England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		23/02/2015

Mr. Justice Teare :

1. This is a case management application for the determination of preliminary issues in the context of an application to challenge an arbitration award pursuant to sections 67 and 68 of the Arbitration Act 1996. The first challenge is to the tribunal's jurisdiction and the second is based on there having been a serious irregularity affecting the tribunal, the proceedings or the award.
2. The claimants in the arbitration were Y and Z (collectively "Y & Z"). Y had made a Sale Contract ("the Contract") with X. Z is the assignee of Y. In the arbitration Y & Z claimed damages from X for X's failure to deliver any goods pursuant to the contract. X challenged the jurisdiction of the arbitration tribunal upon the principal ground that the Contract, including the arbitration clause, had been procured by bribes. The assignment to Z was also challenged. On the merits of the claims X advanced certain contractual defences.
3. An award on liability was issued by two of the arbitrators. The third arbitrator ("Dr. A"), dissented. The hearing, which had lasted some 30 days, had taken place during which the tribunal heard evidence from 12 witnesses of fact and 9 expert witnesses. After the end of the oral hearing the tribunal was provided with almost 1400 pages of written submissions. After deliberating for over a year the tribunal produced an award which ran to 362 pages and 1387 paragraphs.
4. The tribunal found in favour of Y & Z. It held that it had jurisdiction and declared that the Contract was valid and binding, that Z was party to the Contract by assignment and that X was in breach of its obligation to deliver goods. X's defences and counterclaims were dismissed. Damages are yet to be assessed.
5. The question of bribery and corruption in the formation of the Contract was considered by the tribunal between pages 238 and 291 and paragraphs 940 and 1112 of the award. The tribunal noted that X's case was based upon circumstantial evidence and that it had to consider whether the indicia of corruption had been proved and whether the indicia satisfied the Tribunal on the balance of probabilities that the approval of the Contract by X had been obtained through corruption (see paragraph 1068). The tribunal concluded (see paragraph 1107) as follows:

"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 [Contract], ie, the members of the [X] Board, were either corrupt or influenced by any corrupt arrangements. From the information in the record, it appears that the Board considered the draft [Contract] attentively and with the interests of X … in mind."

6. The tribunal then referred to the fact that X had not provided the tribunal with a record of board proceedings or agenda papers and concluded (see paragraph 1112):

"X has thus not been able to demonstrate the causal link between any corrupt arrangements that may have been contemplated or entered into by [Y & Z] in connection with the Contract and the finally agreed terms of the Contract, as approved by the X Board."

