UK: Court Of Appeal Upholds Enforcement Of Arbitral Award Despite The Presentation Of Forged Documents

Last Updated: 4 May 2018
Article by Zachary Segal

The relative ease of cross border enforcement is one of the distinguishing features of arbitration.  There are 159 state parties to the New York Convention 1958 (the "Convention"), and an arbitral award made in one Convention state should, in theory at least, be enforced in any other Convention state.  Article V of the Convention contains a narrow and exhaustive list of grounds upon which recognition and enforcement of an award may be refused.  Section 103 of the English Arbitration Act 1996 (the "Act"), which deals with enforcement of Convention awards in England, mirrors Article V of the Convention.

A recent decision of the English Court of Appeal, RBRG Trading (UK) Limited v Sinocore International Co Ltd [2018] EWCA Civ 838, is a salutary reminder of just how difficult it is for a party to persuade the English court to refuse enforcement of an award.

The facts

The case related to a contract entered into in April 2010 for the sale and purchase of rolled steel coils shipped from China to Mexico.  Payment was to be made by the buyer, RBRG, by way of an irrevocable letter of credit.  RBRG then sought unilaterally to amend the terms of that letter of credit to change the shipment date without the consent of the seller, Sinocore.  Subsequently, Sinocore presented forged bills of lading bearing the amended shipment date.  RBRG stopped its bank from paying, which in turn caused Sincore to terminate the contract on 20 August 2010.  Sinocore then sold the coils to a different buyer, but at a lower price.

CIETAC arbitration

On 11 April 2012, RBRG commenced CIETAC arbitration proceedings against Sinocore in Beijing governed by Chinese law, claiming damages for Sinocore's breach of an inspection clause in the contract.  Sinocore counterclaimed, seeking the difference between the contract price and the price paid by the eventual third party buyer.  By an award dated 30 June 2014, the tribunal dismissed RBRG's claims and upheld the counterclaim, awarding damages of US$4.8 million to Sinocore – being the difference between the contract price and the price paid by the eventual third party buyer – finding RBRG had been in breach of contract due to the unilateral amendment to the letter of credit.  RBRG's application to have the award set aside in the Chinese courts was unsuccessful.

The English proceedings

On 2 March 2016, Sinocore secured an order from the English court for the enforcement of the award.  RBRG applied to set aside that order, pursuant to section 103(3) of the Act, on the grounds that enforcement of the award would be contrary to public policy.  RBRG argued that the award had been procured on the basis of fraud (namely, the forged bills of lading) and/or the English court should not assist a seller presenting forged documents.

At first instance, Mr Justice Phillips dismissed RBRG's application on the basis that the award was based on RBRG's breach of contract which predated the forgery.  The forgery was no defence because RBRG and its bank had not been deceived in any event.

RBRG appealed and the decision of the Court of Appeal was handed down on 23 April 2018.  Lord Justice Hamblen delivered the judgment and drew a distinction between those cases in which enforcement of a claim would be harmful to the integrity of the legal system on the one hand, and the enforcement of a Convention award on the other.  The tribunal in the CIETAC arbitration held that RBRG was in breach of contract and that breach had caused loss.  Sinocore's later forgery was not the basis of its claim or loss.  In the view of the court, Sinocore's conduct was at most an "attempt at fraud".  The underlying contract had not been procured by fraud and there was no reason to refuse enforcement of the award.

Comment

This decision reaffirms England's credentials as an arbitration friendly jurisdiction.  Sinocore accepted that the bills of lading were forged and offered no explanation for the existence or presentation of those forgeries.  Despite this, neither the English Commercial Court nor the Court of Appeal believed that enforcement of the award should be refused. 

The public policy exception in the Convention and the Act may sound open ended, but it will take an extreme case for the English court to refuse enforcement of an award made in a Convention state on public policy grounds.  The position might have been different if the sale contract itself had been procured by fraudulent means, but that was not the case.  Consistent with its approach to challenge applications in the context of London seated arbitrations, the court will not in the context of an application to resist enforcement reopen the factual findings of a tribunal.  The public policy considerations in favour of enforcement were more compelling here than any public policy considerations in favour of punishing a party for relying on forged documents.

Most observers of arbitration in England will be pleased at this result.  London's appeal as an arbitral centre depends in part on having a supportive and knowledgeable yet non-interventionist local judiciary.  That said, non-interventionism dictates that parties might be left disappointed at the end of an arbitration at what they perceive to be the English court's refusal to put right an error on the part of the tribunal.   

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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