In the recent case of Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan, the High Court concluded that Pakistan was not a party to the arbitration agreement even after an arbitral tribunal in Paris had ruled otherwise and rendered its award. This case is notable as a rare example of the English courts' refusal to enforce an award under the New York Convention. It is particularly noteworthy for the extent to which the case opens up issues of jurisdiction.

Dallah is a Saudi Arabian company which provides services for Muslims performing the Hajj pilgrimage to Mecca. In 1994 the Government of Pakistan decided to set up a trust to invest in real estate projects in Mecca. Dallah and the Government of Pakistan entered into a Memorandum of Understanding by which Dallah was to acquire land in Mecca and contract with the trust for the use of the land. Subsequently, Dallah and the trust, a separate legal entity, entered into the contracts for development of housing on Dallah's plot. These contracts referred disputes to ICC arbitration in Paris. The trust was established on the basis of a temporary ordinance. When this lapsed the trust ceased to exist.

A contractual dispute arose which Dallah referred to arbitration in Paris against Pakistan. Pakistan resisted jurisdiction, insisting that it was not a party to the contracts and refused to participate in the arbitration.

After obtaining its award in Paris, Dallah initiated enforcement proceedings in London. However, Pakistan resisted enforcement claiming that the arbitration agreement was invalid. This is one of the grounds for refusing enforcement under the New York Convention as implemented by the English Arbitration Act (section 103(2)(4)) which states:

"Recognition or enforcement of the award may be refused if the person against whom it is invoked proves … (b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made".

The court took a wide view of this provision and held that it should be construed to include the issue of whether, in fact, the party against whom the award is invoked is bound by the arbitration clause. To determine the question of whether Pakistan was party to the arbitration agreements, the court and tribunal took different views as regards which law applied. They were able to do so since the parties had not specified which law should be applied to that part of the contract. Whereas the tribunal had applied transnational law, the court decided that French law should apply, being the law of the seat. French law specified that the law of the country where the contract was entered into governed the question of legal capacity to enter into the agreement. Under Pakistani law, the agreement would have needed the signature of the President of Pakistan. Therefore, the court concluded that Pakistan was not a party.

As well as its wide interpretation of the grounds to resist enforcement, the judgment provides an interesting example of investors' difficulties when contracting with states or state owned entities. Parties should always seek local advice as regards the capacity and correct procedures for a state party's entry into commercial contracts. They should always ensure that the counterparty remains accountable for the duration of the contract. Furthermore, to reduce uncertainty as to the interpretation of an arbitration agreement, parties are advised to include where possible an express agreement on the law applicable to the arbitration agreement.

(Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan [2008] EWHC 1901 (Comm))