Update On Illegality In International Arbitration: RBRG Trading v Sinocore International

Our earlier blog post discussed the role of arbitrators and counsel when allegations of illegality and corruption are made in the course of international arbitration. A recent case in the England and Wales Court of Appeal, RBRG Trading v Sinocore International1 ("RBRG Trading"), reinforced the high standard for challenging a New York Convention arbitration award and outlined principles to consider in determining whether an award can be enforced where issues of illegality in the underlying claim are raised.

Background

RBRG Trading involved a sale contract between Sinocore international ("Sinocore") and RBRG Trading ("RBRG"). The contract provided that payment would be made by a letter of credit and any disputes would be determined by CIETAC arbitration under Chinese law. On RBRG's instructions, Rabobank issued a letter of credit. The parties later amended the sale contract to include an inspection clause and Rabobank purported to issue an amendment to the letter of credit. After shipping the goods, Sinocore requested payment and presented forged bills of lading supposedly to comply with the amended letter of credit.2

RBRG was granted an injunction preventing Rabobank from making payment. Sinocore terminated the contract due to RBRG's failure to make payment. RBRG commenced CIETAC arbitration proceedings, seeking damages arising from Sinocore's breach of the inspection clause in the sale contract.3

Case History

The oral hearings took place in the CIETAC tribunal (the "Tribunal") in 2013. The Tribunal found that RBRG breached the sale contract. RBRG's application to the Chinese court to have the award set aside was dismissed. Sinocore applied to enforce the award in England and an order was granted under section 101(2) of the Arbitration Act 1996, c 23 per the New York Convention.4

RBRG applied to have that order set aside on the ground that Sinocore's claim was based on its own fraud and enforcement would be contrary to public policy. Section 103 of the Arbitration Act provides that enforcement of an award may be refused "if it would be contrary to public policy to recognise or enforce the award".

After an oral hearing in the High Court of England and Wales, Justice Phillips dismissed RBRG's application and upheld enforcement of the award, holding that the breach of contract occurred before the forgery of the bills.5 Justice Phillips rejected RBRG's argument that fraud 'taints' the award to the extent that it should not be enforced, as this...