In commercial disputes the ability to enforce any judgment or award obtained in the country where the other party’s assets are is of central importance. One of the key reasons parties may choose to resolve a dispute by arbitration is the enhanced regime for enforcement of arbitral awards provided by the New York Convention.

Last week’s ruling by the Supreme Court in Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 (3 November 2010) provides a timely reminder that, under Article V of the New York Convention, arbitral awards are subject to scrutiny (on certain limited grounds) by the Court in the jurisdiction where enforcement is sought. In particular, the last word as to whether or not an arbitral tribunal has jurisdiction will lie with the courts, either of the arbitral seat or of the country where enforcement is sought.

The Supreme Court’s ruling makes interesting points on:  

  • The ability of an arbitral tribunal to review its own jurisdiction; and
  • The level of review of a tribunal’s decision envisaged by the New York Convention.  

Summary

In Dallah, the Court was faced with the question of whether the Government of Pakistan, which was not a signatory to the arbitration agreement, should be considered a party to the arbitration agreement (as an ICC tribunal sitting in Paris had found), or whether enforcement of the tribunal’s award could be refused under Art.V(1)(a) of the New York Convention because a proper application of French law led to the conclusion that the Government of Pakistan was not a party to the arbitration agreement.  

cThe Court concluded that “there was no material sufficient to justify the tribunal’s conclusion” that the Government of Pakistan was a party to the arbitration agreement.

The facts of the Case

Dallah Real Estate and Tourism Holding Company (Dallah) is a Saudi Arabian company which provides services for pilgrims travelling to the Holy Places in Saudi Arabia. In July 1995, Dallah signed an MoU with the Government of Pakistan (“Government”) in relation to the construction of certain housing for pilgrims. In September 1996, Dallah entered into a contract (“Contract”) with the Awami Hajj Trust (“Trust”), a body which had been established by an Ordinance promulgated by the President of Pakistan. The Contract contained an arbitration agreement, under which all disputes were to be referred to ICC Arbitration in Paris.  

The Government was not a signatory to the Contract (though the Contract made reference to a guarantee to be provided by the Government (subject to a counterguarantee by the Trust and its Trustee Bank) and included a provision by which the Trust could assign its rights and obligations to the Government without the permission of Dallah). These were the only references to the Government in the Contract.  

The housing project never came to fruition and, following a change of government in Pakistan, the Trust ceased to exist as a legal entity. In May 1998, Dallah commenced ICC arbitration proceedings against the Government.  

The Government denied that it was a party to the arbitration agreement and maintained a jurisdictional objection throughout the arbitration. Nevertheless, the tribunal ruled that it had jurisdiction over the Government, and eventually issued a final award in June 2006. In October 2006, Dallah applied to enforce the award in England. Enforcement of the award was resisted by the Government on the ground that it was not party to the arbitration agreement.  

The High Court, Court of Appeal and Supreme Court all found in favour of the Government under Article V.1(a) of the New York Convention (as incorporated into English law by s.103(2)(b) of the Arbitration Act 1996) on the basis that “the arbitration agreement was not valid… under the law of the country where the award was made”, i.e., under French law (in the absence of provision for the applicable law in the Contract).  

The Kompetenz-Kompetenz principle and the New York Convention

Before the Supreme Court, Dallah argued that the Kompetenz-Kompetenz principle (i.e., the principle that an arbitral tribunal has power to rule on its own jurisdiction) in combination with the “pro-enforcement” regime of the New York Convention, meant that the enforcing Court should give deference to the decision of the tribunal that the arbitration agreement was valid “when the tribunal’s conclusions could be regarded on their face as plausible or ‘reasonably supportable’.”  

The Supreme Court disagreed that any such limitation on the scope of the Court’s review could be derived from the Kompetenz-Kompetenz principle. Lord Collins concluded that “[t]he principle that a tribunal has jurisdiction to determine its own jurisdiction does not deal with, or still less answer, the question whether the tribunal’s determination of its own jurisdiction is subject to review, or if it is subject to review, what that level of review should be.”  

The Court’s conclusion was bolstered by a comparative analysis, which found similar application of the Kompetenz-Kompetenz principle in the United States, France and Germany.  

The Supreme Court also concluded that there was no basis to imply a concept of “deference” to the tribunal’s decision on jurisdiction into Article V of the New York Convention. The plain language of Article V required the enforcing Court to safeguard “fundamental rights including the right of a party which has not agreed to arbitration to object to the jurisdiction of the tribunal.”  

The Court’s review of the tribunal’s decision

The Parties were largely in agreement on the principles of French law that determine when a non-signatory can be considered a party to an arbitration agreement. The Parties’ experts jointly stated that French law required a “common intention (whether express or implied)” that the Government should be bound by the Contract and hence the arbitration agreement.  

The Supreme Court reviewed the facts relied upon by the tribunal and concluded that the Government had successfully proved that there was no common intention that the Government should be bound by the arbitration agreement.

On the particular facts of this case, the Supreme Court was influenced by certain ‘red flags’ in the tribunal’s decision and this led the Court to apply a rigorous standard of review. However, in the light of recent “pro-arbitration” cases such as Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40, it remains to be seen whether the English Courts will apply a similarly stringent standard of review in future cases.