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Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2009] EWCA Civ 755 (20 July 2009)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2009/755.html
Cite as:
[2010] 1 All ER 592,
[2010] BLR 1,
[2009] 2 CLC 84,
[2010] 2 WLR 805,
[2009] EWCA Civ 755,
[2010] Bus LR 384,
[2009] 30 EG 67,
[2010] 1 Lloyd's Rep 119,
[2010] 1 All ER (Comm) 917,
125 Con LR 37
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Neutral Citation Number: [2009] EWCA Civ 755 |
|
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Case No: 2008/2613 |
IN
THE
SUPREME COURT
OF
JUDICATURE
COURT
OF
APPEAL (CIVIL DIVISION)
ON APPEAL FROM
THE
HIGH COURT
OF
JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
The
Honourable Mr. Justice Aikens
[2008] EWHC 1901 (Comm)
|
|
Royal Courts of Justice Strand, London, WC2A 2LL |
|
|
20 July 2009 |
B e f o r e :
LORD JUSTICE WARD
LORD JUSTICE RIX
and
LORD JUSTICE MOORE-BICK
____________________
Between:
____________________
(Transcript
of the
Handed Down Judgment
of
WordWave International Limited
A Merrill Communications
Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to
the
Court)
____________________
Miss Hilary Heilbron Q.C. and Mr. Klaus Reichert (instructed by Kearns & Co) for
the
appellant
Mr. Toby Landau Q.C. and Mr. Patrick Angénieux (solicitor) (instructed by Watson Farley & Williams) for
the
respondent
Hearing dates : 5th-7th May 2009
____________________
HTML VERSION
OF
JUDGMENT
____________________
Crown Copyright ©
Lord Justice Moore-Bick :
- This is an appeal against an order
of
Aikens J. setting aside an order made without notice by Christopher Clarke J. giving leave to
the
appellant,
Dallah Real Estate
and
Tourism Holding Company
("
Dallah
"), to enforce an arbitration award made under
the
auspices
of the
International Chamber
of
Commerce in Paris against
the Ministry of Religious
Affairs
of the Government of Pakistan
. It raises an important question relating to
the
recognition and enforcement
of
international arbitration awards under sections 100-103
of the
Arbitration Act 1996 which give effect to
the
Convention on
the
Recognition and Enforcement
of
Foreign Arbitral Awards usually known as
the
New York Convention ("
the
Convention").
Background
The
background to these proceedings can be described quite shortly.
Dallah
is a member
of
a substantial group
of
Saudi companies which has interests in many fields, including
the
provision
of
accommodation, transport and other services to Muslims who wish to undertake
the
Hajj.
The Ministry of Religious
Affairs is part
of the Government of Pakistan
which has responsibility for, among other things,
the
welfare and safety
of
pilgrims from
Pakistan
who wish to perform
the
Hajj. In February 1995 Mr. Shezi Nackvi
of
Samaha
Holdings
Ltd, another
company
in
the
group which includes
Dallah
, approached
the Ministry
with a proposal that
Dallah
should make available to pilgrims from
Pakistan
a substantial amount
of
accommodation which it proposed to build on a site it was able to acquire for development situated about a mile from
the
centre
of
Mecca. Following negotiations
Dallah
and
the Government of Pakistan
signed a Memorandum
of
Understanding on 24th July 1995 under which
Dallah
agreed to acquire
the
land, build accommodation suitable for pilgrims and lease it to
the Government
for 99 years.
The
arrangements for financing
the
project,
the
terms
of the
lease and
the
details
of the
accommodation were among
the
many matters that still had to be settled. On 18th November 1995
Dallah
acquired some 43,000 square metres
of
land in Mecca with a view to implementing
the
agreement.
- Some time before, in December 1994,
the Government of Pakistan
had approved in principle a proposal to establish a body to be known as
the
Awami Hajj Trust for
the
purpose
of
accepting deposits from prospective pilgrims and investing them in Shariah-compliant schemes in order to help them meet
the
costs
of the
Hajj. It appears that as negotiations with
Dallah
proceeded
the Government
decided that
the
Trust would provide a convenient vehicle for
the
project. At all events, on 31st January 1996
the
President
of Pakistan
promulgated Ordinance No. VII
of
1996 providing for
the
establishment
of the
Trust as a body corporate with legal personality, whose objects included mobilising
the
savings
of
members, investing them, using
the
proceeds to defray
the
costs
of
travel and subsistence and generally facilitating their performance
of the
Hajj.
The
Trust came into existence on 14th February 1996 when
the
Ordinance was published in
the
Official Gazette. Its Constitution provided for various officers, including a Secretary
of the
Board
of
Trustees who was to be
the
Secretary
of the Ministry of Religious
Affairs for
the
time being. Under
the
constitution
of Pakistan the
Ordinance automatically lapsed after a period
of
four months and therefore
the
continued existence
of the
Trust depended on its re-publication at regular intervals. It was re-published for
the
second time as Ordinance No. LXXXI
of
1996 on 12th August 1996, but it was subsequently allowed to lapse (whether intentionally or by oversight is unclear) and as a result
the
Trust ceased to exist on 12th December 1996.
- Negotiations between
Dallah
and
the Government
continued well into 1996 culminating in an agreement dated 10th September 1996 which was expressed to be made between
Dallah
and
the
Trust.
The Government
was not expressed to be a party to
the
Agreement, nor did it sign it in any capacity. It is unnecessary for
the
purposes
of
this judgment to set out
the
terms
of the
Agreement apart from clause 23 which provided as follows :
"Any dispute or difference
of
any kind whatsoever between
the
Trust and
Dallah
arising out
of
or in connection with this Agreement shall be settled by arbitration held under
the
Rules
of
Conciliation and Arbitration
of the
International Chamber
of
Commerce, Paris, by three arbitrators appointed under such Rules".
- On 6th November 1996 there was a change
of government
in
Pakistan
and before long
the
relationship between
the Government
,
the
Trust and
Dallah
had broken down. On 19th January 1997 in a letter written on
the
headed paper
of the Ministry of Religious
Affairs Mr. Lutfullah Mufti, who signed as "Secretary", accused
Dallah of
having repudiated
the
Agreement which he therefore purported to treat as discharged.
The
next day proceedings were issued by Mr. Lutfullah Mufti in
the
name
of the
Trust in
the
Court
of the
Senior Civil Judge, Islamabad seeking a declaration that
Dallah
had repudiated
the
Agreement and an injunction restraining it from asserting otherwise or claiming any rights against
the
Trust under it. Over
the
next two years further proceedings followed, to which it will be necessary to refer in more detail at a later stage, in which
the Government
attempted to establish that it was under no liability to
Dallah
either. For present purposes, however, it is necessary to add only that on 19th May 1998
Dallah
purported to commence arbitration against
the Ministry of Religious
Affairs under
the
rules
of the
ICC claiming damages for breach
of the
Agreement.
The
ICC appointed a distinguished tribunal consisting
of
Lord Mustill, Mr. Justice Dr. Nassim Hasan Shah and Dr. Ghaleb Mahmassani.
The Government of Pakistan
rejected any suggestion that it was a party to
the
Agreement and therefore challenged
the
jurisdiction
of the
tribunal.
The
tribunal decided to determine
the
question
of
jurisdiction first.
The Government
provided some written submissions under protest, but otherwise declined to take part in
the
proceedings. On 26th June 2001
the
tribunal published its First Partial Award in Paris in which it held that
the Government
was bound by
the
agreement to arbitrate contained in clause 23
of the
Agreement and that it therefore had jurisdiction to determine
Dallah
's claim. In a Second Partial Award published on 19th January 2004
the
tribunal held that
the Government
had repudiated
the
Agreement and directed that damages should be assessed, and issues relating to interest and costs determined, at a later hearing. By a Final Award dated 23rd June 2006
the
tribunal awarded
Dallah
damages in
the
sum
of
US$18,907,603 and costs
of
US$1,680,437.
The
present proceedings
The
present proceedings were started by an arbitration claim form seeking leave under section 101(2)
of the
Arbitration Act 1996 to enforce
the
tribunal's Final Award in
the
same manner as a judgment
of the
High Court. On 9th October 2006 Christopher Clarke J. made an order without notice giving
Dallah
permission to enforce
the
award, which led in turn to an application by
the Government
to set aside
the
order on
the
grounds that
the
arbitration agreement on which
the
award was based was not valid within
the
meaning
of
section 103(2)(b)
of the
Act.
- Section 103 provides, so far as is material to this appeal, as follows:
103 Refusal
of
recognition or enforcement
(1) Recognition or enforcement
of
a New York Convention award shall not be refused except in
the
following cases.
(2) 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;
- Aikens J. held that, since
the
parties had not agreed
the
law by which clause 23
of the
Agreement should be governed, it was subject to French law as
the
law
of the
country where
the
award was made. He heard expert evidence
of
French law, on
the
basis
of
which he made certain findings which he applied in determining whether
the Government
was a party to clause 23
of the
Agreement. He held that it was not, that there was therefore no valid arbitration agreement between it and
Dallah
and that
the
award should therefore not be enforced.
- Miss Heilbron Q.C. for
Dallah
made her submissions under
the
following four broad headings:
(i) that
the
judge adopted
the
wrong approach to deciding whether
the Government of Pakistan
had proved that
the
arbitration agreement on which
Dallah
relied was not valid;
(ii) that although
the
judge's findings
of the
relevant principles
of
French law were open to him on
the
evidence, he failed to apply them correctly to
the
material before him;
(iii) that
the Government of Pakistan
was estopped from denying that
the
arbitration agreement was valid; and
(iv) that, even if
the
award was not valid,
the
judge erred in not exercising his discretion in favour
of
enforcing it.
- Miss Heilbron did not follow that order when making her oral submissions, choosing to deal first with
the
facts and
the
judge's application
of
French law to them, but in my view
the
order in which I have summarised them (and in which they appeared in her skeleton argument) is
the
logical order in which to address them and that is
the
course I propose to take.
(i)
The
nature
of
proceedings under section 103(2)
The
tribunal itself considered and determined
the
question
of
its jurisdiction, which it recognised depended on whether
the Government
had entered into an arbitration agreement with
Dallah
. In
the
proceedings before
the
court
the Government
sought to prove that
the
arbitration agreement on which
Dallah
relied as
the
basis for
the
tribunal's Final Award was not valid because it had not entered into any such agreement.
The
issue before
the
court, therefore, was
the
same as that which had been before
the
tribunal.
The
question raised by Miss Heilbron's submissions is whether in those circumstances proceedings under section 103(2) should take
the
form
of
a full re-hearing or a more limited review.
The
judge treated this issue as essentially one
of
statutory interpretation. In paragraphs 81-84
of
his judgment he said:
"81. . . . Miss Heilbron submitted that international comity and
the
general "pro–enforcement" approach
of
both
the
Convention and Part III
of the
Act, suggested that a limited enquiry should be carried out by
the
English court if a party made an application under section 103(2)(b).
82. I cannot agree with this submission. It seems to me that I am bound by
the
wording
of the
Act itself, which reflects faithfully that
of the
Convention. A party who wishes to persuade a court to refuse recognition or enforcement
of
a Convention award has to prove one
of the
matters set out in paragraphs (a) to (f)
of
section 103(2). Those paragraphs are definitive
of
what a party can prove in order that a court "may" refuse recognition or enforcement
of
a Convention award. If a party has to "prove" a matter, that must mean, in
the
context
of
English civil proceedings, prove
the
existence
of the
relevant matters on a balance
of
probabilities. Challenges under section 103(2) will be challenges to
the
recognition and enforcement
of
awards that have been made in a country other than England and Wales. Therefore, so far as English law is concerned,
the
matters set out in paragraphs (a) to (f), including issues
of
foreign law, are all matters
of
fact.
