UK: English Courts Refuse Bribery-Based Application

Last Updated: 11 August 2014
Article by Monique Hansen

If you have obtained a judgment or arbitral award outside England and Wales, you may wish to enforce it in England or Wales because your debtor is located or has assets here. If so, it is positive to know that English courts do not tread lightly regarding requests to set aside orders enforcing foreign arbitral awards.

This was recently demonstrated by the TCC in London, in the case of Honeywell International Middle East Limited v Meydan Group LLC 1 (formerly known as Medan LLC) where Mr Justice Ramsey made it clear that the English courts take a robust approach to challenges to the enforcement of foreign arbitration awards, even where allegations of bribery are involved.

Background

In September 2007 Meydan (a company incorporated in Dubai) entered a contract with a main contractor Arabtec-WCT JV under which Arabtec agreed to carry out certain works at the Meydan Racecourse. The employer's representative under the contract between Arabtec and Meydan was Teo A Khing Design Consultants SDN Bhd (Dubai Branch) ("TAK") who were engineering consultants.

In March 2008 TAK, on behalf of Meydan, invited Honeywell to submit a tender for the supply and installation of an Extra-Low Voltage System at the Racecourse. In order to secure its nomination as a subcontractor, the invitation to tender included provisions requiring Honeywell to pay TAK AED 526,000.00 (approximately £85,000.00) in deposit, documentation and lithography fees.

In June 2008 Meydan nominated Honeywell to be appointed by Arabtec, though no formal agreement was made between Arabtec and Honeywell. Seven months later Meydan terminated the contract with Arabtec, and in June 2009 a contract was signed between Meydan and Honeywell.

Arbitration (DIAC Case 201/2010) was commenced by Honeywell against Meydan under the rules of the Dubai International Arbitration Centre (DIAC) in July 2010 and was triggered by the fact that Honeywell had not been paid since December 2009 and had subsequently suspended work. Honeywell was seeking the sums it claimed were owed under the contract. Meydan did not nominate an arbitrator or participate in the proceedings but despite Meydan's lack of cooperation Honeywell proceeded with the tribunal to a hearing in February 2012. However, in January 2012 Meydan commenced a separate DIAC arbitration against Honeywell (DIAC Case 18/2012). Notwithstanding this new arbitration, DIAC Case 201/2010 proceeded and Honeywell was awarded just over AED 77 million (approximately £12.6 million).

Eager to seek ratification of the award in DIAC Case 201/2010, Honeywell commenced proceedings before the Dubai courts. Meydan opposed the application and argued that the award should be held void and/or invalid, asserting (with reference to an opinion from an English Queen's Counsel relating to DIAC Case 02/2009 between Arabtec and Meydan) that there were concerns that TAK and Arabtec had engaged in criminal acts of corruption, though further evidence would be needed to substantiate these allegations.

In November 2012, Honeywell made a without notice application before the English courts under the Arbitration Act 1996 seeking leave to enforce DIAC Case 201/2010 in the UK. The application came before Mr Justice Akenhead who made an order granting Honeywell leave to enforce the award.2 Meydan in turn applied to have the order set aside and it is Meydan's application to set aside this order which was brought to a hearing before Mr Justice Ramsey in February 2014.

Prior to Meydan's application to set aside the order, there were developments made regarding the cases in Dubai. In February 2013 the Dubai Court of First Instance ratified the award in DIAC Case 201/2010. Meydan appealed this decision and the appeal proceedings were stayed by the courts in November 2013 (and remained stayed at the date of Mr Justice Ramsey's judgment). In staying the proceedings the court referred to a bribery complaint against Honeywell made in October 2013 to the Dubai Public Prosecutor as well as a letter from the Head of Dubai Public Funds Prosecution Department to the head of a local Dubai police station in November 2013 requesting that investigations be conducted against Honeywell pursuant to UAE Federal Civil Procedures Law.

In August 2013 the tribunal in DIAC Case 18/2012 (brought by Meydan) held that the claims raised by Meydan were barred by res judicata and therefore could not be considered by the tribunal because the parties were the same as in DIAC Case 201/2010. Despite this Meydan nonetheless submitted a memorial to the tribunal referring to the same documents that had caused the Court of Appeal proceedings to be stayed.

Decision

Meydan raised a number of arguments before Mr Justice Ramsey in support of its application to set aside the order made by Mr Justice Akenhead in November 2012; the main arguments were largely threefold. One argument was based on the validity of the arbitration agreement between Meydan and Honeywell, another was based on English public policy and on top of that a number of procedural challenges were raised by Meydan. The Judge was wholly dissatisfied by all of these arguments and rejected Meydan's application to set aside the order.

