

The finding that contracts merely “tainted” through bribery cannot be challenged on this basis alone should, however, be kept under review. Burton J himself described the argument that such contracts should be open to challenge on this basis as “attractive“, in light of recent English legislation[iv] and international Conventions outlawing bribery.[v] In addition, the case law on when illegal conduct will impact civil claims is in a state of development, both in England and elsewhere. Just this year, a majority of the UK Supreme Court described alleged illegality in breach of contract claims as having caused “a good deal of uncertainty, complexity and sometimes inconsistency“.[vi] New case law should therefore be closely reviewed to determine whether it offers claimants more scope to set aside arbitral awards in the future.