83. Thus, a party must be entitled to adduce all evidence necessary to satisfy
the
burden
of
proof on it to establish
the
existence
of
one
of the
grounds set out in section 103(2). . . . it seems to me that
the
statutory wording
of
section 103(2) requires that
the
party wishing to challenge
the
recognition and enforcement
of
a Convention award must be entitled to ask
the
court to reconsider all relevant evidence on
the
facts (including foreign law), as well as apply relevant English law.
84. I have already set out
the
test that
the
arbitrators stated had to be applied to see if
the
GoP [
Government of Pakistan
]was a party to
the
arbitration clause.
The
GoP's French law expert, M. Le Bâtonnier Vatier, accepted that, in general,
the
arbitrators had applied
the
correct test as would be enunciated by a French court. However, it seems to me, on
the
correct construction
of
section 103(2) that despite this concession, I cannot evade going through
the
exercise
of
considering all
the
relevant evidence to see whether
the
GoP has proved (applying French law principles) that it is not a party to
the
arbitration clause, which is therefore not valid.
The
exercise is, to that extent, a rehearing, not a review."
The
essence
of
Miss Heilbron's submission was that in so construing
the
statute
the
judge failed to have sufficient regard to
the
policy behind
the
Convention and that, in order to give proper effect to what she described as its "pro-enforcement" philosophy,
the
court when considering a challenge under section 103(2) to
the
enforcement
of
a foreign arbitration award should not conduct a full trial
of the
issues
of
fact and law to which
the
application gives rise, but should limit itself to an enquiry more in
the
nature
of
a review, accepting any relevant findings
of
fact and decisions
of the
tribunal unless they can be shown to be clearly wrong. She accepted that
the
weight to be accorded to
the
tribunal's conclusions might vary depending on
the
circumstances
of the
case, but she submitted that
the
court should normally pay particular regard to them. That submission was based to a significant extent on
the
distinction that she submitted is to be drawn between
the
role
of the
courts
of the
seat
of the
arbitration (
the
"supervisory" or "primary" court) and
the
courts
of the
state in which enforcement is sought (
the
"enforcing" court). In
the
present case
the
French courts were
the
supervisory courts and
the
High Court no more than an enforcing court.
The
tribunal was composed
of
eminent lawyers and
the
decision it reached in its First Partial Award was one that was clearly open to it. She submitted that
the
judge should therefore have given particular weight to its decision and, having done so, should have rejected
the Government of Pakistan
's application.
The
language
of
section 103(2)
of the
Arbitration Act follows very closely that
of
Article
V
.1
of the
Convention, although in some respects its structure is slightly different. Article
V
.1 itself provides as follows:
"Recognition and enforcement
of the
award may be refused, at
the
request
of the
party against whom it is invoked, only if that party furnishes to
the
competent authority where
the
recognition and enforcement is sought, proof that:
(a)
The
parties to
the
agreement referred to in article II were, under
the
law applicable to them, under some incapacity, or
the
said agreement is not valid under
the
law to which
the
parties have subjected it or, failing any indication thereon, under
the
law
of the
country where
the
award was made; or
(b)
The
party against whom
the
award is invoked was not given proper notice
of the
appointment
of the
arbitrator or
of the
arbitration proceedings or was otherwise unable to present his case; or
(c)
The
award deals with a difference not contemplated by or not falling within
the
terms
of the
submission to arbitration, or it contains decisions on matters beyond
the
scope
of the
submission to arbitration, provided that, if
the
decisions on matters submitted to arbitration can be separated from those not so submitted, that part
of the
award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d)
The
composition
of the
arbitral authority or
the
arbitral procedure was not in accordance with
the
agreement
of the
parties, or, failing such agreement, was not in accordance with
the
law
of the
country where
the
arbitration took place; or
(e)
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, that award was made."
As is apparent, therefore, it is directed to matters which, if established, undermine
the
legitimacy
of the
award as giving rise to a binding obligation created in accordance with
the
will
of the
parties as expressed in
the
arbitration agreement.
- Article
V
.1(e) and section 103(2)(f) both recognise that
the
courts
of the
country in which, or under
the
law
of
which,
the
award was made have a supervisory role.
The
scope
of the
supervisory court's powers and therefore
the
extent
of
that role varies in accordance with its own domestic law, but will normally include
the
power to set aside
the
award in cases where
the
arbitral process has failed to conform to
the
terms
of the
arbitration agreement or has failed to meet certain basic standards
of
fairness. In some jurisdictions, notably our own,
the
court also has
the
power to entertain a challenge to
the
award on
the
grounds
of
an error
of
law.
The
power
of the
supervising court to annul
the
award is, therefore,
of
a substantive nature. It extends beyond
the
mere refusal to recognise or enforce
the
award, which is
the
limit
of the
powers available to courts
of
other states that are parties to
the
Convention.
- Miss Heilbron submitted that
the
distinction between
the
powers
of the
supervisory court and
the
powers
of
enforcing courts naturally points to
the
conclusion that as a matter
of
policy
the
Convention accords primacy to
the
supervisory court. In one sense that is not controversial because Article
V
.1(e) itself recognises that
the
supervisory court has
the
power to set aside or suspend
the
award, a step which
of
itself entitles (but does not require) courts
of
other jurisdictions to refuse enforcement. However, there is nothing in
the
Convention to suggest that
the
supervisory court is intended to have primacy in
the
sense that enforcing courts are expected, much less required, to treat
the
award as valid and binding unless and until successfully challenged in
the
supervisory court. If that had been intended, Article
V
.1 would have taken a very different form. In particular, it would not have given courts
of
other jurisdictions an unrestricted power to refuse enforcement in cases where defects in
the
arbitral process
of the
kind which it describes could be proved. On
the
contrary, it is well established, and indeed was common ground, that a person against whom an award has been made is not bound to challenge it before
the
supervisory court in order to challenge its enforcement in another jurisdiction: see Svenska Petroleum Exploration AB
v Government of the
Republic
of
Lithuania (No. 2) [2006] EWCA Civ 1529, [2007] QB 886 at paragraph 104 and
the
cases there cited. In my view
the
terms
of
Article
V
.1 read as a whole amply bear out
the
submission
of
Mr. Landau Q.C. that one
of the
fundamental principles enshrined in
the
Convention is that such a person is entitled to oppose
the
enforcement
of
an award on
the
grounds that it is not based on a valid agreement to arbitrate.
- Miss Heilbron suggested a number
of
additional reasons why primacy should be accorded to
the
supervisory court, but they were all essentially
of
a pragmatic nature. Thus, she submitted that it would promote certainty, since in many cases
the
law governing questions relating to
the
validity
of the
arbitration agreement will be that
of the
supervisory court, which is much better placed to decide them than any other. It would also, she submitted, remove
the
possibility
of
enforcement being opposed in separate proceedings in many different jurisdictions with potentially different outcomes. Other considerations, however, may point in a different direction. One
of the
attractions
of
international arbitration is that it gives
the
parties
the
power to insulate
the
proceedings from local jurisdictions.
The
effect
of
requiring foreign courts to defer to
the
courts
of the
country where
the
arbitration has its seat would be to reinstate in all but name
the
"double exequatur" rule which
the
Convention displaced and would significantly increase
the
influence
of the
courts
of
that jurisdiction. That would not be universally welcome. It may well be that
the
particular considerations to which Miss Heilbron referred were present to
the
minds
of
those who were responsible for negotiating
the
Convention, but if they were, they were rejected in favour
of the
safeguards contained in Article
V
.1 which are designed to ensure
the
fundamental integrity
of the
award.
- Miss Heilbron submitted that
the
Convention policy
of
giving primacy to
the
supervisory court meant that Article
V
.1 contemplated a review within a narrow compass and not a wholesale re-hearing
of the
issues determined by
the
tribunal, a matter that should be left to
the
supervisory court. As will be apparent, I am unable to accept that there is any policy
of the
kind she suggested, but quite apart from that, her argument founders on
the
language
of
Article
V
.1 itself, which requires
the
party against whom enforcement is sought to "furnish proof"
of the
matters to which it refers (an expression accurately reflected in
the
more modern language
of
section 103(2)
of the
Act). In a case where
the
tribunal has determined its own jurisdiction there is an obvious possibility that a party opposing enforcement will wish to challenge some
of
its findings
of
fact or conclusions
of
law and I find it very difficult to interpret
the
expression "furnish proof" as meaning anything other than requiring proof in
the
manner and to
the
standard ordinarily required in proceedings before
the
enforcing court.
- Moreover, I have to say that I find it difficult to understand exactly what Miss Heilbron had in mind when submitting that
the
court should accord deference to
the
tribunal's conclusions, particularly in view
of the
fact that she asserted that
the
principle was flexible in its application. If it meant no more than that
the
court should have regard to
the
tribunal's reasoning in reaching its own conclusion, I should have little difficulty with it, since
the
tribunal's reasons will almost invariably be before
the
court and will carry as much persuasive weight as their cogency gives them. That is not, however, what I understood her to mean, since it was essential to her argument that
the
court should at least accord great weight to
the
tribunal's conclusions unless they are clearly wrong. However, as became clear in
the
course
of
argument, it is impossible to formulate any satisfactory principle that falls somewhere between a limited review akin to that which
the
court undertakes when reviewing
the
exercise
of
a judicial discretion and a full re-hearing, not to mention one that is also capable
of
flexibility in its application. Moreover, for
the
court to defer to
the
tribunal's conclusions in
the
manner suggested by Miss Heilbron when it is required to decide whether a particular state
of
affairs has been proved would be to give
the
award a status which
the
proceedings themselves call into question. It is for similar reasons that our courts have consistently held that proceedings challenging
the
jurisdiction
of
an arbitral tribunal under section 67
of the
Arbitration Act involve a full rehearing
of the
issues and not merely a review
of the
arbitrators' own decision.
- I agree with Miss Heilbron that a statutory provision which gives effect to an international convention
of
this kind should be construed with due regard to
the
purpose
of the
convention and with a view to ensuring consistency
of
interpretation and application, but there is no reason to think that
the
judge was not alive to that principle. In
the
absence
of
any authority, either in this country or abroad, which tends to support
the
conclusion that
the
language
of
Article
V
.1 is to be given a meaning different from that which it naturally bears and in
the
light
of the
close similarity
of
language between
the
Convention and
the
statute, I think
the
judge was right to treat
the
question as one
of
statutory interpretation and that his conclusion on
the
meaning
of
section 103(2) was clearly correct.
(ii)
The
application
of
French law
- Before dealing with Miss Heilbron's submissions on French law and its application to
the
facts
of
this case it is necessary to say a little more about
the
First Partial Award,
the
tribunal's identification
of the
law applicable to
the
arbitration agreement, and
the
application
of
that law to
the
facts which it found.
- Neither
the
Agreement as a whole nor clause 23 contained any express choice
of
governing law. Before
the
tribunal
Dallah
argued that both were governed by Saudi Arabian law, being
the
system
of
law with which
the
contract had its closest and most
real
connection.
