Arbitration and corruption – Honeywell International Middle East Limited v. Meydan Group LLC (formerly known as Meydan LLC), [2014] EWHC 1344 (TCC)

On 30 April 2014, the High Court of London dismissed an application to set aside an order previously given to enforce an award issued on 1 March  2012, under the rules of the Dubai International Arbitration Centre (“DIAC”), which awarded approximately £12.6 million to Honeywell, a diversified international technology company incorporated in Bermuda, against Meydan, also known as the “Meydan Racecourse” in Dubai.

On 7 June 2009, Meydan entered into a contract with Honeywell, for the supply and installation of an extra low-voltage (“ELV”) system at the Meydan Racecourse, which contained an arbitration agreement under the Rules of Commercial Conciliation and Arbitration 1994 of the DIAC in Dubai.

On 15 July 2010, Honeywell initiated arbitration proceedings against Meydan to recover payments due under the Contract for completed works as well as materials on site.

Meydan voluntarily refused to participate to this arbitration procedure which ended on 1 March 2012 with an award condemning Meydan.

This award was recognized and its enforcement was ordered by the High Court Order on 22 November 2012 (“the Order”). Meydan then filed an application to set aside this Order, contending that the Contract had been procured by the claimant bribing public servants in Dubai, which invalidated the Contract and the arbitration agreement.

Even though Meydan decided not to participate in the arbitration proceedings and thus did not raise the bribery allegation in that arbitration, the High Court of London found that “it is clear that the relevant evidence of bribery was available to MEYDAN at the time of arbitration”. Accordingly, the High Court of London concluded, inter alia, that there is no ground for refusing recognition or enforcement of the award. The Order granting enforcement was therefore confirmed on 30 April, 2014.

The High Court based its decision on the ground that “the condition to be fulfilled before a party can rely on evidence of fraud in an application to set aside leave to enforce an award will be “that evidence to establish the fraud was not available to the party alleging fraud at the time of the hearing before the arbitrators”, under the United Arab Emirates (UAE) law which apply to a DIAC arbitration. This position adopted by the English Court is conform to international practice, prohibiting the parties to raise new allegation to seek for the annulment of an award, where they had the opportunity to raise it during arbitration. Otherwise, they are deemed to have renounced to raise the allegation.

In addition, the High Court, approving Honeywell’s submission, considered that even if the allegation of bribery had been made and the bribery had in some way affected the Contract entered into directly between Meydan and Honeywell, it would not have any effect on the arbitration agreement, according to the principle of separability.

This decision gives the opportunity to remind the French principles regarding arbitration and corruption: under French Law, even though arbitrators do not have the authority to order criminal sanctions since criminal law is non-arbitrable, they have the authority to pronounce civil sanction against the author of a bribe. Thus, the Ganz decision of 29 March 1991 stated that “in international matters, the arbitrator (…) has the power to apply principles and rules pertaining to [international public policy], as well as to santion their breach, if any, under the control of the judge of annulation, and to decide that the contract is nul and void” (Paris Court of Appeal, 29 March 1991, Sté Ganz et a. c/ Sté nationale des Chemins de fer tunisiens, n°1991-022709). This position is in line with the High Court’s decision, which regcognized the power of the arbitral tribunal to deal with corruption but reminded that arguments relating to corruption are to be discussed as soon as the parties are aware of the event characterized as corruption. Therefore, the High Court could have considered that Meydan should have participated to the arbitration proceedings to raise the bribery issue, instead of remaining silent.

When confronted with corruption, arbitrators have the authority to order compensation, declare the contract obtained by corruption null and void or even refuse to give effects to bribery practices. It is indeed of the arbitrators’ duty to enforce fully international public policy. Scholars declare that there has been a “raise of awareness as to the importance to apply and respect public policy rules” and that it is now “frequent for arbitrators to sanction (or refuse to give effect to) corruption practices severly” (J.B. Racine, « L’arbitre face aux pratiques illicites du commerce international », LPA, 08/10/2010, n°201, p. 8 et seq.). In this case, it would have been difficult for the High Court to be more severe since in order to sanction an act of corruption, it would have been obliged to annul the award whereas the party requesting the annulment refused to take part to the arbitration proceedings.

The question remains, however, as to how arbitrators find evidence of bribery. In order for the arbitral tribunal to have the power to sanction bribery, Article 1467 of French Code of Civil Procedure provides that it may enjoin a party to produce an item of evidence and attach daily penalties to such injunction. However, arbitral tribunals’ powers are more limited regarding third parties, even though the 2011 arbitration reform granted the arbitrators new powers in that respect: Article 1469 of the French Code of Civil Procedure now provides that the party seeking to obtain evidence held by a third party may, upon leave of the tribunal, have the third party summoned before the supporting judge (“juge d’appui”) to obtain such item of evidence. Therefore, even if the trend in arbitration is to be more and more severe regarding corruption, the parties are to raise an allegation of corruption as soon as they have knowledge of the act in itself.  The arbitrators, in turn, are to use to their best the legal tools at their disposal to sanction such practices.

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