Supreme Court unanimously rejects appeal to Dallah judgment refusing enforcement of a French ICC award

The Supreme Court has today concluded that both the Court of Appeal and the High Court were right to refuse to enforce an Award obtained by Dallah against the Government of Pakistan. The decision clarifies the scope of the doctrine of competence-competence in England, that is the power of an arbitral tribunal to determine its own jurisdiction and the relationship, under English law, between the power of the tribunal to determine its jurisdiction and the court's power to do so. This was described by Lord Collins, who gave one of the leading judgments, as "an issue of international importance".

Like the Court of Appeal, the Supreme Court decided that Pakistan was not party to the relevant arbitration agreement and so refused to enforce the award in Dallah's favour. Applying principles of French law, they analysed whether there was any common intention between Dallah and the Government of Pakistan that the Government was to be bound by the arbitration agreement. In doing so the Supreme Court allowed a thorough re-opening of the facts and issues. The resulting judgment is a thoroughly reasoned determination of the power of the English courts to re-open jurisdictional issues when asked to enforce an award under the New York Convention.

Background

The Government of Pakistan set up the Awami Haj Trust (the Trust) to contract with Dallah for the acquisition of land in Mecca. Dallah and the Trust entered into contracts for development of housing. These contracts referred disputes to ICC arbitration in Paris. However, the Trust was established on the basis of a temporary ordinance and ceased to exist once that ordinance lapsed. Dallah brought a claim against the Government by an arbitration in Paris, alleging that the Government was a successor party to the Trust and a party to the arbitration agreement. Throughout that arbitration, the Government denied being a party to the arbitration agreement, refused to submit to the jurisdiction of the tribunal and did not do anything to waive its sovereign immunity.

Dallah obtained an award against the Government which it sought to enforce in London. Pakistan resisted enforcement, claiming that the arbitration agreement on which the award was based was invalid (one of the grounds for refusing enforcement under Article V.1 of the New York Convention, as implemented by section 103 of the English Arbitration Act 1996, (the 1996 Act)). The Court held that this provision should be construed to include the issue of whether the party against whom an award is invoked is bound by the arbitration clause. At first instance, Mr Justice Aikens refused to enforce the award.

In 2009 Dallah appealed. In disposing of the appeal, the Court of Appeal considered the approach to be taken by a court in determining whether one of the grounds set out in section 103 of the 1996 Act, under which the English court has a discretion not to enforce an award, was made out. The Court found that such a determination involves a full rehearing of the relevant issues and not merely a review of the tribunal's award. Moreover, the Court of Appeal rejected the contention that the supervisory court at the seat of the arbitration has primacy and held that there was no requirement for a party to challenge an award in the supervisory court in order to resist enforcement elsewhere.

On the further appeal to the Supreme Court, the two key questions addressed were:

1. the effect of the competence-competence doctrine; and
2. the application of arbitration agreements to non-Signatories in French law.

The effect of the competence-competence doctrine

The Supreme Court undertook a comparative analysis of how the doctrine is applied in various jurisdictions around the world. Although recognised internationally, they noted that "every country …applies some form of judicial review of the arbitrator's jurisdictional decision. After all, a contract cannot give an arbitral body any power…if the parties never entered into it" (para 25 of the Supreme Court judgment, citing the US China Minmetals case). So the fact that a tribunal can determine its own jurisdiction does not give it an exclusive power to do so and certainly does not prevent an enforcing court, not at the seat of the arbitration, from re-examining the jurisdiction of the tribunal. In citing Fouchard, Gaillard and Goldman on International Commercial Arbitration, they went on to stress that arbitrators cannot be:

"sole judges of their jurisdiction. That would be neither logical nor acceptable. In fact, the real purpose of the [competence-competence] 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."

The critical question is then how full the court's review should be. Dallah argued that the New York Convention did not contemplate a de novo rehearing at the enforcement stage. This would, it said, "add a fact finding layer to the process which was not envisaged by those drafting the New York Convention and which undermines the finality and efficiency of the system" (para 99, ibid.). Dallah submitted that deference should be given to the award by the reviewing court. The degree of deference may depend on the experience of the tribunal and the nature of the decision. In a primarily fact-based decision, where any judicial body could reach a different conclusion, Dallah submitted that the court should not substitute its own interpretation.

