Kohn v Wagschal & Ors

An English court may enforce an arbitration award even where the underlying transaction involved intended tax evasion, if the award does not require performance of an illegal act and instead restores property to the estate or prevents the illegality. The court must assess the actual legal effect of the award, rather than a hypothetical claim tried under English law. Different reasoning applied by the tribunal does not make enforcement contrary to public policy. Later documents suggesting that misleading transfer documents were still being shown to the Revenue do not, without more, establish that the award was procured by fraud. The appropriate protective step may be to place the relevant documents before the Revenue for its own assessment.

The respondent, the deceased’s son, obtained a Beth Din arbitration award concerning ownership of company shares and estate property. The award found that the deceased had not intended to gift the shares to his daughters and ordered that they be treated as part of his estate, while recognising the son’s moral obligation to honour his father’s wishes.

Under section 66 of the Arbitration Act 1996, Colman J granted leave to enforce the award. The appellants applied to set that order aside, but Morison J dismissed their application on 21 December 2006. On appeal, they argued that enforcement would offend public policy because the award arose from an alleged plan to deceive the Revenue, and relied on fresh evidence as indicating fraud. The central issue was whether those matters made enforcement impermissible.

1. Appeal dismissed. The Court of Appeal, in the leading judgment of Waller LJ, upheld enforcement of the Beth Din award. Laws LJ and Gage LJ agreed. The relevant documents were also to be passed to the Revenue.
2. The case was distinguishable from Soleimany v Soleimany [1999] QB 785. There, enforcement would have required the English court to use its executive powers to enforce a contract whose performance involved infringing Iranian criminal law. Here, the award required the shares to be returned to the deceased’s estate and thereby prevented, rather than compelled, the alleged illegality. Enforcement was therefore not contrary to public policy (paras [15]-[19]).
3. The court had to consider the award actually made and the issue submitted to the Beth Din. It was unnecessary to decide how the dispute might have been resolved under English law. The English-law authorities, including Gascoigne v Gascoigne [1918] 1 KB 223 and Tribe v Tribe [1996] Ch 107, did not govern the enforcement question. The Beth Din had decided, under Jewish law, that there was insufficient evidence of any gift. The suggested absence of repentance therefore did not affect enforceability (paras [17]-[18], [22]).
4. The fresh evidence did not establish that the award had been obtained by fraud. If the Revenue was still being shown documents indicating a transfer, the inference was that the estate might still be seeking to deceive the Revenue, not that the shares had in fact been transferred or that the award was fraudulent. The proper course was disclosure of the relevant documents so that the Revenue could determine whether it had received full and frank disclosure (paras [20]-[25]).

• Court of Appeal (Civil Division): [2007] EWCA Civ 1022; appeal dismissed and relevant documents ordered to be passed to the Revenue.
• Queen’s Bench Division, Commercial Court (Morison J), 21 December 2006: application to set aside the enforcement order dismissed.
• Queen’s Bench Division, Commercial Court (Colman J), 28 September 2006: leave granted under section 66 of the Arbitration Act 1996 to enforce the award.