7. Although the Contract was governed by the Laws of the Islamic Republic of Iran, the seat of the arbitration was agreed to be London. So, following publication of the award, X issued an arbitration application in this court seeking a ruling, pursuant to section 67 of the Arbitration Act 1996, that the tribunal lacked jurisdiction.
8. The first ground on which jurisdiction is challenged is that the Contract and the arbitration agreement contained within it were procured by bribery and corruption and are therefore void. A jurisdictional challenge pursuant to section 67 is by way of re-hearing and so X's challenge involves a retrial of the issue of bribery and corruption.
9. The second ground upon which jurisdiction is challenged is that there was no valid assignment of the Contract to Z and accordingly the tribunal had no jurisdiction over that company's claim. Article 16.1 of the Contract provided that neither party shall, "without obtaining the prior written consent of the other", assign the Contract but where a party wished to assign the contract to a subsidiary the consent of the other part "shall not be unreasonably withheld". The tribunal held (see paragraph 398) that there was a resolution of X's Board authorising assignment of the Contract to Z (a subsidiary of Y) and, as a matter of construction (see paragraphs 403-406), that prior written consent of X to the assignment was "obtained" within the meaning of article 16.1. X seeks to challenge the tribunal's construction of article 16.1 (though not the finding that there was a board resolution). The tribunal further stated (see paragraphs 446-448) that if it had not held that "the written consent" requirement under article 16.1 had been fulfilled by the approval of X's Board on 26 July 2003 it would have held that X had withheld its consent unreasonably and had thus acted in breach of the Iranian law concept of lazarar or prohibition of abuse of right. The tribunal would have treated the written consent as having been given no later than about November 2003. X must therefore challenge not only the tribunal's construction of article 16.1 but also the tribunal's application of lazarar. It seeks to do so in several ways, one of which is to say that lazarar cannot be relied upon by a party who has misconducted itself by bribery and corruption.
10. In addition to its challenge to the jurisdiction of the tribunal X's arbitration application seeks to have the award set aside on the grounds of a "serious irregularity" pursuant to section 68 of the Arbitration Act. Several such irregularities are alleged. The first is entitled "Treatment of Corruption Issues" and appears to be a complaint as to the reasoning process which led to the tribunal's decision on the corruption issue. X therefore wishes, it seems, to challenge the tribunal's approach to its fact finding with regard to the corruption issue. The second is entitled Public Policy. This is an allegation that the award is contrary to public policy in that it seeks to enforce a contract which is contaminated by serious corruption. X therefore wishes, it seems, to invite the court, on a section 68 application, to make its own finding that there was bribery and corruption, a finding which the tribunal concluded that it could not make. The third is entitled Defective Decision-Making and concerns complaints as to the treatment of Dr. A by the majority of the tribunal. The fourth is entitled Failure to maintain Civility and Decorum and concerns a complaint that the tribunal failed "to police the arbitration to ensure maintenance of proper civility in submissions."
11. It is apparent from this overview of X's arbitration application that it requires the court to hear and determine the allegation of bribery and corruption for three reasons; first, with regard to its challenge to the tribunal's jurisdiction, second, with regard to the tribunal's reliance on lazarar (which goes to the tribunal's jurisdiction over Z) and, third, with regard to the question of public policy (one of the allegations of serious irregularity). Y & Z have issued their application for preliminary issues with a view to achieving a determination of most of X's arbitration application without the need to hear and determine the allegation of bribery and corruption. X opposes the determination of any preliminary issues and requires a hearing at which all issues are determined. The parties' estimates of the time required to hear all issues raised by the arbitration application vary from 4-6 weeks.
12. I shall first consider whether Y & Z's suggested preliminary issues are in principle appropriate to be determined as such. It will then be necessary to consider whether it is appropriate to order that they in fact be tried as such.

The suggested preliminary issues

13. There are 5 suggested preliminary issues but there are several sub-issues.

Issue 1(a) Jurisdiction

"1. Is the question of separability governed by English law (the curial law) or Iranian law (the governing law of the agreement)?

2. Under whichever of those laws governs, does X's section 67 challenge based on corruption (Ground II(B) of the Grounds of Appeal) fail by application of the doctrine of separability?

14. Mr. Pollock QC, on behalf of Y & Z, submitted on the basis of the doctrine of separability pursuant to which the Contract and the arbitration agreement are separate, that even were corruption to be proved it would not assist X. In Fiona Trust v Privalov [2008] 1 Lloyd's Rep 254 the House of Lords held (in the context of a case where it was alleged that a contract containing an arbitration agreement had been procured by bribery) that an arbitration agreement can only be invalidated on a ground which relates to the arbitration agreement and is not merely the consequence of the invalidity of the main agreement. Since X does not allege a ground of invalidity which relates specifically to the arbitration agreement it is said that X cannot suggest that the arbitration agreement is not binding on the parties. Mr. Pollock submitted that this was the result both in English law and in Iranian law.
15. Miss Masters QC, on behalf of X, submitted that this was not the result in Iranian law which she said was the applicable law for these purposes.
16. It is unnecessary, and would be inappropriate, for me to discuss the merits of these issues in any depth. All that needs to be considered is whether Mr. Pollock's submission has a real, as opposed to a fanciful, prospect of success. For if it did not there would be no purpose in trying it as a preliminary issue. In my judgment it has a real prospect of success.
17. The only evidence required to determine these issues would be expert evidence of Iranian law. In my judgment these issues are, in principle, suitable for determination as preliminary issues. They are questions of English and/or Iranian law.

Issue 1(b) Jurisdiction

If the answer to Issue 1(a)(2) is No, such that it is in principle open to X to challenge the Tribunal's dismissal of X's allegations of corruption under section 67 of the Arbitration Act 1996:

1. Is a contract procured by corruption (as opposed to a contract to bribe) void or merely voidable as a matter of Iranian law ?

2. If the contract is merely voidable, was the Award made with jurisdiction, since X has never purported to terminate the contract but has participated in the Arbitration ?

