QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| National Iranian Oil Company
|- and -
|(1) Crescent Petroleum Company International Ltd
(2) Crescent Gas Corporation Ltd
Gordon Pollock QC, Salim Moollan QC & Emily Wood (instructed by Hogan Lovells International LLP) for the Defendants
Hearing dates: 23/24/25 February 2016
Crown Copyright ©
Mr Justice Burton:
"22.1 Governing Law
This Contract shall be governed by and interpreted in accordance with the Laws of Islamic Republic of Iran.
The Parties shall use all reasonable efforts to settle amicably within 60 days, through negotiations, any dispute arising out of or in connection with this Contract or the breach, termination or invalidity thereof. Any dispute, controversy or claim arising out of or relating to this Contract, or the breach, termination or validity or invalidity thereof shall be finally settled by arbitration before three arbitrators, in accordance with a "Procedures for Arbitration" (attached hereto as Annex 2) which will survive the termination or suspension of this Contract. Any award of the arbitrators shall be final and binding upon the Parties. Either Party may seek execution of the award in any court having jurisdiction over the Party against whom execution is sought."
"16.1 Neither Party shall, without obtaining the prior written consent of the other, be entitled to assign this Contract or any rights and obligations hereunder to any other party, which consent in case of a subsidiary of a Party (an entity of which a Party owns or controls, directly or indirectly, majority of the voting rights) shall not be unreasonably withheld."
(1) Is the issue of separability of the arbitration clause governed by English Law?
(2) If yes, is the arbitration clause separable and unaffected by the corruption alleged?
(3) If the issue of separability is governed by Iranian Law, Iranian Law being the law of the GSPC, does it apply?
(4) If separability does not apply, then, Iranian Law being the law of the GSPC, is the result of the corruption alleged such as to render the contract void or ineffective at Iranian Law?
(5) Was consent to assignment obtained (within the meaning of Article 16.1, set out above)?
(6) If not, is the Iranian Law concept of lazarar available so as to deem consent to have been obtained?
(7) Is it unarguable that the Award is unenforceable at English Law by virtue of s.68(2)(g) of the 1996 Act, as contrary to English public policy?
Issues (1) and (2): separability
"Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement."
(i) S.2 (5) which provides that "Section 7 (separability of arbitration agreement)… [applies] where the law applicable to the arbitration agreement is the law of England and Wales… even if the seat of the arbitration is outside England and Wales... or has not been designated or determined".
(ii) S.4 (5), which provides "The choice of a law other than the law of England and Wales... as the applicable law in respect of a matter provided for by a non-mandatory provision of the Part is equivalent to an agreement making provision about that matter."
"That is reinforced by the terms of section 4 (5) of the Act, which refers not to a choice of law clause generally but to a choice of law as "the applicable law in respect of a matter provided for by a non-mandatory provision of this part" of the Act. In other words there has to be a choice of law with regard to the specific provision of the Act which the parties agree is not to apply."
(i) The parties have agreed (in the first two sentences) that a dispute as to the invalidity of the Contract is to be first settled amicably, and if not then by arbitration. That plainly vests the decision as to whether the GSPC is valid or invalid in the Arbitrators – a clear confirmation of separability.
(ii) The end of the second sentence refers to the fact that the arbitration "will survive termination or suspension" of the GSPC. Ms Dohmann submits that that means that it does not survive its invalidity. Mr Pollock submits that this would be inconsistent with (i) above and that the words are simply intended for the avoidance of doubt, in particular circumstances which might arise.
Issue (5): Assignment
"398. … there is direct evidence of the existence of a formal NIOC Board resolution authorising the assignment of the GSPC to Crescent Gas expressed, as emerged in the course of proceedings, as a statement of fact in the Verdict of the Tehran Court, which identifies both the resolution's date, being 26 July 2003, and its identifying number, namely 1383/242-23503. The Tribunal accepts this reference as constituting an explicit reference by the Tehran Court to a written document evidencing approval and consent to the assignment at the decision-making level of the Board.
399. While the issue of whether there had been such a formal minuted resolution remained wholly within its knowledge, NIOC elected during the hearings to bring forward no evidence, nor to admit or deny the existence of the resolution. The Tribunal contrasts NIOC's specific denial of the existence of any resolution approving the use of the Riser Platform as a Delivery Point.
400. As NIOC has led no evidence in denial of the fact of this minuted resolution being agreed by the Board, in the circumstances, the Tribunal accepts and relies upon the Tehran Court's statement as to the existence of such written consent as, in effect, a formal admission by NIOC as to this fact.
401. At the least, the maintained equivocation as to the existence of the Board resolution was inappropriately evasive.
403. … Article 16.1 merely requires that Crescent "obtain" NIOC's "prior written consent." It does not require that Crescent should obtain by delivery a copy of the resolution of approval to constitute such written consent. If suffices for compliance that NIOC's consent has been constituted by the decision of the Board, and the written evidence of this consent is the minuted resolution described above. The consent was sufficiently "obtained" when that resolution was passed and minuted. Subsequent written communication to the other party is not required before such consent may be characterised as having been obtained by Crescent.