The Government of Pakistan
argued on similar grounds that both were governed by
the
law
of Pakistan
. As far as clause 23 was concerned,
the
tribunal did not accept either
of
those submissions, nor did it hold that by choosing arbitration in Paris
the
parties had made an implied choice
of
French law. Instead, it held that all issues relating to
the
validity and scope
of
clause 23, including
the
question whether
the Government of Pakistan
was a party to it, were to be determined by reference to "those transnational general principles and usages which reflect
the
fundamental requirements
of
justice in international trade and
the
concept
of
good faith in business".
The
tribunal then proceeded to examine in some detail
the
conduct
of the Government
before, at
the
time
of
and after signing
the
Agreement and reached
the
conclusion that it had demonstrated that it had always been, and considered itself to be, a party to
the
Agreement with
Dallah
. As a result, applying
the
transnational principles to which it had earlier referred,
the
tribunal held that
the Government of Pakistan
was a true party to
the
Agreement, including
the
arbitration clause.
- I am conscious that this brief summary does not do full justice to
the
tribunal's reasoning, but
the
two important matters to emphasise are, first, that it did not purport to apply French law in order to determine
the
issue before it and, second, that its decision was based mainly, if not entirely, on inferences drawn from
the
documents.
The
judge, on
the
other hand, not only had some additional documents before him, but, more importantly, was bound by section 103(2)
of the
Act to apply French law to
the
facts as he found them.
The
judge had
the
benefit
of
hearing evidence from two experts in French law, M. Derains and M. Le Bâtonnier Vatier. In paragraph 85
of
his judgment he set out
the
following passages from their Joint Memorandum which encapsulated
the
principles which they agreed were applicable to
the
present case:
"Under French law, in order to determine whether an arbitration clause upon which
the
jurisdiction
of
an arbitral tribunal is founded extends to a person who is neither a named party nor a signatory to
the
underlying agreement containing that clause, it is necessary to find out whether all
the
parties to
the
arbitration proceedings, including that person, had
the
common intention (whether express or implied) to be bound by
the
said agreement and, as a result, by
the
arbitration clause therein.
The
existence
of
a common intention
of the
parties is determined in
the
light
of the
facts
of the
case. To this effect,
the
courts will consider
the
involvement and behaviour
of
all
the
parties during
the
negotiation, performance and, if applicable, termination
of the
underlying agreement.
When a French court has to determine
the
existence and effectiveness
of
an arbitration agreement over
the
parties to an arbitration which is founded upon that agreement, and when for these purposes it must decide whether
the
said agreement extends to a party who was neither a signatory nor a named party thereto, it examines all
the
factual elements necessary to decide whether that agreement is binding upon that person".
The
judge then referred to
the
oral evidence and found that:
"Both experts agreed that when
the
court is looking for
the
common intention
of
all
the
potential parties to
the
arbitration agreement, it is seeking to ascertain
the
subjective intention
of
each
of the
parties, through their objective conduct.
The
court will consider all
the
facts
of the
case, starting at
the
beginning
of the
chronology and going on to
the
end and looking at
the
facts in
the
round."
- It is important to recognise that
the
judge not only had
the
benefit
of
hearing
the
witnesses give their evidence, but also had
the
opportunity
of
clarifying with them through direct questions his understanding
of the
relevant principles
of
French law, an opportunity
of
which he took full advantage. Having seen
the
evidence before him, I am
of the
view that it fully supported his finding that French law is concerned to ascertain
the
"
real
" or "subjective" intentions
of the
parties in order to determine whether an agreement existed between them. It is unnecessary to consider that evidence or
the
basis for
the
judge's findings in any greater detail because Miss Heilbron accepted that
the
judge had correctly found that French law required him to ascertain
the
common intention
of the
parties by reference to their behaviour during
the
negotiation, performance and, if applicable, termination
of the
agreement. She submitted, however, that he had erred in two respects in his understanding and application
of the
principle. First, he concentrated too much on
the
subjective intention
of the Government of Pakistan
and too little on
the
objective evidence
of
its intention in
the
way it had conducted itself throughout
the
period in question. Second, he misunderstood
the
relevance and status
of
transnational law in this context and so failed to take into account
the
interests
of
justice and good faith which French law recognises as important.
The
application
of
foreign law by an English court depends not merely on
the
judge's finding
of the
relevant principles, but on his understanding
of
their content and
the
way in which they are applied by
the
courts
of the
country in question. In this case, as I have pointed out,
the
judge had
the
opportunity
of
debating with
the
experts
the
essential nature
of the
relevant principles
of
French law and thereby
of
gaining a fuller understanding
of
them which he could bring to bear when applying them to
the
material before him. In those circumstances I think an appellate court, which has not had
the
same benefit, should be slow to hold that
the
judge, having formulated
the
principles correctly, erred in his application
of
them.
- Miss Heilbron's criticism
of the
judge depended heavily on
the
contention that he had failed to give sufficient recognition to
the
fact that, as he himself had found,
the
parties' subjective intentions are to be ascertained by reference to their objective conduct. To that end she was at pains to emphasise that right from
the
outset to
the
point
of
its eventual collapse
the
project with
Dallah
was one in which
the Government
was directly interested and which it controlled at
the
highest level. In
the
period leading up to
the
signature
of the
Memorandum
of
Understanding all negotiations were carried on by
the Government
and
the
Memorandum
of
Understanding itself embodied an agreement between
Dallah
and
the Government
. After
the
establishment
of the
Trust
the Government
continued to direct
the
project and to handle all negotiations with
Dallah
. Although it existed as an independent legal person,
the
Trust itself played no separate role. In effect, her submission was that
the
Trust was little more than a vehicle which
the Government
directed and used for
the
purposes
of
implementing
the
arrangements it had made with
Dallah
.
- In my view that is not an unfair way
of
describing
the
respective roles
of the Government
and
the
Trust in practical terms, but
the
judge was clearly well aware
of the Government
's involvement in
the
project, which in any event does not take one very far in deciding whether it was
the
common intention
of the
parties that it was to be a party to
the
Agreement. Given Miss Heilbron's emphasis on
the
importance
of
ascertaining
the
parties' intentions by reference to their conduct, it is worth recording that Mr. Landau accepted two propositions that are reflected in
the
judge's findings
of
French law and which seem to me to be important.
The
first was that although French law seeks to ascertain
the
parties'
real
intentions, it does so by examining their conduct and communications and to that extent
the
exercise necessarily involves an element
of
objectivity.
The
second is that we are concerned in this case with
the
common intention
of the
parties, not their individual intentions, and that before one can find that two parties were in agreement it is necessary to be satisfied that each was aware that
the
other was
of the
same mind; and that in turn requires some communication between them.
The
judge seems to have had all these matters well in mind. Although
the
principles
of
French law determined
the
question he had to ask himself,
the
ascertainment
of the
parties'
real
intentions and
the
existence
of
any common intention was a matter
of
fact. He examined
the
material before him (which was to a large extent
the
same as had been before
the
tribunal) and considered what inferences could properly be drawn from it. In
the
course
of
doing so he took into account
the
views expressed by
the
tribunal in
the
award. Prior to
the
establishment
of the
Trust
the Government
was
the
only party with whom
Dallah
could negotiate and its position was made clear in
the
Memorandum
of
Understanding, a document which was drafted in formal terms and clearly intended to be legally binding. In my view, however,
the
establishment
of the
Trust and, most importantly,
the
execution
of
an Agreement between
the
Trust and
Dallah
represented a fundamental change in
the
position and must have been recognised as such by all parties. Indeed, correspondence which preceded
the
Agreement shows that
Dallah
was well aware that it would be contracting with
the
Trust rather than
the Government
.
The Government
was not expressed to be a party to
the
Agreement, nor did it sign
the
Agreement in any capacity. It is difficult, therefore, to infer that
Dallah
,
the
Trust and
the Government
each intended (and knew that each
of the
others intended) that
the Government
was to be a party to it. If that had been their common intention
the Government
would surely have been named as a party to
the
Agreement, or would at least have added its signature in a way that reflected that fact. Other aspects
of the
Agreement, to which
the
judge referred, tend to bear out that conclusion.
The
fact that
the
Agreement contemplated that
the Government
would guarantee
the
Trust's obligations in respect
of
a loan required to enable it to finance
the
project is certainly evidence
of
its continued involvement and support, but
the
fact that
the
Agreement does not purport to impose any such obligation on
the Government
directly is telling when it comes to deciding whether it was intended that it should be a party to it.
The
judge then dealt with events that occurred between
the
execution
of the
Agreement and
the
letter
of
19th January 1997, in particular with various letters dealing with
the
establishment
of the
bank that was to collect and invest payments made to
the
Trust. Miss Heilbron submitted that he misunderstood
the
nature
of
those letters. I do not think he did, but their significance, if any, lies only in
the
fact that they were written by officials
of the Ministry of Religious
Affairs. That is certainly further evidence that
the Government
was managing
the
project on behalf
of the
Trust, but in my view goes no farther than that.
The
piece
of
evidence on which Miss Heilbron placed most emphasis was
the
letter
of
19th January 1997 itself,
the
significance
of
which was said to lie in
the
fact that
the Government
purported to accept
Dallah
's repudiation
of the
Agreement as if it were itself a party to it.
The
letter was written on
the
headed paper
of the Ministry of Religious
Affairs. It referred to
the
Agreement and to
Dallah
's obligation to obtain
the
Trust's approval
of
detailed specifications and drawings within 90 days
of
its execution. It continued:
"However, since you have failed to submit
the
specifications and drawings for
the
approval
of the
Trust to date you are in breach
of
a fundamental term
of the
Agreement which tantamounts [sic] to a repudiation
of the
whole Agreement which repudiation is hereby accepted.
Moreover,
the
effectiveness
of the
Agreement was conditional upon your arranging
the
requisite financing facility amounting to U.S.$100,000,000.00 within thirty (30) days
of the
execution
of the
Agreement and your failure to do so has prevented
the
Agreement from becoming effective and as such there is no Agreement in law.
This is without prejudice to
the
rights and remedies which may be available to us under
the
law."
The
arbitrators placed a good deal
of
weight on this letter and Miss Heilbron submitted that to a French court it would have provided strong evidence that
the Government
regarded itself as bound by
the
Agreement. However,
the
judge, she said, had approached
the
matter as an English lawyer, seeking to analyse what
the
writer had in his mind. Her submissions echoed
the
findings
of the
tribunal who found that
the
letter confirmed that
the Government
regarded itself as a party to
the
Agreement and entitled to exercise rights in relation to it.
- I think that Miss Heilbron was right in saying that
the
judge paid close attention to
the
letter itself and to
the
circumstances in which it was written in order to ascertain
the
writer's intention, but that is hardly surprising given
the
nature
of the
task that he had to perform under French law and indeed she herself approached
the
matter in a similar way. In my view, however, too close an analysis is apt to mislead. For example, some play was made on both sides with
the
fact that when this letter was written
the
Trust had ceased to exist, with
the
result that, as a matter
of
law, Mr. Lutfullah Mufti could not have been writing as secretary to
the
Board
of
Trustees. Strictly speaking, that is true, but it does not necessarily follow that he was writing on behalf
of the Government
or that
the Government
viewed itself as a party to
the
Agreement. That is a matter to be judged in
the
light
of the
surrounding circumstances as a whole. Indeed, it seems likely that when
the
letter was written
the
writer was unaware
of the
fact that
the
Trust had ceased to exist, because
the
very next day proceedings were commenced in
the
name
of the
Trust seeking a declaration that it had no liability to
Dallah
.
