JUDGMENT
Dallah Real Estate and Tourism Holding Company
(Appellant) v The Ministry of Religious Affairs,
Government of Pakistan (Respondent)
before
Lord Hope, Deputy President
Lord Saville
Lord Mance
Lord Collins
Lord Clarke
JUDGMENT GIVEN ON
3 November 2010
Heard on 28, 29 and 30 June 2010
Appellant Respondent
Hilary Heilbron QC Toby Landau QC
Klaus Reichert
(Instructed by Kearns &
Co)
(Instructed by Watson,
Farley & Williams)
Page 2
LORD MANCE
Introduction
1. This appeal arises from steps taken by the appellant, Dallah Real Estate and
Tourism Holding Company (“Dallah”), to enforce in England a final award dated
23 June 2006 made in its favour in the sum of US$20,588,040 against the
Government of Pakistan (“the Government”) by an International Chamber of
Commerce (“ICC”) arbitral tribunal sitting in Paris. The Government has hitherto
succeeded in resisting enforcement on the ground that “the arbitration agreement
was not valid ….. under the law of the country where the award was made”
(Arbitration Act 1996, s.103(2)(b), reflecting Article V(I)(a) of the New York
Convention), that is under French law. Dallah now appeals.
2. The award was made against the Government on the basis that it was “a true
party” to an Agreement dated 10 September 1996 expressed to be made between
and signed on behalf of Dallah and Awami Hajj Trust (“the Trust”). The
Agreement contains an arbitration clause referring disputes or differences between
Dallah and the Trust to ICC arbitration. The tribunal in a first partial award dated
26 June 2001 concluded that the Government was a true party to the Agreement
and as such bound by the arbitration clause, and so that the tribunal had
jurisdiction to determine Dallah’s claim against the Government. The central issue
before the English courts is whether the Government can establish that, applying
French law principles, there was no such “common intention” on the part of the
Government and Dallah as would make the Government a party.
3. Dallah is a member of a group providing services for the Holy Places in
Saudi Arabia. It had had long-standing commercial relations with the Government.
By letter dated 15 February 1995, Mr Shezi Nackvi, a senior director in the Dallah
group, made a proposal to the Government to provide housing for pilgrims on a
55-year lease with associated financing. The Government approved the proposal in
principle, and a Memorandum of Understanding (“MOU”) was concluded on 24
July 1995. Land was to be purchased and housing facilities were to be constructed
at a total cost not exceeding US$242 million and the Government was to take a 99-
year lease subject to Dallah arranging the necessary financing to be “secured by
the Borrower designated by THE GOVERNMENT under the Sovereign Guarantee
of THE GOVERNMENT”. The lease and financing terms were to be
communicated to the Government within 30 days for approval, and Dallah was to
supply detailed specifications within 60 days of the date of such approval.
Page 3
4. In the event, Dallah in November 1995 acquired a larger and more
expensive plot of land than the MOU contemplated, and the timetable was also not
maintained. Further, on 21 January 1996 the President of Pakistan promulgated
Ordinance No VII establishing the Trust with effect from 14 February 1996. Under
article 89(2) of the Constitution of Pakistan, an Ordinance so promulgated “shall
stand repealed at the expiration of four months from its promulgation”, although,
under the same article, it should before then have been laid before Parliament,
upon which it would have taken effect as a bill. In the event, Parliament appears
never to have been involved, but further Ordinances were promulgated to recreate
and continue the Trust, viz Ordinance No XLIX of 1996 on a date unknown
(presumably prior to 21 May 1996) and No LXXXI of 1996 on 12 August 1996.
5. Under each Ordinance the Trust was to maintain a fund with a trustee bank,
to be financed from contributions and savings by pilgrims (Hujjaj) and
philanthropists, as well as by any income from investments or property. The
Ordinances also assigned functions within the Trust to various public officers.
They prescribed, in particular, that the secretary of the Ministry of Religious
Affairs (“MORA”) should act as secretary of the Board of Trustees and (unless
some other person of integrity was appointed) as Managing Trustee of the Trust.
6. On 29 February 1996 Dallah wrote to the secretary of MORA with a
revised proposal, increasing the cost to US$345 million to take account of the
larger plot purchased, setting out options for a new legal and financial structure
and stating:
“Legal issues
In order to comply with the legal requirements of the various entities
involved, the structure will be as follows:
a) Government of Pakistan to set up AWAMI
HAJJ TRUST
b) Trust will borrow the US$100 Million from
Dallah Albaraka
c) Trust will make a down payment of US$100
million to Albaraka
Page 4
d) Trust will enter into a lease to use these
buildings during the Hajj period”
Annex A detailed the financial structure:
“Loan terms for down payment of US $ 100 Million – Approx
30% of project cost
Amount: US $ 100 Million
Borrower: Awami Hajj Trust
Guarantor: Government of Pakistan”
7. On 3 April 1996 Dallah instructed its lawyers, Orr, Dignam & Co. that “the
current shape of the transaction” involved an agreement to be entered into between
Dallah and the Trust on terms which it described. Further negotiations with the
Government led to the signing of the Agreement between Dallah and the Trust on
10 September 1996. The Agreement reflected the increased cost of $345 million,
out of which it provided that:
“the Trust shall pay a lump sum of U.S. $ 100 [million] …. to Dallah
by way of advance ….. subject to (i) Dallah arranging through one of
its affiliates a U.S. Dollar 100 [million] Financing Facility for the
Trust against a guarantee of the Government of Pakistan, ….. (iii) A
counter guarantee issued by the Trust and Al-Baraka Islamic
Investment Bank, E.C., Bahrain, …. appointed by the Board of
Trustees pursuant to Section 8 of the Awami Hajj Trust Ordinance,
1996 in favour of the Government of Pakistan.”
Clause 27 provided that:
“The Trust may assign or transfer its rights and obligations under
this Agreement to the Government of Pakistan without the prior
consent in writing of Dallah.”
Page 5
The Agreement made no other references to the Government and was in terms
introducing and setting out mutual obligations on the part of Dallah and the Trust.
These included the arbitration clause:
“23. Any dispute or difference of any kind whatsoever between the
Trust and Dallah arising out of or in connection with this Agreement
shall be settled by arbitration held under the Rules of Conciliation
and Arbitration of the International Chamber of Commerce, Paris, by
three arbitrators appointed under such Rules.”
8. On 6 November 1996 Ms Benazir Bhutto’s government fell from power,
and was replaced by that of Mr Nawaz Sharif. No further Ordinance was
promulgated, and the Trust accordingly ceased to exist as a legal entity at midnight
on 11 December 1996. It will be necessary to look in detail at correspondence as
well as three sets of proceedings in Pakistan which took place during the following
years.
9. Dallah invoked ICC arbitration against the Government on 19 May 1998,
nominating Lord Mustill as its arbitrator. It is common ground that the
Government has throughout the arbitration denied being party to any arbitration
agreement, maintained a jurisdictional reservation and not done anything to submit
to the jurisdiction of the tribunal or waive its sovereign immunity. The ICC under
its Rules appointed Justice Dr Nassim Hasan Shah to act as the Government’s
arbitrator and Dr Ghaleb Mahmassani to chair the tribunal. Terms of Reference, in
which the Government refused to join, were signed by the arbitrators and Dallah in
March 1999 and approved by the ICC in April 1999. The tribunal issued its first
partial award on its own jurisdiction on 26 June 2001. A second partial award on
liability was issued on 19 January 2004 and the final award on 23 June 2006.
10. Leave to enforce the final award in England was given by Order of
Christopher Clarke J dated 9 October 2006 on a without notice application by
Dallah. The Government’s application to set aside the leave led to a three day
hearing with oral evidence before Aikens J in July 2008. His judgment setting
aside the Order is dated 1 August 2008: [2008] EWHC 1901 (Comm); [2009] 1 All
ER (Comm) 505. A further three day hearing led to the Court of Appeal’s
dismissal of Dallah’s appeal on 20 July 2009 ([2009] EWCA Civ 755; [2010] 1
AER 592), against which the present appeal lies. On 19 August 2009, Dallah filed
an application in the French courts for enforcement of the final award, and, on 12
January 2010, it sought a stay of the present appeal pending the outcome of its
French application. On 25 January 2010, the Supreme Court refused such a stay.
On 21 December 2009, the Government applied in France to set aside all three
awards. It was in time to do this, since, under French law, the limitation period for
Page 6
doing so only starts to run one month after “official notification of the award
bearing an enforcement order”.
The issue and the principles governing its resolution
11. The “validity” of the arbitration agreement depends in the present case upon
whether there existed between Dallah and the Government any relevant arbitration
agreement at all. Dallah’s case is that the Government has at all times been an
unnamed party to the Agreement containing the arbitration clause. Before the
English courts, this case has been founded on a submission that it was the common
intention of the parties that the Government should be such a party to the
Agreement. Before the arbitral tribunal Dallah put the matter differently. It argued
that either the Trust was the alter ego of the Government or the Government was
the successor to the Trust or to the rights and obligations which the Trust had
under the Agreement prior to its demise. Neither of these ways of putting the case
is now pursued. Dallah did not argue before Aikens J that the Trust was the
Government’s alter ego (judgment, para 58, footnote 21), and it merely submitted
that, if and so far as the Government behaved as if it were a successor to the Trust,
this was relevant to the issue of common intention (judgment, paras 94-96).
12. The issue regarding the existence of any relevant arbitration agreement falls
to be determined by the Supreme Court as a United Kingdom court under
provisions of national law which are contained in the Arbitration Act 1996 and
reflect Article V(1)(a) of the New York Convention. The parties’ submissions
before the Supreme Court proceeded on the basis that, under s.103(2)(b) of the
1996 Act and Article V(1)(a) of the Convention, the onus was and is on the
Government to prove that it was not party to any such arbitration agreement. This
was so, although the arbitration agreement upon which Dallah relies consists in an
arbitration clause in the Agreement which on its face only applies as between
Dallah and the Trust. There was no challenge to, and no attempt to distinguish, the
reasoning on this point in Dardana Limited v Yukos Oil Company [2002] EWCA
Civ 543; [2002] 1 All ER (Comm) 819, paras 10-12, and I therefore proceed on the
same basis as the parties’ submissions.
13. S.103(2)(b) and article V(1)(a) raise a number of questions:
(a) what is meant by “the law of the country where the award was made”?
(b) what are the provisions of that law as regards the existence and validity
of an arbitration agreement?
Page 7
(c) what is the nature of the exercise which an enforcing court must
undertake when deciding whether an arbitration agreement existed under
such law?
and, in particular,
(d) what is the relevance of the fact that the arbitral tribunal has itself ruled
on the issue of its own jurisdiction?
(a) The law of the country where the award was made.
14. It is common ground that the award was made in France and French law is
relevant. But it is also common ground that this does not mean the French law that
would be applied in relation to a purely domestic arbitration. In relation to an
international arbitration, the experts on French law called before Aikens J by
Dallah and the Government agreed in their Joint Memorandum (para 2.8) that:
“Under French law, the existence, validity and effectiveness of an
arbitration agreement in an international arbitration …. need not be
assessed on the basis of a national law, be it the law applicable to the
main contract or any other law, and can be determined according to
rules of transnational law”.
