English court refuses to enforce New York Convention Award that was set aside at the seat of arbitration and that granted remedies that were not pleaded

In a judgment handed down on 19 February 2015 in the case of Malicorp Ltd v Government of the Arab Republic of Egypt and others, English Commercial Court judge Mr Justice Walker has refused to enforce a Cairo Regional Centre for International Commercial Arbitration award on two separate grounds: first, because the award was set aside by a decision of the Cairo Court of Appeal in 2012, and second, because the award granted remedies on a basis which was neither pleaded nor argued. Walker J also opted not to exercise his discretion under section 103 of the Arbitration Act 1996 to enforce the award in any event. In so doing, the English court has joined other national courts and an ICSID tribunal in dealing yet another blow to Malicorp's efforts to recover from the Egyptian state.

Factual background

The dispute arose out of a concession contract between Malicorp Ltd ("Malicorp"), the claimant in the arbitration, and the "Government of the Arab Republic of Egypt, represented by the [then] Civil Aviation Authority [which was succeeded by Egyptian Holding Company for Aviation and Egyptian Airports Company]" (the "Contract"). The Contract was entered into following a successful bid by Malicorp in 2000 for the design, construction and first 41 years' operation of a new airport at Ras Sudr on the Red Sea Coast in Egypt (the "Project"). Egyptian Holding Company for Aviation and Egyptian Airports Company were also named as respondents in the proceedings. However, as will be discussed below, ultimately the Tribunal found it did not have jurisdiction over these two entities.

Some six months into the Project, Malicorp received a letter from Egyptian Holding Company for Aviation expressing concerns regarding Malicorp's "lack of seriousness [about the Project]" and the truthfulness of information provided to the Egyptian authorities. Despite Malicorp's efforts to allay these concerns, by a letter dated 12 August 2001 the Egyptian Holding Company for Aviation gave notice to Malicorp that it was cancelling the Contract because, among other things, Malicorp had allegedly submitted documents whose "authenticity [was] dubious" and were thought to be "untrue" to the Egyptian authorities and failed to fulfil its obligation to form an Egyptian company on time.

The Cairo Arbitration

In April 2004 and pursuant to the Contract, Malicorp commenced arbitration proceedings under the auspices of the Cairo Regional Centre for International Commercial Arbitration. Malicorp's primary heads of loss were for the lost profits of the Project in the amount of US$500,000,000 and expenses in the amount of more than US$12,000,000.

The Tribunal was comprised of Dr Abdel Hamid El Ahdab (appointed by Malicorp), Dr Hatem Ali Labib Gabr (appointed by Egypt), and Professor Bernardo Cremades as chair. However, when the award was issued on 7 March 2006, it was signed by only Dr El Ahdab and Professor Cremades (the "Cairo Award"). The Cairo Award enclosed a letter from Dr Gabr explaining his reasons for concluding that a February 2006 Egyptian Administrative Court decision purporting to set aside the arbitration clause and to suspend the Cairo Arbitration required him to suspend his participation as an arbitrator.

The Cairo Award (i) found that the Tribunal only had jurisdiction in respect of the Government, but not the second and third Respondents (Egyptian Holding Company for Aviation and Egyptian Airports Company), because it was the only respondent that was a party to the Contract, and (ii) ordered that the Government pay Malicorp US$14,773,497 in damages pursuant to Article 142 of the Egyptian Civil Code ("Article 142").

Set-aside proceedings in the Cairo Court of Appeal and other related proceedings

In 2012, the Cairo Court of Appeal rendered a decision setting aside the Cairo Award (the "Cairo Decision"). That decision is currently under appeal to the Egyptian Court of Cassation.

Additionally, and prior to the Cairo Award being set aside, in 2008 Malicorp sought to enforce the Cairo Award in France. This application was refused by both the Paris Court of Appeal and the Paris Cour de Cassation. That same year, Malicorp also brought a claim against the Government for expropriation, which was ultimately rejected by an ICSID tribunal in 2011.

Enforcement proceedings in the English court

In 2012, Malicorp made an application for permission to enforce the Cairo Award in England & Wales pursuant to section 101(2) of the Arbitration Act 1996 (the "1996 Act"). The application was made without notice to the Government and Egyptian Holding Company for Aviation and Egyptian Airports Company (together, "Egypt"). Flaux J considered the application on the papers and then granted permission, reserving Egypt's right to apply to set aside the order for enforcement.

The application considered by Walker J in the present judgment was made by Egypt and sought to set aside the grant of permission to enforce the Cairo Award. Given that the Cairo Award is a New York Convention award, Walker J could only refuse enforcement if the case fell within the exceptions enshrined at sections 103(2) to 103(4) of the 1996 Act.

