The main consideration when seeking to enforce an arbitration award is often the location of assets against which to enforce. A recent decision has now raised another important issue to consider. In Diag Human SE v Czech Republic (22 May 2014), the English Court applied the doctrine of issue estoppel in relation to the enforcement of an award for the first time. Its decision has wider significance, both since it provides a further ground for an award debtor to resist enforcement of an arbitration award in England and since it may be followed in other common law jurisdictions.
After a lengthy arbitral dispute, Diag Human SE (Diag) obtained an award in its favour against the Czech Republic. However, under the arbitration agreement between the parties, an additional review process was available for a limited time following the award.
Both parties apparently triggered the additional review process but Diag subsequently withdrew from it and alleged that the Czech Republic’s attempts to trigger it were defective. The Czech Republic denied this and argued that while the review process was pending, the award was not binding.
Diag began enforcement proceedings in several jurisdictions, including Austria and England.
The Austrian Supreme Court refused to enforce the award, finding that an arbitral award could neither be enforced nor rejected by a national court as long as it could be challenged by a higher court of arbitration.
In the English enforcement proceedings, an order was made giving Diag permission to enforce the award. However, the Czech Republic appealed, arguing that the award was not binding within the meaning of section 103(2)(f) of the 1996 Arbitration Act (the Act) or alternatively that the Austrian judgment ruling that the award was not binding created an issue estoppel.
Diag argued that no issue estoppel arose because the issue determined by the Austrian Court was different from the issue before the English Court. In particular, the Austrian Court had failed to consider whether there was in fact a valid review in process under the arbitration agreement. As a matter of English law, this was an essential consideration to determine whether the award was binding under s103(2)(f) of the Act.
The English Court found that an issue estoppel did arise out of the Austrian proceedings, ruling that where a foreign court decides an award is not binding, there is no reason in principle why that decision should not give rise to an issue estoppel provided that:
- The judgment must be given by a foreign court of competent jurisdiction.
- The judgment must be final and conclusive and on the merits.
- The issue decided by the foreign court must be the same as that arising in English proceedings.
The English Court held that the issue actually determined by the Austrian Supreme Court was that the award was not binding. The fact that its decision was reached in the context of enforcement proceedings brought under the New York Convention, rather than under s.103 of the Act, made no difference. This was especially so given that the purpose of s103 was to give statutory effect in England to the New York Convention.
The Court accepted that questions of arbitrability or public policy might be different in different states and that a decision in another jurisdiction on those grounds will not ordinarily give rise to an issue estoppel in England. However, the Court found that the question as to whether the award was binding was not in the same category. The Austrian decision that the final award was not yet binding was a decision on the merits on the same issue as was raised before the English Court. This is perhaps a surprising conclusion, since the Austrian decision was not as to the meaning of “binding” under s.103 of the Act.
Parties should bear in mind that a judgment in another jurisdiction could now have a direct bearing on enforcement proceedings in England. This could give rise to the need for a more strategic approach to commencing enforcement proceedings going forward, since location of assets may not be the only key consideration.