English Commercial Court confirms tribunal enjoys jurisdiction to consider matters of bribery and corruption in the context of arbitral proceedings

by Nicholas Queree (Peters & Peters Solicitors LLP, London)

In what circumstances will an arbitral tribunal enjoy a jurisdiction to determine whether a party to an agreement has committed an act of criminal wrongdoing arising out of or in connection with that agreement? That was the issue the English Commercial Court was called upon to consider in the recent case of Interprods Limited v De La Rue International Limited [2014] EHWC 68 (Comm.). Holding that such matters will fall within a tribunal’s jurisdiction save where expressly excluded from any arbitration agreement, the High Court has, once again, demonstrated its willingness to promote and protect the efficacy and integrity of the arbitral process.

Background

The Applicant, Interprods Limited (“Interprods”), is a Nigerian company. For many years Interprods acted as the Nigerian agent and distributor for the Respondent, De La Rue International Limited (“De La Rue”), the well-known bank note manufacturer. Their relationship was governed by two separate agreements, the Currency Agency Agreement and the Cash Processing Solutions Agreement (the “Agency Agreements”).

The Agency Agreements each contained arbitration clauses, in both cases at clause 25. These provided as follows:

Any dispute arising out of [or] in connection with this contract, including any question regarding its existence, validity or termination, shall in the first instance be referred to mediation. Should mediation fail, the matter will be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause”.

A dispute between the parties arose following a meeting of their respective representatives.  During that meeting a senior employee of Interprods was alleged to have said that the commission paid to it would be used to bribe and corrupt Nigerian officials. As a consequence, De La Rue terminated the Agency Agreements and began proceedings under the LCIA rules for a declaration that it was entitled to do so.

By way of an interim award (the “Award”), an arbitral tribunal (the “Tribunal”) found that (i) Interprods had admitted bribery or an intention to commit bribery and (ii) as a consequence, De La Rue was entitled to terminate the Agency Agreementsand withhold any further sums payable to Interprods pursuant to those agreements.

Interprods’ challenge in the Commercial Court

Interprods sought to challenge the Award on two bases:

(i)          Firstly, as discussed below, by arguing that the Tribunal lacked jurisdiction to make the Award, offending section 67 of the 1996 Arbitration Act; and,

(ii)         Secondly, that there had been “serious irregularities” in the making of the Award, offending section 68 of the 1996 Act. Interprods complained that the arbitrator’s decision to hold a telephone hearing was unfair; that his acting as arbitrator in other matters where parties were represented by De La Rue’s lawyers called his impartiality into question; and, that the arbitrator failed to challenge De La Rue’s witnesses of fact or give sufficient weight to Interprods’.

The Judge, Teare J, rejected each of these complaints.

The substance of Interprods’ argument on section 67 was that clause 25 should not be construed as extending to matters of serious criminal conduct, and that the parties could not have intended such matters to be within the scope of arbitration.

Teare J rejected that argument, noting that:

Illegality in the performance of a contractual obligation is often alleged to be a reason why a contract cannot be enforced. It would seriously restrict the ambit of arbitration clauses phrased in terms such as clause 25 of the agency agreements were the allegation of criminal conduct to be sufficient to deprive the arbitral tribunal of jurisdiction to determine the contractual rights and obligations in the light of that criminal conduct”.

Guided by the decision of the House of Lords in Fiona Trust and Holding Corporation and others v Privalov and others [2007] UKHL 40, Teare J held that express words would be required to show that contractual disputes which are dependent upon an assertion of criminal conduct are to be excluded from the jurisdiction of an arbitral tribunal. No such wording could be found in clause 25. As a result, it would be assumed that when entering into the Agency Agreements, the parties had intended for matters of serious criminal conduct meaning that the Tribunal did enjoy jurisdiction to make the Award.

Comment

Allegations of bribery and other serious criminal conduct may often feature in commercial disputes. Interprods’ submission that arbitration agreements must expressly include jurisdiction over such controversies would act to undermine what must be the common intention of the parties at the time that such agreements are signed – that they are to be an effective mechanism for determining any and all matters of dispute that arise in connection with the validity and / or performance of an arbitration agreement.

Interesting issues may arise in the event that the parties do intend to exclude such matters from the scope of any arbitration agreement. Careful drafting will be required, with greater specificity than bare references to “serious criminal conduct”. Parties will want to carefully consider what conduct does or does not merit adjudication by a tribunal, along with any jurisdictional issues. This is particularly so in the context of bribery and corruption offences, where as is well known both the US Foreign Corrupt Practices Act and the UK’s Bribery Act 2010 enjoy extra-territorial reach.