In Dallah Estate v Pakistan, the Court of Appeal confirmed a Commercial Court decision refusing enforcement of a French ICC award on the grounds that Pakistan was not party to the relevant arbitration agreement. The Commercial Court decision, which was handed down in 2008, was the subject of considerable attention at the time as it was a rare example of a refusal by the English Courts to enforce an award under the New York Convention.

In 1994, Dallah and the Government of Pakistan entered into a Memorandum of Understanding by which Dallah was to acquire land in Mecca and contract with a trust set up by the Government of Pakistan for the use of the land. Dallah and the trust, a separate legal entity, subsequently 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, and the trust ceased to exist once that ordinance lapsed.

A dispute arose under the contracts between the trust and Dallah, which Dallah referred to arbitration in Paris against Pakistan (the trust having ceased to exist). Pakistan resisted jurisdiction, insisting that it was not a party to the contracts, and refused to participate in the arbitration.

Dallah obtained an award in the arbitration and sought to enforce it in London. Pakistan resisted enforcement claiming that the arbitration agreement was invalid (one of the grounds for refusing enforcement under Article V.1 of the New York Convention, as implemented by section 103 of the English Arbitration Act). The Court held that this provision should be construed to include the issue of whether 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 the tribunal applied different laws: whereas the tribunal had applied transnational law, the Court applied French law, being the law of the seat. Having considered all of the relevant factors pursuant to the applicable French law principles, Mr Justice Aikens held that Pakistan was not a party to the arbitration agreement and thus refused enforcement of the award.

Dallah appealed in 2009. In disposing of the appeal, the Lords of Appeal considered the approach to be taken by a court in determining whether one of the grounds under section 103 of the Arbitration Act for resisting enforcement of an arbitral award is made out. The Court found that such a determination involves a full rehearing of the relevant issues and not merely a review of the tribunal's decision. Moreover, the Court rejected the contention that the supervisory court at the seat of the arbitration has primacy and held that there was no requirement for a party to challenge an award in the supervisory court in order to resist enforcement elsewhere.

The Court also confirmed Mr Justice Aikens' judgment at first instance that, as a matter of French law, Pakistan was not a party to the relevant arbitration agreement. Further, the Court found that Pakistan was not estopped from challenging enforcement: the arbitral tribunal was not a court of competent jurisdiction for these purposes as the parties had not agreed to submit to it. Moreover, the Court rejected Dallah's argument that Pakistan's failure to challenge the award in the supervisory courts in France rendered the award final and conclusive between the parties. Finally, although the Lords of Appeal recognised that in certain circumstances a court may have discretion to enforce an award notwithstanding the existence of one of the conditions for refusal of enforcement set out in section 103, such circumstances must be limited and it would not be appropriate in this instance.

The decision of the Court of Appeal is noteworthy as it clarifies the approach to be taken in evaluating whether a ground under section 103 of the Act has been made out and also confirms that there is no requirement for a party to challenge or appeal an award in the courts of the seat of an arbitration before it may attempt to resist enforcement elsewhere. The underlying decision of the Commercial Court which was here approved also highlights the difficulties investors may encounter when contracting with states or state owned entities. Parties should always seek local advice regarding the capacity of a state party to enter into commercial contracts, regarding any applicable local requirements and regarding how to ensure that the counterparty remains accountable for the duration of the contract.

(Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2009] EWCA Civ 755; Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan [2008] EWHC 1901 (Comm))