The decision in Lenkor Energy trading DMCC v Puri is a useful reminder of the high bar to resisting enforcement of foreign judgments on the grounds that to do so would contravene public policy. Specifically, the Court of Appeal’s judgment emphasises the need for any illegality capable of impeaching the foreign judgment to be sufficiently connected to the judgment in question. Mere background misdeeds by the party seeking to enforce the judgment will not suffice.
Facts
The underlying dispute was between two businessmen, Mr Puri and Mr Atiyeh, operating in gasoil trading from the UAE. Acting through corporate vehicles, they had agreed to supply High Speed Diesel gasoil (which is produced in the UAE) to a third-party in Pakistan (“the Tripartite Agreement”). In fact, Mr Puri and Mr Atiyeh had agreed that they would instead supply Heavy End Product gasoil (which is produced in Iran) and seek to deceive their third-party buyer as to the origin and quality of the product being delivered.
As part of the Tripartite Agreement, on behalf of his company, Mr Puri had signed cheques in favour of the claimant (behind which the “moving spirit” was Mr Atiyeh). The purpose of the cheques was to provide security for anticipated payments from the third-party buyer. In the event, payment from the third-party buyer was delayed due to the buyer’s bank becoming aware that the relevant gasoil tankers had called at Iranian ports. This prompted an investigation by the third party’s bank as to whether there had been a breach of sanctions, which led to the withholding of financing.
While the buyer eventually agreed to continue making payments (in Rupees rather than US Dollars), those payments were no longer passed on, promptly or at all, by Mr Puri’s company to the claimant. Confronted by what he considered to be unjustifiable delays in payment and following certain arbitral proceedings (which also involved the third-party buyer), Mr Atiyeh caused the claimant to present the cheques issued by Mr Puri’s company. Those cheques were dishonoured when presented for payment.
Under the laws of Dubai, when a cheque issued on behalf of a corporate entity is dishonoured, the natural person who caused the cheque to be drawn is held personally liable. In this case, that was Mr Puri. The claimant obtained judgment on that basis against Mr Puri, which was upheld on appeal in that jurisdiction (“the Dubai Judgment”).
The claimant thereafter successfully sought to enforce the judgment in England and Wales, obtaining the permission of a master and a High Court judge. Mr Puri appealed to the Court of Appeal on the grounds of public policy.
Legal test
The parties were largely agreed as to the relevant legal test, being the application of Rule 51 in Dicey, Morris & Collins on The Conflict of Laws, which provides that:
“A foreign judgment is impeachable on the ground that the enforcement or, as the case may be, recognition, would be contrary to public policy.”
Mr Puri had advanced several defences below, but the one that survived for the purposes of the appeal was that the Dubai Judgment was so tainted so as to be unenforceable, and that to hold otherwise would be contrary to public policy. The source of the tainting was said to be the illegality behind the Tripartite Agreement, which according to Mr Puri, had poisoned the Dubai Judgment. It was said on Mr Puri’s behalf that the judge should have undertaken a proper inquiry into the illegality of the underlying transaction. This illegality, it was said, would have been clear following a review of the relevant arbitral award.
Decision
The Court of Appeal was as unpersuaded as the courts below. It fully endorsed the reasoning of those below that:
- The equivalent economic effect of the enforcement of the Dubai Judgment and the enforcement of the claimant’s claims for breach of the Tripartite Agreement did not mean that the transactions were the same.
- The difference was underlined by the different parties (Mr Puri before the English court, his corporate vehicle before the arbitrator).
- Fundamentally, the matter before the court was the enforcement of a foreign judgment that was predicated on a statutory right, and not a contractual one arising from an agreement held to be illegal.
The Court of Appeal therefore dismissed the appeal and affirmed the claimant’s permission to enforce the Dubai Judgment.
Comment
At first blush, the Court of Appeal’s decision will not be of great surprise to many practitioners. Certainly, the English courts are well used to differentiating between the enforcement of a judgment given by a foreign court of competent jurisdiction (which creates an obligation to pay the judgment sum enforceable in England and Wales as a debt, irrespective of the underlying cause of action) and the enforcement of a contract.
There are, however, certain key takeaways that all observers should carefully note.
Firstly, the fact that an enforcing party (or those that stand behind it) had been complicit in unarguably wrongful conduct does not necessarily preclude enforcement. Indeed, the court might well give (even silent) credit to parties which, as the claimant did here, fully acknowledge their wrongdoing before the court.
Secondly, the court will always be focused on the specific foreign judgment that it is being asked to enforce, rather than the wider relationship between the parties. The mere fact that a judgment arises out of the same wider relationship as certain unconscionable conduct or illegality will not necessarily mean that the same is tainted and unenforceable in this jurisdiction. (In this case, there was, in any event, said to be only a “slight connection” between the illegality and the underlying claim.) The degree of connection between the claim and the illegality must be balanced against the strong public policy in favour of finality and enforceability. The English court has a degree of flexibility in this regard.
Lastly, the English court will prima facie have no hesitation in enforcing a judgment arising out of a foreign statutory right that has no obvious equivalent in this jurisdiction.
The judgment, and the wider Lenkor Energy Trading litigation, also holds lessons for a party in the position of Mr Atiyeh. Although the judgments of the master, High Court and Court of Appeal may have been unsurprising to many, by continuing to raise arguments of public policy, Mr Puri delayed a final decision of the English court on enforcement by nearly 18 months. While Mr Puri had to fund the ongoing litigation, he achieved a significant delay to enforcement that may have been very valuable and is often a key goal of defendants. It is also a reminder to claimants who engage in pro-active and aggressive enforcement to keep well in mind the possibility of negotiation and alternative dispute resolution (ADR) as, in the end, repeated and consistent success before multiple tribunals (arbitral, foreign and English) may nonetheless not get the cash in hand, or do so only at disproportionate cost.
