Dallah Estate & Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan

Arbitration – Enforcement of award made in another state – New York Convention – Arbitration Act 1996 – French arbitral tribunal making award – Whether English court asked to enforce award entitled to conduct full rehearing of issue of validity of arbitration agreement – Whether issue estoppel arising – Appeal dismissedIn 1995, the appellant Saudi company entered into a memorandum of understanding with the respondent, as the part of the Pakistani government with responsibility for the welfare of pilgrims, regarding a development project to acquire land in Mecca for the purpose of providing accommodation. A final agreement was concluded between the appellant and a trust that the respondent chose to use as a vehicle for the scheme. The agreement included a clause that provided for arbitration under the rules of the International Chamber of Commerce (ICC) in Paris. However, the ordinance constituting the trust lapsed automatically under Pakistani law and was not renewed.The appellant purported to commence arbitration against the respondent under the ICC rules, claiming damages for breach of the agreement. A tribunal appointed by the ICC found that the Pakistani government: (i) was bound by the arbitration agreement as being a party to it; (ii) had repudiated the agreement; and (iii) was liable to pay damages of more than $18.9m plus costs.The appellant sought permission to enforce the award in the English High Court, pursuant to section 101(2) of the Arbitration Act 1996, which implemented the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Permission was given, but the respondent applied successfully 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 1996 Act. Applying French law, being the country in which the award had been made, the judge held that the Pakistani government was not a party to the arbitration agreement and declined to enforce the award.The appellant appealed. Issues arose as to: (i) the extent of the English court’s power of review as the enforcing court; (ii) the application of the principles of estoppel; and (iii) any discretion to enforce an invalid award.Held: The appeal was dismissed. (1) Article V.1 of the New York Convention, which section 103(2) of the 1996 Act followed, was directed to matters that, if established, would 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. It recognised that the courts of the country in which, or under the law of which, the award had been made had a supervisory role, which would include the power to set aside the award on grounds of a substantive nature. By contrast, the power of the courts in other party states was limited to a refusal to recognise or enforce the award. That did not mean that the supervisory court was intended to have primacy in the sense that enforcing courts were expected or required to treat the award as being valid and binding unless and until it was successfully challenged in the supervisory court. A party against which an award was made could oppose its enforcement in another jurisdiction on the ground that the award was not based on a valid agreement to arbitrate: Svenska Petroleum Exploration AB v Lithuania (No 2) [2006] EWCA Civ 1529; [2007] QB 886 applied. The enforcing court was not confined to a review within a narrow compass and did not have to defer to the reasoning of the arbitral tribunal, but was entitled to conduct a wholesale rehearing of the issues determined by the tribunal. The judge had correctly applied the principles of French law to the evidence before him and had been entitled to conclude that the Pakistani government was not a party to the agreement.(2) The failure of the Pakistani government to challenge the award before the French courts did not render the award final and conclusive as between the parties; nor did it estop the government from challenging the validity of the arbitration agreement in the instant proceedings. Whether the tribunal was a court of competent jurisdiction, in the sense necessary to create an issue estoppel, depended on whether the parties had agreed to confer jurisdiction on it. If the government and the appellant were not both parties to an agreement providing for ICC arbitration, the tribunal had no jurisdiction over them and the award was a nullity: Svenska and Watt (formerly Carter) v Ahsan (No 1) [2007] UKHL 51; [2008] 1 AC 696 distinguished. Furthermore, the fact that an award had not been challenged in the supervisory court did not affect the right of a party to a foreign arbitration, preserved by article V.1, to challenge enforcement on grounds that impugned its fundamental validity and integrity. (3) Section 103(2)(b) gave a discretion to the court to allow enforcement even where one of the grounds justifying refusal had been established. However, it would not be a proper exercise of the court’s discretion to allow enforcement in the instant case once the court had concluded that there was no binding arbitration agreement between the respondent and the appellant. To do so would be contrary to the policy of the New York Convention: Dardana Ltd v Yukos Oil Co (No 1) [2002] EWCA Civ 543; [2002] 2 Lloyd’s Rep 326 and Kanoria v Guinness [2006] EWCA Civ 222; [2006] 1 Lloyd’s Rep 701 applied.Hilary Heilbron QC and Klaus Reichert (instructed by Kearns & Co) appeared for the appellant; Toby Landau QC and Patrick Angénieux, solicitor (instructed by Watson Farley & Williams) appeared for the respondent.Sally Dobson, barrister