406. Finding. The Tribunal finds that prior written consent of NIOC to the assignment of the GSPC from Crescent Petroleum to Crescent Gas was obtained within the terms of Article 16.1 of the GSPC by NIOC's minuted resolution of 26 July 2003, number 1383/242-23503, and that the assignment was effective from that date."
"WHEREAS NIOC is prepared to permit [Crescent Gas] to become a party to the Contract, only if and subject to [Crescent Petroleum] agreement to guarantee the obligations of [Crescent Gas] under the Contract as provided herein, and
WHEREAS [Crescent Petroleum] is willing and financially and technically guarantees the obligations and responsibilities of [Crescent Gas] under the Contract, subject to the terms and conditions set forth therein. "
In his skeleton argument, Mr Pollock referred to this as being similar to the recital of a condition subsequent, but he did not pursue that analogy before me. He submitted that it was simply the recital, in one and the same document, of the consent of NIOC and the provision of the guarantee which the Claimant had required.
Issue 7: English Public Policy.
"1105. No alleged corrupt contractual arrangements between Crescent and Mr Hashemi were ultimately executed. There is evidence that Mr Hashemi eventually became hostile to Crescent. There is no evidence that would allow the Tribunal to surmise the effect that the agreement to pay confidential third-party fees may have had on the GSPC. There is no direct evidence of any corrupt arrangements involving Mr Rahgozar in the lead up to the conclusion of the GSPC. Perhaps more importantly, the Tribunal, as explained in Chapter X11.B above, has been unable to make a finding that the GSPC was imbalanced in a way that would show that it must been procured through corruption.
1106. The Tribunal recognises that corruption is difficult to prove. As stated in paragraph 658 above, direct evidence is rare and a finding of corruption may have to be made through inference from circumstantial evidence. The Tribunal has found the matter of whether the GSPC was obtained through corruption difficult to decide. And yet decide it must.
1107. Ultimately, the decisive factor for the Tribunal is that in the extensive record of this case, there is no indication that the individuals holding decision-making power with respect to the adoption of the GSPC, i.e., the members of the NIOC Board, were either corrupt or influenced by any corrupt arrangements. From the information in the record, it appears that the Board considered the draft GSPC attentively and with the interests of NIOC (and Iran) in mind. In the winter of 2000-2001, the NIOC Board was called upon to consider Crescent's proposals of a draft GSPC twice..... Both times, the Board rejected Crescent's proposals. In the finally agreed GSPC, signed on 25 April 2001… the base price… was 30 per cent higher than that which had been set out in the draft GSPC initialled by Messrs Jafar and Hashemi on 31 January 2000.
1108. Crescent formulates its argument in the following terms:
.… It would be fair to suggest that anything which Mr Hashemi and his team did was to be regarded as a preliminary, which received the Minister's approval in principle for the concept of a 25 year gas sale to the UAE but which was entirely subject to a final consideration by the Minister and the Board as regards the essential terms. In this context the idea that the Minister and the Board were mere ciphers who were duped by Mr Hashemi, or that Mr Hashemi had in some way tied the hands of either Mr Rahgozar, the Minister or the Board is simply fanciful.
1109. The Tribunal agrees.
1110. As has been noted in paragraph 952 above, NIOC has not provided the Tribunal with a record of Board proceedings or agenda papers. Yet these documents must exist. Article 34 of the NIOC Statute provides for the holding of minutes of Board meeting, to be signed by all the members present. NIOC has also failed to provide the Tribunal with a record of key meetings between Crescent and Minister Zanganeh. While Mr Etesami claimed to have seen a note of the March 2001 meeting with the Minister, NIOC has not found it necessary to produce this document.
1111. Given NIOC has chosen not to put such documents before this Tribunal, the Tribunal must infer that they would not have assisted NIOC in demonstrating that the approval of the GSPC by the NIOC Board was obtained through corruption.
1112. NIOC has thus not been able to demonstrate the causal link between any corrupt arrangements that may have been contemplated or entered into by Crescent in connection with the GDSPC and the finally agreed terms of the GSPC, as approved by the NIOC Board."
(i) The GSPC itself was not an illegal contract (such as those, for example, in Kaufman v. Gerson  1KB 591, Lemenda Trading Co. Ltd v. African Middle East Petroleum Ltd  QB 448 or Soleimany v. Soleimany  QB 785).
(ii) The GSPC was not procured by corruption.
(iii) There was misconduct by a number of named persons, but the Arbitrators did not conclude that any of it was of any material consequence in respect of the GSPC subsequently entered into.
(iv) The GSPC has not yet been terminated (by either side), although no gas had been supplied since a trial delivery in 2010. The Arbitrators recorded, at paragraph 1334 of the Award, that "each Party [has] spent many hundreds of millions of dollars on pipeline and infrastructure costs in continuing performance of contractual obligations for upwards of nine years to the trial delivery of gas in 2010".
