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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 (03 November 2010) URL: https://www.bailii.org/uk/cases/UKSC/2010/46.html Cite as: [2010] 2 Lloyd's Rep 691, [2011] Bus LR 158, [2011] 1 AC 763, [2010] 3 WLR 1472, [2011] 1 All ER (Comm) 383, [2011] AC 763, [2010] 2 CLC 793, 133 Con LR 1, [2011] 1 All ER 485, [2010] UKSC 46 |
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Michaelmas Term
[2010] UKSC 46
On appeal from: [2009] EWCA Civ 755
JUDGMENT
Dallah Real Estate and Tourism Holding Company (Appellant) v The Ministry of Religious Affairs, Government of Pakistan (Respondent)
before
Lord Hope, Deputy President
Lord Saville
Lord Mance
Lord Collins
Lord Clarke
JUDGMENT GIVEN ON
3 November 2010
Heard on 28, 29 and 30 June 2010
Appellant Hilary Heilbron QC Klaus Reichert (Instructed by Kearns & Co) |
Respondent Toby Landau QC (Instructed by Watson, Farley & Williams) |
LORD MANCE
Introduction
"Legal issues
In order to comply with the legal requirements of the various entities involved, the structure will be as follows:
a) Government of Pakistan to set up AWAMI HAJJ TRUST
b) Trust will borrow the US$100 Million from Dallah Albaraka
c) Trust will make a down payment of US$100 million to Albaraka
d) Trust will enter into a lease to use these buildings during the Hajj period"
Annex A detailed the financial structure:
"Loan terms for down payment of US $ 100 Million – Approx 30% of project cost
Amount: US $ 100 Million
Borrower: Awami Hajj Trust
Guarantor: Government of Pakistan"
"the Trust shall pay a lump sum of U.S. $ 100 [million] …. to Dallah by way of advance ….. subject to (i) Dallah arranging through one of its affiliates a U.S. Dollar 100 [million] Financing Facility for the Trust against a guarantee of the Government of Pakistan, ….. (iii) A counter guarantee issued by the Trust and Al-Baraka Islamic Investment Bank, E.C., Bahrain, …. appointed by the Board of Trustees pursuant to Section 8 of the Awami Hajj Trust Ordinance, 1996 in favour of the Government of Pakistan."
Clause 27 provided that:
"The Trust may assign or transfer its rights and obligations under this Agreement to the Government of Pakistan without the prior consent in writing of Dallah."
The Agreement made no other references to the Government and was in terms introducing and setting out mutual obligations on the part of Dallah and the Trust. These included the arbitration clause:
"23. 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."
The issue and the principles governing its resolution
(a) what is meant by "the law of the country where the award was made"?
(b) what are the provisions of that law as regards the existence and validity of an arbitration agreement?
(c) what is the nature of the exercise which an enforcing court must undertake when deciding whether an arbitration agreement existed under such law?
and, in particular,
(d) what is the relevance of the fact that the arbitral tribunal has itself ruled on the issue of its own jurisdiction?
(a) The law of the country where the award was made.
"Under French law, the existence, validity and effectiveness of an arbitration agreement in an international arbitration …. need not be assessed on the basis of a national law, be it the law applicable to the main contract or any other law, and can be determined according to rules of transnational law".
The approach taken in French law appears in decisions of the Court of Appeal of Paris, in particular Menicucci v Mahieux [1976] Rev Crit 507 (13 December 1975) and Coumet et Ducler v Polar-Rakennusos a Keythio [1990] Rev Arb 675 (8 March 1990), and later in the decision of the Cour de Cassation (1re Ch. Civ) (20 December 1993) in Municipalité de Khoms El Mergeb v Dalico [1994] 1 Rev Arb 116, where the court said that:
"… en vertu d'une règle matérielle du droit international de l'arbitrage, la clause compromissoire est indépendante juridiquement du contrat principal qui la contient directement ou par référence et que son existence et son efficacité s'apprécient, sous réserve des règles impératives du droit français et de l'ordre public international, d'après la commune volonté des parties, sans qu'il soit nécessaire de se référer à une loi étatique …."