The approach taken in French law appears in decisions of the Court of Appeal of
Paris, in particular Menicucci v Mahieux [1976] Rev Crit 507 (13 December 1975)
and Coumet et Ducler v Polar-Rakennusos a Keythio [1990] Rev Arb 675 (8
March 1990), and later in the decision of the Cour de Cassation (1re Ch. Civ) (20
December 1993) in Municipalité de Khoms El Mergeb v Dalico [1994] 1 Rev Arb
116, where the court said that:
“… en vertu d’une règle matérielle du droit international de
l’arbitrage, la clause compromissoire est indépendante juridiquement
du contrat principal qui la contient directement ou par référence et
que son existence et son efficacité s’apprécient, sous réserve des
règles impératives du droit français et de l’ordre public international,
d’après la commune volonté des parties, sans qu’il soit nécessaire de
se référer à une loi étatique ….”
15. This language suggests that arbitration agreements derive their existence,
validity and effect from supra-national law, without it being necessary to refer to
Page 8
any national law. If so, that would not avoid the need to have regard to French law
as “the law of the country where the award was made” under Article V(1)(a) of the
Convention and s.103(2)(b) of the 1996 Act. The Cour de Cassation is, however, a
national court, giving a French legal view of international arbitration; and Dallah
and the Government agree that the true analysis is that French law recognises
transnational principles as potentially applicable to determine the existence,
validity and effectiveness of an international arbitration agreement, such principles
being part of French law. As Miss Heilbron QC representing Dallah put it,
“transnational law is part of French law”. Mr Landau QC representing the
Government now accepts this analysis (although in his written case, para 157, he
appeared to take issue with it and Aikens J, para 93, in fact disregarded
transnational law on the basis that it was not part of French law, but relevant only
under French conflict of laws principles and so not within Article V(1)(a) and
s.103(2)(b)).
16. Since the point is common ground, I merely record that Mr Landau referred
the Court to Pierre Mayer’s note on Ducler in KluwerArbitration, explaining the
rationale of the Paris Court of Appeal decisions as being to confine the restrictive
provisions of article 2061 of the French Civil Code to internal contracts. He also
referred to Fouchard, Gaillard, Goldman’s International Commercial Arbitration
(1999) (Kluwer), para 440, describing as ‘somewhat unfortunate’ the terminology
used in (French) decisions referring to an arbitration agreement as autonomous
from ‘any national law’ and as having its ‘own effectiveness’, and observing that
“a contract can only be valid by reference to a law that recognises such validity”.
Finally, in response to a 1977 commentary, suggesting that the validity of an
arbitration clause in an international contract “resulted solely from the will of the
parties, independently of any reference to the law of the main contract, and to any
national law” and describing this as “the ultimate pinnacle of autonomy”, Poudret
and Besson’s Comparative Law of International Arbitration 2nd ed (2007), para
180 also said that:
“… it is only the first two aspects, i.e. indifference to the fate of the
main contract and the possibility of being submitted to a separate
law, that flow logically from the principle of separability. The latter
by no means implies that the arbitration agreement is independent of
any national law. The real justification of this regime lies elsewhere:
as Philippe Fouchard emphasises in his note on the Menicucci
judgment, the aim is to remove the obstacles which certain laws,
including French law, bring to the development of international
arbitration. Although the judgment does not say so, this new
conception of separability implies abandoning the conflict of laws
approach in favour of material rules, which are in reality part of
French law and not of any international or transnational system. We
shall see this point with the Dalico judgment.”
Page 9
In the light of the common ground between the parties, it is also unnecessary to
engage with the competing representations of international arbitration lucidly
discussed in Gaillard’s Legal Theory of International Arbitration (2010) pp. 13-66.
Whatever the juridical underpinning or autonomy of their role from the viewpoint
of international arbitrators, the present case involves an application to enforce in
the forum of a national court, subject to principles defined by s.103 of the 1996
Act and Article V of the New York Convention, upon the effect of which there is
substantial, though not complete, agreement between the parties now before the
Supreme Court.
(b) The provisions of that law as regards the existence and validity of an
arbitration agreement.
17. The parties’ experts on French law were agreed that a French court would
apply a test of common intention to an issue of jurisdiction. Dallah’s expert, M.
Derains, said this in his written report (p.14):
“Thus, my Experts’ opinion is that it is open to an arbitral tribunal
seating in Paris in an international arbitration to find that the
arbitration agreement is governed by transnational law. Yet, the
arbitrators must also look for the common will of the parties, express
or implied, since it is a substantive rule of French law that the Courts
will apply when controlling the jurisdiction of the arbitrators.”
In para 2.9 of a joint memorandum to which Aikens J referred in paras 85 et seq of
his judgment, the experts agreed upon the following statement:
“Under French law, in order to determine whether an arbitration
clause upon which the jurisdiction of an arbitral tribunal is founded
extends to a person who is neither a named party nor a signatory to
the underlying agreement containing that clause, it is necessary to
find out whether all the parties to the arbitration proceedings,
including that person, had the common intention (whether express or
implied) to be bound by the said agreement and, as a result, by the
arbitration clause therein. The existence of a common intention of
the parties is determined in the light of the facts of the case. To this
effect, the courts will consider the involvement and behaviour of all
the parties during the negotiation, performance and, if applicable,
termination of the underlying agreement”.
Page 10
18. The experts’ agreement summarises a jurisprudence constante in the French
courts. The Cour de Cassation endorsed a test of common intention in the case of
Dalico (para 14 above). M. Derains endorsed its application to issues such as that
in the present case. Aikens J had cited to him the leading decisions of the Paris
Court of Appeal spelling out the principle in greater detail in a series of cases
concerning international arbitrations: Société Isover-Saint-Gobain v Société Dow
Chemical [1984] 1 Rev Arb 98 (21 October 1983), Co. tunisienne de Navigation v
Société Comptoir commercial André [1990] 3 Rev Arb 675 (28 November 1989)
and Orri v Société des Lubrifiants Elf Aquitaine [1992] Jur Fr 95 (11 January
1990). In the last case, the Court put the position as follows:
“Selon les usages du commerce international, la clause
compromissoire insérée dans un contrat international a une validité
et une efficacité propres qui commandent d’en étendre l’application
aux parties directement impliquées dans l’exécution du contrat et les
litiges qui peuvent en résulter, dès lors qu’il est établi que leur
situation contractuelle, leurs activités et les relations commerciales
habituelles existent entre les parties font présumer qu’elles ont
accepté la clause d’arbitrage dont elles connaissaient l’existence et la
portée, bien qu’elles n’aient pas été signataires du contrat qui la
stipulait”.
In translation:
“According to the customary practices of international trade, the
arbitration clause inserted into an international contract has its own
validity and effectiveness which require that its application be
extended to the parties directly involved in the performance of the
contract and any disputes which may result therefrom, provided that
it is established that their contractual situation, their activities and the
normal commercial relations existing between the parties allow it to
be presumed that they have accepted the arbitration clause of which
they knew the existence and scope, even though they were not
signatories of the contract containing it”.
This then is the test which must be satisfied before the French court will conclude
that a third person is an unnamed party to an international arbitration agreement. It
is difficult to conceive that any more relaxed test would be consistent with justice
and reasonable commercial expectations, however international the arbitration or
transnational the principles applied.
Page 11
19. Aikens J recorded that the experts were also agreed that: (i) “when the court
is looking for the common intention of all the potential parties to the arbitration
agreement, it is seeking to ascertain the subjective intention of each of the parties,
through their objective conduct. The court will consider all the facts of the case,
starting at the beginning of the chronology and going on to the end and looking at
the facts in the round” (para 87); (ii) “when a French court is considering the
question of the common intention of the parties, it will take into account ‘good
faith’” (para 90); and (iii) under French law a state entering into an arbitration
agreement thereby waives its immunity, both from jurisdiction (as under English
law: State Immunity Act 1978, s.9(1) and Svenska Petroleum Exploration AB v
Government of the Republic of Lithuania (No 2) [2006] EWCA Civ 1529; [2007]
QB 886) and (unlike English law) also from execution (para 91). However the
experts disagreed as to whether the last point had any relevance when considering
whether a state had entered into such an agreement. In the light of their conflicting
evidence on this point, Aikens J found that: (iv) “the correct analysis of French law
is that when the court is ascertaining the subjective intention of the potential state
party to the arbitration agreement, it will bear in mind the fact that the potential
state party to the arbitration agreement would lose its state immunity if it were to
become a party to the arbitration agreement” (para 91).
(c) The nature of the exercise which an enforcing court must undertake when
deciding whether an arbitration agreement existed under such law, and
(d) the relevance of the fact that the arbitral tribunal has itself ruled on the issue of
its own jurisdiction.
20. These questions are here linked. Miss Heilbron’s primary submission on
question (c) is that the only court with any standing to undertake a full examination
of the tribunal’s jurisdiction would be a French court on an application to set aside
the award for lack of jurisdiction. An example of the French courts’ willingness to
do this is provided by République arabe d’Egypte v Southern Pacific Properties
Ltd [1986] Ju Fr 75; [1987] Ju Fr 469 (12 July 1984, Paris Court of Appeal and 6
January 1987, Cour de Cassation) (the Pyramids case). Article 1502 of the French
Code of Civil Procedure entitles a French court to refuse to recognise or enforce an
arbitral award made in the absence of any arbitration agreement, while article 1504
entitles the court to set aside an award made in France in an international
arbitration on the grounds provided in article 1502. An ICC arbitral tribunal sitting
in Paris had held the Arab Republic of Egypt liable as being party to a contract
signed between companies in the Southern Pacific group and the Egyptian General
Organisation for Tourism and Hotels (“EGOTH”). On an application by Egypt to
set aside the award, the Court of Cassation held that the Court of Appeal had been
entitled under articles 1502 and 1504 “de rechercher en droit et en fait tous les
elements concernant les vices en question” (to examine in law and in fact all the
elements relevant to the alleged defects: p 470), and that it had on that basis been
Page 12
up to the Court of Appeal to make up its own mind whether the arbitrators had
exceeded their jurisdiction.
21. In Miss Heilbron’s submission, any enforcing court (other than the court of
the seat of the arbitration) should adopt a different approach. It should do no more
than “review” the tribunal’s jurisdiction and the precedent question whether there
was ever any arbitration agreement binding on the Government. The nature of the
suggested review should be “flexible and nuanced” according to the
circumstances. Here, Miss Heilbron argues that the answer to question (d) militates
in favour of a limited review. She submits that the tribunal had power to consider
and rule on its own jurisdiction (Kompetenz-Kompetenz or compétencecompétence), that it did so after full and close examination, and that its first partial
award on jurisdiction should be given strong “evidential” effect. In these
circumstances, she submits, a court should refuse to become further involved, at
least when the tribunal’s conclusions could be regarded on their face as plausible
or “reasonably supportable”.