In the application Egypt submitted that there were four independent grounds for finding that the Cairo Award fell within these exceptions such that enforcement could be refused. However, Walker J did not consider all four grounds because he was satisfied that each of the first two grounds fell within section 103(2).

First ground: the Cairo Award had been set aside by the 2012 Cairo Decision

The first ground on which Egypt argued that the Cairo Award should be refused enforcement was that the Cairo Award had been set aside by the Cairo Decision in 2012. Walker J, however, concluded that it was not necessary for him to determine this point because he proceeded on the following two assumptions: "(1) that the word 'may' in s 103(2) of the 1996 Act confers a discretion on this court to enforce an award even though the award has been set aside by a decision ("the set aside decision") of a court constituting a competent authority within s 103(2)(f); and (2) it would not be right to exercise that discretion if, applying general principles of English private international law, the set aside decision was one which this court would give effect to."

Walker J cited Dicey, Morris & Collins and Simon J in Yukos Capital S.a.r.L v OJS Oil Company Rosneft [2014] EWHC 2188 (Comm) as support for this approach. He went on to say that on this basis the Cairo Decision should be given effect unless it offended basic principles of honesty, natural justice and domestic concepts of public policy.

Malicorp contended that the Cairo Decision should not be given effect because (1) it was tainted with bias, (2) it was contrary to natural justice and the Egyptian Court deliberately misapplied Egyptian law, and (3) the grounds on which it set aside the Cairo Award were wrong and misconceived.

Walker J swiftly dealt with all three objections. On the first and second objections, he considered that the primary assertion being made by Malicorp was that the Cairo Decision judges were guilty of pro-government bias, a claim which could not be accepted without "positive and cogent evidence". Walker J did not deem a generalised and anecdotal expert report, a newspaper report or a letter from the President of the Cairo Court of Appeal to be evidence meeting this standard. As to the third objection, Walker J explained that an assertion that a foreign judgment is "wrong" is not a sufficient basis to refuse to recognise it, that the English court acknowledges that the determination of foreign law is a matter for the foreign court, and thus an assertion that the Cairo Decision was wrong simply did not deal with the relevant issues. He also noted that there was no evidence in the record that the Cairo Decision was perverse.

Walker J concluded that that this approach applied "well established principles as to the recognition of foreign judgments". He considered that such principles did not leave room, as a matter of discretion, to give effect to the Cairo Award in circumstances where the Cairo Decision, made at the supervisory court, met the test for recognition of a foreign judgment under general principles of English private international law. Accordingly, unless and until the Cairo Decision was overturned by the Egyptian Court of Cassation, there was no good reason to depart from the usual approach that the Cairo Decision should be treated as final.

Second ground: the Cairo Award granted remedies on a basis that was neither pleaded nor argued

The second ground on which Egypt argued that the Cairo Award should be refused enforcement was that the Cairo Award granted remedies on a basis which was neither pleaded nor argued, namely under Article 142. Walker J cited various facts in support of finding that the basis was neither pleaded nor argued: on the face of the Cairo Award, in the substance of written submissions and in the transcript there was no indication that Malicorp ever claimed damages under Article 142. Accordingly, there was no doubt in Walker J's estimation that the award of damages under Article 142 "must have been a complete surprise to Egypt", constituting a serious breach of natural justice. Walker J also declined to exercise his discretion to enforce the Cairo Award notwithstanding such breach because the breach was "too serious, and the consequences for Egypt [were] too grave."

On the basis of each of the first and second grounds of Egypt's application, Walker J granted Egypt's application to set aside the order enforcing the Cairo Award.

Comment

This decision is another illustration of the English courts' consistent treatment of foreign judgments in the context of considering whether to enforce foreign arbitral awards under the 1996 Act. The English courts are understandably reluctant to question a foreign court's decision on its own law and/or to undermine a foreign court's judgment for bias or unfairness absent very compelling evidence. Parties seeking to enforce an arbitral award which has been set aside at the seat of the arbitration should consider the force of their evidence against the decision of the foreign court, and also consider their enforcement options in other jurisdictions.

For users of international arbitration who anticipate having to seek enforcement of a foreign arbitral award in the English courts, careful attention should be paid to the bases on which remedies in the award are given and that these were properly aired and considered in the written and oral submissions preceding the award.

For further information please contact Craig Tevendale, Partner, Jennifer Hartzler, Associate, or your usual Herbert Smith Freehills contact.