Decision encourages a deferential approach to enforcing foreign awards in England and confirms narrow interpretation of the public policy exception under the New York Convention.
By Oliver E. Browne and Samuel Pape
The English Court of Appeal has confirmed the enforcement of a China International Economic and Trade Arbitration Commission (CIETAC) award rendered in Beijing, despite the award creditor having presented forged bills of lading to the award debtor’s bank. The decision in RBRG Trading (UK) Limited v Sinocore International Co Ltd  EWCA Civ 838 confirms the English Court’s narrow approach to the public policy exception to the enforcement of New York Convention awards under Section 103(3) of the Arbitration Act 1996.
The underlying CIETAC arbitration
The dispute arose out of a contract between Sinocore International Co Ltd (Sinocore) and RBRG Trading (UK) Ltd (RBRG) for the sale of steel coils to be shipped from China to Mexico. RBRG was required to pay for the shipment through a letter of credit from its bank, payable on condition that the coils were shipped by 31 July 2010.Having obtained a conforming letter of credit, RBRG then instructed its bank to change the shipment to 20-30 July 2010 without Sinocore’s consent. Sinocore shipped the coils on 5-6 July 2010 and obtained bills of lading acknowledging receipt of the cargo on those dates. Sinocore then presented bills of lading dated 20-21 July 2020 to RBRG’s bank in order to draw on the letter of credit.
A Dutch court granted an injunction to RBRG preventing RBRG’s bank from paying under the letter of credit. Sinocore proceeded to sell the coils to another buyer at a lower price.
In a CIETAC arbitration seated in Beijing, Sinocore succeeded in claiming the difference in value on the basis that RBRG had breached the contract by unilaterally amending the letter of credit. The tribunal held that Sinocore’s presentation of the forged bills of lading after that breach did not preclude Sinocore from claiming damages for its losses resulting from the breach. Significantly, the tribunal found that RBRG had not been subject to actual fraud because Sinocore had disclosed the actual date of the shipment.
The English High Court’s decision to enforce the CIETAC award
Sinocore obtained an order for the recognition and enforcement of the award in England. RBRG applied to set aside that order under Section 103(3) of the Arbitration Act 1996, which reflects Article V.2(b) of the New York Convention and allows the English Court to refuse to enforce a foreign arbitral award if its enforcement would be contrary to public policy. RBRG argued that the transaction was “tainted by fraud” as a result of the presentation of the forged bills of lading, and therefore that public policy considerations militated against enforcement in those circumstances.
RBRG’s application failed at first instance, principally on the grounds that the contract and its performance were both lawful. Phillips J held that the fact that Sinocore had attempted to present forged bills of lading did not preclude it from enforcing an award in England, even if, under English law, the underlying arbitration might have been decided differently. The public interest in upholding the finality of the foreign award outweighed the general objection that the transaction was tainted by fraud.
The Court of Appeal’s grounds for confirming the English Court’s pro-enforcement stance
On appeal, RBRG sought to argue that Phillips J had applied the wrong legal test in considering whether the alleged illegality ought to preclude enforcement under Section 103(3) of the Arbitration Act 1996. RBRG relied on the Supreme Court’s 2016 decision in Patel v Mirza  UKSC 42 to argue that the Court ought to have applied a range of factors which would have led it to refuse to enforce the award. (Additional analysis of the Patel v Mirza decision is available in this Latham.London post.)
Dismissing the appeal, Hamblen LJ (with whom Irwin LJ and Lewison LJ agreed) held that Patel v Mirza does not affect the principles to be applied when considering enforcement under Section 103. Rather, confirming the English Court’s cautious and deferential approach to the enforcement of foreign awards, he held that:
“There are sound justifications for taking a different approach to substantive claims and enforcement claims, reflecting the different role performed by the court in each circumstance. […] [T]here is nothing which offends English public policy if an Arbitral Tribunal enforces a contract which does not offend the domestic public policy under either the proper law of the contract or its curial law, even if English domestic public policy might have taken a different view.”
Hamblen LJ held that, in any event, there is no public policy to refuse to enforce an award based on a contract during the course of the performance of which there has been a failed attempt at fraud.
The Court of Appeal’s decision confirms that the English Court recognises the importance of exercising caution and deference in considering applications to refuse enforcement of New York Convention awards on public policy grounds. The public policy considerations relevant to whether a contract governed by English law should be set aside on grounds of illegality based on the “range of factors” test in Patel v Mirza may overlap with the considerations relevant to the enforcement of foreign arbitral awards; nonetheless, a distinct pro-enforcement approach continues to apply under Section 103(3) Arbitration Act 1996.
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