Freezing Injunctions – Part Two

1. A claimant who has obtained a favourable New York Convention award against a respondent with assets in England and Wales will obtain leave, ex parte and without a hearing, to enforce the award pursuant to section 101 of the Arbitration Act 1996. Under CPR 62.18(9) the respondent will be granted a period of time within which to apply to set aside the order. If such an application is made, the award cannot then be enforced until that application has been “finally disposed of”.

2. An unscrupulous respondent who is determined to try to avoid payment at all costs will search through section 103 of the Act for some basis to resist enforcement. Such a respondent may have little hope of ultimately succeeding, but may wish to delay the enforcement process for as long as possible, perhaps while other steps are taken to make enforcement more difficult.

3. The respondent may allege that the award was obtained by fraud, or some other unconscionable conduct: an allegation which may be time consuming to resolve, and therefore meet an unscrupulous respondent’s tactical objective. This article examines the difficulties which may be encountered by such a respondent, as highlighted by the recent decision of Cockerill J in Eastern European Engineering Ltd v Vijay Construction Proprietary Ltd [2018] EWHC 2713 (Comm).

4. Section 103 gives legislative effect to Article V of the Convention, which is underpinned by a pro-enforcement policy. Section 103 is exhaustive. If a party cannot bring itself within one of the grounds listed in sections 103(2) and (3), the court must permit enforcement of the award. Further, the burden of proving the grounds for non-enforcement are “firmly” on the enforcee. See generally Dallah v Pakistan [2011] 1 AC 763 at para [101], per Lord Collins.

5. A party who cannot found a challenge under one of the six grounds listed in section 103(2) may fall back on section 103(3), and argue that enforcement of the award would be contrary to public policy (specifically, the public policy of the English court as the enforcing court). Warnings of the perils of relying on public policy abound. "It is never argued at all, but when other points fail" (Richardson v. Mellish (1824) 2 Bing. 229, 252). Public policy “should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds” (Fender v St John-Mildmay [1938] AC 1, 12, per Lord Atkin). Public policy “should be approached with extreme caution … It has to be shown that there is some element of illegality or that the enforcement of the award would be clearly injurious to the public good or, possibly, that enforcement would be wholly offensive to the ordinary reasonable and fully informed member of the public on whose behalf the powers of the state are exercised” (Deutsche Schachtbau v Shell [1990] 1 AC 295, 316, per Sir John Donaldson MR).

6. Despite these warnings, it is not uncommon for parties resisting enforcement to invoke public policy arguments, and in particular to allege fraud in obtaining the award. One reason for making such an allegation is to enable the enforcee to argue that the allegation of fraud (inevitably disputed) can only be fairly resolved at a trial of the issue, which is likely to cause considerable delay to the process of enforcement.

What conduct will suffice?

7. The enforcee faces a high hurdle in identifying conduct which will be sufficient to found a public policy justification for resisting enforcement. “[N]othing short of reprehensible or unconscionable conduct will suffice to invest the court with a discretion to consider denying to the award recognition or enforcement. That means conduct which we would be comfortable in describing as fraud, conduct dishonestly intended to mislead” (per Tomlinson J in Gater Assets Ltd v Nak Naftogaz Ukrainiy (No. 2) [2008] EWHC 237 (Comm), [2008] 1 Lloyd’s Rep 479 at [41]).

8. Examples of conduct which may in principle be sufficient to justify a refusal to enforce under section 103(3) are the dishonest suppression of disclosable documents; the giving of perjured evidence; and (as alleged in Eastern European) interference with witnesses.

9. Experience shows that the Commercial Court approaches such allegations with a sceptical mindset. There are many dicta emphasising the requirement for “cogent evidence” and a “high standard of proof” if such an allegation is to be made out. See Double K Oil Products 1996 Ltd v Neste Oil OYJ [2009] EWHC 3380 (Comm) [2010] 1 Lloyd’s Rep 141, per Blair J at [33]; Cuflet Chartering v Carousel Shipping Co Ltd [2001] 1 Lloyd’s Rep 707 per Moore-Bick J at [12]; Elektrim SA v Vivendi Universal SA [2007] EWHC 11 (Comm), [2007] 1 CLC 16 per Aikens J at [81].