22. At times, Dallah has put its case regarding the first partial award even
higher. In her oral submissions, Miss Heilbron went so far as to suggest that the
first partial award was itself an award entitled to recognition and enforcement
under the New York Convention. No application for its recognition or enforcement
has in fact been made (the present proceedings concern only the final award), but,
quite apart from that, the suggestion carries Dallah nowhere. First, (in the absence
of any agreement to submit the question of arbitrability itself to arbitration) I do
not regard the New York Convention as concerned with preliminary awards on
jurisdiction. As Fouchard, Gaillard, Goldman’s International Commercial
Arbitration, para 654, observes the Convention “does not cover the competencecompetence principle”. Dallah could not satisfy even the conditions of Article
IV(1) of the Convention and s.102(1)(b) of the 1996 Act requiring the production
of an agreement under which the parties agreed to submit the question of
arbitrability to the tribunal – let alone resist an application under Article V(1)(a)
and s.103(2)(b) on the ground that the parties had never agreed to submit that
question to the binding jurisdiction of the tribunal. Second, Dallah’s case quotes
extensively from Fouchard, Gaillard, Goldman, para 658, pointing out that arbitral
tribunals are free to rule on their own jurisdiction, but ignores the ensuring para
659, which says, pertinently, that:
“Even today, the competence-competence principle is all too often
interpreted as empowering the arbitrators to be the sole judges of
their jurisdiction. That would be neither logical nor acceptable. In
fact, the real purpose of the rule is in no way to leave the question of
the arbitrators’ jurisdiction in the hands of the arbitrators alone.
Their jurisdiction must instead be reviewed by the courts if an action
is brought to set aside or to enforce the award.”
Page 13
23. In its written case Dallah also argued that the first partial award gave rise,
under English law, to an issue estoppel on the issue of jurisdiction, having regard
to the Government’s deliberate decision not to institute proceedings in France to
challenge the tribunal’s jurisdiction to make any of its awards. This was
abandoned as a separate point by Miss Heilbron in her oral submissions before the
Supreme Court, under reference to the Government’s recent application to set
aside the tribunal’s awards in France. But, in my judgment, the argument based on
issue estoppel was always doomed to fail. A person who denies being party to any
relevant arbitration agreement has no obligation to participate in the arbitration or
to take any steps in the country of the seat of what he maintains to be an invalid
arbitration leading to an invalid award against him. The party initiating the
arbitration must try to enforce the award where it can. Only then and there is it
incumbent on the defendant denying the existence of any valid award to resist
enforcement.
24. Dallah’s stance on question (d) cannot therefore be accepted. Arbitration of
the kind with which this appeal is concerned is consensual – the manifestation of
parties’ choice to submit present or future issues between them to arbitration.
Arbitrators (like many other decision-making bodies) may from time to time find
themselves faced with challenges to their role or powers, and have in that event to
consider the existence and extent of their authority to decide particular issues
involving particular persons. But, absent specific authority to do this, they cannot
by their own decision on such matters create or extend the authority conferred
upon them. Of course, it is possible for parties to agree to submit to arbitrators (as
it is possible for them to agree to submit to a court) the very question of
arbitrability – that is a question arising as to whether they had previously agreed to
submit to arbitration (before a different or even the same arbitrators) a substantive
issue arising between them. But such an agreement is not simply rare, it involves
specific agreement (indeed “clear and unmistakable evidence” in the view of the
United States Supreme Court in First Options of Chicago, Inc. v Kaplan 514 US
938, 944 (1995) per Breyer J), and, absent any agreement to submit the question of
arbitrability itself to arbitration, “the court should decide that question just as it
would decide any other question that the parties did not submit to arbitration,
namely, independently”: ibid, per Breyer J, p.943.
25. Leaving aside the rare case of an agreement to submit the question of
arbitrability itself to arbitration, the concept of competence-competence is “applied
in slightly different ways around the world”, but it “says nothing about judicial
review” and “it appears that every country adhering to the competence-competence
principle allows some form of judicial review of the arbitrator’s jurisdictional
decision …..”: China Minmetals Materials Import and Export Co., Ltd. v Chi Mei
Corporation 334 F 3d 274, 288 (2003), where some of the nuances (principally
relating to the time at which courts review arbitrators’ jurisdiction) were examined.
In China Minmetals it was again held, following First Options, that under United
Page 14
States law the court “must make an independent determination of the agreement’s
validity and therefore of the arbitrability of the dispute, at least in the absence of a
waiver precluding the defense”: p 289. English law is well-established in the same
sense, as Devlin J explained in Christopher Brown Ltd v Genossenschaft
Ősterreichischer [1954] 1 QB 8, 12-13, in a passage quoted in the February 1994
Consultation Paper on Draft Clauses and Schedules of an Arbitration Bill of the
DTI’s Departmental Advisory Committee (then chaired by Lord Steyn):
“It is not the law that arbitrators, if their jurisdiction is challenged or
questioned, are bound immediately to refuse to act until their
jurisdiction has been determined by some court which has power to
determine it finally. Nor is it the law that they are bound to go on
without investigating the merits of the challenge and to determine the
matter in dispute, leaving the question of their jurisdiction to be held
over until it is determined by some court which had power to
determine it. They might then be merely wasting their time and
everybody else’s. They are not obliged to take either of those
courses. They are entitled to inquire into the merits of the issue
whether they have jurisdiction or not, not for the purpose of reaching
any conclusion which will be binding upon the parties – because that
they cannot do – but for the purpose of satisfying themselves as a
preliminary matter whether they ought to go on with the arbitration
or not. If it became abundantly clear to them, on looking into the
matter, that they obviously had no jurisdiction as, for example, it
would be if the submission which was produced was not signed, or
not properly executed, or something of that sort, then they might
well take the view that they were not going to go on with the hearing
at all. They are entitled, in short, to make their own inquiries in order
to determine their own course of action, and the result of that inquiry
has no effect whatsoever upon the rights of the parties.”
This coincides with the position in French law: paras 20 and 22 above.
26. An arbitral tribunal’s decision as to the existence of its own jurisdiction
cannot therefore bind a party who has not submitted the question of arbitrability to
the tribunal. This leaves for consideration the nature of the exercise which a court
should undertake where there has been no such submission and the court is asked
to enforce an award. Domestically, there is no doubt that, whether or not a party’s
challenge to the jurisdiction has been raised, argued and decided before the
arbitrator, a party who has not submitted to the arbitrator’s jurisdiction is entitled
to a full judicial determination on evidence of an issue of jurisdiction before the
English court, on an application made in time for that purpose under s.67 of the
Arbitration Act 1996, just as he would be entitled under s.72 if he had taken no
part before the arbitrator: see e.g. Azov Shipping Co. v Baltic Shipping Co. [1999]
Page 15
1 Lloyd’s Rep 68. The English and French legal positions thus coincide: see the
Pyramids case (para 20 above).
27. The question is whether the position differs when an English court is asked
to enforce a foreign award. There is an irony about Dallah’s stance that any
enforcing court, other than the court of the seat, has a restricted role in reviewing
an arbitral tribunal’s jurisdiction. The concept of transnational arbitration has been
advocated in arbitral circles, and was no doubt recognised by French courts, in
order so far as possible to underline the autonomy of international arbitration from
the seat of arbitration or its national legal system. What matters in real terms is
where an arbitration award can be enforced: see Gaillard’s Legal Theory of
International Arbitration, (op. cit.) Chapter I. Yet Miss Heilbron’s submissions
invoke in one and the same breath a transnational view and a view attaching a
special and dominant significance to the law of the seat. They also invite the
spectre of dual sets of proceedings, conducted in two different countries (that of
the seat and that of enforcement) involving different levels of review in relation to
essentially the same issue – whether the award should be enforced in the latter
country.
28. It is true that Article V(1)(e) of the Convention and s.103(2)(f) of the 1996
Act recognise the courts of “the country in which, or under the law of which” an
award was made as the courts where an application to set aside or suspend an
award may appropriately be made; and also that Article VI and s.103(5) permit a
court in any other country where recognition or enforcement of the award is sought
to adjourn, if it considers it proper, pending resolution of any such application. But
Article V(1)(a) and s.103(2)(b) are framed as free-standing and categoric
alternative grounds to Article V(1)(e) of the Convention and s.103(2)(f) for
resisting recognition or enforcement. Neither Article V(1)(a) nor s.103(2)(b) hints
at any restriction on the nature of the exercise open, either to the person resisting
enforcement or to the court asked to enforce an award, when the validity (sc.
existence) of the supposed arbitration agreement is in issue. The onus may be on
the person resisting recognition or enforcement, but the language enables such
person to do so by proving (or furnishing proof) of the non-existence of any
arbitration agreement. This language points strongly to ordinary judicial
determination of that issue. Nor do Article VI and s.103(5) contain any suggestion
that a person resisting recognition or enforcement in one country has any
obligation to seek to set aside the award in the other country where it was made.
29. None of this is in any way surprising. The very issue is whether the person
resisting enforcement had agreed to submit to arbitration in that country. Such a
person has, as I have indicated, no obligation to recognise the tribunal’s activity or
the country where the tribunal conceives itself to be entitled to carry on its activity.
Further, what matters, self-evidently, to both parties is the enforceability of the
award in the country where enforcement is sought. Since Dallah has chosen to seek
Page 16
to enforce in England, it does not lie well in its mouth to complain that the
Government ought to have taken steps in France. It is true that successful
resistance by the Government to enforcement in England would not have the effect
of setting aside the award in France. But that says nothing about whether there was
actually any agreement by the Government to arbitrate in France or about whether
the French award would actually prove binding in France if and when that question
were to be examined there. Whether it is binding in France could only be decided
in French court proceedings to recognise or enforce, such as those which Dallah
has now begun. I note, however, that an English judgment holding that the award
is not valid could prove significant in relation to such proceedings, if French courts
recognise any principle similar to the English principle of issue estoppel (as to
which see The Sennar (No. 2) [1985] 1 WLR 490). But that is a matter for the
French courts to decide.
30. The nature of the present exercise is, in my opinion, also unaffected where
an arbitral tribunal has either assumed or, after full deliberation, concluded that it
had jurisdiction. There is in law no distinction between these situations. The
tribunal’s own view of its jurisdiction has no legal or evidential value, when the
issue is whether the tribunal had any legitimate authority in relation to the
Government at all. This is so however full was the evidence before it and however
carefully deliberated was its conclusion. It is also so whatever the composition of
the tribunal – a comment made in view of Dallah’s repeated (but no more
attractive for that) submission that weight should be given to the tribunal’s
“eminence”, “high standing and great experience”. The scheme of the New York
Convention, reflected in ss.101-103 of the 1996 Act may give limited prima facie
credit to apparently valid arbitration awards based on apparently valid and
applicable arbitration agreements, by throwing on the person resisting enforcement
the onus of proving one of the matters set out in Article V(1) and s.103. But that is
as far as it goes in law. Dallah starts with advantage of service, it does not also
start fifteen or thirty love up.