18. The expert evidence of Iranian law relied upon by Y & Z is to the effect that corruption can only render a contract voidable. Mr. Pollock therefore submitted that on any view the Contract is effective (because it has not been avoided) and therefore the arbitration agreement was effective to confer jurisdiction on the tribunal. X does not agree with Y & Z's evidence of Iranian law or with the suggested conclusion.
19. In circumstances where the tribunal accepted the expert evidence of Iranian law relied upon by Y & Z to the effect that corruption rendered a contract voidable (see paragraphs 1337 and 1342 of the award) there must be a real prospect that Y & Z will succeed on this issue. Again, the only evidence required to determine this issue would be expert evidence of Iranian law. In my judgment this issue is, in principle, suitable for determination as a preliminary issue. It is a question of Iranian law.

Issue 2. The assignment

1. Did the First Defendant obtain any necessary consent of the Claimant to the assignment of the Contract to the Second Defendant under clause 16.1 of the Contract ?

2. Should the Claimant's argument in paragraph 8(ii) of the Grounds of Appeal, namely, that "the doctrine of abuse of rights (or lazarar in Iranian law) is not open to a party who is guilty of prior fault in the nature of corruption", be struck out on the basis that it was not raised in the arbitration ?

3. Does the Claimant's argument fail in any event since the Second Defendant was not party to the alleged corruption ?

4. If the answer to questions (2) and (3) is No, is it correct as a matter of Iranian law that the doctrine of lazarar cannot be relied on by a party who is guilty of prior fault in the nature of corruption ?

20. Issue 1 raises an issue of construction of article 16.1 of the Contract. The governing law is Iranian but the Iranian principles of construction, as read out to me by Miss Masters, did not appear to be significantly different from English law. They were as follows:

"In cases where the contract is unclear, the court interprets the words as would a reasonable merchant looking at the contract as an objective bystander."

21. Having read the tribunal's reasoning in support of its construction of article 16.1 I consider that Y & Z must have a real prospect of success on this issue. Again, the only evidence required would be that of experts on Iranian law. Miss Masters suggested that there might be evidence of factual matrix though she did not suggest that any such evidence was relied upon before the tribunal. The tribunal did not refer to any at paragraph 403 and the reference at paragraph 404 to the "later" Sixth Side Letter does not appear to be a reference to a document in existence when the Contract was agreed. She also said that Y & Z might also rely upon a recital in a guarantee as evidence of consent; but the tribunal rejected that argument and the point appears to be a short one (see paragraph 397 of the award). In my judgment this issue is, in principle, suitable for determination as a preliminary issue.
22. If the court were to reach the same conclusion on this issue as the tribunal it would follow that the tribunal had jurisdiction over Z. The other issues only arise in the event that the court holds, as a matter of construction, that the necessary consent was not "obtained".
23. Issue 2 raises a short question of English law to which, in Miss Masters' submission, there is a clear answer to be found in the judgment of Aikens J. in the Ythan [2006] 1 Lloyd's Rep.457 at paragraphs 60-61.
24. Issue 3 arises because Z was only incorporated after any possible corruption took place. The only evidence required to determine this will again be expert evidence of Iranian law.
25. Issue 4 only arises in the event that Y & Z has failed on issues 1-3. Again the only evidence required will be expert evidence of Iranian law.
26. Miss Masters submitted that the answer to issue 4 may depend upon the extent of the corruption proved and therefore was not suitable for determination as a preliminary issue. However, there is no doubt as to the nature of X's case. It is that the Contract was procured by Y & Z's bribery and corruption of those officials who committed X to the Contract. For the purpose of determining the preliminary issues that allegation must be assumed to be true. I was not referred to any evidence of Iranian law which suggested that the applicability of lazarar depended upon how large the bribes were or how extensive the corruption was.
27. I am doubtful that Y & Z has a real prospect of success on issue 2 and it is difficult to form a view as to issues 3 and 4 (which are issues of Iranian law). However, since issue 1 is in principle appropriate for determination as a preliminary issue it is also appropriate, in principle, that the remaining issues relating to the assignment question be determined at the same time. Issue 2 is a very short question of English law and issues 3 and 4 will only require evidence of Iranian law.
28. Miss Masters said that there was a further issue arising out of the assignment issue which would require determination of the bribery and corruption allegation. She said that on X's case, assuming that written consent had not been obtained, X's refusal to grant consent was not unreasonable because there had been bribery and corruption which had been "subsequently discovered". Mr. Pollock said that at the hearing this point was dealt with in the context of the Iranian doctrine of lazarar and the way it is now put (that it can be relied upon as a reason for withholding consent even though it was not known about at the time) is a new point. In the result I was not persuaded that this was a reason for refusing to determine the suggested preliminary issues. First, if it is determined that there was written consent, reasonable refusal will be irrelevant. Second, when dealing with the remaining issues the allegation that the Contract was procured by bribery and corruption is to be assumed. The new point, that the bribery and corruption can be relied upon as a reasonable ground for withholding consent even where it was not known about, will presumably be the subject of evidence of Iranian law.
29. Miss Masters, in Annex I to her Skeleton Argument, referred to other issues which would arise in the context of whether X had reasonable grounds for refusing consent; see paragraphs 18 and 19. However, they too would fall away if written consent was obtained and are not therefore a reason for refusing to determine the suggested preliminary issues. But if written consent was not obtained they would have to be decided and yet they do not appear to be covered by Y & Z's preliminary issues. So it is possible that these further questions with regard to the refusal of consent may have to be dealt with at the subsequent hearing which, it is common ground, must take place to deal with those matters not covered by the preliminary issues (the complaint as to the treatment of Dr. A by the majority of the tribunal).

