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Dallah Supreme Court decision: full update
Practical Law UK Legal Update Case Report 3-503-8421 (Approx. 7 pages)
Dallah Supreme Court decision: full update
by PLC Arbitration
| Published on 09 Nov 2010 • England, Wales |
In Dallah Real Estate and Tourism Holding Co v Government of Pakistan [2010] UKSC 46, the Supreme Court dismissed an appeal against the Court of Appeal's refusal to enforce an ICC arbitration award.
Speedread
The Supreme Court has considered whether the government of Pakistan (GoP) could resist enforcement in England of a French International Chamber of Commerce (ICC) arbitration award, on the basis that it was not party to the arbitration agreement, even though the tribunal had previously ruled that GoP was bound by the agreement. The Court of Appeal held that enforcement should be refused under section 103(2)(b) of the Arbitration Act 1996 because, on the evidence, GoP was not bound by the arbitration agreement.
Upholding the conclusions and reasoning of the Court of Appeal, the Supreme Court held that the question of whether GoP was bound by the arbitration agreement fell to be determined by reference to all the evidence: the English court was not limited to reviewing the tribunal's ruling on this issue. On the evidence (including expert evidence of French law), GoP was not bound by the arbitration agreement. Furthermore, the award would not be enforced as a matter of discretion, as it had been made without jurisdiction.
The Supreme Court judgment clarifies the nature and extent of the court's investigations under section 103 where enforcement of an award is resisted, and contains helpful analysis of the effect of the doctrine of kompetenz-kompetenz in English law. (Dallah Real Estate and Tourism Holding Company v Government of Pakistan [2010] UKSC 46 (3 November 2010).)
Background
Enforcement and recognition of New York Convention Awards
Sections 100 to 103 of the Arbitration Act 1996 (AA 1996) provide for the enforcement and recognition of New York Convention awards. Such awards must be enforced and recognised unless the award debtor establishes one of the grounds set out in section 103(2) of the AA 1996 (which is based on Article V of the New York Convention).
Section 103(2) provides that:
"Recognition or enforcement of the award may be refused if the person against whom it is invoked proves ...
(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made ...
(f) that the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made."
Discretion
Section 103(2) of the AA 1996 provides that "enforcement of the award may be refused" in the circumstances specified by the section. The courts have recognised that this confers a discretion to permit enforcement of an award, even where one of the grounds justifying refusal is established. In Dardana Ltd v Yukos Oil Co [2002] EWCA Civ 543, the Court of Appeal held that the wording of the statute was not intended to give the court an open discretion, but was one based on some recognisable legal principle. Other cases suggest that the court is unlikely to allow enforcement if it is satisfied that the integrity of the award is unsound.
Kompetenz-kompetenz
Kompetenz-kompetenz is a principle of international arbitration law, also recognised in English law, that entitles arbitral tribunals to rule on their own jurisdiction. However, any such ruling will not be final and will be subject to review by the courts. For further discussion, see Practice note, Separability in English law: What is the difference between separability and "kompetenz-kompetenz"?.
Facts
The background facts to this case are set out in Legal update, Court refuses to enforce ICC award.
In brief, the government of Pakistan (GoP) and Dallah (D) agreed that D would acquire land in Mecca and build accommodation for pilgrims. GoP established a trust as a vehicle for the project and an agreement (the agreement) was entered into between D and the trust for this purpose. GoP itself was not a party to the agreement, which provided for ICC arbitration in Paris in the event of a dispute but did not contain a choice of law clause. The trust ceased to exist by the end of 1996. In 1997, a dispute arose and D commenced arbitration proceedings against GoP. GoP challenged the jurisdiction of the arbitrators on the grounds that it was not party to the agreement.
The tribunal determined (in a partial award) that it had jurisdiction to determine D's claim and that GoP was bound by the arbitration clause and had repudiated the agreement. In a final award, it awarded substantial damages to D. D obtained an order in the English court to enforce the final award and GoP applied (under section 103(2) of the AA 1996) to have it set aside on the basis that it was not party to the agreement and that there was no "valid" arbitration agreement within the meaning of section 103(2)(b) of the AA 1996.
Aikens J granted the application and he set aside the order. He held that, as there was no choice of law clause, the agreement was governed by French law, being the law where the award was rendered. After hearing expert evidence on French law, he concluded that GoP was not bound by the arbitration agreement. Aikens J's judgment was upheld by the Court of Appeal. (For further discussion of the first instance and Court of Appeal judgments, see Legal updates, Court refuses to enforce ICC award and Court of Appeal upholds Dallah decision.)
D appealed to the Supreme Court. It was common ground that the "law of the country where the award was made" for the purposes of section 103(2)(b) was French law. The parties also agreed that a French court would apply a test of "common intention" to determine whether GoP, as an unnamed third party, was bound by the agreement. D argued that:
- GoP was estopped by the tribunal's decision from denying the validity of the arbitration agreement. GoP had waived its right to challenge the partial award in France, and could not now challenge it in the enforcement proceedings. This argument, which was advanced in written submissions, was abandoned at the hearing as a separate point because, before the hearing, GoP commenced challenge proceedings in the French court.
