When there’s smoke but no fire: English court rejects defence based on “indicia” of corruption

In Alexander Brothers Ltd (Hong Kong SAR) v Alstom Transport SA and another, Cockerill J, sitting in the English Commercial Court, upheld an order granting enforcement of an ICC award. The respondent, Alstom, had argued unsuccessfully that enforcement of the award would be contrary to public policy, since there were “indicia” of corruption in the performance of the underlying contracts and any sums paid under the award might go to finance bribery.

Notably, the English Commercial Court reached the opposite conclusion to the Paris Court of Appeal in the same case, which had instead denied enforcement on public policy grounds. The most recent judgment contains salutary lessons for cases in which one party raises a defence based on alleged corruption.

The arbitration and challenge in Switzerland

The dispute arose out of a series of consultancy agreements which Alstom had signed with Alexander Brothers Ltd (ABL), a small Hong Kong-based company run by a former Alstom employee, to assist Alstom in tendering for, and performing, various railway concessions in China. Alstom was successful in the tenders but made only partial payment to ABL under the consultancy agreements. It froze the remaining payments as a result of investigations by the UK Serious Fraud Office (SFO) and the US Department of Justice in 2009-2010 into corrupt payments. These investigations resulted in the Alstom group paying around US $800 million in fines and costs.

ABL sued for the remaining consultancy fees, amounting to EUR €2,975,480 plus interest. The consultancy agreements provided for ICC arbitration in Geneva applying Swiss law. In the arbitration, Alstom argued that it had grounds to suspect corruption by ABL (essentially, “red flags”) which ABL had failed to dispel. Alstom argued that it could not make the remaining payments until they had been cleared by the SFO, although it did not argue that the consultancy agreements were invalid as such. The tribunal rejected Alstom’s defence and ordered payment of the outstanding invoices. The tribunal also briefly considered the validity of the contracts, applying the principle jura novit curia. It concluded that any circumstantial evidence of corruption did not meet the high standard of proof (“clear and convincing evidence”) to prove these allegations under Swiss law.

Alstom then sought to set aside the award in Switzerland. However, the Swiss Federal Court (Bundesgericht) rejected the application, holding that the tribunal had rejected the corruption allegations and that the court had no authority to review the arbitrators’ decision on the merits.

Enforcement refused in France…

ABL was initially successful in enforcing the award, but Alstom appealed. In April 2018, the Paris Court of Appeal (Cour d’Appel) invited further submissions and evidence on whether there was a corrupt agreement (contrat de corruption) which, it held, could result from indirect evidence of corruption.

In a further judgment dated May 2019, the court concluded that there were “serious, precise and consistent” indications that ABL had bribed Chinese public officials. It acknowledged that it was impossible to identify precisely any corrupt acts, but pointed to circumstances such as the apparent discrepancy between the value of the payments and the services apparently rendered, excessive expenditure on entertainment, and the conviction of several Chinese officials for accepting bribes in relation to other contracts. The Court of Appeal therefore refused enforcement on the grounds that enforcing the award would be contrary to international public policy, since it would mean ordering Alstom to pay sums intended to “finance or remunerate acts of corruption”.

ABL’s appeal to the Cour de Cassation is currently pending.

… but granted in England

Meanwhile, Teare J granted a without notice application by ABL to enforce the award in England. Alstom sued to set aside this order, again alleging that recognition and enforcement would be contrary to public policy. In a judgment on 18 June 2020, however, and in contrast to the Paris Court of Appeal, Cockerill J upheld the order granting enforcement.

Notably, Cockerill J held that the corruption issue (as it was framed in the English proceedings) had not already been decided by the tribunal. It was true that, where the tribunal had examined and rejected allegations of corruption, a court would only revisit those findings of fact in “special circumstances”. In this case, however, the tribunal (and the Swiss Federal Court) had not made any detailed evaluation on the facts, having held that Alstom could not come close to meeting the high standard of proof under Swiss law. Since the English court was applying a different standard of proof (the balance of probabilities), it was not bound by the tribunal’s findings.

Similarly, the proceedings before the Paris Court of Appeal did not give rise to an issue estoppel. Rather than making a determination on the facts on whether bribery had occurred, the court had instead considered whether enforcement of the award (given the “indicia” of bribery) would undermine the public policy objective of combating corruption. This was a different issue to the one before the English Commercial Court, especially since “public policy” interests will vary between countries.

Nevertheless, the respondent could not invoke the alleged “indicia” of corruption as grounds to refuse enforcement. Cockerill J observed that, in the arbitration, Alstom had made only a “tacit” corruption defence rather than an “overt and positive case of bribery”. It did not argue that ABL had actually paid bribes, even though this argument was open to it. It was therefore an abuse of process for Alstom to raise this defence at the enforcement stage: applying the rule in Henderson v Henderson, Alstom “could and should” have made this argument earlier. In any event, the grounds for suspicion raised by Alstom (such as the use of an offshore company by ABL, or ABL’s other contracts with a state-owned company) could be explained by reasons other than corruption and did not add up to strong evidence of bribery.

Practical consequences in corruption cases

The case touches upon well-known issues, such as corruption, consultancy agreements and “red flags”, which arise repeatedly in arbitration and enforcement proceedings. As such, the judgment contains some lessons for practitioners in cases involving allegations of corruption.

First, a respondent which intends to raise corruption as a defence should do so directly, at an early stage. One can imagine why a company in Alstom’s position might shy away from arguing explicitly that its local agent paid bribes; quite apart from the reputational damage, it is often difficult to obtain concrete evidence to support such claims. Nevertheless, failure to put these issues squarely before the tribunal may prevent a party from relying on them later at the enforcement stage.

Second, the divergent approaches of the Swiss and English courts, on the one hand, and the French court, on the other, show that there is no international consensus on national courts’ level of review when faced with corruption allegations. Recently, the French courts have moved towards a “red flag” approach, ruling that it would violate public policy to enforce an award where there are suspicious markers of corruption. This can be seen as a lowering of the standard of proof, or even a reversal of the evidentiary burden, putting the onus on claimants such as ABL to show the absence of corruption. Cockerill J’s judgment, however, confirms that this is not (yet) the case in English law and that the usual standard of proof applies.

Furthermore, the limits of the public policy exception can vary between states. English law would refuse to enforce an award arising out of a contract with a corrupt purpose, for example, a contract to bribe a public official. However, Cockerill J held that the respondent’s allegations, even if proven, amounted to a less serious form of “incidental bribery – not planned, not contracted for, not suspected”. In contrast to the Paris Court of Appeal, the court held that this was not enough to consider the bribery case anew. Different jurisdictions may also draw the line in different places between legitimate lobbying and illegitimate influence-peddling. This lack of consensus opens the door to forum-shopping. Claimants should therefore consider carefully where to start enforcement proceedings.

Finally, although ordering enforcement in this specific case, Cockerill J observed that public policy was not immutable. She noted that attitudes towards corruption have evolved in the 20 years since Westacre and “[i]t may be that the Court might now in some cases draw the line in a slightly different place.” Practitioners can be sure that the judgment will not be the last word on public policy and corruption.

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