Whilst Lord Collins accepted that the international trend was to limit reconsiderations of findings of tribunals and stressed the pro-enforcement policy of the New York Convention, neither of those took precedence.

In England, under the 1996 Act (section 30), a tribunal is entitled to inquire as a preliminary matter as to whether they ought to continue with an arbitration or not. If the matter comes before a court, this requires an independent investigation rather than a review of the arbitrators' decision.

In their Lordships view the position is no different in France. If a question of the existence of an arbitral agreement is brought directly to a court, it must declare that it has no jurisdiction unless the jurisdiction agreement is manifestly a nullity. However, if a tribunal has already ruled on its jurisdiction and an action is brought to set an award aside, a court has wide powers to review a decision and investigate the facts. The Code of Civil Procedure entitles a French court to refuse to recognise or enforce an award made in the absence of an arbitration agreement.

Finally, the Supreme Court rejected Dallah's contention that the New York Convention accords primacy to the court at the seat at the review stage and that only that court should re-hear questions of the existence or validity of the arbitration agreement. This is not to be found in the New York Convention, even though the consequence of such a view may be multiple sets of review proceedings.

The application of arbitration agreements to non-Signatories in French law

After deciding that it had jurisdiction to decide whether an arbitration agreement existed, the Supreme Court was able fully to consider whether, on the facts, the Government of Pakistan was a party to the agreement. Under section 103(2) of the 1996 Act, "Recognition and enforcement of the award may be refused…..if 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". Since the arbitration agreement did not specify a law applicable to it, French law (the law of the seat and the country where the Award was made) was held to govern this question.

To determine whether a non-Signatory can be bound by an arbitration agreement, a French court would take account of the whole history and conduct of the parties. In this case, this would include the Government's involvement with the project and negotiation of the agreement, so as to find out whether "all the parties to the arbitration proceedings…had the common intention to be bound by the said agreement" (para 17, ibid.). The object is to ascertain the intention of the parties through their objective conduct.

Lord Collins referred to the famous Dow Chemical case in France, in which it was held that non-signatories could rely on an arbitration clause where the group of companies constituted one and the same economic entity and it had been the joint intention of the parties for the whole group to be bound by the arbitration agreement.

However, applying the French legal position to the facts of the Dallah case, the Supreme Court decided that the Government of Pakistan had proved that there was no common intention for it to be bound by the agreement. In so finding, it took into account the fact that:

1. the Trust was deliberately structured with the Government as guarantor of loans to it;
2. the Government did not sign a specimen agreement which would have confirmed the Trust was under the control of the Government;
3. the Government would have waived its immunity by entering into a commercial contract;
4. an agreement entered into by a State-owned entity does not automatically bind the State and Dallah was advised by a firm who understood the difference between contracting with a State entity and with the State itself; and
5. when the Trust was terminated by Dallah, it was the Trust that commenced proceedings in Pakistan (although a later set of proceedings was commenced by the Government).

What is the significance of this decision for contracting parties?

The decision of the Supreme Court clarifies the extent to which a court can use the discretion given to it in section 103 of the 1996 Act to re-open issues of fact and law in order to determine whether a valid arbitration agreement exists between the parties to the dispute. This means that the last word will not rest with a tribunal and that a case could be protracted whilst such issues are addressed by the courts. However, the fact that the issue of jurisdiction would be fully explored in the English courts may in some circumstances provide a degree of comfort. Whilst other jurisdictions will no doubt wish to highlight the comparatively less interventionist approach of their courts, the Supreme Court's comparative analysis suggests that the position should be similar worldwide.

Importantly, the decision also re-confirms that there is no requirement for a party to challenge or appeal an award in the courts of the seat of an arbitration before resisting enforcement elsewhere.

As to the issue of who is a party to an arbitration agreement, parties should take care to ensure that they are sure that all the parties with whom they are negotiating are considered to be contracting parties. Where possible all such parties should be signatories to the agreement, particularly where States are involved.

Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46; On appeal from: [2009] EWCA Civ 755