(v) The Claimant was in breach of the GSPC.
"even if Meydan's allegations of bribery were established, they would not, as a matter of English law, result in enforcement being contrary to public policy. It submits there is no principle of English law to the effect that it is contrary to English public policy to enforce a contract which has been procured by bribery. It submits that the distinction must be drawn between the enforcement of contracts to commit fraud or bribery and contracts which are procured by bribery. It says that whilst contracts to commit bribery are contrary to public policy and will not be enforced, contracts which have been procured by bribery would be rendered voidable by English law, provided that counter-restitution can be made. Honeywell relies on the decision in the decision in Wilson v. Hurstanger… thus, as a matter of English law public policy, the courts will enforce a contract procured by bribery subject to the innocent party having, in the appropriate circumstances, a right to avoid the contract."
"185. It follows that, whilst bribery is clearly contrary to English public policy and contracts to bribe are unenforceable, as a matter of English public policy, contracts which had been procured by bribes are not unenforceable."
Mr Pollock submits that there is nothing whatever here to cause the Court to go behind the detailed reasoning and conclusions of these Arbitrators.
"It is of crucial importance to evaluate, both the majority decision in the arbitration and the ruling of the Swiss Federal Tribunal, Swiss Law being both the proper law of the contract and the crucial law of the arbitration and Switzerland, like the United Kingdom, being a party of the New York Convention. From the award itself it is clear that bribery was a central issue. The allegation was made, entertained and rejected. Had it not been rejected the claim would have failed, Swiss and English public policy being indistinguishable in this respect. Authority apart, in those circumstances and without fresh evidence I would have thought that there could be no justification for refusing to enforce the award.
However, in the obiter passage cited by Waller LJ from the judgment in Soleimany v. Soleimany  QB 785, 800, it seems to have been suggested that some kind of preliminary inquiry short of a full scale trial should be embarked upon whenever "there is prima facie evidence from one side that the award is based on an illegal contract…" For my part I have some difficulty with the concept and even greater concerns about its application in practise, but, for the moment and uncritically accepting the guidelines offered, it seems to me that any such preliminary inquiry in the circumstances of the present case must inevitably lead to the same conclusion, namely, that the attempt to reopen the facts should be rebuffed. I so conclude by reference to the criteria given by way of example in Soleimany v. Soleimany itself. First, there was evidence before the tribunal that this was a straightforward, commercial contract. Secondly, the arbitrators specifically found that the underlying contract was not illegal. Thirdly, there is nothing to suggest incompetence on the part of the arbitrators. Finally, there is no reason to suspect collusion or bad faith in the obtaining of the award. The seriousness of the alleged illegality to which Waller LJ gives weight is not, in my judgment, a factor to be considered at the stage of deciding whether or not to mount a full-scale inquiry. It is something to be taken into account as part of the balancing exercise between the competing public policy considerations of finality and illegality which can only be performed in response to the second question, if it arises, namely, should the award be enforced?
(1) English public policy applies so as to lead a court to refuse to enforce an illegal contract, even if not illegal at relevant foreign law, such as a contract to pay a bribe. The contract cannot be enforced because ex turpi causa haud oritur actio: out of a disgraceful cause an action cannot arise. The supply contract enforced by the Arbitrators was not and is not suggested to be an illegal contract, and the action to enforce it does not arise out of a disgraceful cause.
(2) There is no English public policy requiring a court to refuse to enforce a contract procured by bribery. A court might decide to enforce the contract at the instance of one of the parties. It is not that the contract is unenforceable by reason of public policy, but that the public policy impact would not relate to the contract but to the conduct of one party or the other.
(3) There is certainly no English public policy to refuse to enforce a contract which has been preceded, and is unaffected, by a failed attempt to bribe, on the basis that such contract, or one or more of the parties to it, have allegedly been tainted by the precedent conduct. The siren call of Ms Dohmann, referring to recent international Conventions to outlaw bribery, and the increase of legislation to criminalise it, is attractive. But to introduce a concept of tainting of an otherwise legal contract would create uncertainty, and in any event wholly undermines party autonomy. There may be many contracts which have been preceded by undesirable conduct on one side or other or both – lies, fraud, threats and worse – but the Court would not interfere with a contract entered into by such parties, even if one or more of those parties had committed criminal acts for which they could be prosecuted, unless the contract itself was illegal and unenforceable, or one or more of the acts of such parties induced the contract, in which case it might be voidable at the instance of an innocent party so induced.
(4) In any event, in this case, the conclusion to which the Arbitrators came was that the GSPC was not procured by bribery, after full consideration and evidence. The English Court should not interfere with the Arbitrators' decision under s.68, or s.103, without fresh evidence of which there is none, or save in very exceptional circumstances, of which there are none (Westacre at 316-7).