Alleging Fraud Or Illegality: Understanding The Boundaries Of S.68 Challenges

In K1 & Ors v B (Re An Arbitration Claim) [2025] EWHC 2539 (Comm), the English Commercial Court (the Court) dismissed an application to add an arbitral award challenge under section 68 of the Arbitration Act 1996 (the Act) (a s.68 challenge) on the ground of serious irregularity. The allegation made was that the underlying contract was "a contract for fraud". The Court clarified that a s.68 challenge is a procedural challenge and therefore cannot be used as a gateway to challenge the merits of the arbitral tribunal's decision. However, the Court left open the possibility of a challenge to the award upon enforcement on the basis of public policy.

Background

B entered into a contract with two Kuwaiti companies and one Egyptian company (K1, K2 and D) (the Companies) by way of a letter of engagement dated 28 May 2018 (the LOE). Following a dispute about whether B was entitled to a success fee for its services under the LOE, B brought a London-seated arbitration against the Companies under the LCIA Rules (the Arbitration). B was successful in the arbitration. The LCIA tribunal (the Tribunal) made a US$ 3.2 million award in favour of B (the Award).

The Companies initially filed a s.67 challenge against the Award. Subsequently, they applied for permission to amend their claim form to include a s.68 challenge. This judgment relates only to the s.68 challenge, as the s.67 challenge is yet to be heard.

The issues

The Companies alleged that the LOE was "a contract for fraud", as they contended that the contract was for the provision of services to "obtain information from targets by deception", and that it "was performed in that way".

Accordingly, the Companies wanted to amend their claim form to include a challenge based on s.68(2)(g) of the Act where "the award ... being contrary to public policy" has "caused or will cause substantial injustice" to the Companies.

Decision

s.68 is a procedural challenge

The Court (Knowles J) dismissed the Companies' application to add a s.68 challenge because there cannot be a successful s.68(2)(g) challenge without any "suggestion that the arbitration process was interfered with".

A s.68 challenge is inherently a procedural challenge that is focused on any serious irregularity that impacts the arbitral procedure and the parties' conduct in the arbitration. The focus is not on "the claim on which the award is based" or"the cause of action on which the claim is based".

As the Companies' allegation of fraud was "a case on the merits of the contract claim", this was a matter for the Tribunal to decide. However, during the Arbitration, neither party had alleged that the LOE was a "contract for fraud" and the Companies did not allege that the Tribunal should have inquired or investigated this point on its own initiative. The Companies could not rely on a s.68 challenge as a gateway to question whether the Tribunal "arrive[d] at the correct decision in its Award".

s.68: overall fraudulent enterprise (obiter)

The Companies sought to argue that s.68(2)(g) of the Act (which allows a challenge on the basis of the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy) was not limited to the process in the arbitration, and contemplates an objection which is not procedural in nature. Knowles J responded by echoing his obiter comments in Federal Republic of Nigeria v Process & Industrial Developments Limited (see our blogpost on this case here), to the effect that he would have been prepared to consider a s.68(2)(g) challenge if the underlying "contract [was] a first or early step in carrying out that overall fraudulent enterprise or plan" to "procure an award" such that "the award itself would be contrary to public policy as the object of the plan".

Resisting enforcement

The Court distinguished between an unsuccessful award challenge on the basis of an alleged breach of the agreed procedure and the separate question of whether an award ought to be enforced as a matter of public policy. Although the question of enforcement was not for determination in this application, the judge stated that he "respectfully doubt[s] that the Court is required to enforce an award if enforcement would be contrary to public policy", thereby leaving the door open to this avenue if and when required.

Comment

This judgment is a clear reminder that s.68 challenges must relate to the arbitration process, and not to the underlying claim or cause of action. For cases where fraud or illegality are alleged, the judgment helpfully draws a distinction between a contention that the arbitration process has been tainted and used as a device to obtain an award or settlement (which may found a s.68 challenge) and a case where it is alleged that an arbitration award is based on a contract for fraud. It remains to be seen whether this issue will be invoked again in response to an application for enforcement.

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