"… it is only the first two aspects, i.e. indifference to the fate of the main contract and the possibility of being submitted to a separate law, that flow logically from the principle of separability. The latter by no means implies that the arbitration agreement is independent of any national law. The real justification of this regime lies elsewhere: as Philippe Fouchard emphasises in his note on the Menicucci judgment, the aim is to remove the obstacles which certain laws, including French law, bring to the development of international arbitration. Although the judgment does not say so, this new conception of separability implies abandoning the conflict of laws approach in favour of material rules, which are in reality part of French law and not of any international or transnational system. We shall see this point with the Dalico judgment."
In the light of the common ground between the parties, it is also unnecessary to engage with the competing representations of international arbitration lucidly discussed in Gaillard's Legal Theory of International Arbitration (2010) pp. 13-66. Whatever the juridical underpinning or autonomy of their role from the viewpoint of international arbitrators, the present case involves an application to enforce in the forum of a national court, subject to principles defined by s.103 of the 1996 Act and Article V of the New York Convention, upon the effect of which there is substantial, though not complete, agreement between the parties now before the Supreme Court.
(b) The provisions of that law as regards the existence and validity of an arbitration agreement.
"Thus, my Experts' opinion is that it is open to an arbitral tribunal seating in Paris in an international arbitration to find that the arbitration agreement is governed by transnational law. Yet, the arbitrators must also look for the common will of the parties, express or implied, since it is a substantive rule of French law that the Courts will apply when controlling the jurisdiction of the arbitrators."
In para 2.9 of a joint memorandum to which Aikens J referred in paras 85 et seq of his judgment, the experts agreed upon the following statement:
"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".
"Selon les usages du commerce international, la clause compromissoire insérée dans un contrat international a une validité et une efficacité propres qui commandent d'en étendre l'application aux parties directement impliquées dans l'exécution du contrat et les litiges qui peuvent en résulter, dès lors qu'il est établi que leur situation contractuelle, leurs activités et les relations commerciales habituelles existent entre les parties font présumer qu'elles ont accepté la clause d'arbitrage dont elles connaissaient l'existence et la portée, bien qu'elles n'aient pas été signataires du contrat qui la stipulait".
In translation:
"According to the customary practices of international trade, the arbitration clause inserted into an international contract has its own validity and effectiveness which require that its application be extended to the parties directly involved in the performance of the contract and any disputes which may result therefrom, provided that it is established that their contractual situation, their activities and the normal commercial relations existing between the parties allow it to be presumed that they have accepted the arbitration clause of which they knew the existence and scope, even though they were not signatories of the contract containing it".
This then is the test which must be satisfied before the French court will conclude that a third person is an unnamed party to an international arbitration agreement. It is difficult to conceive that any more relaxed test would be consistent with justice and reasonable commercial expectations, however international the arbitration or transnational the principles applied.
(c) The nature of the exercise which an enforcing court must undertake when deciding whether an arbitration agreement existed under such law, and
(d) the relevance of the fact that the arbitral tribunal has itself ruled on the issue of its own jurisdiction.
"Even today, the competence-competence principle is all too often interpreted as empowering the arbitrators to be the sole judges of their jurisdiction. That would be neither logical nor acceptable. In fact, the real purpose of the rule is in no way to leave the question of the arbitrators' jurisdiction in the hands of the arbitrators alone. Their jurisdiction must instead be reviewed by the courts if an action is brought to set aside or to enforce the award."
"It is not the law that arbitrators, if their jurisdiction is challenged or questioned, are bound immediately to refuse to act until their jurisdiction has been determined by some court which has power to determine it finally. Nor is it the law that they are bound to go on without investigating the merits of the challenge and to determine the matter in dispute, leaving the question of their jurisdiction to be held over until it is determined by some court which had power to determine it. They might then be merely wasting their time and everybody else's. They are not obliged to take either of those courses. They are entitled to inquire into the merits of the issue whether they have jurisdiction or not, not for the purpose of reaching any conclusion which will be binding upon the parties – because that they cannot do – but for the purpose of satisfying themselves as a preliminary matter whether they ought to go on with the arbitration or not. If it became abundantly clear to them, on looking into the matter, that they obviously had no jurisdiction as, for example, it would be if the submission which was produced was not signed, or not properly executed, or something of that sort, then they might well take the view that they were not going to go on with the hearing at all. They are entitled, in short, to make their own inquiries in order to determine their own course of action, and the result of that inquiry has no effect whatsoever upon the rights of the parties."