10. Although in Eastern European Cockerill J did not find it necessary to express any final conclusions about the substantive allegations of witness interference, she expressed some scepticism about those allegations (see [135]) and there must be doubt as to whether the enforcee would have satisfied the requisite standard if it had proved necessary for her to make findings.

11. It is not, however, sufficient simply that “reprehensible” conduct has occurred. That conduct must have had some causal impact on the obtaining of a favourable award. That may be thought to be implicit in the language of section 103(3) (“… contrary to public policy to … enforce the award”). In Gater Assets, Tomlinson J commented (at [40]) that what would normally be required is that the conduct “has contributed in a substantial way to obtaining an award in his favour”. (A similar requirement has been held to apply to section 68(2)(g) which permits the English court, as the supervisory court, to set aside an award which has been obtained by fraud or where the way it was procured is contrary to public policy: see Elektrim at [82].

12. This was one of the points on which the enforcee ran into trouble in Eastern European. It could not show, analytically, why the evidence of the witness, who was said to have been intimidated into not appearing at the arbitration, would have made any difference to the award. In this respect, the enforcing party was assisted by the fact that the award was thoroughly reasoned, so that it was possible to trace through in the award itself the parties’ positions on the critical allegations; the tribunal’s findings in relation to them; and to show that the evidence of the “suborned” witness would have had no probative value in relation to the key findings. Not every arbitration award would have facilitated such an analysis.

Has the allegation been raised before the Tribunal or the supervisory court?

13. A party who knows about (or claims to know about) a fraud during the currency of the arbitration, but does not pursue the point before the tribunal, is likely to find itself prevented from relying on the fraud as a basis for resisting enforcement under section 103(3). Although this is not expressly stated in the Act (contrast the position in relation to complaints of lack of substantive jurisdiction), the cases establish that, normally, a party can only pursue an allegation that an award has been obtained by fraud where the evidence to establish the fraud was not available to the party alleging the fraud at the time of the hearing before the tribunal (Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd [2000] 1 QB 288, 309F-G per Waller LJ).

14. In Eastern European the facts were colourful. The enforcee claimed to have made the discovery of witness intimidation in the interval between the evidential hearing and the publication of the award (and before the record was closed). Unusually, the enforcee’s managing director wrote directly to the tribunal to inform him of this allegation, but without copying in either side’s lawyers, and exhorting the tribunal to destroy the letter after reading it. Unsurprisingly, the tribunal immediately sent the letter to the parties’ lawyers, asking them to comment. The enforcee’s lawyers initially did not make any comment at all, and subsequently confirmed that they did not require a ruling from the tribunal. Cockerill J considered that this constituted “what seems to be an insuperable difficulty” for the enforcee [132].

15. Even where a party was not in the position to raise the allegation of fraud before the tribunal, it may be unable to rely on the fraud to resist enforcement if the point was raised unsuccessfully before the court with supervisory jurisdiction over the arbitration (e.g. in an application to set aside the award). At first instance in Westacre ([1999] QB 740, 784A) Colman J held (in the context of an allegation of perjury) that where the evidence said to prove perjury had already been deployed, unsuccessfully, before the court of supervisory jurisdiction for the purpose of an application to set aside the award, public policy on finality would normally require that the English court should not permit that evidence to be adduced to resist enforcement. (See also the later decision of Colman J in Minmetals Germany GmbH v Ferco Steel Ltd [1999] 1 All ER (Comm) 315, relating to procedural defects at 330J-331F.) In the Court of Appeal, Waller LJ preferred not to express a concluded view as to whether it should be a pre-condition to a party being permitted to rely on the fresh evidence that it should not have been available at the time for making an application to the court with supervisory jurisdiction to set aside the award, preferring to retain a degree of flexibility in how such situations should be dealt with (309G-H).