- The court, when considering a challenge under section 103(2) of the AA 1996 to the enforcement of a foreign arbitration award, should not conduct a full trial of the issues of facts and law, but limit itself to a "review" and accept the tribunal's findings of fact and its decisions, which are entitled to particular deference.
- As a matter of French law, it was the parties' common intention that GoP should be bound by the arbitration agreement.
- Even if GoP could establish that the award was not valid, the judge and Court of Appeal had erred in refusing to exercise the discretion in favour of enforcement.
Decision
The Supreme Court dismissed the appeal and refused enforcement of the award. Lords Mance and Collins delivered the principal judgments.
In relation to the principal issues, the Court held as follows:
- The tribunal's partial award on jurisdiction was not entitled to recognition or enforcement: quite apart from the fact that no application had been made, the New York Convention did not apply to preliminary awards on jurisdiction. Such awards were subject to review by the courts. Similarly, even if the issue estoppel argument had not been abandoned as a separate point, it would have been doomed to fail: a party who denies being party to an arbitration agreement has no obligation to participate in the arbitration, nor to take steps in the courts of the seat of the arbitration. It is entitled to wait until steps are taken to enforce the award, and then to resist enforcement.
- It followed from the non-binding character of the tribunal's award on jurisdiction that the party challenging enforcement was entitled to a full judicial determination on evidence of the issue of jurisdiction. It was well established in the case of domestic arbitration that a full rehearing was required (Azov Shipping Co v Baltic Shipping Co [1999] 1 Lloyd's Rep 68) and the position was no different in relation to foreign awards. Although the New York Convention recognises that applications to set aside or suspend an award may be made in the courts of the "country in which, or under the law of which" an award was made (Article V(1)(e), as enacted in section 103(2)(f), AA 1996), this did not restrict the nature of the court's review under section 103(2)(b). On the contrary, the language of the section pointed strongly to ordinary judicial determination of the jurisdictional issue. On any view, the tribunal's ruling on its own jurisdiction "has no legal or evidential value" (paragraph 31, judgment) and, although the burden of proof lay on the party resisting enforcement, the weight to be given to the award went no further than that.
- On the evidence (including the expert evidence of French law) the courts below had correctly concluded that there was no common intention that GoP should be bound. It followed that there was no "valid" agreement for the purposes of section 103(2)(b).
- Finally, the discretion to enforce an award under section 103(2)(b) would not be exercised where the court had found that the award had been made without jurisdiction. Section 103(2) covered a wide spectrum of potential objections and it would no doubt be easier to invoke the discretion in other cases. However, it would be a "remarkable state of affairs" if an award made without jurisdiction were enforced as a matter of discretion.
Comment
Although the decision of the Supreme Court is perhaps not surprising, it is helpful because it contains a clear and thorough exposition of the principles relating to kompetenz-kompetenz and enforcement of awards. Although the decision was concerned with English law, Lord Collins, in particular, was careful to consider the approach to such issues in other arbitral jurisdictions, and to place English law principles in an international context.
The non-binding nature of the tribunal's ruling on jurisdiction means that the enforcing court is entitled to consider the issue of jurisdiction on the evidence, and need not defer to the tribunal's decision. It is only where the parties have concluded a separate ad hoc agreement, referring the jurisdictional issue to the tribunal for final determination, that the tribunal's award will be final and binding. However, as Lord Mance pointed out, such cases are extremely rare (paragraphs 24-25, judgment): in practice, the tribunal will make any ruling under the principle of kompetenz-kompetenz, and its ruling will, therefore, be subject to review by the court.
The Supreme Court further confirmed that there is no obligation to challenge awards in the courts of the seat. Although the New York Convention (and the AA 1996) envisage that such challenges may be made, it is also possible for the award debtor to await enforcement and to raise any challenges at that point. Indeed, Lord Mance even envisaged that the ruling of the enforcing court could give rise to an issue estoppel in the courts of the seat (paragraph 29, judgment). Since the award creditor has chosen to enforce in a particular country, it must take the risk that the award will be challenged in the courts of that country.
More generally, it is worth noting that Lord Collins appeared to take a wide view of the court's power to rule on jurisdictional issues in the context of stays under section 9 (paragraph 97, judgment) and did not advert to the possible inroads on the principle of kompetenz-kompetenz. The power of the court to make such rulings has been the subject of some controversy, and in some cases, the court has stayed its own proceedings in accordance with an inherent jurisdiction to permit the tribunal to make the relevant ruling. For further discussion, see Practice note, Remedies for breach of the arbitration agreement: stays of English court proceedings: Overlap with jurisdictional issues.
Finally, in relation to the discretion under section 103, Lord Mance suggested (as he had done in Dardana) that the discretion was intended to enable the court to consider other circumstances which might affect the prima facie right to have enforcement refused as a matter of law. He again suggested that agreement or estoppel might give rise to such circumstances. Lord Collins suggested that there might be cases where the English court would refuse to apply a foreign law which makes the arbitration agreement invalid where the foreign law outrages its sense of justice or decency (paragraph 128, judgment). On any view, it is clear from the Supreme Court judgment that the discretion is a narrow one, and is most unlikely to be exercised where a court has found that an award was made without jurisdiction.