The
fact that
the
letter was written on
the
headed stationery
of the Ministry of Religious
Affairs also loses much
of
its significance when it is appreciated that
the
Trust did not possess its own headed stationery. Equally,
the
fact that
the
letter was written by a
Government
official counts for little when one realises that
the Ministry of Religious
Affairs had routinely dealt with correspondence and carried out similar functions on behalf
of the
Trust and that
the
writer was (or had been) its secretary. Such evidence no doubt demonstrates that
the Government
continued to be closely involved in
the
project and was behind
the
scenes pulling
the
strings, but it is not evidence that
the Government
,
the
Trust and
Dallah
shared a common intention that
the Government
was to be a party to
the
Agreement. If, as I think likely,
the
letter was written in ignorance that
the
Trust had ceased to exist, it is almost certain that
Dallah
was equally unaware
of the
fact and that it was read and understood as written on behalf
of the
Trust. It is interesting to note in this context that although French law directs
the
court to
the
common intention
of the
parties as
the
foundation
of
any agreement, little attention appears to have been directed to
the
question whether
Dallah
demonstrated any intention to enter into an agreement with
the Government of Pakistan
. If it did intend to do so, it is surprising, to say
the
least, that it was content for
the Government
neither to be named as a party to
the
Agreement nor to sign it in any capacity and that it did not seek any other formal or informal statement
of
its intention to be bound.
- One further submission falls for consideration at this point. Miss Heilbron submitted that it is possible in French law for a person to become a party to an agreement by what in English law would be recognised as a process
of
adhesion, provided that
the
existing parties consent to his doing so. Again, therefore, it is necessary to find a common intention
of the
parties.
The
principle itself does not appear to have been controversial, but there are obvious potential difficulties in
the
way
of
applying it in this case, given that one
of the
parties to
the
Agreement had ceased to exist and with it, perhaps,
the
Agreement itself. However, unless Miss Heilbron can successfully challenge
the
judge's finding that
the Government
did not intend to become a party to
the
Agreement, this argument must fail. I find it difficult in all
the
circumstances to accept that
the
letter can properly be viewed as indicating that
the Government
intended at that late stage to become a party to an agreement which
the
writer was purporting to treat as discharged by repudiation.
- Finally, it is necessary to mention
the
proceedings in
Pakistan
on which again Miss Heilbron placed some reliance.
The
proceedings started in
the
name
of the
Trust on 20th January 1997 were
the
first in a series
of
actions which were pursued over
the
following two and a half years in an attempt to obtain a decision from
the
courts in
Pakistan
that neither
the
Trust nor
the Government
had incurred any liability to
Dallah
.
The
claim in
the
name
of the
Trust was dismissed on
the
grounds that
the
Trust no longer existed and could not therefore maintain an action. However, in
the
course
of
his judgment delivered on 21st February 1998
the
judge in Islamabad observed that
the Ministry of Religious
Affairs as
the
Trust's parent department for whom
the
Ordinance had been issued could sue and be sued in respect
of
matters done under it.
- On 29th May 1998
the
ICC wrote to
the Government
informing it that
Dallah
had made a request for arbitration under
the
Agreement. In
the
light
of
that development and
of the
observation made by
the
judge when dismissing
the
earlier proceedings, it is not surprising that on 2nd June 1998
the Ministry
started its own action in Islamabad seeking a declaration that
the
Agreement had been repudiated by
Dallah
and an injunction restraining
Dallah
from asserting any rights against it. In
the
opening paragraphs
of
its statement
of
claim
the Ministry
made it clear that it claimed in a derivative capacity following
the
demise
of the
Trust and later in
the
document it referred to
the
fact that
the
action started in
the
name
of the
Trust had been dismissed because
the
Trust had ceased to exist.
- In paragraph 121
of
his judgment Aikens J. noted that
the
tribunal had found that
the Government
's statement
of
claim amounted to an admission that it was a party to
the
Agreement and had accepted
Dallah
's repudiation in its own right. He also noted, however, that
the Government
did not allege in terms that it was a party to
the
Agreement, except in paragraph 16 where
the
Agreement was said to have been entered into between "
the
parties" in Islamabad, an allegation which he attributed to a need to found jurisdiction there. He was unable to accept that
the
pleading contained an admission on
the
part
of the Government
that it was or had become a party to
the
Agreement.
- Miss Heilbron criticised
the
judge's conclusion on
the
grounds that there are many references in
the
statement
of
claim to "
the
plaintiff" in connection with
the
Agreement or its termination that are consistent with an acceptance by
the Government
that it was and always had been a party to
the
Agreement. It is quite true that at various points in
the
statement
of
claim
the
expression "
the
plaintiff" is used in connection with
the
Agreement or its termination where a reference to
the
Trust might have been expected, but that is a flimsy basis on which to read
the
document as containing an admission by
the Government
that it was a party to
the
Agreement. When read as a whole I think that
the
nature
of the Ministry
's (and therefore
the Government
's) case is clear: it was suing in a purely derivative capacity as
the
department that had sponsored
the
Ordinance under which
the
Trust had been established. A more careful pleader would no doubt have avoided many
of the
references to "
the
plaintiff" as being inapposite, but I do not think that their use detracts from
the
obvious meaning
of the
pleading. Moreover, it is necessary to bear in mind that French law did not require
the
judge to engage in a technical exercise in which
the Government
could be impaled on an apparent admission. It required him to ascertain
the
common intention
of the
parties on
the
basis
of the
evidence as a whole. Taken fairly as a whole this pleading does not provide any support for
the
conclusion that
the Government
always intended to be a party to
the
Agreement. I regard this criticism
of the
judge as misplaced.
- I return at this point, therefore, to
Dallah
's
real
complaint, namely, that when considering
the
material before him
the
judge concentrated too much on
the Government
's private intentions and too little on its intentions as evidenced by its behaviour. It is true that there are some passages in
the
judgment which, taken in isolation, might lend some support to that argument, but in reality there is nothing in
the
point since there was no evidence from Mr. Lutfullah Mufti or anyone else representing
the Government of
what was actually in its mind. All that
the
judge could do, therefore, was to deduce from
the
objective evidence what
the Government
's
real
intentions were and that is what he did. To make such findings based on evidence
of
that kind is exactly what French law, as found by
the
judge, required
of
him.
- Miss Heilbron also criticised
the
judge for failing to consider
the
overall justice
of the
case or
the
requirements
of
good faith, despite
the
fact that
the
experts agreed that it was an important factor to be taken into account in ascertaining
the
intentions
of the
parties. In fact, in paragraph 128
of
his judgment
the
judge specifically referred to
the
need to take account
of the
doctrine
of
good faith, so it was clearly present to his mind, but it is difficult to see how its relevance to
the
present case could ever have gone beyond providing a context in which
the
conduct and utterances
of the Government
were to be judged.
The
judge expressed his conclusions on this part
of the
case as follows in paragraph 129
of
his judgment:
"On
the
evidence before me, my conclusion is that it was not
the
subjective intention
of
all
the
parties that
the
GoP [
Government of Pakistan
] should be bound by
the
Agreement or
the
arbitration clause. In fact, I am clear that
the
opposite was
the
case from beginning to end. That is why
the
GoP distanced itself from
the
contractual arrangements in
the
Agreement and that is why it sought to argue from
the
time
of the
Termination Letter that
the
Agreement was void and illegal. As for
the
doctrine
of
good faith, I accept that
the
parties are obliged to act in good faith. But I do not see how
the
doctrine can carry matters any further. There is no evidence that
the
GoP acted in bad faith at any stage. Even if it did, that could not make it a party to
the
arbitration agreement."
- I agree. Miss Heilbron submitted that
the Government
had sought to avoid its obligations by setting up an independent body in
the
form
of the
Trust to enter into
the
contract with
Dallah
and subsequently allowing it to disappear when it became politically convenient to do so. A state which acts in that way may well lay itself open to criticism, but it does not amount to bad faith
of
a kind that has a bearing on
the
particular question
the
judge had to decide. What matters is whether there was a common intention that
the Government
was to be a party to
the
Agreement. If its conduct, understood in accordance with
the
doctrine
of
good faith, did not indicate any such intention, no complaint can be made. That was clearly recognised in one
of the
leading cases in French law on this subject, Southern Pacific Properties
v
Arab Republic
of
Egypt, in which
the
Egyptian state enterprise responsible for
tourism
and hotels had signed an agreement with Southern Pacific for
the
construction
of
tourist complexes near
the
pyramids. Although
the Government
was not named as a party,
the
Minister for
Tourism
had signed
the
agreement under
the
words "approved, agreed and ratified".
The
Cour de Cassation held that
the Government of
Egypt had not become a party to
the
agreement by signing it in that way, since its signature was intended merely to confirm its approval
of the
contract made by
the
state enterprise. In
the
end Miss Heilbron did not pursue this part
of
her submissions.
- In my view
the
judge correctly applied
the
principles
of
French law to
the
evidence before him and his conclusion on this issue is not open to criticism.
(iii) Estoppel
- Miss Heilbron submitted that
the Government of Pakistan
was estopped by
the
decision
of the
tribunal in its First Partial Award from denying that it was a party to
the
Agreement and that
the
judge should therefore have exercised his discretion in favour
of
allowing
the
award to be enforced. At first sight that is a surprising proposition because
the
First Partial Award and
the
Final Award both depend for their validity on
the
existence
of
an arbitration agreement between
the Government
and
Dallah
which it was
the
very purpose
of
these proceedings to challenge.
The
submission therefore has an element
of
unreality about it. Miss Heilbron put her argument on
the
basis that
the Government
had waived its right to challenge
the
award in France and had thereby given it a status that it would not otherwise have enjoyed. She did not seek to argue, however, that its conduct had given rise to any other form
of
estoppel.
- Before going any further I think it is desirable to disentangle two strands in
the
argument, estoppel and
the
exercise
of
discretion.
The
exercise
of
discretion in a case
of
this kind raises difficult questions to which I shall return in a moment, but it is in my view quite separate from
the
question
of
estoppel. Estoppel by record, which is
the
kind
of
estoppel on which Miss Heilbron sought to rely in this case, embodies a well-established rule
of
public policy favouring finality in litigation, namely, that
the
same issue should not be litigated between
the
same parties on more than one occasion.
The
principle applies to arbitration awards and to decisions
of
foreign courts. It requires a final decision
of
a court
of
competent jurisdiction on
the
merits in relation to
the
same issue in proceedings between
the
same parties: see
The
'Sennar' (No. 2) [1985] 1 W.L.R. 490, particularly at 499. If Miss Heilbron is right and
the
First Partial Award does finally determine as between
Dallah
and
the Government of Pakistan
whether
the
latter is a party to
the
arbitration agreement,
the Government
will be estopped from contending otherwise and as a result will be precluded from challenging
the
validity
of the
agreement in
the
present proceedings. It follows that
the
grounds on which it seeks to challenge
the
enforcement
of the
award could not be established and
the
court would be bound to enforce
the
award. No question
of the
exercise
of
discretion would arise.