Issue 5.1 Other Jurisdiction Points

Do the grounds of appeal relied on by the Claimant in paragraph 17 of the Grounds of Appeal (Ground II(C) of the Grounds of Appeal) disclose a case with a realistic prospect of success for the challenge of the Award under section 67 of the Act ?

30. Paragraph 17 simply says:

[X] will also rely de novo on all other points going to jurisdiction which were deployed before the Tribunal including on issues of corruption. In this respect, [X] continues to rely on all the evidence adduced in the Arbitration and exhibited to the witness statement of Gregory Falkof.

31. Mr. Pollock submitted that this is unparticularised and therefore embarrassing and should be struck out. In my judgment the question whether it should be struck out is, in principle, appropriate for determination as a preliminary issue.

Issue 3. Public policy

Do the grounds of appeal relied upon by the Claimant in paragraphs 21-24 of the Grounds of Appeal (Ground III(B) of the Grounds of Appeal) disclose a case with a realistic prospect of success for the challenge of the award under section 68 of the Act ?

32. This issue relates to the section 68 application. What is alleged is that "the Award is contrary to English public policy in that it seeks to enforce a contract which is contaminated by serious corruption." That is said to be a serious irregularity within section 68(2)(g) of the Act, namely, "..….the award ……being contrary to public policy". This raises the question whether an award, in which the tribunal was asked to find corruption but was unable to do so, can, with a realistic prospect of success, be said to be contrary to public policy. If there is no realistic prospect of success it is said that the argument should be struck out. That is an issue of English law which seems to me, in principle, suitable for determination as a preliminary issue. Y & Z have, in my judgment, a real prospect of success in their argument that an award which considers the evidence of corruption but rejects it cannot be said to be contrary to public policy.
33. There is a further question, namely, whether as a matter of English public policy, contracts which have been procured by bribes are unenforceable. Honeywell International Middle East v Meydan Group [2014] 2 Lloyd's Rep 133 states that they are enforceable. Miss Masters did not challenge that decision but submitted that such contracts are unenforceable as a matter of Iranian public policy. This raises both an issue of English law (does section 68(2)(g) of the Act contemplate only English public policy ?) and an issue of Iranian law. They both appear to me to be suitable, in principle, for determination as a preliminary issue.

Issue 4. Treatment by the Tribunal of the Corruption Issues

Do the grounds of appeal relied upon by the Claimant in paragraphs 19 and 20 of the Grounds of Appeal (Ground III(A) of the grounds of Appeal) disclose a case with a realistic prospect of success for the challenge of the Award under section 68 of the Act ?