The invalidity of the arbitration agreement

In accordance with s.103(1) of the Arbitration Act 1996, recognition or enforcement of a New York Convention award shall not be refused except under the grounds listed at s.103(2) and (3). If one of these grounds is met, then recognition or enforcement of the award "may be refused". Mr Justice Ramsey noted that this discretion "is not openended and the court would be unlikely to exercise its discretion to enforce an award which is subject to a fundamental or structural defect". He also reiterated that "the intention of the New York Convention ... is that the grounds for refusing recognition and enforcement of arbitral awards should be applied restrictively".3

Meydan asserted that, pursuant to s.103(2)(b) which states that recognition or enforcement of an award may be refused if the arbitration agreement was invalid under the law to which the parties subjected it, a ground for refusing enforcement under s.103(2) had been met. Meydan argued that the award in DIAC Case 201/2010 was invalid under UAE law as it resulted from a contract which was procured by Honeywell bribing public servants in Dubai. It argued that the tender invitation evidences an agreement between Honeywell and TAK for Honeywell to pay a bribe under the false cover of "lithography", "Tender" and "document fees". Meydan submitted that these payments amounted to bribery under English law, citing Fiona Trust v Yuri Privalov4 where Andrew Smith J had defined a bribe as a secret commission; a payment which is kept secret from the principal.

The burden was on Meydan to establish a ground under s.103(2), and the Judge was not satisfied by the arguments put forward for a number of reasons and stated that "the court needs to assess what is put before it with a critical eye".

Whilst the Judge accepted that a payment was made to TAK, he was not satisfied that it was a secret commission because within days of the letter of invitation being sent to Honeywell, Honeywell made their suspicions regarding the payment known to a senior member of Meydan's staff. Therefore, he rejected the argument that it was a secret payment made by Honeywell to TAK. However, the Judge went further to say that even had he not come to that conclusion, the evidence of bribery was available to Meydan at the time of the arbitration but Meydan chose not to participate in the arbitration or to raise the allegations in that arbitration. He also noted that the alleged bribe arose in the context of a tender where Honeywell was nominated as a sub-contractor to Arabtec. There was no allegation that a bribe had secured the contract between Honeywell and Meydan in 2009. Ramsey J therefore found it "difficult to see how the bribe could affect the Contract between Meydan and Honeywell or the arbitration clause within that Contract".

Finally, he stated that even if there was a causative link between the alleged bribe and the Contract between Meydan and Honeywell, it would have to be shown that as a matter of UAE law, the arbitration agreement within the Contract was itself procured by bribery. While this had not been alleged, Mr Justice Ramsey noted Article 6.1 of the DIAC Rules which deal with the separability of the Arbitration Agreement and provides that unless the parties agree otherwise, "the Arbitration Agreement shall ... be treated as a distinct agreement". Therefore, even if the allegation of bribery was made out and found to have affected the Contract between Meydan and Honeywell, it would not have affected the arbitration agreement due to the principle of separability.

Procedural rules

Meydan also contended that, pursuant to s.103(2)(f ) which states that recognition or enforcement of an award may be refused if the award is suspended by a competent authority in the country in which it is made, a ground for refusing enforcement under s.103(2) had been met.

Meydan argued that because Honeywell's application for ratification had been stayed by the Dubai Court of Appeal, it had therefore been suspended by a competent authority in the country in which it was made.

The Judge also rejected this argument, stating that under the DIAC Rules the award was final and binding. He noted that as the New York Convention has limited the "double exequatur" requirement, there was therefore no requirement for anything to occur in the local courts for the award to be given some further status in terms of its binding nature. He also held that proceedings in the local court were of no relevance as to whether an award was binding and that the process currently being followed in the Dubai courts had not currently led to the award being "set aside or suspended".

Another procedural challenge made by Meydan was that the request for arbitration wrongly named "Meydan LLC" rather than "Meydan Group LLC" as the respondent. Mr Justice Ramsey was entirely unsatisfied with this argument and held that it did not matter as the request was addressed to Meydan LLC as a party with all the attributes of Meydan Group LLC which meant that the request would reasonably, and did, come to the attention of Meydan Group LLC.

Public policy and bribery

Meydan further asserted that English public policy prevents enforcement of awards that would give a person who bribes the fruits of their bribery and that therefore enforcement of the award was contrary to English public policy.

The Judge rejected this on the basis that bribery had not been proven. He also stated that even if bribery was proven, there is no principle of English law to the effect that it is contrary to English public policy to enforce a contract which has been procured by bribery. He emphasised the distinction between the enforcement of contracts to commit fraud or bribery and contracts that are procured by bribery, only the former of which are contrary to public policy.

Conclusion

The Judge rejected all of Meydan's claims and found that Meydan had not raised any grounds for contending that recognition or enforcement of the Award should be refused under s.103 of the Arbitration Act 1996.

This decision is yet another illustration that the English courts are taking a critical and narrow view in terms of their willingness to refuse recognition and enforcement of foreign arbitration awards. This case demonstrates that even with a shield of bribery allegations you cannot presuppose that a ground under s.103 of the Arbitration Act 1996 will be made out. The English courts will resist using their discretion under s.103 to refuse recognition and enforcement of a New York Convention award.

A significant amount of litigation and arbitration has unravelled out of the development of the Meydan Racecourse and this is unlikely to be the last we hear of it. This is certainly one for arbitration practitioners to keep an eye on, particularly for those in London and Dubai.

Footnotes

1 [2014] EWHC 1344 (TCC)

2 Akenhead J qualified this order by stating that it should not be enforced for 21 days after service of the relevant documents on Meydan or, in the event that Meydan applied within those 21 days to set aside the order, until such application had been finally disposed of.

3 At [66] Ramsey J quotes Redfern and Hunter on International Arbitration at para 11.60.

4 [2010] EWHC 3199 (Comm).

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