Speed Read: In October 2016, the High Court rejected an application to set aside an arbitration panels decision on the grounds of alleged bribery and corruption. Natasha Reurts discusses the High Court’s decision, the consequences for contracts procured through bribery or corruption and whether the decision would have been decided differently following the decision of Patel v Mirza [2016] UKSC 42.

Background

The claimant, the National Iranian Oil Company (NIOC), entered into a long-term gas supply and purchase contract with the first defendant, Crescent Petroleum, in April of 2001. The contract was governed by Iranian law and stipulated that all disputes relating to the validity of the contract were to be referred to arbitration. In 2003, the first defendant wished to assign the contract to the second defendant, Crescent Gas, one of its subsidiaries. In 2009, the first and second defendant commenced arbitration in the UK, claiming breach of contract as a result of NIOC’s failure to deliver gas. NIOC challenged the jurisdiction of the arbitrators on the basis that the contract was unenforceable. Specifically, it argued that the contract had been secured by corrupt payments/bribery on the part of the first defendant, and by extension, the second defendant. Ultimately, the tribunal found against NIOC, and considered them to have been in breach of contract since December 2005. In relation to the corruption allegation, the tribunal expressly found that the contract had not been procured through corrupt payments – despite being satisfied that there was evidence of an attempted bribe. The tribunal went on to consider that there was no evidence suggesting or demonstrating an imbalance between the parties to the contract.

NIOC challenged the award in the High Court under section 68 of the Arbitration Act 1996 (‘Challenging the award: serious irregularity’), repeating the argument that the contract was unenforceable owing to its procurement through bribery and corruption. NIOC argued that that the tribunal had erred by not finding evidence of bribery in light of its own ‘finding’ that there had been discussions and attempts relating to corrupt payments. NIOC argued that these discussions were sufficient for the contract to have been ‘tainted’ [paragraph 41] and therefore, the contract should not be enforced on public policy grounds (s 68(2)(g) of the Arbitration Act 1996). Both defendants resisted the argument, claiming that even if the contract was ‘tainted’ by bribery and corruption this did not render the contract unenforceable.

The central issue for the Court’s was whether the arbitral award was contrary to public policy upon a finding that the contract, the subject of the award, was procured by corruption (as opposed to a contract with illegal subject-matter, e.g. a contract to pay a bribe). Inherent within this central question was a subsidiary issue, namely, whether the Court could re-visit public policy issues previously determined by an arbitration tribunal.

In short, Burton J held that public policy considerations did not, in this case, preclude enforcement of a contract procured or ‘tainted’ by bribery or corruption. Drawing on a distinction outlined in Honeywell International Middle East Ltd v Meydan Group LLC [2014] EWCA Civ 1800, Burton J noted the difference between enforcing a contract to pursue an illegal act (which are, in effect, void ab initio) and a contract which is illegally procured. In the latter category, the contract could be rendered voidable at the election of the innocent party, provided counter-restitution could be made [paragraph 43ff]. Consistent with the line of authority established in Honeywell and Westacre Investments Inc v Jugoimport SDPR Holding Co Ltd [2000] Q.B. 288 Burton J considered that there is no English public policy requiring an English court to set aside a contract procured by illegality. Moreover, there is no English public policy rule requiring a court to refuse to enforce a contract which has been preceded, and is unaffected, by a botched attempt to bribe, or one of the parties to the contract has allegedly been tainted by the preceding conduct [paragraph 49(3)]. Despite acknowledging the growing international condemnation of bribery and international movement towards criminalisation (evidenced by numerous international conventions), Burton J was cautious to introduce a concept of ‘tainting’ an otherwise legal arrangement as it would “create uncertainty” and “wholly undermine party autonomy” [paragraph 49(3)]. For completeness, Burton J – having been required to consider the subsidiary point in relation to reopening and interfering with an arbitral award – determined that in the absence of fresh evidence, or save in exceptional circumstances of which none were found to be present in this case, an English court should not interfere with the decision of the arbitrators.