This coincides with the position in French law: paras 20 and 22 above.
"233. Under s.103(2)(b) of the 1996 Act / Art V.1(a) NYC, when the issue is initial consent to arbitration, the Court must determine for itself whether or not the objecting party actually consented. The objecting party has the burden of proof, which it may seek to discharge as it sees fit. In making its determination, the Court may have regard to the reasoning and findings of the alleged arbitral tribunal, if they are helpful, but it is neither bound nor restricted by them."
The application of the above principles
The tribunal's approach
"3. Judicial as well as Arbitral case law now clearly recognise that, as a result of the principle of autonomy, the rules of law, applicable to an arbitration agreement, may differ from those governing the main contract, and that, in the absence of specific indication by the parties, such rules need not be linked to a particular national law (French Cour de Cassation, 1er civ., Dec. 20, 1993, Dalico), but may consist of those transnational general principles which the Arbitrators would consider to meet the fundamental requirements of justice in international trade.
Dr Justice Shah and Lord Mustill would not endorse without reservation the concept of a transnational procedural law independent of all national laws. They need not however pursue this, since it makes no difference to the result.
4. ..... in view of the autonomy of the Arbitration Agreement, the Tribunal believes that such Agreement is not to be assessed, as to its existence, validity and scope, neither under the laws of Saudi Arabia nor under those of Pakistan, nor under the rules of any other specific local law connected or not, to the present dispute.
By reason of the international character of the Arbitration Agreement coupled with the choice, under the main Agreement, of institutional arbitration under the ICC Rules without any reference in such Agreement to any national law, the Tribunal will decide on the matter of its jurisdiction and on all issues relating to the validity and scope of the Arbitration Agreement and therefore on whether the Defendant is a party to such Agreement and to this Arbitration, by reference to those transnational general principles and usages reflecting the fundamental requirements of justice in international trade and the concept of good faith in business."
"a non-signatory may be bound by an arbitration agreement, by virtue of any one of a number of legal theories such as representation, assignment, succession, alter ego or the theory of group of companies".
It recorded that Dallah's primary case was that the Trust was an alter ego of the Government, but went on immediately to say that:
"To arbitrate this disputed issue, the Arbitral Tribunal believes that it is very difficult to reason exclusively on the basis of juristic and abstract legal principles and provisions and to decide such issue by merely relying on general considerations of legal theory."
"5. In fact, any reply to the present issue relating to whether or not the Present Defendant is a Party to the Arbitration Agreement depends on the factual circumstances of the case and requires a close scrutiny of the conduct and of the actions of the parties before, during and after the implementation of the main Agreement in order to determine whether the Defendant may be, through its role in the negotiation, performance and termination of such Agreement, considered as a party thereto, and hence to the Arbitration Agreement.
The control exercised by the State over the Trust becomes, within that framework, an element of evidence of the interest and the role that the party exercising such control has in the performance of the agreement concluded by the Trust, and provides the backdrop for understanding the true intentions of the parties.
6. Arbitral as well as judicial case-law has widely recognised that, in international arbitration, the effects of the arbitration clause may extend to parties that did not actually sign the main contract but that were directly involved in the negotiation and performance of such contract, such involvement raising the presumption that the common intention of all parties was that the non-signatory party would be a true party to such contract and would be bound by the arbitration agreement."
In the context of the award as a whole, the last paragraph must be a statement by the tribunal of one of the "transnational general principles and usages reflecting the fundamental requirements of justice in international trade and the concept of good faith in business", to which the tribunal had earlier referred in section III(I)(4).
"The Trust, in spite of its distinct legal personality in theory, appears thus in fact and in conduct to have been considered – and to have acted – as a part and a division of the Defendant to which it is fully assimilated, a temporary instrument that has been created by a political decision of the Defendant for specific activities which the Defendant wanted to perform, and which was cancelled also by a political decision of the Defendant. Therefore, the Trust appears as having been no more than the alter ego of the Defendant which appears, in substance, as the real party in interest, and therefore as the proper party to the Agreement and to the Arbitration with the Claimant".
"provided that it is established that their contractual situation, their activities and the normal commercial relations existing between the parties allow it to be presumed that they have accepted the arbitration clause of which they knew the existence and scope".