34. In paragraphs 19 and 20 of the Grounds of Appeal X challenges the tribunal's refusal to find that the Contract had been procured by bribery and corruption. I will not set out the whole of paragraphs 19 and 20 but X complains that the tribunal wrongly declined to make certain findings notwithstanding the "probative evidence before it", the "exculpatory onus which should have moved to [Y]" and the "adverse inference which should have flowed against [Y]". Complaint is also made of a failure to apply "any proper or fair approach to the corruption evidence" and of "improperly and erroneously" purporting to "decide the case on the burden of proof".
35. Mr. Pollock submitted that these complaints are not the type of complaint which can properly be said to amount to a serious irregularity within section 68 (relying upon for example, Primera Maritime v Jiangsu Eastern heavy Industry [2014] 1 Lloyd's Rep 255 at paragraphs 5 and 6). He said they were "hopeless" and should be struck out as having no realistic prospect of success,
36. Miss Masters submitted that section 68 applications are fact specific and cannot be determined without examining the complaints in detail.
37. Where a section 68 application is based upon conduct which arguably comes within section 68(2) of the Act Miss Masters is no doubt correct to say that it cannot be determined without examining the complaint in detail. But the question Mr. Pollock has raised is whether the complaints made by X can arguably come within section 68(2) of the Act. In my judgment Mr. Pollock has a real prospect of showing that the complaints made by X cannot amount to a serious irregularity within the meaning of section 68. This question is, in principle, suitable for determination as a preliminary issue.

Issue 5.2. Failure to maintain a proper atmosphere of civility and decorum

Do the grounds of appeal relied on by the Claimant in paragraph 28 of the Grounds of Appeal (Ground III(D) of the Grounds of Appeal) disclose a case with a realistic prospect of success for the challenge of the Award under section 68 of the Act ?

38. This is explained in paragraph 28 as a failure by the tribunal

"sufficiently to police the arbitration to ensure maintenance of proper civility in submissions. The effect and cumulative effect with (C)^[1] above was that the appearance of justice was lost in the eyes of the [X].

39. Ground (C) was to the effect that the tribunal's decision-making did not fully involve Dr. A which was "seriously irregular". Mr. Pollock accepted that Ground (C) cannot be the subject of a preliminary issue and must be determined later at a separate hearing.
40. The complaint in paragraph 28 is particularised in paragraphs 90-93. In essence it is said that Mr. Pollock acted in an aggressive and rude manner and was subject to "insufficient control" by the tribunal.
41. Whether this complaint can be brought within section 68(2) of the Act may be open to doubt. However, just as Ground (C) is said to have resulted in the appearance of justice being lost so it said that "the effect and cumulative effect with (C) above was that the appearance of justice was lost in the eyes of [X]." The two Grounds therefore appear to be connected. In circumstances where there is no dispute that complaint (C) must be tried it seems to me that this Ground must also go to trial rather than be the subject of a preliminary issue.

Whether there should be an order for the trial of preliminary issues

42. Miss Masters submitted that the relevant factors to be considered are set out in the decision of Neuberger J in Steele v Steele [2001] CP Rep 106, namely:

i) First, would the determination of the preliminary issue dispose of the case or at least one aspect of it?

ii) Second, would the determination of the preliminary issue significantly cut down the cost and time involved in pre-trial preparation or in connection with the trial itself?

iii) Third, where the preliminary issue was one of law the Court should ask itself how much effort would be involved in identifying the relevant facts;

iv) Fourth, if the preliminary issue was one of law to what extent was it to be determined on agreed facts?

v) Fifth, where the facts were not agreed the Court should ask itself to what extent that impinged on the value of a preliminary issue.

vi) Sixth, would determination of the preliminary issue unreasonably fetter the parties or the Court in achieving a just result?

vii) Seventh, was there a risk of the determination of the preliminary issue increasing costs and/or delaying the trial?

viii) Eighth, the Court should ask itself to what extent the determination of the preliminary issue may be irrelevant.

ix) Ninth, was there a risk that the determination of the preliminary issue could lead to an application for the pleadings to be amended so as to avoid the consequences of the determination?

x) Tenth, taking into account the previous points, was it just to order a preliminary issue?

