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Lloyd's Maritime and Commercial Law Quarterly

The enforcement of foreign arbitral awards based on illegal contracts

Nelson Enonchong *

1. INTRODUCTION

It is well-known that the English court, like other national courts, “exercises control over the enforcement of arbitral awards as part of the lex fori, whatever the proper law of the arbitration agreement or the place where the arbitration is conducted”.1 It is also clear that part of this judicial control is the power to refuse to enforce a foreign award where enforcement would be contrary to English public policy.2 A foreign award, it has been said, “will not be enforced by an English court if enforcement would be contrary to the public policy of this country”.3 One situation where enforcement would be contrary to English public policy is where the award is based on an illegal contract.4 The parties to an illegal contract, it has been proclaimed, “cannot by procuring an arbitration conceal that they, or rather one of them, is seeking to enforce an illegal contract. Public policy will not allow it”.5 Illegality in the underlying contract is therefore a ground on which the English courts may rely to refuse to enforce a foreign arbitration award. But it is not in every case where there is illegality that the enforcement of a foreign award will be refused. The difficulty is in determining when illegality will defeat enforcement and when it will not. As will be shown presently, much of the law on this subject now turns on a distinction which, in Westacre Investments Inc. v. Jugoimport-SPDR Ltd, 6 the Court of Appeal made between two classes of illegality (one universal, the other purely domestic).

* Reader in Law, University of Leicester.
1. Soleimany v. Soleimany [1999] Q.B. 785, 798. National courts in other jurisdictions exercise a similar control. In France, for example, an international award may be refused enforcement on the grounds listed in Art. 1502 of the Nouveau Code de Procédure Civile or New Code of Civil Procedure (NCPC): Soc. Intrafor Cofor v. Gagnat, D. 1985. IR. 467, note Julien. And an award given in France in an international arbitration can, according to NCPC, Art. 1504, be set aside on the grounds listed in NCPC, Art 1502: Soc. Thinet et Cie v. Labrely, D. 1989. 577, note Robert; Soc. Courèges Design v. Soc. André Courèges, D. 1990. IR 116.
2. E.g., Arbitration Act 1996, s. 103(3); Arbitration Act 1950, s. 37(1). In France the public policy power is available in NCPC, Art. 1502(5). See, e.g., Soc. des Grands Moulins de Strasbourg v. Soc. anon. Compagnie Continentale France, D. 1989. 577, note Robert; Communauté urbaine de Casablanca v. Société Degremont 1994 Rev. Crit. 680, note Cohen; Société Dubois et Vanderwallw v. Société Boots Frites (1996) Rev. arb. 100, note Hory.
3. Soleimany v. Soleimany [1999] Q.B. 785, 799. See also Hamlyn & Co. v. Talisker Distillery [1894] A.C. 202, 209, 214; London Export Corporation Ltd v. Jubilee Coffee Roasting Co. Ltd [1958] 1 W.L.R. 271, 277. And see, J.Harris and F.Meisel, “Public Policy and the Enforcement of International Arbitration Awards: Controlling the Unruly Horse” [1998] LMCLQ 568.
4. E.g., Dalmia Dairy Industries Ltd v. National Bank of Pakistan [1978] 2 Lloyd’s Rep. 223 (where however the defence failed because there was found to be no illegality in the place of performance); Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v. R’As al-Khaimah National Oil Co. [1990] 1 A.C. 295, 316.
5. Soleimany v. Soleimany [1998] 3 W.L.R. 811, 824. This should occasion no surprise since English public policy is in general opposed to the enforcement of contracts involving illegality: see Enonchong, Illegal Transactions (1998), Chap. 2.
6. [2000] Q.B. 288.

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