31. This is not to say that a court seised of an issue under Article V(1)(a) and
s.103(2)(b) will not examine, both carefully and with interest, the reasoning and
conclusion of an arbitral tribunal which has undertaken a similar examination.
Courts welcome useful assistance. The correct position is well-summarised by the
following paragraph which I quote from the Government’s written case:
“233. Under s.103(2)(b) of the 1996 Act / Art V.1(a) NYC, when the
issue is initial consent to arbitration, the Court must determine for
itself whether or not the objecting party actually consented. The
objecting party has the burden of proof, which it may seek to
discharge as it sees fit. In making its determination, the Court may
have regard to the reasoning and findings of the alleged arbitral
Page 17
tribunal, if they are helpful, but it is neither bound nor restricted by
them.”
The application of the above principles
32. The above principles have already been applied to the facts of this case at
two previous instances. Not surprisingly, therefore, most of the emphasis of
Dallah’s written case and oral submissions before the Supreme Court was on the
submissions of principle which have already been considered. In the circumstances
and in the light of the careful examination of the whole history in the courts below,
it is unnecessary to go once again into every detail. Each of the courts below has
paid close attention to the arbitral tribunal’s reasoning and conclusions, before
concluding that the tribunal lacked jurisdiction to make the final award now sought
to be enforced. Their examination of the case took place by reference to the same
principles that a French court would, on the expert evidence, apply if and when
called upon to examine the existence of an arbitration agreement between Dallah
and the Government: see paras 17-20 above. It took account of the whole history,
including the Government’s close involvement with and interest in the project
from the original proposal onwards, the negotiation and signature of the MOU
with the Government, the creation by the Government of the Trust and the restructuring of the project to introduce the Trust, the negotiation and signature of
the Agreement between Dallah and the Trust, the subsequent correspondence, the
three sets of proceedings in Pakistan and the arbitration proceedings.
The tribunal’s approach
33. The arbitral tribunal set out its approach to the issue of jurisdiction in the
opening paragraphs of its first partial award. Dallah and the Government had
argued for a single law governing both arbitral jurisdiction and the substance of the
issues: the law of Saudi Arabia in Dallah’s submission and the law of Pakistan in
the Government’s. The tribunal distinguished between jurisdiction and substance,
relying on the principle of autonomy of arbitral agreements, and rejected both the
suggested national laws. It held (section III(I)) that:
“3. Judicial as well as Arbitral case law now clearly recognise that,
as a result of the principle of autonomy, the rules of law, applicable
to an arbitration agreement, may differ from those governing the
main contract, and that, in the absence of specific indication by the
parties, such rules need not be linked to a particular national law
(French Cour de Cassation, 1er civ., Dec. 20, 1993, Dalico), but may
consist of those transnational general principles which the
Page 18
Arbitrators would consider to meet the fundamental requirements of
justice in international trade.
Dr Justice Shah and Lord Mustill would not endorse without
reservation the concept of a transnational procedural law
independent of all national laws. They need not however pursue this,
since it makes no difference to the result.
4. ….. in view of the autonomy of the Arbitration Agreement, the
Tribunal believes that such Agreement is not to be assessed, as to its
existence, validity and scope, neither under the laws of Saudi Arabia
nor under those of Pakistan, nor under the rules of any other specific
local law connected or not, to the present dispute.
By reason of the international character of the Arbitration Agreement
coupled with the choice, under the main Agreement, of institutional
arbitration under the ICC Rules without any reference in such
Agreement to any national law, the Tribunal will decide on the
matter of its jurisdiction and on all issues relating to the validity and
scope of the Arbitration Agreement and therefore on whether the
Defendant is a party to such Agreement and to this Arbitration, by
reference to those transnational general principles and usages
reflecting the fundamental requirements of justice in international
trade and the concept of good faith in business.”
34. As to what this meant in practice, the tribunal noted (section III(III)(1))
that:
“a non-signatory may be bound by an arbitration agreement, by
virtue of any one of a number of legal theories such as
representation, assignment, succession, alter ego or the theory of
group of companies”.
It recorded that Dallah’s primary case was that the Trust was an alter ego of the
Government, but went on immediately to say that:
“To arbitrate this disputed issue, the Arbitral Tribunal believes that it
is very difficult to reason exclusively on the basis of juristic and
abstract legal principles and provisions and to decide such issue by
merely relying on general considerations of legal theory.”
Page 19
35. The tribunal then described the setting up and organisation of the Trust. It
concluded that the rules and regulations provided in the Ordinance did “not contain
sufficient evidence that would permit it to disregard the Trust’s legal entity and to
consider that the Trust and the Government are one such entity”, and were “fully
consistent with the general features of the regulations of public entities”, and that
“Such control of the Trust by the Government is not, in itself, sufficiently pertinent
to impair the distinct legal personality enjoyed by the Trust or to lead to the
disregard of such personality, and therefore to the extension of the Arbitration
Agreement from the Trust to the Government”. The tribunal, or Dr Shah and Lord
Mustill, added that “particular caution must be observed where the party sought to
be joined as defendant is a state or state body”.
36. The tribunal continued (section III(III)):
“5. In fact, any reply to the present issue relating to whether or not
the Present Defendant is a Party to the Arbitration Agreement
depends on the factual circumstances of the case and requires a close
scrutiny of the conduct and of the actions of the parties before,
during and after the implementation of the main Agreement in order
to determine whether the Defendant may be, through its role in the
negotiation, performance and termination of such Agreement,
considered as a party thereto, and hence to the Arbitration
Agreement.
The control exercised by the State over the Trust becomes, within
that framework, an element of evidence of the interest and the role
that the party exercising such control has in the performance of the
agreement concluded by the Trust, and provides the backdrop for
understanding the true intentions of the parties.
6. Arbitral as well as judicial case-law has widely recognised that, in
international arbitration, the effects of the arbitration clause may
extend to parties that did not actually sign the main contract but that
were directly involved in the negotiation and performance of such
contract, such involvement raising the presumption that the common
intention of all parties was that the non-signatory party would be a
true party to such contract and would be bound by the arbitration
agreement.”
In the context of the award as a whole, the last paragraph must be a statement by
the tribunal of one of the “transnational general principles and usages reflecting the
Page 20
fundamental requirements of justice in international trade and the concept of good
faith in business”, to which the tribunal had earlier referred in section III(I)(4).
37. In this light, the tribunal examined in turn the position prior to, at signature
of, and during performance of the Agreement, and during the period after the Trust
lapsed. At each point, it focused on the Government’s conduct. It considered that it
was “clearly established” that the Trust was organically and operationally under
the Government’s strict control, that its financial and administrative independence
was largely theoretical, and that everything concerning the Agreement was at all
times “performed by the [Government] concurrently with the Trust” and that “the
Trust functions …. reverted back logically to” the Government, after the Trust
ceased to exist (section III(III)(12-1). The tribunal’s examination led it to conclude
(para 12-1) that:
“The Trust, in spite of its distinct legal personality in theory, appears
thus in fact and in conduct to have been considered – and to have
acted – as a part and a division of the Defendant to which it is fully
assimilated, a temporary instrument that has been created by a
political decision of the Defendant for specific activities which the
Defendant wanted to perform, and which was cancelled also by a
political decision of the Defendant. Therefore, the Trust appears as
having been no more than the alter ego of the Defendant which
appears, in substance, as the real party in interest, and therefore as
the proper party to the Agreement and to the Arbitration with the
Claimant”.
38. The tribunal went on (para 12-2) to say that the Government’s behaviour, as
“in actual fact the party that was involved in the negotiation, implementation and
termination of the Agreement …. before, during and after the existence of the
Trust”, “shows and proves that the [Government] has always been – and
considered itself to be – a true party to the Agreement ….”. The tribunal
acknowledged (para 13) that “Certainly, many of the above mentioned factual
elements, if isolated and taken into a fragmented way, may not be construed as
sufficiently conclusive for the purpose of this section”, but it recorded that Dr
Mahmassani believed that, when looked at “globally as a whole, such elements
constitute a comprehensive set of evidence that may be relied upon to conclude
that the Defendant is a true party to the Agreement”, and that “While joining in
this conclusion Dr Shah and Lord Mustill note that they do so with some
hesitation, considering that the case lies very close to the line”. In paragraph 14,
the tribunal recorded a further divergence of view, with Dr Mahmassani believing
that “the general principle of good faith” “comforts the conclusion that the Trust is
the alter ego of the Defendant”, but Dr Shah and Lord Mustill “not convinced that
in matters not concerning the conduct of proceedings but rather the identification
of those who should be participants in them, a duty of good faith can operate to
Page 21
make someone a party to an arbitration who on other grounds could not be
regarded as such”.
39. The tribunal’s ultimate conclusion on jurisdiction was thus expressed as a
finding (in which two of the arbitrators only narrowly concurred) that the Trust
was the alter ego of the Government, making the Government a “true party” to the
Agreement. That, as I have said (para 11 above), is not now Dallah’s case. But
Dallah points out that the tribunal’s reasoning for its ultimate finding, and the
lengthy analysis of conduct and events which the tribunal undertook, can be traced
back to para 6 of section (III)(III) of its award, where the tribunal identified a test
of common intention to be derived from judicial and arbitral case-law. How these
strands of thought relate is not to my mind clear. There is a considerable difference
between a finding (and between the evidence relevant to a finding) that one of two
contracting parties is the alter ego of a third person and a finding that it was the
common intention of the other party to the contract that the third person should be
a party to the contract made with the first party. The former depends on the
characteristics and relationship of the first contracting party and the third person.
The latter depends on a common intention on the part of the second contracting
party and the third person (and possibly also on the part of the first contracting
party, although no-one has suggested that the Trust in the present case did not
concur in any common intention that Dallah and the Government may be found to
have had). Since the tribunal focused throughout on the Trust and Government and
their relationship and conduct, and ended with a conclusion that the former was the
alter ego of the latter, it is not clear how far the tribunal was in fact examining or
making any finding about any common intention of Dallah and the Government. If
it was, the weight attaching to the finding is diminished by the tribunal’s failure to
focus on Dallah’s intention. The hesitation of two of the arbitrators about the
conclusion they reached also suggests the possibility that even a slight difference
in the correct analysis of the relevant conduct and events could have led the
tribunal overall to a different conclusion.
40. More fundamentally, if and so far as the tribunal was applying a test of
common intention, the test which it expressed in section III(III)(6) differs,
potentially significantly, from the principle recognised by the relevant French
case-law on international arbitration. Although the tribunal must have viewed its
test as a transnational general principle and usage, it appears likely that it also had
the French case-law in mind. This is suggested by its use of the words “directly
involved in” and “presumption”, by its earlier mention of the Dalico case (see para
18 above), and by its letter dated 29 November 2000 written (after the oral
hearings before it on jurisdiction) raising the possibility that reasoning embodied
in the French Pyramids case might be relevant on the issue of jurisdiction. In any
event, in Dallah’s submission, the tribunal applied principles which accord
“broadly” with French law. But, the French legal test, set out in para 18 above, is
Page 22
that an international arbitration clause be may extended to non-signatories directly
involved in the performance of a contract:
“provided that it is established that their contractual situation, their
activities and the normal commercial relations existing between the
parties allow it to be presumed that they have accepted the
arbitration clause of which they knew the existence and scope”.