As such, Burton J determined the NIOC’s claim had no prospect of success and should be struck out.

Discussion

On the whole, the decision is rather uneventful in that it represents a conventional approach to determining cases seeking to set aside an arbitral award. A number of points, however, are worth further analysis.

First, the case demonstrates the difficulties associated with the requirement to present ‘fresh evidence’ (or exceptional circumstances) in order to reopen an arbitration decision. Considering the evidential difficulties (e.g. circumstantial or unavailable evidence) that may be encountered when the bribery or corruption occurs in a foreign jurisdiction, the requirement of fresh evidence may prove too burdensome for claimants to overcome in seeking an English court to interfere with an award.

Moreover, it is challenging to reconcile the decision of the Court with the evidence that there had been an attempt to bribe which is an offence is in its own right. The Bribery Act 2010 considers it an offence to offer a bribe and does not require acceptance of payment to be made to substantiate the offence. It is also worth remembering the extra-territorial reach of the Bribery Act and its applicability to companies carrying on business, or any part of it, in the UK. In this regard, it seems peculiar that the same conduct could, potentially, be criminal (under the relevant provisions of the Bribery Act) yet not satisfy the threshold for challenging an arbitral award on the grounds of public policy (section 68(2)(g) of the Arbitration Act 1996). This is perhaps yet another example of the tensions between the civil and criminal law.

An interesting point arises as to whether this decision would be decided differently following the UK Supreme Court in decision Patel v Mirza [2016] UKSC 42, the significance of the which has arguably not been fully grasped as far as it relates to those advising on money laundering and corporate crime cases more generally. On one view, the cases are distinguishable as Patel falls within the category of contracts whose subject matter is illegal (contact to insider trade) and National Iranian Oil falls within the latter category of contracts procured by illegality. On such a view, the judgments are separate and their interrelationship and bearing on each other is minimal. However, two broader and more normative points can be made.

First, Patel extends the factors that can be considered by a Court when determining whether illegality has rendered the underlying contract unenforceable. Whilst there is no prescriptive list, factors referred to by the Court include the seriousness of the illegal conduct, whether the party seeking enforcement knew of the conduct and how serious a sanction the denial of enforcement is for the party seeking enforcement. The ability to take into consideration a range of factors, in turn, affords judges greater flexibility but also arguably leads to a degree of uncertainty – although Toulson LJ expressly rejected the latter proposition in Patel (paragraph [113]). This uncertainty will prove unhelpful for legal advisors who wish to advise their clients as to the impact which a taint of illegality may have on a contract. Further, the move towards a “range of factors” test, and its corresponding uncertainty, could lead to an influx of claimants before UK courts seeking to have their unenforceability claims re-determined on this multi-factorial basis. It is worth considering whether the broad analysis of policy required to determine whether a claim is barred for illegality, as espoused in Patel, would have altered the High Court’s determination of public policy for the purposes of section 68(2)(g). On one interpretation, arguably not.

Secondly, if the consequence of Patel is such that lawyers advising corporate clients on the impact of bribery and the money laundering requirements are to consider not only issues of corporate self-reporting (in the criminal context) but also enforceability of the contract (in the civil context) – is it the case that the law has reached a position whereby a solicitor may be liable for professional negligence for not considering the civil enforceability issue, notwithstanding the decision in Mehjoo v Harben Barker (a firm) & Anor [2014] EWCA Civ 358? In Mehjoo the Court of Appeal overturned a finding that an accountant was liable for negligence for failing to advise on the full range of tax implications. However, we query whether the most prudent way forward for legal practitioners would be to offer comprehensive advice on both the criminal consequences and civil enforceability in these types of cases.

Ultimately, National Iranian Oil demonstrates the lengths UK courts will go to enforce commercial arrangements. The question arises, however, as to whether the reluctance to interfere would be the same if there was evidence of an actual rather than attempted bribe. As it stands, the importance placed on commercial transactions and unwillingness to set aside commercial agreements sits at odds with global condemnation of bribery and corruption and the direction of travel of legislation.