In Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs, Pakistan  UKSC 46, the Supreme Court considered an appeal from a Court of Appeal decision refusing the Appellant leave to enforce an arbitration award made in its favour.
The Appellant had concluded a memorandum of understanding with the Respondent Government of Pakistan under which the Appellant was to construct a number of houses for pilgrims, and the Respondent was to take a 99-year lease of them. The Respondent established a trust as a vehicle for the project (the “Trust”), with which the Appellant eventually entered into an agreement. This agreement contained an arbitration clause providing for any disputes between the Appellant and the Trust to be dealt with by ICC Arbitration. Shortly after this agreement was made, the Trust ceased to exist as a legal entity.
Disputes arose, and the Appellant commenced arbitration proceedings against the Respondent. The tribunal found in favour of the Appellant, and also found that the Trust was the alter ego of the Respondent. As a result the latter was a true party to the agreement and was bound by it.
The Court had to consider whether the arbitration award was valid under French law (by virtue of s.103(2)(b) Arbitration Act 1996 (the “Act”) and Article V(1)(a) of the New York Convention). This depended on whether the Respondent could prove that it was not a party to, and so was not bound by, the arbitration agreement. The Appellant submitted that the Respondent had at all times been an unnamed party to the agreement, as it had been the common intention of both parties that this should be the case.
The Court held as follows:
- In order to determine whether the Respondent was bound by the arbitration agreement, all of the evidence had to be reviewed. The Court was not limited to reviewing the tribunal’s ruling, and did not have to defer to the tribunal’s views. Arbitration is consensual and a tribunal cannot, without specific authority, create or extend the authority conferred on it. A tribunal’s decision on its own jurisdiction cannot bind a party which has not submitted the question of “arbitrability” to the tribunal in the first place. Under English law, a party who has not submitted to a tribunal’s jurisdiction is entitled to make an application under s.67 of the Act for a full determination on the issue of jurisdiction by the court, and this is also the case where the English court is asked to enforce a foreign award.
- The tribunal’s reasoning on the issue of whether the Respondent was bound by the arbitration agreement was neither conclusive nor persuasive. It was not clear that the tribunal had directed its mind to common intention, and the course of events did not justify a conclusion that it was the parties’ common intention or belief that the Respondent was or should be a party to the agreement. The agreement was structured to be, and was agreed, between the Appellant and the Trust.
- The phrase “recognition or enforcement of the award may be refused” in s.103(2) of the Act does not mean that a court can, in the absence of new circumstances such as another agreement or an estoppel, enforce or recognise an award which it found to have been made without jurisdiction.