In contrast, under the test stated by the tribunal (para 36 above), direct
involvement in the negotiation and performance of the contract is by itself said to
raise the presumption of a common intention that the non-signatory should be
bound. The tribunal’s test represents, on its face, a low threshold, which, if correct,
would raise a presumption that many third persons were party to contracts
deliberately structured so that they were not party. Asked about the tribunal’s test,
M. Vatier did not consider it accurate enough, adding that “the principles adopted
were in general the principles that might be adopted in French law. But they are
too general”. I consider that Aikens J was therefore correct to doubt (in para 148)
whether the tribunal had applied a test which accords with that recognised under
French law.
Analysis of the history
41. I turn to the conduct of the Government and the events on which the
tribunal relied. As to the Ordinance, the tribunal said that it regarded the
Government’s “organic control” of the Trust as “an element of evidence as to the
true intention of the Defendant to run and control directly and indirectly the
activities of the Trust, and to view such Trust as one of its instruments”. Miss
Heilbron accepts that Dallah cannot rely on the last ten words. Dallah is not
advancing a case of agency, and the Ordinance does not support a case of agency.
The tribunal’s comment at this point is on its face also inconsistent with the
tribunal’s earlier references to the normality of the control established by the
Ordinance (para 35 above).
42. As to the negotiations leading up the Agreement, the courts below were in
my view correct to observe that the fact that the Government was itself involved in
negotiations and in the MOU and remained interested throughout in the project
does not itself mean that the Government (or Dallah) intended that the Government
should be party to the Agreement deliberately structured so as to be made, after the
Trust’s creation, between Dallah and the Trust. It does not appear that a French
court would adopt any different attitude to governmental interest and involvement
in the affairs of a state entity. An illustration of the careful analysis required in this
context is provided by the decision of the Court of Appeal of Paris in the Pyramids
Page 23
case (above). Under Heads of Agreement signed by the Egyptian government
through its Minister of Tourism, the Egyptian General Organisation for Tourism
and Hotels (“EGOTH”) and the claimant, the government had committed itself to
do the necessary work to acquire property near the Pyramids and EGOTH and the
claimants undertook to form a company (to be owned 40/60 by EGOTH and the
claimants) to develop a tourist centre on such property. A usufruct over the
property was to be given to the company by the government and EGOTH, and the
claimants were to be responsible for engineering, construction and architectural
services, as well as financing. Subsequently, EGOTH and the claimants entered
into a “Supplemental Agreement” which defined the project and their obligations
and contained an ICC arbitration clause. Underneath their respective signatures on
this agreement, the Minister of Tourism placed the words “approved, agreed and
ratified by the Minister of Tourism” followed by his signature. A worldwide
outcry led to the Egyptian authorities cancelling the project. The Paris Court of
Appeal set aside an arbitral award against the state of Egypt, holding that the
words and signature added by the Minister did not mean that the state was a party.
They were added because the Ministry was responsible for supervising tourist sites
and approving the creation of economic complexes and the creation, operation and
management of hotels, and EGOTH and the claimants had specifically
contemplated that their agreement would be subject to such approval. The added
words and signature did not therefore indicate any intention to be bound and so to
waive the state’s immunity.
43. Here, the structure of the Agreement made clear that the Government was
distancing itself from any direct contractual involvement: see per Aikens J, para
129 and Moore-Bick LJ, para 32. The Government’s only role under the
Agreement (in the absence of any assignment or transfer under clause 27) was to
guarantee the Trust’s loan obligations and to receive a counter-guarantee from the
Trust and its trustee bank. Dallah was throughout this period advised by lawyers,
Orr, Dignam & Co. The tribunal confined itself in relation to the Agreement to
statements that (a) it was the Government which decided to “delegate” to the Trust
the finalisation, signature and implementation of the Agreement, (b) the
Government was “contractually involved in the Agreement”, as the Government
was “bound”, under Article 2, to give its guarantee and (c) clause 27 authorised the
Trust to assign its rights and obligations to the Government without Dallah’s prior
approval, such a clause being “normally used only when the assignee is very
closely linked to the assignor or is under its total control ….” (no doubt true, but
on its face irrelevant to the issue). The “delegate” and “bound” tend to beg the
issue, and nothing in these statements lends any support to Dallah’s case that the
Agreement evidences or is even consistent with an intention on the part of either
Dallah or the Government that the Government should be party to the Agreement.
Nowhere did the tribunal address the deliberate change in structure and in parties
from the MOU to the Agreement, the potential significance of which must have
been obvious to Dallah and its lawyers, but which they accepted without demur.
Page 24
44. As to performance of the Agreement, between April 1996 and September
1996, exchanges between Dallah and the Ministry of Religious Affairs (“MORA”)
of the Government culminated in agreement that one of Dallah’s associate
companies, Al-Baraka Islamic Investment Bank Ltd., should be appointed trustee
bank to manage the Trust’s fund as set out in each Ordinance (para 5 above), and
in notification by letters dated 30 July and 9 September 1996 of such appointment
by the Board of Trustees of the Trust. In subsequent letters dated 26 September
and 4 November 1996, the MORA urged Mr Nackvi of the Dallah/Al-Baraka
group to give wide publicity to the appointment and to the savings schemes
proposed to be floated for the benefit of intending Hujjaj. By letter dated 22
October 1996 Dallah submitted to the MORA a specimen financing agreement for
the Trust (never in fact approved or agreed), under one term of which the Trust
would have confirmed that it was “under the control of” the Government. The
Government’s position and involvement in all these respects is clear but
understandable, and again adds little if any support to the case for saying that,
despite the obvious inference to the contrary deriving from the Agreement itself,
any party intended or believed that the Government should be or was party to the
Agreement.
45. The fact that the Trust never itself acquired any assets is neutral, since its
acquisition of any property always depended upon the arrangement of financing
through Dallah, which never occurred, and its acquisition of other funds was to
depend on the savings and philanthropic schemes to be arranged through its trustee
bank under the Ordinances, the time for which never came. It is scarcely surprising
that in these circumstances the Trust never itself acquired its own letter-paper, and
letters recording its activity were, like those reporting decisions of its Board of
Trustees, written on MORA letter-paper.
46. At the forefront of Dallah’s factual case before the Supreme Court, as
below, were exchanges and events subsequent to the Trust’s demise. One letter in
particular, dated 19 January 1997, was described in Dallah’s written case as
playing “a pivotal role” in, and in Miss Heilbron’s oral submissions as “key” to the
differing analyses of the tribunal and the courts below. The letter was written by
Mr Lutfullah Mufti, signing himself simply as “Secretary”, on MORA letter-paper,
and faxed to Dallah on 20 January 1997. It read:
“Pursuant to the above mentioned Agreement for the leasing of
housing facilities in the holy city of Makkah, Kingdom of Saudi
Arabia, you were required within ninety (90) days of the execution
of the said Agreement to get the detailed specifications and drawings
approved by the Trust. However, since you have failed to submit the
specifications and drawings for the approval of the Trust to date you
are in breach of a fundamental term of the Agreement which
Page 25
tantamounts to a repudiation of the whole Agreement which
repudiation is hereby accepted.
Moreover, the effectiveness of the Agreement was conditional upon
your arranging the requisite financing facility amounting to U.S.
$100,000,000.00 within thirty (30) days of the execution of the
Agreement and your failure to do so has prevented the Agreement
from becoming effective and as such there is no Agreement in law.
This is without prejudice to the rights and remedies which may be
available to us under the law.”
47. Mr Lutfullah Mufti was secretary of MORA from 26 August 1993 to 19
December 1995 and from 23 December 1996 to 3 June 1998, and it will be
recalled that, under each Ordinance, the secretary of MORA was at the same time
secretary of the Trust. Also on 20 January 1997 Mr Mufti verified on oath the
contents of a plaint issued in the name of the Trust as plaintiff to bring the first set
of Pakistani proceedings against Dallah. The plaint set out the establishment of the
Trust by Ordinance LXXXI of 1996 dated 12 August 1996 as a body having
perpetual succession and asserted that Dallah had repudiated the Agreement by
failing to submit detailed specifications and drawings within 90 days of the
execution of the Agreement “which repudiation was accordingly accepted by the
plaintiff vide its letter dated 19.01.1997”. The Trust sought a declaration that, in
consequence of the accepted repudiation, the Agreement was “not binding and is
of no consequence upon the rights of the plaintiff” and a permanent injunction
restraining Dallah “from claiming any right against the plaintiff”. By an undated
application, also verified by Mr Mufti, the Trust further sought an interlocutory
injunction restraining Dallah “from representing or holding out itself to have any
contractual relation with the applicant on the basis of the aforesaid repudiated
Agreement”.
48. Dallah made an application against the Trust for a stay of the Trust’s
proceedings in favour of arbitration under clause 23 of the Agreement. The
application is missing from the bundle, but a written reply to it was put in on
behalf of the Trust. This averred, in terms consistent with the stance taken in the
plaint (though less obviously consistent with the principle of the separability of
arbitration clauses), that since “the plaintiff has challenged the very validity and
existence of the agreement dated 10.09.1996, the instant application is, therefore,
not maintainable”. Mr Mufti deposed on oath that allegations evidently made by
Dallah against the Trust in its application for a stay were “false” and that “the facts
stated in the plaint are true and correct to the best of my knowledge and belief and
are reiterated”. In early 1998, the first set of Pakistan proceedings were brought to
an end by a judgment which commenced by recording that:
Page 26
“Counsel for the defendant had objected at the last date of hearing
that Awami Haj Trust was established [under section] 3 of the
Awami Haj Trust Ordinance, 1996 but at the time of institution of
this suit Ordinance had elapsed, there was no more ordinance in the
field and suit has been filed on behalf of same which was formed
under the Ordinance after the lapse of Ordinance. Awami Haj Trust
is plaintiff in this suit. After the lapse of Ordinance, the present
plaintiff was no more a legal person in the eye of law.”
The judge went on to record and reject the submission of counsel appearing for the
Trust that the Trust continued to be able to file suit in respect of things done during
the life of the Trust, adding:
“Moreover the things done during the Ordinance can be sued and can
sue by the parent department for which this Ordinance was issued by
the government and that was ministry for religious affairs. Suit
should have been filed by the Ministry of religious affairs. ……
[B]efore parting with this Order, I observe that the liabilities and
duties against the present defendant can be agitated by the Ministry
of Religious affairs government of Pakistan if any. Since the suit has
not been filed by the legal person. The present plaintiff is no more a
plaintiff in the eye of the law. Suit is dismissed. ….”