- Miss Heilbron's argument depends on two essential propositions: (i) that
the
tribunal was for these purposes a court
of
competent jurisdiction; and (ii) that
the
failure
of the Government of Pakistan
to challenge
the
award before
the
French courts has rendered
the
award final and conclusive as between
the
parties. Each
of
these propositions calls for closer examination.
- Before
the
judge Miss Heilbron placed some emphasis on
the
decision
of
this court in Svenska Petroleum
v Government of
Lithuania (No. 2), which concerned an agreement between Svenska and a state-owned body, subsequently privatised under
the
name AB Geonafta, for
the
exploitation
of
oil reserves in Lithuania.
The
agreement contained a clause providing for ICC arbitration in Denmark. A dispute subsequently arose between Svenska and AB Geonafta, as a result
of
which Svenska began arbitration proceedings against both AB Geonafta and
the Government of
Lithuania.
The Government
denied being a party to
the
agreement or
the
arbitration clause.
The
tribunal decided to determine
the
question
of
its jurisdiction first and published an award declaring that
the Government
was bound by
the
arbitration agreement. No steps were taken to challenge that award in Denmark and
the
tribunal later published an award dealing with
the
substance
of the
dispute in which it awarded Svenska a substantial sum in damages.
- When Svenska sought to enforce
the
award by proceedings in this country under section 101
of the
Arbitration Act
the Government of
Lithuania claimed immunity under section 1
of the
State Immunity Act 1978. A question whether
the
first award created an issue estoppel arose in relation to section 9
of the
Act, which provides that where a state has agreed in writing to submit a dispute to arbitration it is not immune as respects proceedings which relate to
the
arbitration.
The
court found as a fact that
the Government of
Lithuania had agreed with Svenska to submit disputes to arbitration, that
the
tribunal therefore had jurisdiction to decide
the
issues before it, that
the
award was no longer open to challenge before
the
courts
of
Denmark and that it was therefore final and conclusive as between
the
parties.
The
judge accurately summarised
the
court's reasoning on this issue in paragraph 141
of
his judgment, but as he pointed out, there are significant differences between that case and
the
present. Two factors in particular stand out: first, in that case
the
court had found after considering
the
evidence that
the Government
was a party to
the
agreement and that
the
tribunal therefore had jurisdiction over it; second,
the
tribunal's first award had already been recognised in proceedings in this country. In
the
present case, by contrast,
the
judge found that
the Government of Pakistan
had not entered into an arbitration agreement with
Dallah
so that
the
tribunal did not constitute a court
of
competent jurisdiction for these purposes. He also held that
the
fact that
the
award had not been challenged in France was not sufficient to enhance its status so as to give rise to an issue estoppel. Finally, for good measure, he held that in any event
the
issue before him was not
the
same as that which had been decided by
the
tribunal, since he had to apply French law whereas it had applied transnational law.
- Miss Heilbron submitted that
the
judge was wrong in all these respects. In support
of
her submission that
the
tribunal constituted a court
of
competent jurisdiction she drew our attention to
the
case
of
Watt
v
Ashan [2007] UKHL 51, [2008] 1 AC 696, in which
the
House
of
Lords held that a decision
of the
Employment Appeal Tribunal as to
the
existence
of
its own jurisdiction created an issue estoppel between
the
parties to it. She submitted that
the
same principle applies to an arbitration tribunal which has jurisdiction to decide its own jurisdiction.
- I am unable to accept that submission. It is important to recognise that
the
Employment Tribunal and
the
Employment Appeal Tribunal are creatures
of
statute. Their jurisdiction may depend on
the
existence
of
certain facts, but it does not depend on
the
agreement
of the
parties.
The
Employment Tribunal's power to decide
the
existence
of
facts upon which its jurisdiction depends is derived from
the
statutory provisions and
the
decisions
of the
Employment Appeal Tribunal on questions
of
law are subject to review by
the
Court
of
Appeal. In these respects these tribunals differ from arbitral tribunals whose jurisdiction is entirely dependent on
the
parties' agreement to submit disputes to them for determination. In my view it is not possible to transfer
the
reasoning in Watts
v
Ashan to commercial arbitration.
- It was common ground, quite rightly, that under Article 6.2
of the
ICC Rules
the
tribunal had jurisdiction to determine its own jurisdiction. Moreover, its decision on this point was final, in
the
sense that it could not be re-opened by
the
arbitrators themselves, who on publication
of
their award became functus officio in relation to that issue. It was not final in every sense, however, because it was subject to review by
the
French court exercising its supervisory jurisdiction and by enforcing courts under Article
V of the
Convention. Accordingly, whether
the
tribunal represented a court
of
competent jurisdiction in
the
sense necessary to create an issue estoppel depends on whether
the
parties to
the
award had agreed to confer jurisdiction upon it, since
the
arbitrators' jurisdiction was derived from
the
consent
of the
parties. If
the Government of Pakistan
and
Dallah
were not parties to an agreement providing for ICC arbitration,
the
arbitrators had no jurisdiction over them, and
the
award was a nullity. That,
of
course, is
the
very issue that falls to be decided in these proceedings.
- Miss Heilbron's second proposition is also flawed. It is true that
the Government of Pakistan
has stated that it does not intend to challenge
the
award in France, but it was common ground between
the
French law experts that
the
time allowed for doing so does not begin to run until steps are taken to enforce it.
Dallah
has as yet taken no steps to enforce
the
award in France and therefore time has not begun to run against
the Government
for this purpose. It follows that even now
the
award has not become invulnerable to challenge in
the
French courts. However, even if that were
the
case, it would not in my view be sufficient to prevent
the Government of Pakistan
from challenging its recognition and enforcement in this country on
the
grounds set out in section 103(2)(b)
of the
Act. It is in my view clear that
the
purpose
of
Article
V
.1
of the
Convention was to preserve
the
right
of
a party to a foreign arbitration award to challenge enforcement on grounds that impugn its fundamental validity and integrity.
The
fact that it has not been challenged or that a challenge has failed in
the
supervisory court does not affect that principle, although a decision
of the
supervisory court may finally determine such questions and thereby itself create an estoppel by record.
- Finally, although there may be little difference in practice between
the
relevant principles
of
French law and
the
principles
of
transnational law which
the
tribunal applied, I agree with
the
judge that
the
issue that arose for decision before him was not
the
same as that which was determined by
the
tribunal and for that reason also no issue estoppel could arise.
(iv) Discretion
- Miss Heilbron submitted that even if
the Government of Pakistan
were to establish that
the
arbitration agreement is not valid,
the
court would still have a discretion to allow enforcement
of the
award in this country and in this case should exercise that discretion in favour
of
doing so. It has been accepted in a number
of
cases that
the
use
of the
expression "enforcement
of the
award may be refused" in section 103(2)(b) gives
the
court a discretion to permit enforcement even where one
of the
grounds justifying refusal has been established. In Dardana Ltd
v
Yukos Oil Co [2002] EWCA Civ 543, [2002] 2 Lloyd's Rep 326 Mance L.J. expressed
the
view that
the
statute cannot have been intended to give
the
court an open discretion but one based on some recognisable legal principle. In Kanoria
v
Guinness [2006] EWCA Civ 222, [2006] 1 Lloyd's Rep 701 Lord Phillips C.J. expressed his own doubts about whether section 103(2) gives
the
court a broad discretion to allow enforcement
of
an award where one
of the
grounds set out in that subsection has been established and cited with approval
the
observations
of
Mance L.J. in Dardana
v
Yukos. May L.J. considered that section 103(2) is concerned with
the
fundamental structural integrity
of the
arbitration proceedings and expressed
the
view that
the
court is unlikely to allow enforcement
of
an award if it is satisfied that its integrity is fundamentally unsound.
- I respectfully agree with those observations with one caveat. Mr. Landau drew our attention to a work entitled Enforcement
of
Arbitration Agreements and International Arbitral Awards (ed. Gaillard & Di Pietro), in chapter 3
of
which there is a valuable discussion
of the
effect
of
Article VII.1
of the
Convention (
the
so-called 'more favourable right' provisions). In
the
light
of
that discussion I think it may be necessary to consider on another occasion whether
the
discretion to permit enforcement may be somewhat broader than has previously been recognised and in particular whether there may be circumstances in which
the
court would be justified in exercising its discretion in favour
of
allowing enforcement
of
a foreign award notwithstanding that it had been set aside by
the
supervisory court.
The
question does not arise in this case, however, and I do not think that it would be helpful to do more at this stage than draw attention to
the
question.
- In Svenska Petroleum Exploration AB
v Government of the
Republic
of
Lithuania [2005] EWCA 9 (Comm) Mr. Nigel Teare Q.C. sitting as a Deputy High Court Judge expressed
the
view that, where a person has unsuccessfully contested
the
issue
of
jurisdiction before
the
arbitral tribunal and has not sought to challenge its decision before
the
supervisory court, it may be appropriate for
the
court to exercise its discretion in favour
of
recognising
the
award, even though
the
party opposing recognition could prove that he was not a party to
the
relevant arbitration agreement. Indeed, in that case
the
judge decided that, since
the Government of
Lithuania had not attempted to challenge
the
tribunal's first award in Denmark, it was appropriate to exercise his discretion in favour
of
recognising it.
- It was unnecessary in Svenska Petroleum
v Government of
Lithuania (No. 2) for this court to decide whether
the
judge had been right to take that course because it had already found that
the Government of
Lithuania was a party to
the
arbitration agreement and that
the
tribunal therefore did have jurisdiction over it. Moreover,
the
judge's decision had not been challenged and therefore remained binding as between
the
parties. In those circumstance I do not think that
the
court can be understood to have approved his decision rather than simply to have recognised its existence. In my view, however, if
the
person opposing recognition or enforcement
of
an award can prove that he was not a party to
the
relevant arbitration agreement, it will rarely, if ever, be right to recognise or enforce it solely on
the
grounds that he has failed to take steps to challenge it before
the
supervisory court. That would be contrary to
the
policy
of the
Convention and would significantly undermine
the
principle which this court accepted in paragraph 104
of
its judgment in that case (see paragraph 18 above). For those reasons I do not consider that it would be a proper exercise
of the
court's discretion in
the
present case to allow enforcement
of the
award once it had reached
the
conclusion that there was no valid arbitration agreement between
Dallah
and
the Government of Pakistan
. It follows that I can see no grounds for criticising
the
way in which
the
judge exercised his discretion.
- For these reasons I would dismiss
the
appeal.
- Since writing this judgment I have had
the
privilege
of
reading in draft
the
judgment
of
Lord Justice Rix. I have found his observations on
the
difficult questions
of
estoppel and
the
scope
of the
court's discretion most illuminating and I agree with
the
additional reasons he gives for dismissing
the
appeal.
Lord Justice Rix :
- I am grateful to Lord Justice Moore-Bick for dealing in full with
the
facts and issues in this appeal. I agree with his judgment, and offer some further observations on
the
linked submissions
of
Miss Heilbron QC concerning estoppel and discretion.
- For these purposes I need merely recapitulate
the
following facts.
The
Agreement contained no express choice
of
law. Before
the
arbitrators
Dallah
argued for Saudi Arabian law as
the
law
of the
Agreement, and
the Government of Pakistan
argued for Pakistani law. In
the
first place
the
arbitrators accepted neither submission: instead they contented themselves with ruling that
the
law to be applied to
the
clause 23 agreement to arbitrate was (for short) transnational law. Their first award, deciding that
the Government of Pakistan
was a party to
the
Agreement, was dated 26 June 2001. Their second award,
holding the Government of Pakistan
liable for
the
repudiation
of the
Agreement was dated 19 January 2004. Their third and final award, awarding
Dallah
damages
of
nearly US$19 million and costs, was dated 23 June 2006.
