Soleimany v Soleimany

An English court will not enforce an arbitral award where the award itself shows that it gives effect to an agreement whose common object was unlawful conduct in a foreign and friendly state. The court controls enforcement under the law of the forum. The intervention of arbitration cannot insulate an illegal transaction from public policy.

Separability may give an arbitrator jurisdiction to determine illegality without requiring the enforcing court to recognise the resulting award. Where illegality is disputed and the arbitrator has rejected it, the court should conduct a proportionate preliminary enquiry before deciding whether to give full faith and credit to the award.

A father and son participated in an enterprise involving the illegal export of carpets from Iran and their sale abroad. After disputes arose over the proceeds, they referred the son's claim to the Beth Din under an agreement governed by its procedures and Jewish law.

The Beth Din characterised the transactions as an illicit joint enterprise and awarded the son £576,574 and costs. The son obtained leave under section 26 of the Arbitration Act 1950 to enter judgment on the award. The father applied to set that order aside. His challenge ultimately came before the Court of Appeal following the refusal of His Honour Judge Langan QC to prevent enforcement.

The central issue was whether English public policy permitted enforcement of an award which, on its face, divided profits from an enterprise intended to contravene Iranian revenue and export controls.

1. Appeal allowed. Lord Justice Waller delivered the judgment of the court. The Beth Din's award was unenforceable in England and Wales because it purported to enforce an enterprise whose common object was the commission of unlawful acts in Iran. Judgment on the award was set aside and Master Gowers's enforcement order was reversed.

2. A joint venture formed with the common object of committing illegal acts in a foreign and friendly state is unenforceable. This rule applies whether the agreement is governed by English or foreign law. It also applies to enforcement of an arbitral award. An English court will not lend its executive power to an award which gives effect to such an agreement.

3. The arbitration agreement was nevertheless valid. The claim originally referred was for an account of sale proceeds. It was only during the arbitration that the tribunal characterised the relationship as an illicit joint venture. The tribunal therefore had jurisdiction to consider the effect of illegality. Separability does not, however, mean that every arbitration agreement relating to unlawful dealings is valid. Some illegal or immoral disputes may be incapable of arbitration because the arbitration agreement is itself contrary to public policy.

4. Enforcement is governed by the public policy of the forum. The interposition of an award cannot conceal the illegality underlying the successful party's claim. Although section 26 of the Arbitration Act 1950 contained no express public-policy exception, such an exception applied to domestic as well as foreign awards. The later provisions of the Arbitration Act 1996 were consistent with that conclusion.

5. The court distinguished cases in which the arbitrator had considered and rejected a disputed allegation of illegality. In such cases an enforcement judge should undertake a preliminary and proportionate enquiry. Relevant matters include the evidence on each side, the arbitrator's express or inferred findings, the tribunal's competence, and any indication of collusion or bad faith. A full trial is required only if that preliminary enquiry shows that the award should not receive full faith and credit. This guidance was obiter because the Beth Din had expressly found that the enterprise was illicit.

6. The son could not resist that conclusion by suggesting that he might instead have asserted title to the carpets. The tribunal had rejected or recorded the abandonment of that case. Enforcement concerned the award actually made, not a different award which might have been obtained on another basis.

1. Court of Appeal: Allowed the father's appeal, set aside judgment on the arbitral award and reversed Master Gowers's enforcement order. Leave to appeal to the House of Lords was refused.

2. High Court, Queen's Bench Division: His Honour Judge Langan QC declined to set aside enforcement of the award. The Court of Appeal differed from his conclusion.

3. High Court enforcement proceedings: Master Gowers granted leave under section 26 of the Arbitration Act 1950 to enter judgment for £576,574 and enforce the award, subject to the father's right to apply to set the order aside.

4. Beth Din: Awarded the son £576,574 and costs after determining the parties' respective shares of profits from the carpet enterprise.