16. This was yet another point on which the enforcee in Eastern European fell down. It had relied on its allegations of witness intimidation before the French court in support of an application to set the award aside on the basis that it would be inconsistent with “international public policy” to recognise the award (the relevant test under French civil code) and had lost. For good measure, it had also advanced the same argument in the Seychelles, and lost after an evidential hearing.[1] Cockerill J considered that the application of the public policy in favour of finality fell to be considered in conjunction with an assessment of the merits of the case [60]. Since she rejected the enforcee’s case on the merits she did not have to decide the policy question, but stated that, had there been some “apparent merit” in the enforcee’s argument, but that merit had been “less than compelling”, she would have concluded that the “balance came down in favour of upholding the public policy on finality” [136].           

Procedural approach to allegations of fraud

17. An enforcee cannot assume that, simply because an allegation of fraud is raised, it will follow that a Court will order a trial of the issue, with all the delay that such a trial is likely to involve (including the likely requirement for disclosure).

18. In Honeywell International Middle East Ltd v Meydan Group LLC [2014] 2 Lloyd’s Rep 133, a party resisted enforcement on public policy grounds, including on the basis that witnesses had perjured themselves in the arbitration. Ramsey J gave directions for exchange of evidence leading to a hearing at which the court would consider whether the enforcee’s application could be determined on the summary judgment test. At the hearing, he dismissed the application on that basis.

19. In the Eastern European case, the enforcee applied under CPR 32.7 for permission to cross-examine Eastern European’s witnesses on the issue of witness interference. The application was made only ten days before the hearing, and too late for arrangements to be made to enable the relevant witnesses to attend. Rather than vacating the set-aside application, Andrew Baker J adjourned the CPR 32.7 application on the basis that there was a real possibility that the determination of the application to set aside the order permitting enforcement would not require the issues of fact relating to witness interference to be determined (which is what in fact happened), or that those issues might be fairly capable of resolution without cross-examination.

20. These cases are examples of the court’s reluctance to order a full trial of an issue on an application to resist enforcement; and its willingness to direct an early hearing of the application without live evidence, despite the risk (perhaps somewhat theoretical in a majority of cases) that the hearing will go part-heard, and directions for a trial will then have to be given.

21. A case where the Court did give directions for a trial of an allegation of fraud was Stati v Republic of Kazakhstan [2017] 2 Lloyd’s Rep 201, but it does appear that that was an unusual case. Knowles J was satisfied that there was a prima facie case of fraud, and that the fraud had had an impact on the award ([37], [47]). Further, although the allegation of fraud had been referred to the Swedish court (the supervisory court), which had declined to set the award aside, the powers of that court to intervene were limited such that it could not intervene even where the tribunal was deliberately misled, and thus the policy in favour of finality did not mean that the challenge to enforcement could not proceed [89].

Conclusion

22. It is a rare case in which a party will successfully invoke public policy as a justification for refusing enforcement of a Convention award. Eastern European provides a useful reminder of the keen scrutiny to which the court will subject an allegation of fraud which is said to justify a refusal to enforce; the court’s unwillingness to be drawn into a full blown trial of such an allegation; the quality of the evidence which the enforcee will be required to present; and the potent policy considerations which stand in the enforcee’s path.

Benjamin Pilling QC
Daniel Burbeary

[1] The Court of Appeal of Seychelles (the court of ultimate appeal) overturned the first instance decision on a ground of some interest to practitioners in international arbitration. Seychelles achieved independence from Britain in 1976, and arrangements were put in place under which it would continue to be bound by relevant international obligations. In 1979 Seychelles became a one party socialist state, and renounced its international obligations. The Court of Appeal held that in consequence Seychelles was not bound by the New York Convention, and that as such a Convention award was not directly enforceable in Seychelles.