43. I shall consider each of those factors.
44. First, the determination of the issues in Y & Z's favour will determine all issues raised by the arbitration application save for (i) the issue concerned with the alleged exclusion of Dr. A and the related complaint regarding the maintenance of civility and decorum and (ii) any outstanding issue concerning reasonable grounds for refusing consent to the assignment. Importantly, there would be no need to try the issue of bribery and corruption. But if Y & Z lost issues 1(a) and 1(b) or issue 2 or issue 3 then the issue of bribery and corruption would have to be tried.
45. Second, the determination of the preliminary issues in favour of Y & Z would significantly cut down the costs of trying the arbitration application. In that event there would be no need for the parties and the court to spend time determining the bribery and corruption allegations.
46. Y & Z estimate that a hearing of all the issues raised by X's arbitration application would take about 6 weeks. X estimates that a hearing of all the issues would take about 4 weeks. My own impression is that 6 weeks is more likely to be right than 4 weeks. But on any view a hearing of all the issues will be exceptionally long for the determination of an arbitration application. By comparison the hearing of the suggested preliminary issues is likely to be very much shorter. Y & Z estimate that about 5 days would be required whilst X estimates that about 7-8 days would be required. Again, my own impression is that 5 days is more likely to be correct than 7-8 days. The issues raised are either questions of English law or discrete issues of Iranian law. In addition there would have to be a second hearing of about 4 days dealing with the remaining issues.
47. Of course, were Y & Z to lose on any of the issues which would require the bribery and corruption case to be heard and determined then the second hearing would be much longer. Experience suggests that the costs of two hearings tend to be greater than the costs of a single hearing and X adduced evidence that that would be so in this case. However, the only evidence required at the trial of the preliminary issues would be expert evidence of Iranian law and that would not be required at the second hearing. Thus it does not appear that there would be witnesses who would have to attend both trials. The only reason that the global costs of two trials might be greater than the costs of a single trial would be that solicitors and counsel would have to be paid twice for preparing the case. However, there is a limit to this because they would be preparing for different issues. The only possible "burn costs" (to use counsel's phrase) would be the costs involved in trying preliminary issue no.4 in the event that Y & Z failed to have the allegations of serious irregularity struck out.
48. Third, it does not appear that the facts relevant to the determination of the preliminary issues are in dispute, save for certain discrete questions of Iranian law which would have to be determined on the basis of expert evidence. It is likely that such expert evidence would take about 2 days; one expert for each side being cross-examined for no more than a day.
49. Fourth, as indicated above the facts relevant to the determination of the preliminary issues do not appear to be in dispute, save for questions of Iranian law.
50. Fifth, certain questions of Iranian law are not agreed but I do not consider that that materially detracts from the value of the preliminary issues. They still have the potential of avoiding the need for the parties and the court to spend a substantial number of days hearing and determining the bribery and corruption allegation.
51. Sixth, I do not consider that determination of the preliminary issues may unreasonably fetter the parties or the court in achieving a just result. The issues of English and Iranian law have to be determined and the court will be able to determine them justly if they are heard as preliminary issues.
52. Seventh, there is a risk that the determination of the preliminary issues will increase costs and delay the final determination of the arbitration application in the event that Y & Z lose on issues the result of which will be to require determination of the bribery and corruption allegations.
53. Eighth, there does not appear to be a risk that determination of the preliminary issues may be irrelevant because they will have to be determined at some stage. However, certain of the sub-issues may in fact prove irrelevant if Y & Z succeed on other sub-issues. For example, if English law is held to be the appropriate law for determining the question of separability the Iranian law on separability would be irrelevant.
54. Ninth, it is difficult to see how determination of the preliminary issues could lead to an application for the grounds of the arbitration application to be amended. Miss Masters suggested that further disclosure might "affect the ultimate shape of the case". But that would appear to be no more than speculation.
55. The tenth matter is whether, taking into account all of the foregoing, it is just to order the hearing of the suggested preliminary issues.
56. Miss Masters referred to the observation by Lord Hope in Boyle v SCA Packaging Limited [2009] 4 All E.R. 1181, at paragraph 9, that:

"The essential criterion for deciding whether or not to hold a pre-hearing is whether, as it was put by Lindsay J in C J O'Shea Construction Ltd v Bassi [1998] ICR 1130 , 1140, there is a succinct, knockout point which is capable of being decided after only a relatively short hearing. This is unlikely to be the case where a preliminary issue cannot be entirely divorced from the merits of the case, or the issue will require the consideration of a substantial body of evidence. In such a case it is preferable that there should be only one hearing to determine all the matters in dispute."

