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Volume X, Number 268

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Public Policy Defence against Foreign Money Judgment Fails

Earlier this month, in Lenkor Energy Trading Dmcc (“Lenkor“) v Puri (“Mr Puri“) [2020] EWHC 1432 the High Court upheld an order granting summary judgment in favour of Lenkor in relation to a debt owed to it by Mr Puri under a Dubai judgment. Mr Puri’s argument that illegality tainting the underlying transaction made enforcement of the judgment contrary to public policy, was rejected.

Background

In 2014, Mr Puri, owner and sole shareholder of IPC Dubai (“IPC“), entered into a tripartite agreement (“Agreement“) with Lenkor’s sister company (“LHK“) and a third party (“Buyer“) for the sale of cargoes of gasoil by LHK. Mr Puri signed cheques guaranteeing payment for cargo under the Agreement.

When the Buyer failed to make payments due under the Agreement, Lenkor sought to cash the cheques but there were insufficient funds in IPC’s account. Lenkor obtained judgment in civil proceedings in Dubai under a statutory provision which imposed personal liability on the drawer of the cheque – Mr Puri. An interest charge of 9% was also ordered to run from the due date of the cheques.

Meanwhile, in separate arbitration proceedings in London, brought by LHK against IPC and the Buyer, the arbitrator found that LHK’s claim against the Buyer for the contract price under the Agreement was tainted by illegality. LHK had falsified documents to make out that the product being supplied under the Agreement was High Speed Diesel when in fact it was an inferior type of gasoil.

Lenkor’s Application for Summary Judgment

 In 2019, Lenkor applied for summary judgment in England to enforce the judgment of the Dubai Court against Mr Puri.

Mr Puri resisted the application on the basis that recognising the Dubai Court’s judgment would offend public policy on the grounds of; (i) the illegality of the underlying agreement because of the falsified documents; (ii) piercing the corporate veil, and (iii) excessive penalty.

The Court rejected Mr Puri’s arguments granting summary judgment in favour of Lenkor. Mr Puri was given permission to appeal the Court’s finding in relation to point (i).

Mr Puri’s Appeal to the High Court

The appeal was dismissed.

For the public policy defence to succeed, the Court said that it is the enforcement of the foreign judgment itself, not the underlying transaction, which must offend public policy. The Dubai judgment was based on the legal consequences of signing cheques in Dubai without sufficient funds to meet them. Mr Puri had not identified any rule which required the Court to inquire into the underlying transactions. The Court was simply considering the enforcement of the Dubai judgment.

Further, enforcement of the Dubai judgment did not amount to enforcement of LHK’s claims under the Agreement for a number of reasons.

Firstly, the mere fact that two transactions have an equivalent economic effect is not sufficient to establish that they are, in legal substance, the same transaction. Secondly, the parties are different. IPC is the payment guarantor and Lenkor is the beneficiary of that payment guarantee. Thirdly, IPC’s liability under the payment guarantee is contractual, whereas Mr Puri’s liability under Dubai law is statutory.

Comment

This case presents an important reminder that in order for a public policy defence of illegality to succeed, it is the judgment and not the underlying transaction which must offend English public policy. It would only be appropriate to examine the underlying transaction if the illegality affected the obligation being enforced by the judgment. Here, it was simply the Dubai judgment being enforced and this did not relate to the illegal behaviour under the Agreement.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 176

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About this Author

Garon Anthony Litigation Attorney Squire Patton Boggs Birmingham, UK
Partner

Garon is a partner in the Litigation Practice Group. He advises clients across the full range of commercial dispute issues, including cyber liability/data breach, professional negligence, banking, pensions and insurance.

Garon regularly acts for clients who are subject to investigations or disciplinary proceedings by national and international regulators, including most recently the Financial Conduct Authority, the Financial Reporting Council and the Dubai Financial Services Authority.

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Sarah Neill Associate   Birmingham Commercial Litigation
Associate

Sarah Neill qualified into the Commercial Litigation team in September 2019 after completing her training contract with the firm. During her time in the team, Sarah has assisted on a wide variety of disputes, including breach of warranty, product liability, debt recovery and breach of contract. Sarah acts for a diverse client base, from individuals to PLCs.

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