Beijing Jianlong Heavy Industry Group v Golden Ocean Group Ltd & Ors

The separability of an arbitration agreement means that the unenforceability of an underlying contract does not, by itself, invalidate the arbitration clause. The clause must be directly impeached on grounds relating to it, rather than merely to the principal contract. In cases involving foreign illegality, the court must ask whether the policy of the English rule invalidating the principal contract would be defeated by allowing the dispute to be determined by the parties’ chosen tribunal. That inquiry must be balanced against the strong commercial reasons for upholding arbitration agreements, including party autonomy and one-stop adjudication. The arbitration clause will be invalidated only where it is clear that enforcement would offend the relevant public policy.

The claimant brought two claims under section 67 of the Arbitration Act 1996 challenging partial final awards made in five related arbitrations. The arbitrators had accepted jurisdiction and granted anti-suit injunctions restraining proceedings in the Tianjin Maritime Court.

The underlying guarantees were assumed, for the jurisdiction applications, to be unenforceable under English public policy because they formed part of a scheme intended to procure unlawful acts in China. The central issue was whether the related London arbitration agreements were themselves void or unenforceable under the principle in Foster v Driscoll because they formed part of the same unlawful scheme.

1. The applications were dismissed. The court upheld the arbitrators’ conclusions that they had substantive jurisdiction and that the arbitration agreements were not, on the assumed facts, void or unenforceable.
2. The principle in Ralli Brothers v Compania Naviera Sota y Aznar concerns contractual performance which is unlawful at the place of performance. The principle in Foster v Driscoll concerns the parties’ common intention to perform in a friendly foreign country an act unlawful under that country’s law. The present case concerned the latter principle.
3. Under section 7 of the Arbitration Act 1996, an arbitration agreement forming part of another agreement is treated as a distinct agreement. Mere unenforceability of the principal contract is therefore insufficient. Direct impeachment of the arbitration agreement is required, on facts specific to that agreement. This reflected the approach in Fiona Trust & Holding Corporation v Privalov and Harbour Assurance v Kansa General International Insurance (paras [17]–[26]).
4. The relevant question was whether the policy underlying the rule making the guarantees unenforceable would be defeated by permitting the parties’ substantive dispute to be determined by their chosen tribunal. The relevant rule was the English public policy rule in Foster v Driscoll, not the Chinese exchange-control law itself (paras [31], [37]–[41]).
5. The policy of Foster v Driscoll was not defeated. The arbitrators could determine the facts and apply English law, including the principle of foreign illegality, and would refuse to enforce the guarantees if the assumed facts were proved. The fact that arbitration might be less favourable to the claimant than proceedings in China did not impeach the arbitration agreements (paras [39]–[42]).
6. Foster v Driscoll did not automatically sweep away every agreement forming part of an unlawful transaction. Its application to an arbitration clause required separate evaluation. The case was not a “highwayman” case of the kind considered in Soleimany v Soleimany, and the claimant’s alleged motives did not alter the conclusion (paras [40], [43]–[46]).
7. Cases involving illegality must be examined on their particular facts. The powerful commercial reasons for respecting arbitration agreements applied, and it was not clear that enforcement would offend the policy of the illegality rule (paras [44]–[47]).

Not an appeal from a lower court decision. The claims under section 67 concerned partial final awards made in five arbitrations.