The Government of Pakistan
played no part in any stage
of the
arbitration, save that, under full reserves, it made written submissions to
the
arbitrators as to why it was not a party to
the
Agreement or its arbitration agreement. It is common ground that that did not amount to participation in
the
arbitration or to any waiver
of the
right to challenge
the
awards.
The
awards were ICC awards made in France. It is now common ground that, in
the
absence
of
any express proper law,
the
New York Convention looks to
the
law
of the
country where
the
award in question was made.
- On 10 July 2006
Dallah
issued its application to enforce
the
final award in
the
same manner as a judgment. On 9 October 2006 Christopher Clarke J made an order so to enforce that award, but gave
the Government of Pakistan
time to apply to set that order aside. On 19 February 2007
the Government of Pakistan
issued an application for an extension
of
time in which to issue its proceedings to set aside. In its evidence in support
of
that application to extend time, its solicitors made a witness statement which said that it –
"has been considering with its French lawyers whether it could challenge in
the
French courts
the
final award (and possibly
the
partial awards rendered by
the
same tribunal). A successful challenge
of the
award(s) in France would have provided
the
respondent with a ground to resist enforcement in England on
the
basis
of
section 103(2)(f)
of the
Arbitration Act 1996. This process in itself took a substantial amount
of
time and required a preliminary selection
of
French lawyers. Having carefully considered
the
advice provided by its French lawyers,
the
[
Government of Pakistan
] has decided not to challenge
the
award(s) in France."
- In an extensive and fluid submission, Ms Heilbron argues that
the
decision not to challenge
the
awards in France is tantamount to a waiver
of the
right to challenge and, what is more,
the
equivalent
of
a decision from
the
French court that
the
first award, and thus
the
final award too, is valid and enforceable.
The Government of Pakistan
is therefore estopped from challenging
the
enforceability
of
any
of the
awards on
the
ground that it is not a party to
the
Agreement. Alternatively,
the
situation is
the
equivalent
of
an issue estoppel, which prevents
the Government of Pakistan
from any defence to
the
enforceability
of the
awards on that ground. Alternatively, even if
the Government of Pakistan
is or were able to show that it was not a party to
the
Agreement,
the
English court is entitled and ought to exercise its discretion for
the
purposes
of
section 103(2)
of the
Arbitration Act 1996 ("may be refused") by not refusing to enforce, but enforcing
the
final award. In this connection she also invokes by way
of
analogy
the
provisions
of
section 73(2)
of the
1996 Act, whereby a party to arbitral proceedings covered by
the
English Act who fails to challenge an award or to do so within
the
time allowed (see sections 67(1) and 70(3)) may not object to a tribunal's substantive jurisdiction on any ground which was
the
subject
of the
tribunal's ruling.
- It will be recalled that section 103
of the
1996 Act, reflecting
the
provisions
of the
New York Convention, provides inter alia as follows:
"(1) Recognition or enforcement
of
a New York Convention awards shall not be refused except in
the
following cases.
(2) 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 by a competent authority
of the
country in which, or under
the
law
of
which, it was made…
(5) Where an application for
the
setting aside or suspension
of the
award has been made to such a competent authority as is mentioned in subsection (2)(f),
the
court before which
the
award is sought to be relied upon may, if it considers it proper, adjourn
the
decision on
the
recognition or enforcement
of the
award.
It may also on
the
application
of the
party claiming recognition or enforcement
of the
award order
the
other party to give suitable security."
The
Convention contains similar provisions in article
V
.1(a) and (e) and article VI. In particular
the
language at
the
beginning
of
article
V
contains similar language relating to what is described as
the
discretion
of the
court asked to enforce
the
award, viz "Recognition or enforcement
of the
award may be refused…only if…"
The
French text, however, does not contain
the
language
of
discretion: "ne seront refusées" ("shall not be refused…unless…").
- French law does not provide for a defence to enforcement
of
a foreign New York Convention award on
the
article
V
.1(e) ground that an award has been set aside by a competent authority
of the
country in which or under
the
law
of
which, that award was made: see article 1502
of
New Code
of
Civil Procedure. On
the
other hand article 1504 permits an award made in France in an international arbitration to be set aside inter alia "Where
the
arbitrator ruled in
the
absence
of
an arbitration agreement…" Article 1505 provides:
"An action to set aside as provided for in Article 1504 shall be brought before
the
Court
of
Appeals
of the
place where
the
award was made. Such an action is admissible immediately after
the
making
of the
award; it is no longer admissible if it has not been brought within one month
of the
official notification
of the
award bearing an enforcement order."
- It follows that, under French law,
the Government of Pakistan
has at no time been out
of
time for
the
purpose
of
challenging
the
awards. Moreover, since
the
awards are not English awards, our provisions relating to
the
challenging
of
them are not applicable. Even as a matter
of
analogy, sections 67(1) and 70(3)
of the
1996 Act are not applicable, because
the Government of Pakistan
has never participated in
the
arbitration. In such circumstances,
the
analogous provisions
of the
English Act are those contained in section 72: see
the
DAC Report at paras 295 and 298.
- It also follows that there may be a number
of
reasons why
the Government of Pakistan
has chosen not to challenge
the
awards in France, although it was in time to do so. One is that it was not obliged to do so. There is no requirement under
the
New York Convention that a party facing enforcement proceedings in a state other than
the
state where
the
award was made need bring its challenge in
the
latter state. Moreover, if nevertheless it does so, it runs
the
risk that
the
state where enforcement is sought may require security for payment
of the
award as a term for adjourning
the
enforcement proceedings until
the
challenge has been decided in
the
state where
the
award was made: article VI
of the
Convention and section 103(2)(f) and (5)
of the
1996 Act. Therefore one consequence
of
seeking to challenge
the
awards in France would have been
the
possibility
of
undertaking two sets
of
proceedings and
of
being required to provide security for
the
award. This may not have been an attractive alternative for
the Government of Pakistan
. In effect, Miss Heilbron's submission asks us to infer that
the
decision not to take proceedings to challenge
the
awards in France was tantamount to a concession that
the
awards would be upheld in France and thus to an issue estoppel. However, that is an impossible submission. Even if, for
the
sake
of
argument,
the Government of Pakistan
may have been advised or feared that
the
French courts would be likely to uphold
the
arbitrators' application
of
transnational law and their conclusion that
the Government of Pakistan
was a party to
the
Agreement, it was entitled to finesse that possibility and undertake
the
burden under
the
Convention
of
proving that under French law, as
the
law
of the
country in which
the
awards were made, it was not a party. See also
the
jurisprudence discussed below.
- It is impossible therefore to found any form
of
waiver, estoppel, or issue estoppel out
of the Government of Pakistan
's choice, which under
the
Convention and under French law lay entirely in its option, to challenge
the
validity
of the
awards in England, where
Dallah
had for itself chosen to seek to enforce them.
- I turn therefore to
the
question
of
a discretion under
the
Convention nevertheless to recognise or enforce
the
awards, even though
the Government of Pakistan
has succeeded in proving that it was not a party to
the
Agreement. It goes without saying that, if there is such a discretion, its positive use in this case to enforce an award when ex hypothesi
the Government of Pakistan
had never been a party to
the
Agreement, would be an immensely strong, not to say unjust, exercise
of
it.
The
whole basis
of
arbitration is that, as a means
of
deciding disputes, it is founded on consent.
- Although on behalf
of the Government of Pakistan
Mr Landau QC submitted that
the
discretion retained in
the
words "may be refused" could not be exercised in favour
of Dallah
in this case, he nevertheless agreed that such a discretion in theory existed and might be exercised even where a challenge to an award had already succeeded in
the
country where
the
award was made. Indeed, he presented extensive material in which its use in such a case has been discussed: see, for instance, Gaillard and Di Pietro, Enforcement
of
Arbitration Agreements and International Arbitral Awards,
The
New York Convention in Practice at chapter 3, and Gaillard,
The
Enforcement
of
Awards Set Aside in
the
Country
of
Origin, ICSID Rev 16 (1999). On closer examination, however,
the
thesis developed there appears to a large extent to depend on (a) a theory
of
arbitration recognised in France and perhaps other civil law jurisdictions rather than in England and other common law jurisdictions, to
the
effect that arbitrators do not derive their powers from
the
state in which they have their seat but rather from a transnational legal order which recognises, subject to certain conditions,
the
validity
of
arbitration agreements and awards; (b)
the
absence from
the
French statute (see article 1502 referred to above)
of the
defence to enforcement based on article
V
.1(e)
of the
New York Convention; (c) an argument derived from article VII
of the
New York Convention to
the
effect that domestic law may be relied on for
the
purpose
of
upholding an award "to
the
extent allowed by
the
law" (
the
"more-favourable-right" theory), which however is itself dependent on (b); and (d) a number
of
French court decisions which as a consequence have been prepared to ignore a successful challenge to
the
validity
of
an award in
the
courts
of the
country where it was made. Where, however, as in
the
case
of
our own domestic statute, article
V
.1(e) is a recognised source
of
a defence to enforcement in our courts, it is not easy to understand why a successful challenge in
the
courts
of the
country where an award was made cannot be relied on as an issue estoppel.
- Moreover, it may be that this line
of
French jurisprudence depends not so much on a free-standing discretion, as on
the
ability granted by article VII
of the
Convention to states to enact in their domestic law tougher limits on
the
refusal
of
recognition and enforcement than even
the
Convention permits in article
V
. That this is a potentially controversial area may be indicated by Professor Gaillard's rejection
of
Professor van den Berg's comment, described by
the
former as having been made "somewhat derisively", that "if an award is set aside in
the
country
of
origin, a party can still try its luck in France": see Gaillard in ICSID Rev 16 (1999) at para 36 and footnote 57. It is nevertheless possible to understand
the
obvious French concern that
the
validity
of
an arbitration award might, under certain circumstances, be attacked and destroyed by a party, such as a
government
itself, with great influence in
the
country where
the
award was made. Be that as it may, we are not concerned here with a successful challenge in
the
courts
of
France and it is unnecessary to comment further on this particular thesis.
- Miss Heilbron's reliance on
the
article
V
.1 or section 103(2) discretion remains and I therefore turn to consider what light English jurisprudence throws on it.
The
earliest case to consider
the
discretion is a Hong Kong case, later referred to in England by our court
of
appeal. In Paklito Investment Ltd
v
. Klockner East Asia Ltd [1993] HKLR 39 an attempt to enforce a Chinese award was met with a successful defence on
the
basis that
the
defendant had been prevented in
the
arbitration from presenting its case. Nevertheless
the
court was asked to enforce
the
award under its discretion. Kaplan J refused, but discussed a possible instance when it might be exercised in order to enforce an award. He said (at 48/49):
"He relied strongly upon
the
fact that
the
defendants had taken no steps to set aside
the
award in China and that this failure to so act was a factor upon which I could rely. I disagree. There is nothing in s.44 nor in
the
New York Convention which specifies that a defendant is obliged to apply to set aside an award in
the
country where it was made as a condition
of
opposing enforcement elsewhere…
It is clear to me that a party faced with a Convention award against him has two options. Firstly, he can apply to
the
courts
of the
country where
the
award was made to seek
the
setting aside
of the
award. If
the
award is set aside then this becomes a ground in itself for opposing enforcement under
the
Convention.