In contrast, under the test stated by the tribunal (para 36 above), direct involvement in the negotiation and performance of the contract is by itself said to raise the presumption of a common intention that the non-signatory should be bound. The tribunal's test represents, on its face, a low threshold, which, if correct, would raise a presumption that many third persons were party to contracts deliberately structured so that they were not party. Asked about the tribunal's test, M. Vatier did not consider it accurate enough, adding that "the principles adopted were in general the principles that might be adopted in French law. But they are too general". I consider that Aikens J was therefore correct to doubt (in para 148) whether the tribunal had applied a test which accords with that recognised under French law.
Analysis of the history
"Pursuant to the above mentioned Agreement for the leasing of housing facilities in the holy city of Makkah, Kingdom of Saudi Arabia, you were required within ninety (90) days of the execution of the said Agreement to get the detailed specifications and drawings approved by the Trust. 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 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."
"Counsel for the defendant had objected at the last date of hearing that Awami Haj Trust was established [under section] 3 of the Awami Haj Trust Ordinance, 1996 but at the time of institution of this suit Ordinance had elapsed, there was no more ordinance in the field and suit has been filed on behalf of same which was formed under the Ordinance after the lapse of Ordinance. Awami Haj Trust is plaintiff in this suit. After the lapse of Ordinance, the present plaintiff was no more a legal person in the eye of law."
The judge went on to record and reject the submission of counsel appearing for the Trust that the Trust continued to be able to file suit in respect of things done during the life of the Trust, adding:
"Moreover the things done during the Ordinance can be sued and can sue by the parent department for which this Ordinance was issued by the government and that was ministry for religious affairs. Suit should have been filed by the Ministry of religious affairs. …… [B]efore parting with this Order, I observe that the liabilities and duties against the present defendant can be agitated by the Ministry of Religious affairs government of Pakistan if any. Since the suit has not been filed by the legal person. The present plaintiff is no more a plaintiff in the eye of the law. Suit is dismissed. …."
"14. That in January 1997, Awami Hajj Trust instituted a civil suit for declaration and permanent injunction against the defendant which suit was, however, dismissed vide order dated 21.02.1998 on the ground that after the lapse of the Ordinance, Awami Hajj Trust was no more a legal person and it could neither sue or be sued. The learned civil court, however observed that "liabilities and duties against the defendant can be agitated by the Government of Pakistan" [sic]."
"There is no contract or any arbitration agreement between our client and Dallah …. The contract and the arbitration agreement referred to by the Claimant were entered into between the Claimant and Awami Hajj Trust. The Trust has already ceased to exist after expiry of the period of the Ordinance under which it was established".
"did not deal with the substance and contents of such letter, but was rather limited to a formal and very general challenge of the validity of said letter, on the ground that such letter was absolutely unauthorised, illegal and of no legal effect because all office bearers of the Trust, including the Secretary, had ceased to have any authority to act for the defunct Trust. Such challenge is however completely unfounded as the signatory of the letter of 19.1.97, Mr Lutfallah Mufti, did not sign such letter in his capacity as official of the Trust, to which anyhow the letter makes no reference at all, but in his capacity as Secretary of the Defendant i.e. the Ministry of Religious Affairs which is an integral part of the Government of Pakistan. As such, the signatory of the letter engages and binds the Government, as he has continued to bind it during the whole previous period where the Trust was in existence."
"The 1st [sic] January 1997 suit : Pakistan was not a party to such suit and as such it is not bound by any observation made by the Court in the said suit instituted by the defunct Trust".
(In making this submission, the Government was evidently seeking to rebut a possible argument that it might be bound by the (obiter) observations of the judge in his judgment at the end of the first set of proceedings to the effect that "the liabilities and duties against the present defendant can be agitated by the Ministry of Religious affairs government of Pakistan if any". It has not been, and could not have been suggested in the present proceedings that these observations in any way bind the Government.)
Discretion
Conclusion
LORD COLLINS
I Introduction
"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 [arbitration] 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; …"
"(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;
…"
II The applicable principles
Kompetenz-Kompetenz or compétence-compétence as a general principle
The principle in international commercial arbitration
Comparative procedure
"If, on the other hand, the parties did not agree to submit the arbitrability question itself to arbitration, then the court should decide that question just as it would decide any other question that the parties did not submit to arbitration, namely, independently".
