UK Supreme Court refuses to enforce an arbitral award under the New York Convention
November, 2010 - Melbourne, Victoria
The Supreme Court of the United Kingdom has upheld two lower court decisions refusing to enforce an arbitral award under the New York Convention in the recent decision of Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46.
Dallah v Pakistan
Dallah commenced arbitration in 1998 after Pakistan's Ministry of Religious Affairs terminated its contract to build housing facilities. An award was made in favour of Dallah by an International Chamber of Commerce arbitral tribunal, seated in France (Tribunal). That award was made despite the fact that Dallah's agreement had been with the Awami Hajj Trust, a separate legal entity established by Pakistan to invest and administer funds.
The Supreme Court confirmed earlier decisions by the Court of Appeal and the High Court, and held that:
- even though the Tribunal had already ruled on its jurisdiction, the Court has wide powers to embark upon its own independent judicial investigation of evidence, and while it may have regard to the reasoning and findings of the Tribunal, it is not restricted by them
- the Tribunal had incorrectly applied French law (the law of the seat of arbitration) in deciding on the question of jurisdiction
- Pakistan had proved that there was no common intention for it to be bound by the agreement, applying the French legal position
- the Tribunal did not have jurisdiction to make the award as there was no valid arbitration agreement, and
- given that the New York Convention provides that a court may refuse to enforce an award where there is no valid arbitration agreement, Dallah's application to enforce the award should be refused.
Significance
The decision illustrates the extent to which a court in the United Kingdom can re-open issues of fact and law to determine whether a valid arbitration agreement exists between the parties to the dispute. Notwithstanding the 'pro-enforcement' regime of the New York Convention, the Supreme Court has given preference to an interventionist approach. The Court stated that the last word concerning a Tribunal's jurisdiction will not rest with a Tribunal, but with a court. While there may be some jurisdictions that offer a comparatively less interventionist approach by their courts, the Supreme Court's discussion of comparative positions found that there is substantial consistency worldwide.
Further, the decision re-confirms that there is no requirement for a party seeking to resist enforcement of an arbitral award, to challenge the award in the courts of the country where the arbitration was held. As demonstrated by this case, a party may also challenge an arbitral award before the enforcing court.
Finally, the case highlights the difficulties in identifying who is a party to an arbitration agreement and the issue of enforcing an award against a non-party to the agreement. It emphasises the importance of ensuring that arbitration agreements in international commercial contracts bind all of the relevant parties, especially when dealing with state-owned enterprises, subsidiaries or trusts.
Dallah v Pakistan may very well be cited in future Australian cases forced to deal with the above issues in the context of enforcing a foreign arbitral award.