Secondly,
the
unsuccessful party can decide to take no steps to set aside
the
award but wait until enforcement is sought and attempt to establish a Convention ground
of
opposition.
That such a choice exists is made clear by Redfern and Hunter in International Commercial Arbitration p.474 where they state:
"He may decide to take
the
initiative and challenge
the
award; or he may do nothing and resist any attempts by his adversary to obtain recognition and enforcement
of the
award.
The
choice is a clear one – to act or not to act."…
I therefore conclude that
the
defendant's failure to apply to set aside
the
award is not a factor upon which I should or could rely in relation to
the
exercise
of
my discretion…
In relation to
the
ground relied on in this case I could envisage circumstances where
the
court might exercise its discretion, having found
the
ground established, if
the
court were to conclude, having seen
the
new material which
the
defendant wished to put forward, that it would not affect
the
outcome
of the
dispute. This view is supported by Professor Albert Van den Berg in his book,
the
New York Convention
of
1958, at p.302, where he states:
"Thus only if it is beyond any doubt that
the
decision could have been
the
same would a court be allowed to override
the
serious violation."
It is not necessary for me in this judgment to decide whether this is
the
only circumstance where
the
discretion could be exercised or to lay down circumstances where it would be appropriate for
the
court to exercise its discretion after finding a serious due process violation."
- China Agribusiness Development Corporation
v
. Balli Trading [1998] 2 Lloyd's Rep 76 is only one
of
two English cases which have been brought to our attention in which
the
court has enforced a foreign award although a defence within our statute (then
the
Arbitration Act 1975) and
the
New York Convention had been established.
The
award was again a Chinese award following an arbitration in which
the
arbitration rules current at
the
time when
the
dispute arose rather than
the
old rules current at
the
time
of
agreement had been applied. However,
the
point had only been raised at
the
time
of
enforcement, and any relevant change in
the
rules (in their fee structure) was insufficient to prejudice
the
defendant. Longmore J accepted and applied
the
discretion to enforce despite
the
establishment
of
a defence under article
V
.1(d) (now, section 103(2)(e)
of the
1996 Act) that "
the
arbitral procedure was not in accordance with
the
agreement
of the
parties". Longmore J said (at 79/80):
"It is clear from
the
terms
of the
statute that refusal to enforce a Convention award is a matter for
the
discretion
of the
Court. In that context it must be relevant to assess
the
degree
of
prejudice to Balli by
the
arbitration being conducted under
the
current, rather than
the
provisional, rules. Mr Justice Kaplan so decided in
the
Chen Jen case and I gratefully follow his lead. (See [1992] I H.K. Cases 328 at p. 336.)…
A party who, only at
the
door
of the
enforcing Court, dreams up a reason for suggesting that a convention award should not be enforced is unlikely to have
the
Court's sympathy in his favour, and for this reason also I would not on
the
facts
of
this case be prepared to refuse
the
enforcement
of the
award."
- However, in Dardana Ltd
v
. Yukos Oil Co [2002] EWCA Civ 543, [2002] 2 Lloyd's Rep 326 it was submitted that
the
discretion would permit enforcement
of
a Swedish award before
the
court had finally adjudicated on
the
Convention defence to enforcement that
the
defendant had not been party to
the
arbitration agreement. Mance LJ, in a judgment with which Thorpe LJ and Neuberger J agreed, regarded
the
discretion as a narrow one dependent on some other legal principle
of
preclusion. Thus he said (at para 18):
"Second, so long as
the
applicants' application under section 103(2) remained undetermined, there could have been no question
of the
Court allowing enforcement. That would have been a denial
of
justice.
The
word "may" at
the
start
of
section 103(2) does not have
the
"permissive", purely discretionary, or I would say arbitrary, force that
the
submission suggested. Section 103(2) is designed, as I have said in par. 8, to enable
the
Court to consider other circumstances, which might on some recognisable legal principle affect
the
prima facie right to have an award set aside arising in
the
cases listed in s. 103(2)."
Mance LJ had previously said at para 8:
"
The
use
of the
word "may" must have been intended to cater for
the
possibility that, despite
the
original existence
of
one or more
of the
listed circumstances,
the
right to rely on them had been lost, by for example another agreement or estoppel. Support for that is found in van den Berg,
The
New York Convention
of
1958 (Kluwer), p.265."
- In IPCO (Nigeria) Ltd
v
. Nigerian National Petroleum Corporation [2005] EWHC 726 (Comm), [2005] 2 Lloyd's Rep 326 a Nigerian award arising from an arbitration between two Nigerian companies was first
the
subject-matter
of
proceedings in Nigeria to set aside
the
award and subsequently
of
enforcement proceedings in England. Gross J refused to proceed to consider immediate enforcement, but adjourned
the
proceedings on
the
payment
of
what was common ground to be indisputably due and
of
a further $50 million by way
of
security. He said:
"11. For present purposes,
the
relevant principles can be shortly stated. First, there can be no realistic doubt that s. 103
of the
Act embodies a pre-disposition in favour
of
enforcement
of the
New York Convention Awards, reflecting
the
underlying purpose
of the
New York Convention itself; indeed, even when a ground for refusing enforcement is established,
the
court retains a discretion to enforce
the
award: Mustill & Boyd, Commercial Arbitration, 2nd edn, 2001 Companion, at page 87…
14. Fourthly, s. 103(5) "achieves a compromise between two equally legitimate concerns": Fouchard, at page 981. On
the
one hand, enforcement should not be frustrated merely by
the
making
of
an application in
the
country
of
origin; on
the
other hand, pending proceedings in
the
country
of
origin should not necessarily be pre-empted by rapid enforcement
of the
award in another jurisdiction. Pro-enforcement assumptions are sometimes outweighed by
the
respect due to
the
courts exercising jurisdiction in
the
country
of
origin –
the
venue chosen by
the
parties for their arbitration: Mustill & Boyd, at page 90…"
- Svenska Petroleum Exploration AB
v
.
Government of the
Republic
of
Lithuania [2005] EWHC 9 (Comm), [2005] 1 Lloyd's Rep 515 is
the
other English case where a discretion to enforce has been exercised despite
the
(assumed) proof
of
a Convention defence.
The Government of
Lithuania had agreed to arbitration in Denmark under Lithuanian law. A final Danish award had been issued against
the Government
, which Svenska was seeking to enforce in England. There had been an issue in
the
arbitration as to whether
the Government
was a party to
the
relevant agreement, but under Lithuanian law
the
arbitrators had had full power to resolve their jurisdiction and
the Government
had fully participated in
the
arbitration. Nevertheless it now sought to argue in England that it was immune from execution under our State Immunity Act 1978. In order to make good that defence, it had to show that it had never agreed to arbitrate. Svenska applied to strike out summarily
the Government
's application for sovereign immunity. Svenska said that
the
interim arbitration award which had resolved
the
question
of
jurisdiction, to
the
effect that
the Government
was a party to
the
agreement, had created an issue estoppel. Svenska also submitted that in any event
the
English court had a discretion to recognise
the
interim award even on
the
assumed hypothesis that
the Government
could show that it was not a party. Mr Nigel Teare QC, acting as a deputy high court judge, held: (i) that in his discretion he would recognise
the
interim award, even though
the
issue
of
whether
the Government
had agreed to arbitrate was still pending and was assumed to be decided against
the Government
; (ii) that therefore
the
interim award was capable
of
creating an issue estoppel on that question; however (iii) an issue estoppel had to be "final and conclusive" as well as binding, and although it was binding, it was not "final and conclusive" because it could still be challenged in
the
Danish courts. Therefore Svenska's application for summary judgment failed.
- We are concerned with what Mr Teare said on
the
subject
of
discretion. He referred (at para 19) to what Mance LJ had said in Dardana
v
. Yukos and sought to apply it to this case, applying by analogy
the
principle introduced into English law by section 73(2)
of the
1996 Act (at paras 22/24). He concluded thus:
"27. In my judgment
the
present case is an appropriate case in which to exercise
the
discretion conferred upon
the
Court by section 103(2)
of the
Act to recognise an arbitration award by permitting
the
Claimants to rely upon it in defence
of the Government
's claim to set aside
the
proceedings notwithstanding that, leaving aside
the
effect
of
that award,
the Government
could, it is assumed, prove that it was not a party to
the
arbitration agreement. Firstly, having objected to
the
tribunal's jurisdiction on
the
grounds that it was not party to
the
arbitration agreement
the Government
participated in a two day hearing on that very issue in Denmark in October 2001 when both factual and expert evidence on
the
law
of
Lithuania was adduced. Secondly,
the
tribunal decided that issue against
the Government
in an interim award published in December 2001
of
some 69 pages which set out extensively
the
facts and evidence relied upon,
the
expert evidence
of
Lithuanian law,
the
arguments
of the
parties and
the
reasoning and conclusions
of the
tribunal. Thirdly, having lost on that issue,
the Government
did not take
the
opportunity to seek a review
of the
interim award in
the
Danish Courts. No reason was suggested as to why this step could not have been taken. Fourthly,
the Government
participated in a 13 day hearing on
the
merits which resulted in a final award against
the Government
published in October 2003. Fifthly, having decided not to challenge
the
final award in
the
Danish Court in February 2004 and to notify
the
Claimants
of the Government
's position,
the Government
then, after
the
Claimants took steps to enforce
the
final award in April 2004, claimed immunity from
the
jurisdiction
of
this Court, a contention which could only made good if
the
State was not party to
the
arbitration agreement, contrary to
the
decision
of the
arbitral tribunal in its interim award which
the Government
had not challenged."
The Government
's defence to
the
enforcement proceedings could not therefore be dismissed summarily. In
the
meantime, however,
the
time for challenging
the
interim award in Denmark had passed by without challenge by
the Government
. In due course
the
enforcement proceedings were determined on
the
basis that (i)
the Government
had indeed agreed to submit disputes under
the
agreement to arbitration, and thus was no longer entitled to dispute enforcement under
the
State Immunity Act 1978; (ii)
the
interim award had in
the
meantime become "final" and could therefore give rise to an issue estoppel; and (iii) on that ground too
the
interim award, having been recognised by Mr Teare, provided an independent answer to
the Government
's defence. It followed that
the
interim award was recognised and
the
final award enforced.
- Thus in Svenska Petroleum Exploration AB
v
.
Government of the
Republic
of
Lithuania (No 2) [2006] EWCA 1529, [2007] QB 886 Moore-Bick LJ giving
the
judgment
of
this court, said this:
"(c) Was
the
first award "final"?
102.
The
judge found that by
the
time she came to give judgment in November 2005 sufficient time had passed since
the
publication
of the
first award for
the Government
to have lost its right to challenge that award under Danish law. In our view her decision, which involved
the
application
of
undisputed principles
of
Danish law to
the
facts
of
this case, cannot be faulted. Not only had there been a substantial lapse
of
time since
the
publication
of the
first award without any attempt to challenge it, but
the Government
had formally resolved in February 2004 not to challenge
the
second award, which depended for its validity on
the
correctness
of the
first award, and had formally communicated that decision to Svenska.
