Enforcement of Foreign Arbitration Award Not Necessarily Precluded if Underlying Contract Illegal and Void.

Westacre Investments Inc v Jugoimport - SDPR Holding Co Ltd and Others (QBD (Comm Ct)),Int. A.L.R. 1998 N54, NLD 22nd December 1997, [1997] AllER (D) 138, [1998] 2 Lloyd’s Rep 111

Commentary

In the present case the question was one of balancing the competing policy interests of sustaining final arbitration awards and discouraging corruption. What appears to have swayed the court’s opinion in the present case may be the fact that the illegality issue was raised before and considered by the arbitrators who found that the contract was not invalid under Swiss law, the governing law of the contract. The case was decided under Section 5 of the Arbitration Act 1975 but the same considerations will most likely continue to apply under Section 103 of the Arbitration Act 1996.

Decision

The Court found that the question, whether the illegality of the underlying contract also invalidated the agreement to arbitrate, had to be decided on a case by case basis. The court would consider whether the arbitrators had jurisdiction to decide the issue of illegality. If the illegality issue fell within the arbitrators’ jurisdiction and the arbitrators ruled in their award that the underlying contract was not illegal then the English courts would prima facie enforce the award. If however the award was challenged on the ground of illegality on the basis of new material which was not previously before the arbitrators then the court would have to balance the competing public policy considerations in favour of enforcing arbitration awards and against enforcing illegal contracts.

Background

The Plaintiff applied for leave to enforce an ICC award. The defendants argued that enforcement would be contrary to English public policy because performance of the underlying consultancy agreement was illegal under the laws of Kuwait. The arbitrators determined that the contract was governed by Swiss law, according to which it was not invalid.

For further information on this topic please contact Neil Aitken,
Charles Spragge or Gregor Kleinknecht at CMS Cameron McKenna
by telephone (+44 171 367 3000) or by fax (+44 171 367 2000) or
by e-mail ([email protected] or [email protected] or [email protected]).