49. Dallah invoked ICC arbitration against the Government on 19 May 1998,
on the basis that the Government was party to the Agreement. Notice of Dallah’s
request for arbitration was received by the Government on 29 May 1998, and on 2
June 1998 a second Pakistani suit was filed in the Government’s name against
Dallah, verified once again by Mr Mufti. Its terms were clearly drawn from those
of the first suit, but it started by reciting that the Trust established under Ordinance
No. LXXXI of 1996 “no longer remained in field” after the lapse of the Ordinance
after four months, and that “The present suit is, therefore, being filed by Pakistan
who issued the said Ordinance”. The plaint went on to recite the Agreement,
variously referring to “the parties” to it, to the Trust as a party, to “the plaintiff
Trust”, to “the plaintiff” and to Dallah’s alleged repudiation “which repudiation
was accordingly accepted by the plaintiff vide its letter dated 19.01.1997”. It
further asserted that, on account of such repudiation, the Agreement “is no longer
binding on the plaintiff” and then:
“14. That in January 1997, Awami Hajj Trust instituted a civil suit
for declaration and permanent injunction against the defendant which
suit was, however, dismissed vide order dated 21.02.1998 on the
ground that after the lapse of the Ordinance, Awami Hajj Trust was
no more a legal person and it could neither sue or be sued. The
Page 27
learned civil court, however observed that “liabilities and duties
against the defendant can be agitated by the Government of
Pakistan” [sic].”
50. The plaint concluded by praying for a declaratory decree in favour of the
plaintiff that the Agreement “stands repudiated on account of default of the
defendant ….. and the same, as such, is not binding and is of no consequence upon
the rights of the plaintiff” and by seeking a permanent injunction restraining
Dallah “from claiming any right against the plaintiff under the said Agreement or
representing or holding out that it has any contractual relationship with the
plaintiff”. An interim injunction in the same terms was obtained on 2 June 1998.
On 5 June 1998 the Government, through its advocates, wrote to the ICC
informing it of the proceedings and the interim injunction as well as relying on
s.35 of the Pakistan Arbitration Act 1940 in support of a contention that any
further proceedings in the ICC arbitration would be “invalid” in the light of the
Pakistan proceedings.
51. Dallah responded to the second set of Pakistan proceedings on 12 June 1998
with an application for a stay for arbitration, asserting that “the contract, admitted
by the Plaintiff, which is complete, valid and fully effective between the parties,
contains the following clause 23 ….”, which was then set out. It pointed out, no
doubt correctly, that the Government’s plaint must be seen as a riposte to the
recently notified request for ICC arbitration. The Government replied on 27 June
1998 to the effect that “there is no valid and effective Agreement between the
parties. The application, as such, is incompetent and is liable to be dismissed”. On
15 August 1998 the Government’s advocates informed the ICC that the
Government “has already declined to submit to the jurisdiction of the International
Court of Arbitration” and spelled out that:
“There is no contract or any arbitration agreement between our client
and Dallah …. The contract and the arbitration agreement referred to
by the Claimant were entered into between the Claimant and Awami
Hajj Trust. The Trust has already ceased to exist after expiry of the
period of the Ordinance under which it was established”.
52. By a judgment dated 18 September 1998, the judge in the second set of
Pakistan proceedings dismissed Dallah’s application for a stay for arbitration on
the ground that Dallah had “neither alleged nor placed on record any instrument of
transfer of rights and obligations of the Trust in the name of the [Government]”,
which was not therefore prima facie bound by the Agreement dated 10 September
1996. Dallah appealed on the ground that the Government was “successor” to the
Trust, but on 14 January 1999 the Government withdrew its suit, as it was
apparently entitled to, in view of its commencement of the third set of Pakistani
Page 28
proceedings. Dallah has disclaimed, both before the tribunal and before the
English courts, any suggestion that these short-lived and abortive proceedings
could give rise to any estoppel on the issue of the tribunal’s jurisdiction. But
Dallah relies on them in support of its current case of common intention.
53. In the third set of proceedings the Government claimed against Dallah
declarations to the effect, inter alia, that it was not successor to the Trust, had not
taken over the Trust’s responsibilities and was not a party to the Agreement or any
arbitration agreement with Dallah. The claim was made under s.33 of the
Arbitration Act 1940, which entitles a party to an arbitration agreement or any
person claiming under such party to claim relief. Dallah’s response was that, since
the Government was denying that it was party to an arbitration agreement, it had
no locus standi to make the claim. This response was upheld by judgment dated 19
June 1999, against the Government’s argument that the purpose of s.33 was to
enable a party alleged to be party to an arbitration agreement to seek the relief it
claimed. An appeal by the Government to the Lahore High Court was dismissed,
again on the basis that the Government was not a party to the Agreement or
arbitration agreement. An appeal to the Pakistan Supreme Court has apparently
remained unresolved.
54. No evidence was adduced from Mr Mufti before Aikens J. Aikens J said, in
relation to the letter dated 19 January 1997 that, “logically” Mr Mufti “must, in
fact, have been writing the letter in his capacity of Secretary to MORA, whatever
he may have thought at the time”, but Aikens J found it “possible to get a clearer
indication of the state of mind of the [Government] at this stage” by reference to
the proceedings begun by Mr Mufti on 20 January 1997 (paras 117, 119). These
indicated, in Aikens J’s view, that Mr Mufti thought that the Trust had rights it
could enforce, and that there was no intention on the part of the Government to be
bound by the Agreement or to step into the shoes of the Trust (para 119). The
Court of Appeal took a slightly different view. It observed that the fact that, after
the Trust ceased to exist, Mr Mufti could not have been writing (as opposed, I add,
to purporting to write) as secretary to the Board of Trustees did not necessarily
mean that he was writing on behalf of the Government or that the Government
viewed itself as a party to the Agreement (Moore-Bick LJ, para 36). Moore-Bick
LJ continued: “If, as I think likely, the letter was written in ignorance that the Trust
had ceased to exist, it is almost certain that Dallah was equally unaware of the fact
and that it was read and understood as written on behalf of the Trust”.
55. Miss Heilbron challenges this reasoning as regards the Government, and
invites attention to the letter on its face and to the Government’s stance in the
second set of Pakistan proceedings. But one obvious explanation of the letter, read
with the first set of proceedings of which it was clearly the precursor, is that
neither Mr Mufti nor indeed Dallah was at that stage conscious of the drastic effect
under Pakistan law of the failure to repromulgate the Ordinance. Even if Mr Mufti
Page 29
was aware of the Trust’s demise, he may well have believed (and one may
understand why) that this could not affect the Trust’s right to litigate matters
arising during and out of the Trust’s existence – which was the stance taken by
counsel for the Trust when Dallah eventually realised and pointed out that the
Trust had lapsed. However that may be, it seems clear that Mr Mufti was in
January 1997 acting on the basis that and as if the Trust existed. Further, Dallah
clearly cannot have appreciated that the Trust had ceased to exist until a late stage
in the course of the first set of Pakistan proceedings.
56. The arbitral tribunal regarded the letter dated 19 January 1997 as “very
significant because it confirmed in the clearest way possible that the Defendant
[the Government], after the elapse of the Trust, regarded the Agreement with the
Claimant as its own and considered itself as a party to such Agreement” (para 11-
1). It went on to say that the Government’s position in the arbitration:
“did not deal with the substance and contents of such letter, but was
rather limited to a formal and very general challenge of the validity
of said letter, on the ground that such letter was absolutely
unauthorised, illegal and of no legal effect because all office bearers
of the Trust, including the Secretary, had ceased to have any
authority to act for the defunct Trust. Such challenge is however
completely unfounded as the signatory of the letter of 19.1.97, Mr
Lutfallah Mufti, did not sign such letter in his capacity as official of
the Trust, to which anyhow the letter makes no reference at all, but
in his capacity as Secretary of the Defendant i.e. the Ministry of
Religious Affairs which is an integral part of the Government of
Pakistan. As such, the signatory of the letter engages and binds the
Government, as he has continued to bind it during the whole
previous period where the Trust was in existence.”
57. Several features of the arbitral tribunal’s reliance on the letter are notable.
First, the tribunal did not put the letter in its context. It did not mention the first set
of proceedings at all in addressing the letter’s significance. In fact, it referred to
those proceedings only once in its whole award. That was much earlier in para 5(c)
where it recited three short submissions by the Government “With respect to the
effect of the legal proceedings in Pakistan”. The first such submission read:
“The 1st [sic] January 1997 suit : Pakistan was not a party to such
suit and as such it is not bound by any observation made by the
Court in the said suit instituted by the defunct Trust”.
Page 30
(In making this submission, the Government was evidently seeking to rebut a
possible argument that it might be bound by the (obiter) observations of the judge
in his judgment at the end of the first set of proceedings to the effect that “the
liabilities and duties against the present defendant can be agitated by the Ministry
of Religious affairs government of Pakistan if any”. It has not been, and could not
have been suggested in the present proceedings that these observations in any way
bind the Government.)
58. Secondly, the tribunal rejected any idea that Mr Mufti was, when writing
the letter, acting in a manner which was “absolutely unauthorised, illegal and of no
legal effect”. But that, on any view, was precisely what Mr Mufti can be seen, with
hindsight, to have been doing, on the same day as the letter was faxed, by
commencing the first set of proceedings in the Trust’s name.
59. Thirdly, the tribunal’s comments on the letter assume that the Government
or Mr Mufti on its behalf was aware of the “elapse of the Trust” and believed that
this ended any possibility of the Trust taking any legal stance or proceedings. That,
for reasons I have indicated, cannot have been the case. He must at least have
believed that it was still possible for action to be taken in the Trust’s name in
respect of matters arising from the Agreement.
60. Fourth, the tribunal, in this context as in others, did not address Dallah’s
state of mind, or its objective manifestation – an important point when considering
a test based on common intention.
61. The letter dated 19 January 1997 and faxed on 20 January 1997 cannot be
read in a vacuum, particularly when the issue is whether the parties shared a
common intention, manifested objectively, to treat the Government as a or the real
party to the Agreement and arbitration clause. Read in the objectively established
context which I have indicated, it is clear that it was written and intended as a
letter setting out the Trust’s position by someone who believed that the Trust
continued either to exist or at least to have a sufficient existence in law to enable it
to take a position on matters arising when the Ordinance was in force. This is
precisely how the plaint of 20 January 1997 put the matter when it said that the
“repudiation was accordingly accepted by the plaintiff [i.e. the Trust] vide its letter
dated 19.01.1997”. It makes no sense to suppose that Mr Mufti on one and the
same day sent a letter intended to set out the Government’s position and caused
proceedings to be issued by the Trust on the basis that the letter was intended to set
out the Trust’s position. That Dallah also believed that the Trust continued to exist,
certainly in a manner sufficient to enable it to pursue the proceedings, is confirmed
by Dallah’s application to stay the Trust’s proceedings pending arbitration and is
also (as I understood her) admitted by Miss Heilbron.
Page 31
62. The arbitral tribunal also relied on the second set of Pakistan proceedings
and on the Government’s letter dated 5 June 1998 to the tribunal. It saw Mr
Mufti’s verification on oath of the plaint dated 2 June 1998 as an admission
providing “another piece of evidence to be added to the other pieces, as to the fact
that the [Government] has always been – and has considered itself – a party to the
agreement”, and the letter as an admission “that it was a party to such Agreement
and that it could accept repudiation of the Agreement by [Dallah]” (para 11-2).