(d) Recognition
103. On
the
basis that
the
first award was no longer capable
of
being challenged in Denmark
the
judge held that it finally determined
the
question
of the
tribunal's jurisdiction. We agree with her conclusion, primarily because we are satisfied that
the Government
had agreed to refer disputes to arbitration under
the
ICC rules, but there is one other matter that must not be overlooked in this context and to which attention was drawn by Mr. Shackleton, namely
the
question
of
recognition.
104. Mr. Shackleton submitted that
the Government
's failure to challenge
the
first award before
the
Danish courts did not prevent it from challenging its recognition and enforcement in this country on any
of the
grounds set out in section 103(2)
of the
Arbitration Act 1996. In support
of
that submission he drew our attention to two decisions
of the
courts
of
Hong Kong, Paklito Investment Ltd
v
Klockner East Asia Ltd [1993] 2 HKLR 39 and Hebei Peak Harvest Battery Co Ltd
v
Polytek Engineering Co Ltd, but
the
proposition is not one which we find difficult to accept as a matter
of
principle. In
the
first place, section 103
of the
Arbitration Act is a mandatory provision which must be applied in accordance with its terms. It follows, therefore, that whenever an attempt is made to enforce or rely upon a foreign award
the
party against whom it is invoked is entitled to challenge its recognition on any
of the
grounds set out in
the
section. Quite apart from that, however,
the
first question a court has to ask itself whenever a party seeks to rely on an arbitration award is whether that award should be recognised as valid and binding. In
the
case
of
a New York Convention award, section 103(2) gives
the
court
the
right not to recognise
the
award if
the
person against whom it is invoked is able to prove any
of the
matters set out in that subsection and if
the
court is satisfied that
the
award should not be recognised,
the
matter ends there. In
the
present case, therefore, it was always open to
the Government
to challenge
the
recognition
of the
award by
the
English courts and therefore
the
fact that
the
award could no longer be challenged in Denmark does not lead inexorably to
the
conclusion that it can be relied on as giving rise to an issue estoppel. In fact, however,
the
Deputy Judge decided that
the
award should be recognised and there has been no challenge to that decision. Accordingly, for
the
reasons given earlier, we agree that
the
first award is now to be regarded as having finally disposed
of the
issue
of
jurisdiction."
- I regard
the
two Svenska decisions as amounting to
the
recognition
of the
interim award in circumstances where (a) at
the
time
of
Mr Teare's judgment
the
issue on
the
merits
of the Government
's consent to arbitration had not yet been determined and was assumed for
the
sake
of
argument to have been decided against Svenska; but (b) at
the
time
of the
court
of
appeal's judgment that issue had been determined in Svenska's favour and against
the Government
. In
the
circumstances I do not consider that Mr Teare's judgment relating to
the
section 103(2) discretion has
the
added authority
of
this court.
The
matter was not however fully developed before us in this case. Indeed, we were not taken by Miss Heilbron to Mr Teare's judgment, even though it was in our bundles. Speaking for myself, and I hope consistently with this court's judgment in Svenska (No 2), I would be inclined to analyse
the
situation as follows. Mr Teare recognised
the
interim award in his discretion even upon
the
assumption that it could be proved that
the Government of
Lithuania was not a party to
the
agreement and he did so independently
of
and prior to his decision on whether
the
award amounted to an issue estoppel. As it was, he decided that at that time
the
interim award did not amount to an issue estoppel. In such a situation, I would have myself doubted whether such a case could be brought within
the
more restricted views
of
Mance LJ and
of
this court in Dardana
v
. Yukos. By
the
time
the
matter reached this court in Svenska (No 2), however, it had been established both that
the Government
had consented to arbitrate and that
the
interim award was final and so could amount to an issue estoppel: in such circumstances, I would see no problem in recognising
the
interim award. That was entirely irrespective
of the
separate question
of
any discretion to do so even where a section 103 defence has been proved.
- In Kanoria
v
. Guinness [2006] EWCA Civ 122, [2006] 1 Lloyd's Rep 701, decided a little before Svenska (No 2), an Indian arbitration took place in
the
absence
of
Mr Guinness, who was unwell. Mr Kanoria sought to enforce
the
resulting award in England. Mr Guinness defended enforcement under section 103(2)(c)
of the
1996 Act on
the
ground that he had been unable to present his case to
the
arbitrators. This court held that this ground was made out. It was invited nevertheless to enforce
the
award in its discretion, on
the
ground that Mr Guinness had had an opportunity to challenge
the
award in India, but had failed in his challenge, which had been ruled out
of
time. However, this court refused to enforce
the
award. Lord Phillips CJ referred to what Mance LJ had said in Dardana
v
. Yukos and expressed "doubt as to whether
the
broad discretion…is available to
the
court" (at para 25). In any event he would not exercise even a broad discretion on
the
facts
of
that case (at para 26). Sir Anthony Clarke MR agreed. May LJ also referred to Dardana
v
. Yukos as being against an "open discretion" and continued (at para 30):
"Speaking generally, that is not surprising when
the
limited circumstances in which an English court can be persuaded to refuse enforcement
of
a New York Convention award concern, as I think,
the
structural integrity
of the
arbitration proceedings. If
the
structural integrity is fundamentally unsound,
the
court is unlikely to make a discretionary decision in favour
of
enforcing
the
award."
- These authorities as a whole, in my judgment, do not favour a broad discretion such as Miss Heilbron would need to pray in aid
of
her submission in this case. It is true that in China Agribusiness Longmore J exercised a discretion to enforce even where an article
V
defence had been made out, and that in Svenska at first instance Mr Teare QC (as he then was) came closest, in a situation somewhat similar to
the
present case, to being willing to recognise an award even on
the
assumption that a Convention defence had been made out. However, in this court,
the
dicta in Dardanos and in Kanoria suggest that any discretion is narrow and would be unlikely to be exercised where
the
award in question was subject to a fundamental or structural defect. There can hardly be a more fundamental defect than an award against someone who was never party to
the
relevant contract or agreement to arbitrate.
- In any event,
the
differences between this case and Svenska need to be emphasised. In this case,
the Government of Pakistan
played no part in
the
arbitration, and there is no evidence before us that under French law
the
arbitrators had jurisdiction to decide their own jurisdiction free from review in
the
French courts. On
the
contrary, texts put before
the
court suggest that
the
rule in French law is
the
same as in English law, namely that, where
the
arbitrators' jurisdiction is properly challenged,
the
court is entitled to investigate an issue
of
consent to arbitration from
the
bottom up: see in France, Fouchard, Gaillard, Goldman On International Commercial Arbitration, at paras 1601ff, and in England
the
run
of
cases from Gulf Azov
v
. Baltic Shipping [1999] 1 Lloyd's Rep 68 to Peterson Farms Inc
v
. C&M Farming Ltd [2004] EWHC 121 (Comm), [2004] 1 Lloyd's Rep 603. In Svenska on
the
other hand, under Lithuanian law
the
arbitrators had full power to decide their jurisdiction: see Svenska (No 2) in this court at para 90. Moreover,
the Government of
Lithuania had played a full part in
the
arbitration, and had also (at any rate by
the
time
of
Svenska (No 2)) waived
the
right
of
challenge in
the
Danish court, and for good measure had "formally resolved" not to proceed to such a challenge and had informed Svenska
of
that decision (see at para 102
of the
court
of
appeal judgment). Moreover, Mr Teare had proceeded on an assumption as to
the
making out
of
a Convention defence. I can conceive that where an estoppel could be proved,
the
court asked to recognise or enforce would be entitled to say that it need not investigate
the
defence. Where, however, a defence
of
no consent is proven, it seems to me much harder to ignore that in
the
exercise
of
any discretion. In any event, there is no question in this case
of Dallah
being able to rely on
the
interim award as any form
of
issue estoppel.
- In sum, I see no reason arising out
of the
interesting arguments put before
the
court in this appeal to doubt, even if it was open to do so, this court's views in Dardana and Kanoria that any discretion to enforce despite
the
establishment
of
a Convention defence recognised in our 1996 Act is a narrow one. Indeed, it seems to me that in context
the
expression "may be refused…only if" (article
V
), especially against
the
background
of the
French text ("ne seront refusées"), and
the
expressions
of the
English statute "shall not be refused except" and "may be refused if" (section 103(1) and (2)), are really concerned to express a limitation on
the
power to refuse enforcement rather than to grant a discretion to enforce despite
the
existence
of
a proven defence. What one is left with therefore is a general requirement to enforce, subject to certain limited defences. There is no express provision however as to what is to happen if a defence is proven, but
the
strong inference is that a proven defence is a defence. It is possible to see that a defence allowed under Convention or statute may nevertheless no longer be open because
of
an estoppel (Professor van den Berg's view, see
The
New York Convention 1958 at 265), or that a minor and prejudicially irrelevant error, albeit within
the
Convention or statutory language, might not succeed as a defence (as in China Agribusiness). But it is difficult to think that anything as fundamental as
the
absence
of
consent or some substantial and material unfairness in
the
arbitral proceedings could leave it open to a court to ignore
the
proven defence and instead decide in favour
of
enforcement.
- As for
the
case
of
a successful or unsuccessful (or waived) challenge in
the
courts
of the
country
of
origin, that is a more controversial area. My own view is that a successful challenge is not only in itself a potential defence under
the
Convention or our statute but likely also to raise an issue estoppel. As for an unsuccessful challenge, that may also set up an issue estoppel. As for a waived challenge, that cannot in itself set up an issue estoppel and is unlikely to be
of
significance, save possibly in
the
rare case where
the
residual discretion is in play. In this connection Mr Landau pressed us with
the
submission that to pay any regard to what occurs in
the
country
of
origin is to run
the
risk
of
re-introducing to
the
regime
of the
New York Convention
the
"double exequatur"
of the
earlier regime under
the
Geneva Convention
of
1927. That was
the
need to show that
the
award would be enforced in
the
country
of
origin as well as in
the
country where enforcement was pursued. I agree that it is important to recognise this important change brought about by
the
New York Convention and to avoid interpreting it in ways which might prejudice that change. It is not clear to me, however, that to have regard to
the
setting aside
of
an award by
the
courts
of the
country
of
its origin is to revert to
the
"double exequatur" regime: on
the
contrary, it is a matter to which
the
New York Convention itself bids us have regard. A party seeking to enforce an award need prove nothing about its validity in its country
of
origin when he opts for enforcement in another country which is a party to
the
New York Convention. However, that is not to say that a party challenging
the
validity
of
an award can entirely ignore a challenge in
the
country
of
origin, at any rate where he has participated in
the
arbitration (a matter not considered by Kaplan J in Paklito).
- Finally, I bear in mind (see para 76 above)
the
problem
of
an award perhaps improperly set aside in
the
courts
of the
country
of
origin. This is a delicate matter. However, it seems to me that this is not something which can be dealt with simply as a matter
of
an open discretion.
The
improper circumstances would, I think, have to be brought home to
the
court asked to enforce in such a way as either, in effect, to destroy
the
defence based on article
V
.1(e), or, which is perhaps effectively
the
same thing, to prevent an issue estoppel arising out
of the
judgment
of the
courts
of the
country
of
origin. In this connection see Carl Zeiss Stiftung
v
Rayner & Keeler Ltd (No2) [1967]1 AC 853, 947 and Dicey, Morris & Collins,
The
Conflict
of
Laws, at Rules 41/45.
Lord Justice Ward :
- I agree that
the
appeal should be dismissed for
the reasons given by Lord Justice Moore-Bick and Lord Justice Rix.
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