Practice Alert: Alstom’s China agent wins arbitration award in UK despite ‘serious indicia of bribery’

Last week, a UK court upheld an arbitration award against French transport giant Alstom brought by an agent that helped it win rail network contracts worth over $1.1 billion in China from 2003 until 2012.

The agent, a small Hong Kong-based company, Alexander Brothers Ltd (ABL), has been pursuing Alstom for €5.4 million ($6.8 million) in punitive and compensatory damages in three different jurisdictions: Switzerland, France, and the UK.

In Geneva, ABL first pursued Alstom for suspending consultancy contract payments at the International Chamber of Commerce in December 2013. The tribunal ruled in January 2016 that Alstom should pay outstanding amounts. ABL then pursued enforcement in France. However, in May 2019 the French Appeal court ruled that Alstom did not need to pay ABL, owing to “serious, precise and consistent indicia that the sums Alstom paid to ABL financed and remunerated the bribery of public officials.” ABL is appealing the Cour d’Appel ruling at France’s highest court (Cour de Cassation).

In October 2019, however, ABL obtained an enforcement order against Alstom in the UK. Alstom sought to overturn this order in a contested hearing, which was heard in private last month. It was that order that the UK court upheld last week.

As background, Alstom pleaded guilty to FCPA offenses in the United States in 2014 and paid $772 million in criminal penalties. In the UK in 2019, Alstom was ordered to pay a further £16.4 million ($21 million) after being found guilty on some counts of bribery.

Triggered by the U.S. and UK investigations, in 2012 and 2013 Alstom conducted audits of its consultancy contracts with agents. Although two audits of ABL do not appear to have uncovered any direct evidence of wrongdoing, one audit found accounting errors and a lack of appropriate documentation. Alstom suspended payments to ABL on the grounds that there was insufficient proof of services provided.

In the UK arbitration, Alstom submitted in its defense that:

• ABL is a shell offshore company that only received money from Alstom
• The sole individual working for ABL was a Ms. Guo Qi (a former Alstom employee)
• The services provided by ABL had no real substance compared to the size of the payments
• ABL spent a lot on entertainment with no real transparency on what it was for and why
• ABL’s accounts showed it had made a payment of €280,000 ($350,000) to a Chinese state-owned entity called SITICO in breach of its contract and without informing Alstom
• ABL obtained sensitive and confidential documents from the Chinese Ministry of Railways and declined to explain how it had obtained them
• Several officials who ABL dealt with, including at SITICO were subsequently convicted of bribery and corruption, including in the award of railway contracts during the relevant period.

Alstom admitted it did not have proof that acts of corruption occurred, pointing out how hard it is to get such proof. However, it said that payment of the sums would expose it to criminal liability and ran a defense which, according to the UK judgment, “relied upon indicia of bribery as giving rise to a legal justification for refusing to pay.” (§ 36)

Different jurisdictions, different rules. Under section 103 of the New York Convention on arbitration, an arbitration award may be refused if “it would be contrary to public policy to recognize or enforce the award.” ABL’s pursuit of Alstom has revealed how different jurisdictions interpret whether and to what extent corruption is a public policy issue. All those involved in this arbitration took a different approach.

Under Swiss arbitral law, the existence of corruption “has to be established by sound evidence” to be grounds for not enforcing a contract. The arbitration tribunal considered that Alstom did not have that evidence and that no reverse burden of proof existed despite the difficulties of proving corruption. An attempt by Alstom to appeal the award in the Swiss courts failed.

By contrast, the French court of appeal, overturning a French lower court’s enforcement award in favor of ABL, ruled that “due to the concealed nature of acts of bribery, a contention that the arbitral award orders the payment of sums intended to finance corrupt acts may be reviewed by a court …solely on the basis of a set of indicia.” The French appellate court went on to say that while it couldn’t rule on whether bribery had actually occurred, it could “determine whether recognition or enforcement of the award would contravene the objective of combating bribery.”

The UK court set a different standard in its judgment and did not feel bound by the French ruling. It took as its starting point that “different countries may place the public policy in favor of enforcement as a higher or lower priority against the public policy against corruption.”

The primary case law for establishing where the UK courts will place public policy in favor of enforcement against public policy on combating illegal behavior is a ruling from a 1999 case, Westacre Investments Inc v Jugoexports. This ruling was made just as the OECD Anti-Bribery Convention came into effect, well before the UK had implemented the Bribery Act, or taken other steps, such as developing an anti-corruption strategy, to highlight how important fighting corruption is as UK public policy.

The UK court dismissed Alstom’s “passionately” argued point that UK courts should not enforce arbitration awards where corruption can be established as “entirely too broad a brush in relation to a delicate question” (§ 153). It upheld pre-existing case law that UK courts would not prioritize English public policy over that of “the seat” (the place where arbitration is agreed under contract) unless the allegations are so serious as to require it do so.

The UK court concluded that the Alstom case consisted of “incidental bribery — not planned, not contracted for, not suspected” and concluded that “this is something which is probably regarded as somewhat less serious” (§159). On these grounds, it declined to take a different approach than the Swiss tribunal.

Implications of the UK award.  From an anti-corruption perspective, this is a seriously disappointing ruling. It essentially establishes that UK courts regard the enforcement of contracts as more important than serious indications of potential bribery.

Taken with the willingness to depart from the French ruling, these findings leave the UK open as a forum to be shopped by potentially corrupt agents wanting payment for dubious services. Concerns have previously been raised that the UK courts have been a conduit for money laundering by Russian oligarchs. Both create an impression that the UK commercial courts are a light touch on corruption.

Furthermore, as hearings of this type are usually held in private in the UK, there is little public scrutiny of how the courts rule in such cases. It may only be because this case was covered in the media, and because our organization wrote to the court asking for the transcripts to be made public, that the judge decided to make the ruling public.

But litigation about secret deals involving serious red flags in relation to corruption should not themselves be heard in secret once they reach the court system. It is time for greater transparency and greater consistency in weighing serious risks of corruption against enforcing contracts across different jurisdictions if OECD countries, including the UK, are serious about combating bribery.