Aikens J and the Court of Appeal did not accept this analysis. They considered that
the second set of proceedings viewed overall was premised on the basis that the
Government had succeeded to the Trust’s rights and obligations upon the Trust’s
demise, not that the Government had been a party to it always or at any previous
date. The Government was taking up the suggestion of the judge who, when
determining the first set of proceedings, had remarked that “the liabilities and
duties against the present defendant can be agitated by the Ministry of Religious
affairs government of Pakistan if any”. In my opinion this analysis is clearly
correct. If the search is for confirmation of an intention to be or belief that the
Government was party to the Agreement throughout, the second set of proceedings
does not therefore advance the matter. Nor does the letter dated 5 June 1998. This
was written to draw express attention to the second set of proceedings, and it
recorded and attached a copy of the Pakistan judge’s injunction in them restraining
Dallah “from representing or holding out itself to have contractual relations with
the applicant on the basis of the disputed contract”.
63. Further, nothing affirmed by the Government during the second set of
proceedings or in the letter throws any light on Dallah’s intention at any prior date,
or therefore assists the case that there was any “common” intention that the
Government should “always” be party to the Agreement.
64. If the search is for an admission in or after June1998 that the Agreement or
arbitration clause was binding on the Government, this is equally lacking. The
Government’s case in the second set of proceedings, and the gist of the injunction
and the letter dated 5 June 1998 was that, although the Government could “agitate”
the former Trust’s rights and liabilities, the Government’s acceptance of Dallah’s
alleged repudiation meant that the Agreement “as such, is not binding and is of no
consequence upon the rights of the [Government]” (plaint of 20 January 1997).
However questionable the proposition that an accepted repudiation renders the
whole agreement (let alone an arbitration clause) “not binding”, that was the
Government’s case, and such a case is inconsistent with an intention to be party to
the Agreement or agreement clause in or after June 1998. Further and in any
event, a very short time afterwards on 15 August 1998 the Government wrote to
the tribunal making clear also its current position that it had never been party to
any contract or arbitration agreement with Dallah. Even if the Government could
be treated in June as having made any relevant, short-lived admission, it would in
context and in the overall course of events be incapable of giving rise to any real
Page 32
inference that the Government had always intended or been intended to be a party
to the Agreement.
65. Finally, the search for a subjective common intention under the principle
recognised by the French courts must be undertaken by examining, and so through
the prism of, the parties’ conduct. Account will in that sense necessarily be taken
of good faith. The tribunal also described the “transnational general principles and
usages”, which it decided to apply, as “reflecting the fundamental requirements of
justice in international trade and the concept of good faith in business” (award,
section III (I)(4)), and this must also be true of the principle recognised by the
French courts. As both Aikens J (para 130) and Moore-Bick LJ (para 45) said, and
in agreement on this point with Justice Dr Shah and Lord Mustill, if conduct
interpreted as it would be understood in good faith does not indicate any such
common intention, then it is impossible to see how “… a duty of good faith can
operate to make someone a party to an arbitration who on other grounds could not
be regarded as such” (award, section (III)(III)(14)). This remains so, whatever
comments might or might not be made about the Government’s conduct in
allowing the Trust to lapse without providing for the position following its lapse.
66. In my view, the third re-examination by this court, in the light of the whole
history, of the issue whether the Government was party to the Agreement, and so
to its arbitration clause, leads to no different answer to that reached in the courts
below. The arbitral tribunal’s contrary reasoning is neither conclusive nor on
examination persuasive in a contrary sense. As to the law, it is far from clear that
the tribunal was directing its mind to common intention and, if it was, it
approached the issue of common intention in terms differing significantly from
those which a French court would adopt. In any event, as to the facts, there are a
number of important respects in which the tribunal’s analysis of the Government’s
conduct and the course of events cannot be accepted, and this is most notably so in
relation to the significance of the letter dated 19 January 1997 and the second set
of proceedings in Pakistan. The upshot is that the course of events does not justify
a conclusion that it was Dallah’s and the Government’s common intention or belief
that the Government should be or was a party to the Agreement, when the
Agreement was deliberately structured to be, and was agreed, between Dallah and
the Trust.
Discretion
67. Dallah has a fall-back argument, which has also failed in both courts below.
It is that s.103(2) of the 1996 Act and Article V(1) of the New York Convention
state that “Recognition and enforcement of the award may be refused” if the
person against whom such is sought proves (or furnishes proof of) one of the
specified matters. So, Miss Heilbron submits, it is open to a court which finds that
Page 33
there was no agreement to arbitrate to hold that an award made in purported
pursuance of the non-existent agreement should nonetheless be enforced. In
Dardana Ltd v Yukos Oil Company [2002] 1 All ER (Comm) 819 I suggested that
the word “may” could not have a purely discretionary force and must in this
context have been designed to enable the court to consider other circumstances,
which might on some recognisable legal principle affect the prima facie right to
have enforcement or recognition refused (paras 8 and 18). I also suggested as
possible examples of such circumstances another agreement or estoppel.
68. S.103(2) and Article V in fact cover a wide spectrum of potential objections
to enforcement or recognition, in relation to some of which it might be easier to
invoke such discretion as the word “may” contains than it could be in any case
where the objection is that there was never any applicable arbitration agreement
between the parties to the award. Article II of the Convention and ss.100(2) and
102(1) of the 1996 Act serve to underline the (in any event obviously fundamental)
requirement that there should be a valid and existing arbitration agreement behind
an award sought to be enforced or recognised. Absent some fresh circumstance
such as another agreement or an estoppel, it would be a remarkable state of affairs
if the word “may” enabled a court to enforce or recognise an award which it found
to have been made without jurisdiction, under whatever law it held ought to be
recognised and applied to determine that issue.
69. The factors relied upon by Dallah in support of its suggestion that a
discretion should be exercised to enforce the present award amount for the most
part to repetition of Dallah’s arguments for saying that there was an arbitration
agreement binding on the Government, or that an English court should do no more
than consider whether there was a plausible or reasonably supportable basis for its
case or for the tribunal’s conclusion that it had jurisdiction. But Dallah has lost on
such points, and it is impossible to re-deploy them here. The application of
s.103(2) and Article V(1) must be approached on the basis that there was no
arbitration agreement binding on the Government and that the tribunal acted
without jurisdiction. General complaints that the Government did not behave well,
unrelated to any known legal principle, are equally unavailing in a context where
the Government has proved that it was not party to any arbitration agreement.
There is here no scope for reliance upon any discretion to refuse enforcement
which the word “may” may perhaps in some other contexts provide.
Conclusion
70. It follows that Aikens J and the Court of Appeal were right in the
conclusions they reached and that Dallah’s appeal to this Court must be dismissed.
Page 34
LORD COLLINS
I Introduction
71. I agree that this appeal from the excellent judgments of Aikens J [2009] 1
All ER (Comm) 505 and the Court of Appeal [2010] 2 WLR 805 (with MooreBick and Rix LJJ giving the reasons) should be dismissed. Because of the
international importance of the issues on the appeal, I set out the steps which have
led me to that conclusion.
72. The final award is a Convention award which prima facie is entitled to
enforcement in England under the Arbitration Act 1996, section 101(2). The
principal issue is whether the courts below were right to find that the Government
has proved that on the proper application of French law (as the law of the country
where the award was made, since there is no indication in the Agreement as to the
law governing the arbitration agreement), it is not bound by the arbitration
agreement. To avoid any misunderstanding, it is important to dispel at once the
mistaken notion (which has, it would appear, gained currency in the international
arbitration world) that this is a case in which the courts below have recognised that
the arbitral tribunal had correctly applied the correct legal test under French law.
On the contrary, one of the principal questions before all courts in this jurisdiction
has been whether the tribunal had applied French law principles correctly or at all.
73. The main issue involves consideration of these questions: (a) the role of the
doctrine that the arbitral tribunal has power to determine its own jurisdiction, or
Kompetenz-Kompetenz, or compétence-compétence; (b) the application of
arbitration agreements to non-signatories (including States) in French law, and the
role of transnational law or rules of law in French law; (c) whether renvoi is
permitted under the New York Convention (and therefore the 1996 Act) and
whether the application by an English court of a reference by French law to
transnational law or rules of law is a case of renvoi.
74. There is also a subsidiary issue as to whether, even if the Government has
proved that it is not bound by the arbitration agreement, the court should exercise
its discretion (“… enforcement may be refused …”) to enforce the award.
75. By Article V(1)(a) of the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards of 1958:
“Recognition and enforcement of the award may be refused, at the
request of the party against whom it is invoked, only if that party
Page 35
furnishes to the competent authority where the recognition and
enforcement is sought, proof that:
(a) … the [arbitration] agreement is not valid under the
law to which the parties have subjected it or, failing
any indication thereon, under the law of the country
where the award was made; …”
76. The New York Convention is given effect in the United Kingdom by Part
III of the Arbitration Act 1996 (England and Wales and Northern Ireland) and by
sections 18 to 22 of the Arbitration (Scotland) Act 2010. Article V(1)(a) of the
New York Convention is transposed in England and Wales and Northern Ireland
by section 103 of the 1996 Act, which provides:
“(1) Recognition or enforcement of a New York Convention
award shall not be refused except in the following cases.
(2) 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;
…”
77. Although Article V(1)(a) (and section 103(2)(b)) deals expressly only with
the case where the arbitration agreement is not valid, the consistent international
practice shows that there is no doubt that it also covers the case where a party
claims that the agreement is not binding on it because that party was never a party
to the arbitration agreement. Thus in Dardana Ltd v Yukos Oil Co [2002] 2
Lloyd’s Rep 326 it was accepted by the Court of Appeal that section 103(2)(b)
applied in a case where the question was whether a Swedish award was
enforceable in England against Yukos on the basis that, although it was not a
signatory, it had by its conduct rendered itself an additional party to the contract
containing the arbitration agreement. In Sarhank Group v Oracle Corp, 404 F 3d
657 (2d Cir 2005) the issue, on the enforcement of an Egyptian award, was
Page 36
whether a non-signatory parent company was bound by an arbitration agreement
on the basis that its subsidiary, which had signed the agreement, was a mere shell;
and in China Minmetals Materials Import and Export Co Ltd v Chei Mei Corpn,
334 F 3d 274 (3d Cir 2003) enforcement of a Chinese award was resisted on the
ground that the agreement was a forgery. See also Born, International Commercial
Arbitration (2009), pp 2778-2779.
78. In this case, because there was no “indication” by the parties of the law to
which the arbitration agreement was subject, French law as the law of the country
where the award was made, is the applicable law, subject to the relevance of
transnational law or transnational rules under French law.
II The applicable principles
Kompetenz-Kompetenz or compétence-compétence as a general principle
79. A central part of this appeal concerns the authority to be given to the
decision of the arbitral tribunal as to its own jurisdiction, and the relevance in this
connection of the doctrine of Kompetenz-Kompetenz or compétence-compétence.
