BEIJING JIANLONG HEAVY INDUSTRY GROUP V GOLDEN OCEAN GROUP LTD AND OTHERS

[2013] EWHC 1063 (Comm), Queen's Bench Division, Commercial Court, His Honour Judge Mackie QC, 1 May 2013

Arbitration - Validity of arbitration clause - Guarantees allegedly illegal under Chinese law - Disputes to be arbitrated in England - Public policy - Arbitration Act 1996, sections 7 and 67

The assumed facts in five arbitrations were that a Chinese company, Jianlong, had guaranteed the performance of five charterparties by its subsidiary, and that the guarantees were illegal under Chinese law because they provided for payment to non-Chinese companies and thus required the consent of the Chinese State Administration of Foreign Exchange. Such consent had not been obtained. The guarantees were subject to English law and English arbitration. The arbitrators ruled that they had jurisdiction to determine the dispute. The question before the arbitrators was whether the English rule of public policy that a contract would not be enforced if it provided for an illegal act to be performed in a foreign friendly country extended to the arbitration clause. The court upheld the awards. An arbitration clause was a distinct undertaking and there was nothing in English public policy which precluded the enforcement of an arbitration clause even though the underlying issue was illegality.