International Arbitration: Public Policy Objections to the Enforcement of Arbitral Awards

The recent decision of the English High Court in Hulley Enterprises Ltd v Russian Federation [2026] EWHC 456 (Comm) provides important guidance on the circumstances in which the English Courts may refuse recognition or enforcement on grounds of public policy based on fraud/illegality, both in the context of (i) historic (pre-arbitration) conduct and (ii) the arbitration proceedings themselves.

Key Takeaways

• As a starting point, English public policy favours enforcement of arbitral awards - an objective which is enshrined in the New York Convention. Accordingly, the bar for refusing enforcement of an arbitral award in the English Courts is very high and the grounds for refusing enforcement are to be construed narrowly. Indeed, even if a public policy objection is made out, the English Courts retain discretion to enforce an arbitral award.¹
• Considerations of public policy must be approached with “extreme caution”.²

• Grounds for resisting enforcement based on fraud/illegality fall broadly into two ‘camps’—(1) fraud/illegality in the underlying transaction or contract (i.e. pre-arbitration fraud/illegality); and (2) fraud/illegality in the course of the arbitral proceedings. The decision in Hulley concerned both categories. However, the English Courts rejected the objections on both bases, applying the relevant exception narrowly.
• In considering whether public policy is engaged in respect of pre-arbitration fraud/illegality, “the degree of connection between the claim sought to be enforced and the relevant illegality” is important.³
• In this regard, a distinction is drawn between fraud/illegality committed in the course of the underlying transaction or contract that is the subject of the arbitral award (which is unlikely to prevent enforcement) and transactions or contracts which are themselves illegal or require the performance of illegal acts (which may be more susceptible to set aside applications). For instance, enforcement of a “contract to bribe” can be refused under section 103(3) if the bribery is more than merely incidental.⁴

• In contrast, an arbitral award on a contract which does not require bribes to be paid, but which is in fact procured or performed by bribery, is likely to be enforced.⁵

• In relation to fraud/illegality in the course of an arbitration, this may give rise to a viable ground for resisting enforcement if: (i) the impugned conduct is that of a party to the arbitration (or its privies); (ii) the conduct is distinctly pleaded and proved based on cogent evidence; and (iii) the conduct has caused substantial injustice. This is a high evidential bar and effectively requires proof that the fraud/illegality had an important influence on or would probably have affected the result in the arbitration. For instance, in Hulley, the fact that a witness of fact (who, in substance, was giving expert evidence) had been paid a substantial sum to give evidence was itself insufficient.
• This decision underscores the importance of choosing an arbitral seat with a clear pro-enforcement approach. The English Courts have evidenced this ethos in the Hulley decision. Similarly, the DIFC Courts (common law courts in Dubai) have equally demonstrated a narrow approach to set aside applications based on public policy.⁶

The Public Policy Exception Under Section 103(3)

Under the New York Convention, contracting States are required to recognise and enforce arbitral awards, subject to a limited number of grounds on which recognition or enforcement may be refused. In England, those exceptions are set out in section 103 of the Arbitration Act 1996. One such exception, set out in section 103(3), arises where the recognition and enforcement of an arbitral award would be “contrary to public policy”.

The decision in Hulley is the most recent case on the application of the section 103(3) exception, and considered the applicability of the exception both in the context of historic (pre-arbitration) conduct, and during the course of the arbitration proceedings themselves.

Factual Background

The proceedings in Hulley arose from the long-running series of investment treaty disputes concerning Yukos. The claimants sought to enforce three arbitral awards issued under the Energy Charter Treaty for amounts in excess of US$ 50 billion, following findings that the Russian Federation had unlawfully expropriated the value of their investment in Yukos by, amongst other things, targeting Yukos for alleged tax liabilities and auctioning off the key asset of Yukos at an undervalue.

The Russian Federation resisted enforcement in England on the basis of the public policy ground in section 103 of the Arbitration Act 1996. Two different kinds of public policy objections were raised:

• The first category related to “objections founded on historic conduct and events, relating to the subject-matter of the arbitrations”.⁷ Russia alleged, amongst other things, that the Claimants’ shareholding in Yukos was unlawfully procured through the payment of bribes,⁸ and that Yukos had engaged in widespread tax fraud through the use of certain Russian low-tax regions.⁹
• The second category related to “objections founded on conduct and events that occurred in the course of the arbitration proceedings”.¹⁰ This included allegations that: (i) the Claimants deliberately and dishonestly paid a bribe to an expert witness “in exchange for his favourable witness testimony” during the arbitrations;¹¹ and (ii) the expert witness was “paid an exorbitant fee (US$ 200,000) in exchange for his witness evidence” which was a “dishonest and illegal bribe” that resulted in the tainting of his witness evidence.¹²

