Corruption & Public Policy in International Arbitration
July 28, 2020
Analysing The ABL v Alstom Saga
The New York Convention has been widely accepted as the most important and successful United Nations treaty in international trade law. It has, amongst others, made it convenient for a party to an international arbitration have its arbitration award recognised and enforced in any of the contracting states.
With the increasingly pro-arbitration approach taken by courts globally, and in the spirit of the New York Convention, courts would only refuse to recognise or enforce an arbitration award in very limited circumstances. For example, under the UNCITRAL Model Law (which has been adopted by many jurisdictions, including Malaysia), the enforcement of an arbitration award may be refused if it would be in conflict with the public policy of the jurisdiction where enforcement is being sought.
On 18 June 2020, the English High Court in the ABL v Alstom case delivered a decision concerning the enforceability of an arbitration award where corruption was raised as a ground for refusal. The case relates to the enforceability of an arbitration award obtained against French transport giant, Alstom, brought by an agent that helped it win rail network contracts worth over US$ 1.1 billion in China.
The ABL v Alstom case demonstrates how different jurisdictions interpret whether and to what extent corruption is a public policy issue, facts of which will be discussed in this alert.
Alstom is a well-known French giant that, amongst others, supplies railway locomotives worldwide. Alexander Brothers Ltd (ABL) is a family run Hong Kong-based company managed by Ms Qi, who happens to be a former employee of the Alstom group.
In 2003, Alstom approached Ms Qi to assist in the group’s negotiations with the Chinese Ministry of Railways. Subsequently, ABL entered into five “consultancy agreements” with Alstom, for various railway projects in China. Under the consultancy agreements, ABL was to provide services and assistance to Alstom in relation to their tenders for the railway projects in China. Alstom made full payment under two of the consultancy agreements, but only partial payment for the remaining three agreements.
Sometime during the performance of the contract, Alstom was investigated by the UK’s Serious Fraud Office, and was ordered to pay over £16 million in fines and costs for conspiracy to corrupt in relation to a contract in Tunisia. Alstom also pleaded guilty to offences under the Foreign Corrupt Practices Act in the United States and paid over US$ 700 million in criminal penalties. No charges were however brought in relation to Alstom’s businesses in China.
Several years later, ABL commenced an arbitration in Geneva against Alstom, seeking punitive and compensatory damages for the unpaid amounts under the agreements. The arbitral tribunal awarded the arbitration in favour of ABL and rejected Alstom’s defence of corruption (Arbitration Award).
The Swiss Position
Alstom challenged the Arbitration Award in the Swiss court on the basis that it was incompatible with public policy as Alstom would face the risk of prosecution if they paid the sums ordered under the Arbitration Award. In refusing to set aside the Arbitration Award, the Swiss apex court declined to investigate facts concerning corruption, on the basis that it had already been considered by the arbitral tribunal which had found that Alstom failed to prove corruption. Consequently, the Swiss apex court found that there was no basis to overturn the award on grounds of public policy.
The French Position
ABL then sought to enforce the Arbitration Award in France, which was resisted by Alstom. The French appellate court however, took a more permissive approach on the issue of corruption and refused to enforce the Arbitration Award on grounds of public policy. The French court found that:
There were serious, precise and consistent indicia that the sums Alstom paid to ABL under the agreements, “financed and remunerated the bribery of public officials”.
Due to the concealed nature of acts of bribery, a contention that an arbitration award orders the payment of sums intended to finance corrupt acts, may be reviewed by a court ruling on whether to grant exequatur solely on the basis of a set of indicia, rather than precisely identified corrupt acts.
The French appellate court went on to say that while it could not rule on whether bribery had actually occurred, it could determine whether recognition or enforcement of the Arbitration Award would contravene the objective of combating corruption.
The English Position
Contrary to the French position, on 18 June 2020, the English High Court allowed the enforcement and did not feel bound by the French ruling. The English High Court in its judgment took the starting point that “different countries may place the public policy in favour of enforcement, as a higher or lower priority against the public policy against corruption; and that will have an impact on what they require to have proved before refusal of enforcement is deemed appropriate”.
In refusing to depart from the Swiss position, the English High Court held that it will not, at the stage of enforcement, prioritise English public policy over that of the public policy of the seat, unless the allegations are so serious as to require it to do so. The English High Court went on to say that as Alstom’s case consisted of “incidental bribery – not planned, not contracted for, not suspected”, it is “somewhat less serious.”
It can be noted from the English judgment that Alstom had failed to properly argue bribery and corruption as a defence in the arbitration proceedings. Rather than proving corruption and running a positive case, Alstom asserted that ABL had to prove the opposite – this may have caused the arbitral tribunal to reject its defence.
Be that as it may, the English court made it clear that where the arbitral tribunal has jurisdiction to determine the relevant issues and has done so (such as whether corruption has been established), there is nearly no scope for the court to re-open the issue. This highlights the traditional non-interventionist approach of English courts in relation to the enforcement of arbitral awards, as well as its reluctance to refuse an award on grounds of public policy.
Whilst a similar case has not been tested within our shores, the Malaysian courts generally adopt a narrow and restrictive approach to the public policy exception. In the Jan De Nul v Tan Sri Vincent Tan case, the Federal Court clarified that the court’s intervention should be sparingly used and that “the court must be compelled that a strong case has been made out that the arbitral award conflicts with the public policy of Malaysia”. Our Federal Court in the said case appears to have held the importance of public policy in favour of enforcement at a high standard, so as to promote the finality and sanctity of arbitration awards.