57. In the present case Y & Z have invited the court to determine a number of succinct preliminary issues with a view to making it unnecessary to determine the bribery and corruption allegation which is the most substantial of all the issues raised by the arbitration application. In that sense it can be said that there are a number of "succinct, knockout" points. If determined in favour of Y & Z they will determine, or "knockout", the jurisdictional challenge. One allegation of serious irregularity will remain to be determined, along with the allegation which appears to be related to it. The hearing of the preliminary issues is likely to last 5 days but that is "relatively short" compared with the 4-6 week hearing required to determine all issues at once. Even if the second hearing of 4 days, which it is accepted will be required, is taken into account the total hearing will still be "relatively short" compared with the length of a single hearing.
58. I have considered whether the determination of the preliminary issues can be "divorced from the merits of the case" which in this case means the allegations of bribery and corruption. For the reasons I have given when considering each of the suggested preliminary issues I consider that they can.
59. I accept that evidence relating to certain discrete areas of Iranian law will be required but I do not consider, in the circumstances of this case, that that is a good reason for having all issues decided at one hearing. If the preliminary issues are determined there is a real prospect that the jurisdictional challenge (and much of the serious irregularity challenge) can be determined without the need for a lengthy and costly hearing of the allegations of bribery and corruption.
60. I have well in mind that it has been said that preliminary points are too often "treacherous short cuts" and only lead to more delay and costs. Indeed, I accept that given that Y & Z may fail on one or more of the issues there is a risk that ordering the determination of preliminary issues will lead to more costs and more delay than if all issues were tried together (though, for the reasons already given, the increase in costs may be, in relative terms, modest).
61. Having considered all of the written and oral submissions made to me by counsel I have concluded that it is just and convenient, on case management grounds, to order the determination of the suggested preliminary issues (save for issue 5.2). My reasons may be summarised as follows.
62. First, this is an exceptional arbitration application. Ordinarily arbitration applications are determined in one or two days with no need or scope for preliminary issues. The present case is exceptional because the hearing necessary to determine all issues at once has been estimated at between 4 and 6 weeks. By far the most substantial issue is the issue of bribery and corruption. If there is a real prospect that the jurisdictional challenge and most of the challenge based on alleged serious irregularities can be determined without the need for the parties and the court to spend a considerable period of time trying the issue of bribery and corruption then there should be an order for the determination of preliminary issues. For there is a real prospect that substantial expense will be saved.
63. Second, whilst there is a risk that Y & Z will fail on one or more of the preliminary issues with the result that there might, in the end, be greater expense incurred in disposing of the arbitration application such greater expense is likely to be, in relative terms, modest. I accept that there might also be delay in disposing of the arbitration application. Those risks have to be weighed against the prospect that very substantial costs and time may be saved. The latter prospect, in my judgment, outweighs those risks and justifies the taking of those risks.
64. Third, the amount of the bribes or the extent of the corruption does not appear to affect the determination of the preliminary issues. Those issues are to be determined upon the assumption that the Contract was procured by the payment of bribes by Y & Z to officials of X. There was no evidence that, as a matter of Iranian law, the outcome of the arbitration application depended upon the amount of the bribes or the extent of the corruption. No reference was made to any English authority which suggested that the English law issues depended upon the amount or the extent of the bribes. Thus the preliminary issues can be determined without the need for any evidence as to the amount of the alleged bribes or the extent of the alleged corruption.
65. Fourth, although some facts will have to be found when the preliminary issues are tried, those facts all relate to discrete issues of Iranian law.
66. Miss Masters emphasised that when a party issues a jurisdictional challenge pursuant to section 67 of the Arbitration Act 1996 that party is "entitled to a full judicial determination on evidence of an issue of jurisdiction before the English court"; see Dallah Real Estate & Tourism Holding Company v Ministry of Religious Affairs of the Government of Pakistan [2011] 1 AC 763 per Lord Mance at paragraph 26. I accept that statement of principle and indeed could not do otherwise. But it does not follow from Lord Mance's statement of principle that the court cannot, for case management reasons, determine certain issues arising out of the challenge to the jurisdiction of the tribunal as preliminary issues. Nor can Lord Mance's statement of principle mean that a party is entitled to a full judicial determination of an issue if determination of that issue is not necessary to enable the court to determine the outcome of the jurisdictional challenge.
67. For the reasons which I have endeavoured to express I consider that it would be just and convenient, on case management grounds, to order a trial of the suggested preliminary issues (save for issue 5.2).

Note 1   The grounds referred to (3) above but it appeared to be common ground that this was in error and the intended reference was to (C) above.     [Back]