Historic (Pre-Arbitration) Conduct

In addressing the Russian Federation’s objection on account of historic conduct, Bright J emphasised the strong pro-enforcement policy underpinning the New York Convention regime: “In principle […] English law and public policy favour enforcing New York Convention awards, and the threshold for a public policy objection is high.”¹³ Consistently with that approach: “the grounds for refusing enforcement are to be construed narrowly, and the burden is on the party resisting enforcement to establish that one of the exceptions applies.”¹⁴

Importantly, the arbitral tribunal in the proceedings prior to the enforcement stage had made findings of fact and law in relation to the Russian Federation’s “historic conduct” objections. The Tribunal had concluded that: (i) the acquisition of the Claimants’ shareholding in Yukos was not unlawful (as the Russian Federation had failed to demonstrate that the alleged illegalities were sufficiently connected with the final transaction by which the Claimants made their investment);¹⁵ and (ii) fraudulent tax evasion had occurred through the abuse of certain regional tax-optimisation schemes, and reflected that misconduct in its damages analysis by applying a 25% reduction for contributory fault.¹⁶

Bright J confirmed that where the arbitral tribunal has already held that the facts were not as alleged or has rejected a proposition of law “the court will (in the absence of fraud or other vitiating factors) take the tribunal’s decision as final and binding and consider whether enforcement would be contrary to public policy on that basis.”¹⁷ Similarly, where an allegation of fraud or illegality was made and accepted by the arbitral tribunal, but the tribunal nevertheless made an award in favour of the party alleged to have been involved in the illegal or immoral conduct “the tribunal’s findings in respect of the illegality/immorality can be relied on.”¹⁸

In considering whether and, if so, to what extent public policy is engaged, the judgment in Hulley confirms that “the degree of connection between the claim sought to be enforced and the relevant illegality” is important.¹⁹ Illegality in the underlying transaction or contract does not automatically prevent enforcement: “the critical question is whether the enforcement of the award would be contrary to English public policy; it is not whether the underlying subject-matter is in some way contrary to English public policy”.²⁰

In ruling upon the allegedly unlawful historic transactions, Bright J drew a distinction between a “contract to bribe” (which can be refused under section 103(3) if the bribery is more than merely incidental)²¹ and a contract which does not require bribes to be paid, but which is in fact performed by bribery (and where the bribery is merely incidental to the contract), which does not engage public policy considerations.²² The relevant investment (or transactions) in Hulley were “at most […] procured by bribery”. It was “not an investment which was illegal or criminal in itself, because the business invested in was not a criminal concern,” and so enforcement could not be refused on account of public policy.

In relation to the alleged illegality in connection with fraudulent tax evasion, Bright J noted that the arbitral tribunal had already reduced damages by 25% to account for this misconduct. Accordingly, enforcing the arbitral awards would not compensate or reward the Claimants in respect of fraudulent tax evasion and English public policy was not engaged.²³

Conduct in the Course of the Arbitration Proceedings

The general position in relation to a public policy objection founded on fraud in the arbitration is that, where an award has been obtained by fraud or other means contrary to public policy, this is a basis for invoking section 103(3).²⁴ The conduct in question must be conduct that the court “would be comfortable in describing as fraud, conduct dishonestly intended to mislead”.²⁵

Illegality or fraud in the course of an arbitration may give rise to a viable ground for resisting enforcement if: (i) the impugned conduct is that of a party to the arbitration (or its privies);²⁶(ii) the conduct is distinctly pleaded and proved based on cogent evidence;²⁷ and (iii) the conduct has caused substantial injustice.²⁸ In terms of the materiality of the fraud (or equivalent conduct) that must be met for a successful section 103(3) objection in the context of the arbitration proceedings, the defendant must show that the fraud had “an important influence on or would probably have affected the result.”²⁹

On the facts, Bright J held that the payments did not amount to proof of fraud or dishonest conduct capable of engaging the public policy exception. The court emphasised that the fact that a witness of fact (who was, in substance, giving opinion evidence) is remunerated for their work does not in itself demonstrate that the evidence given is false or misleading, as the payment of a fee “is not an indication of dishonesty on the part of the payor”.

More importantly, Russia failed to establish that the alleged conduct had caused substantial injustice or that the fraud had an important influence on or would probably have affected the result. Bright J held: “I still see no basis on which to conclude that the Tribunal’s conclusion on the admissibility of the claim, on liability or on quantum could ever have been any different.”³⁰ The alleged irregularities did not meet the high threshold required to justify refusal of enforcement under section 103(3).³¹