Commercial Court upholds international arbitration award against Yugoslavia

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The enforcement of international arbitration awards has received a boost in the first round of a legal battle between Yugoslavia and an arms agent.

The Yugoslavian government is attempting to use in England an exemption to the 30-year-old international convention on enforcing arbitration, so that it will not have to pay an arbitral award of $60m.

This is the first test of this exemption clause since the Convention on Recognition and Enforcement of Abitral Awards was signed in New York in 1958. The clause allows parties to claim exemption in a country where enforcement would be against that country's public policy.

An international arbitration court in Switzerland had ordered Yugoslavia to pay $60m commission to its arms-dealing agent, Westacre Investments, for selling a batch of Yugoslav tanks to Kuwait in the late 1980s.

Yugoslavia instructed partner Vivienne Pitroff, of Holman Fenwick & Willan, to use the exemption clause to prevent enforcement in England, claiming that the original contract with Westacre involved corruption, probably in conjunction with Yugoslav public officials.

But Yugoslavia lost the first round in London's Commercial Court last month when Mr Justice Colman ruled that even assuming that corruption and bribery were involved, upholding the 'finality and enforceability' of the ruling of an international arbitration court in England was more important.

Frere Cholmeley Bischoff partner Caroline Bassett, who acted for Westacre, said: 'The judge said that courts must give priority to the enforcement of arbitration awards.'

Bassett added that if this did not happen, all defendants reluctant to pay an arbitration award would start asking for awards not to be recognised 'because there was some corruption involved earlier down the line'.

Pitroff said her client would be appealing Colman's ruling in the Court of Appeal. 'If a contract involving bribery is legally acceptable in Switzerland, I don't think it should necessarily be acceptable in this country,' she said. 'Our standards are slightly different.'