The position in England
"… It is not the law that arbitrators, if their jurisdiction is challenged or questioned, are bound immediately to refuse to act until their jurisdiction has been determined by some court which has power to determine it finally. Nor is it the law that they are bound to go on without investigating the merits of the challenge and to determine the matter in dispute, leaving the question of their jurisdiction to be held over until it is determined by some court which had power to determine it. They might then be merely wasting their time and everybody else's. They are not obliged to take either of those courses. They are entitled to inquire into the merits of the issue whether they have jurisdiction or not, not for the purpose of reaching any conclusion which will be binding upon the parties – because that they cannot do – but for the purpose of satisfying themselves as a preliminary matter whether they ought to go on with the arbitration or not. If it became abundantly clear to them, on looking into the matter, that they obviously had no jurisdiction as, for example, it would be if the submission which was produced was not signed, or not properly executed, or something of that sort, then they might well take the view that they were not going to go on with the hearing at all. They are entitled, in short, to make their own inquiries in order to determine their own course of action, and the result of that inquiry has no effect whatsoever upon the rights of the parties."
"[The German] doctrine of Kompetenz-Kompetenz resolves logical difficulties in legal systems where the jurisdiction of state courts and the jurisdiction of arbitrators under a valid arbitration agreement are mutually exclusive in legal theory. In these legal systems, the state courts must 'dismiss' legal proceedings brought in violation of a valid arbitration agreement, thereby retaining no competence over the parties – but in the case of an invalid or non-existent arbitration agreement, the arbitrators can have no jurisdiction at all. Who then decides what and in what order – in the absence of a suitable doctrine of Kompetenz-Kompetenz? In contrast, the courts of most common law countries (including England) merely 'stay' legal proceedings because in legal theory an arbitration agreement can never oust the Court's jurisdiction over the parties; and this logical problem over jurisdiction has not arisen in the same form …
For these reasons, the law and practice of English arbitration does not require an express doctrine of Kompetenz-Kompetenz. English law achieves the same result as the German doctrine by a different route. ... [T]he practice of arbitration tribunals determining their own jurisdiction, subject to the final decision of the English Court, has long been settled in England .." (Ch III, pp 4-5)
The application of the principles in the present case
Arbitration agreements and non-signatories: groups of companies/State-owned entities and States
French law and transnational law
"Under French law, the existence, validity and effectiveness of an arbitration agreement in an international arbitration need not be assessed on the basis of national law, be it the law applicable to the main contract or any other law and can be determined according to rules of transnational law. To this extent, it is open to an international arbitral tribunal the seat of which is in Paris to find that the arbitration agreement is governed by transnational law."
"The result of this case law is that the arbitration agreement is subjected to a material rule which recognises its validity provided it does not violate international public policy. Although this has been the subject of controversy, the rule is an international rule of French law and not a transnational rule."
Non-signatories: the principle in French law
Renvoi
Discretion
III The application of the principles to the appeal
"Pursuant to the above mentioned Agreement for the leasing of housing facilities in the holy city of Makkah, Kingdom of Saudi Arabia, you were required within ninety (90) days of the execution of the said Agreement to get the detailed specifications and drawings approved by the Trust. 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 to a repudiation of the whole Agreement which repudiation is hereby accepted."
"Certainly, many of the above mentioned factual elements, if isolated and taken into a fragmented way, may not be construed as sufficiently conclusive for the purpose of this section. However, Dr Mahmassani believes that when all the relevant factual elements are looked into globally as a whole, such elements constitute a comprehensive set of evidence that may be relied upon to conclude that the Defendant is a true party to the Agreement with the Claimant and therefore a proper party to the dispute that has arisen with the Claimant under the present arbitration proceedings.
Whilst joining in this conclusion Dr Shah and Lord Mustill note that they do so with some hesitation, considering that the case lies very close to the line."
LORD HOPE
LORD SAVILLE
"Under s103(2)(b) of the 1996 Act / Art V.1(a) NYC, when the issue is initial consent to arbitration, the Court must determine for itself whether or not the objecting party actually consented. The objecting party has the burden of proof, which it may seek to discharge as it sees fit. In making its determination, the Court may have regard to the reasoning and findings of the alleged arbitral tribunal, if they are helpful, but it is neither bound nor restricted by them."
LORD CLARKE