23rd April 2018
On Monday 23rd April the Court of Appeal handed down their judgment in Sinocore v RBRG (UK) Ltd  EWCA Civ 838, dismissing the appeal of RBRG against the decision of Phillips J  EWHC 25614 (Comm) to permit enforcement of the CIETAC Award. The result is a resounding endorsement by the English Courts of the public policy in favour of the enforcement of international arbitral awards. Nick Vineall KC and Neil Henderson, instructed by HFW LLP, represented the successful Respondent, Sinocore.
Sinocore is a Chinese trading company. It agreed to sell rolled steel coils to RBRG, an English trading company. The sale contract contained a CIETAC arbitration clause which provided that any dispute would be governed by Chinese law, in Chinese and the venue of the arbitration would be Beijing. Payment was to be by an irrevocable letter of credit. The letter of credit was provided by Rabobank, a Dutch bank.
RBRG subsequently unilaterally amended the shipment date in letter of credit, without agreement from Sinocore. Forged bills of lading were then presented by Sinocore to comply with the amended shipment date. RBRG injuncted Rabobank to prevent it paying out under the letter of credit.
Sinocore terminated the contract. It sold the coils to a third party, below the contract price.
Sinocore subsequently sued Rabobank in Beijing, but that claim failed because the presentation to Rabobank was held by the Chinese Court to be fraudulent. Sinocore appealed that decision.
RBRG commenced a CIETAC arbitration claiming damages for breach of the inspection clause. Sinocore counterclaimed for the difference between the contract price and the price at which it had sold the steel coils based on RBRG’s breach of the sale contract because of its unilateral amendment of the letter of credit.
The CIETAC tribunal made its award. It held that RBRB was in breach of contract because it had amended the letter of credit without Sinocore’s consent. This breach (which predated the fraudulent presentation of the bills) caused the termination of the contract of sale and the subsequent losses. Importantly, the Tribunal expressly dealt with the effect of the presentation of the forged bills, holding that it was not a deception of RBRG.
Sinocore subsequently obtained a without notice order in the Commercial Court from Burton J for leave to enforce the Award under Section 101 of the Arbitration Act 1996.
RBRG applied to set aside that order. It did so on three grounds.
First, that Sinocore’s claim was in reality based on its fraudulent presentation of the forged bills of lading, because it was Rabobank’s (and therefore RBRG’s) failure to make a payment against those bills of lading which Sinocore had relied on as a repudiatory breach of the contract of sale. The real cause of Sinocore’s loss, it said, was Sinocore’s presentation of forged bills of lading.
Secondly, that the English Court should not assist Sinocore by enforcing the award because Sinocore had presented forged bills of lading in a fraudulent attempt to obtain payment from RBRG. In other words, that its fraudulent conduct ‘tainted’ the Award and disqualified Sinocore from being permitted to use the English courts for the purposes of its enforcement.
Thirdly, that there was a risk of Sinocore making a double-recovery and RBRG correspondingly having to pay twice – both under the Award and by way of an indemnity to Rabobank if Sinocore was successful in its appeal before the Chinese Courts.
Phillips J dismissed RBRG’s application to set aside enforcement, holding that there were no public policy grounds why the Award should not be enforced in England. He also accepted an undertaking from Sinocore to the effect that it would not make a double-recovery.
RBRG appealed to the Court of Appeal. In doing so it raised the new ground that Phillips J had failed to apply the approach to fraudulent behaviour identified by the Supreme Court in Patel v Mirza  UKSC 42. RBRG also asserted that the judge had been wrong to find that Sinocore’s claim was not ‘based on’ its own illegality, and that the Court should not have accepted the undertaking but should instead have required Sinocore to discontinue the appeal against Rabobank.
The Court of Appeal disagreed and dismissed the appeal on all four grounds advanced. Hamblen LJ gave the judgment of the Court. In doing so he identified the following guiding principles as to whether an award should not be enforced on public policy grounds:
By way of examples, an attempt to enforce an award based on a contract to smuggle or to bribe would be refused on public policy grounds, but an award based on a contract which was procured by bribery would not.Addressing the new ground of appeal, the Court held that Patel v Mirza does not affect the principles to be applied when considering recognition and enforcement under s.103, although the principles might overlap:
The decision is a welcome restatement of the English courts’ firmly pro-enforcement approach to international arbitral awards and the due respect that is to be given to the parties’ choice of dispute resolution forum and the decision of that tribunal. It also provides clarity on the very limited extent to which an English court may go behind a tribunal’s findings.
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