These terms may be comparatively new but the essence of what they express is
old.
80. The principle was well established in international arbitration under public
international law by the 18th century. In the famous case of The Betsy (1797) the
question was raised as to the power of the commissioners under the Mixed
Commissions organised under the Jay Treaty between United States and Great
Britain of 19 November 1794 to determine their own jurisdiction. On 26
December 1796 Lord Loughborough LC had a meeting at his house with the
American Commissioners and the American Ambassador. The Lord Chancellor
expressed the view “that the doubt respecting the authority of the commissioners to
settle their own jurisdiction, was absurd; and that they must necessarily decide
upon cases being within, or without, their competency”: Moore, History and
Digest of International Arbitrations to which the United States has been a Party,
Vol 1 (1898), p 327. While the point was under discussion, the American
Commissioners filed opinions. Mr. Christopher Gore, the eminent American
Commissioner, said: “A power to decide whether a Claim preferred to this Board
is within its Jurisdiction, appears to me inherent in its very Constitution, and
indispensably necessary to the discharge of any of its duties”: Moore, op cit, Vol.3
(1898), p 2278.
Page 37
81. The principle has been recognised by the Permanent Court of International
Justice and the International Court of Justice: Rosenne, The Law and Practice of
the International Court 1920-1996 (3rd ed 1997), Vol II, pp 846 et seq. In the
Advisory Opinion on the Interpretation of the Greco-Turkish Agreement (1928)
Series B No 16, 20, the Permanent Court of International Justice said: “as a general
rule, any body possessing jurisdictional powers has the right in the first place itself
to determine the extent of its jurisdiction … ”. In the Nottebohm case (Liechtenstein
v Guatemala), 1953 ICJ Rep 111, 119, the International Court of Justice, after
referring to the Alabama case in 1872, and the views of the rapporteur of the
Hague Convention of 1899 for the Pacific Settlement of International Disputes,
said: “it has been generally recognised….that…an international tribunal has the
right to decide as to its own jurisdiction”.
82. The principle has been recognised also by the European Court of Justice. In
West Tankers Inc v Allianz SpA (formerly Ras Riunione Adriatica di Sicurta SpA)
(Case C-185/07) [2009] ECR I-663, [2009] AC 1138, para 57, it referred to “…
the general principle that every court is entitled to examine its own jurisdiction
(doctrine of ‘Kompetenz-Kompetenz’).”
83. The 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 is or should be. Thus the International
Court’s decision on jurisdiction is not subject to recourse, although the State which
denies its jurisdiction may decline to take any part at all in the proceedings (as in
the Fisheries Jurisdiction cases (Federal Republic of Germany v Iceland; United
Kingdom v Iceland), 1972-1974), or to take any further part after it has failed in its
objections to the jurisdiction (as in Military and Paramilitary Activities in and
against Nicaragua case (Nicaragua v United States, 1986). By contrast, a decision
of an ICSID tribunal (which “shall be the judge of its own competence”: Article
41(1) of the ICSID Convention) is subject to annulment on the grounds (inter alia)
that the tribunal manifestly exceeded its powers (article 52(1)(b)), which includes
lack of jurisdiction: Klöckner v Cameroon, Decision on Annulment, 2 ICSID Rep
95; Schreuer, The ICSID Convention: A Commentary (2nd ed 2009), pp 943-947.
The principle in international commercial arbitration
84. So also the principle that a tribunal in an international commercial
arbitration has the power to consider its own jurisdiction is no doubt a general
principle of law. It is a principle which is connected with, but not dependant upon,
the principle that the arbitration agreement is separate from the contract of which it
normally forms a part. But it does not follow that the tribunal has the exclusive
power to determine its own jurisdiction, nor does it follow that the court of the seat
Page 38
may not determine whether the tribunal has jurisdiction before the tribunal has
ruled on it. Nor does it follow that the question of jurisdiction may not be reexamined by the supervisory court of the seat in a challenge to the tribunal’s ruling
on jurisdiction. Still less does it mean that when the award comes to be enforced in
another country, the foreign court may not re-examine the jurisdiction of the
tribunal.
85. Thus Article 16(1) of the UNCITRAL Model Law on International
Commercial Arbitration provides that the arbitral tribunal may rule on its own
jurisdiction, including any objections with respect to the existence or validity of
the arbitration agreement. But by article 34(2) an arbitral award may be set aside
by the court of the seat if an applicant furnishes proof that the agreement is not
valid under the law to which the parties have subjected it, or, failing any indication
thereon, under the law of the seat (and see also article 36(1)(a)(i)). Articles V and
VI of the European Convention on International Commercial Arbitration of 1961
also preserve the respective rights of the tribunal and of the court to consider the
question of the jurisdiction of the arbitrator.
Comparative procedure
86. Consequently in most national systems, arbitral tribunals are entitled to
consider their own jurisdiction, and to do so in the form of an award. But the last
word as to whether or not an alleged arbitral tribunal actually has jurisdiction will
lie with a court, either in a challenge brought before the courts of the arbitral seat,
where the determination may be set aside or annulled, or in a challenge to
recognition or enforcement abroad. The degree of scrutiny, particularly as regards
the factual enquiry, will depend on national law, subject to applicable international
conventions.
87. There was sometimes said to be a rule in German law that an arbitral
tribunal had the power to make a final ruling on its jurisdiction without any court
control, but if it ever existed, there is no longer any such rule: Poudret and Besson,
Comparative Law of International Arbitration (2nd ed 2007), para 457; Born,
International Commercial Arbitration, vol I (2009), pp 907-910.
88. In France the combined effect of articles 1458, 1466 and 1495 of the New
Code of Civil Procedure (“NCPC”) is that, in an international arbitration
conducted in France, the tribunal has power to rule on its jurisdiction if it is
challenged. If judicial proceedings are brought in alleged breach of an arbitration
agreement the court must declare that it has no jurisdiction unless the jurisdiction
agreement is manifestly a nullity: Fouchard, Gaillard, Goldman, International
Commercial Arbitration (ed Gaillard and Savage 1999), paras 655, 672; Delvolvé,
Page 39
Pointon and Rouche, French Arbitration Law and Practice (2nd ed. 2009), paras
139 et seq, 172 et seq; and eg Soc Laviosa Chimica Mineraria v Soc Afitex, Cour
de cassation, 11 February 2009, 2009 Rev Arb 155 (“Vu le principe compétencecompétence selon lequel il appartient à l’arbitre de statuer par priorité sur sa propre
competence”).
89. But the position is different once the arbitral tribunal has ruled on its
jurisdiction. Its decision is not final and can be reviewed by the court hearing an
action to set it aside. The French Cour d’appel seised of an action for annulment of
an award made in France for lack of jurisdiction, or seised with an issue relating to
the jurisdiction of a foreign tribunal or an appeal against an exequatur granted in
respect of a foreign award, has the widest power to investigate the facts: Fouchard,
Gaillard, Goldman, paras 1605 to 1614; Delvolvé, Pointon and Rouche, para 426.
In the Pyramids case (République Arabe d’Egypte v Southern Pacific Properties
Ltd, Paris Cour d’appel, 12 July 1984 (1985) 10 Yb Comm Arb 113; Cour de
cassation, 6 January 1987 (1987) 26 ILM 1004) the question was whether a
distinguished tribunal had been entitled to find that Egypt (as opposed to a Stateowned entity responsible for tourism) was a party to an arbitration agreement. The
Cour d’appel said that the arbitral tribunal had no power finally to decide the issue
of its jurisdiction; if it decided the issue of the existence or of the validity of the
arbitration agreement, nevertheless it only decided this question subject to the
decision of the court on an application for the annulment of the award pursuant to
article 1504, NCPC. The Cour de cassation confirmed that the Cour d’appel had
been entitled “de rechercher en droit et en fait tous les elements concernant les
vices en question … en particulier, il lui appartient d’interpréter le contrat pour
apprécier elle-même si l’arbitre a statué sans convention d’arbitrage.” (“to examine
as a matter of law and as a matter of fact all circumstances relevant to the alleged
defects … in particular, it is for the court to construe the contract in order to
determine itself whether the arbitrator ruled in the absence of an arbitration
agreement.”)
90. First Options of Chicago Inc v Kaplan, 514 US 938 (1995) was not an
international case. It concerned the application of the Federal Arbitration Act to an
award of an arbitral panel of the Philadelphia Stock Exchange. The question was
whether the federal District Court should independently decide whether the arbitral
panel had jurisdiction. The United States Supreme Court drew a distinction
between the case where the parties had agreed to submit the arbitrability question
itself to arbitration, and the case where they had not. In the former case the court
should give considerable leeway to the arbitrator, setting aside the award only in
certain narrow circumstances, but (at 943, per Breyer J):
“If, on the other hand, the parties did not agree to submit the
arbitrability question itself to arbitration, then the court should
Page 40
decide that question just as it would decide any other question that
the parties did not submit to arbitration, namely, independently”.
91. That flowed inexorably from the fact that arbitration was simply a matter of
contract between the parties and was a way to resolve those disputes, but only
those disputes, that the parties had agreed to submit to arbitration.
92. This decision was applied in the international context, in connection with
the enforcement of a CIETAC award, in China Minmetals Materials Import and
Export Co Ltd v Chei Mei Corpn, 334 F 3d 274 (3d Cir 2003) in which Minmetals,
a Chinese corporation, sought to enforce a CIETAC award against Chei Mei, a
New Jersey corporation. Chei Mei resisted enforcement on the ground that the
contract containing the arbitration clause had been forged. The tribunal had held
that Chei Mei failed to show that the contracts were forged, but that even if its
signature and stamp had been forged, it had taken various steps which confirmed
its adherence to the arbitration agreement. The Court of Appeals for the Third
Circuit decided that the court asked to enforce an award may determine
independently the arbitrability of the dispute. After an illuminating discussion of
the doctrine of compétence-compétence and kompetenz-kompetenz, it concluded
(at 288, citing Park, Determining Arbitral Jurisdiction: Allocation of Tasks
Between Courts and Arbitrators (1997) 8 Am Rev Int Arb 133, 140-142) that “it
appears that every country adhering to the competence-competence principle
allows some form of judicial review of the arbitrator’s jurisdictional decision
where the party seeking to avoid enforcement of an award argues that no valid
arbitration agreement ever existed.” The court said (ibid): “After all, a contract
cannot give an arbitral body any power, much less the power to determine its own
jurisdiction, if the parties never entered into it.”
The position in England
93. Prior to the 1996 Act the leading authority in England was Christopher
Brown Ltd v Genossenschaft Osterreichischer [1954] 1 QB 8, in which Devlin J
said (at pp 12-13):
“… It is not the law that arbitrators, if their jurisdiction is challenged
or questioned, are bound immediately to refuse to act until their
jurisdiction has been determined by some court which has power to
determine it finally. Nor is it the law that they are bound to go on
without investigating the merits of the challenge and to determine the
matter in dispute, leaving the question of their jurisdiction to be held
over until it is determined by some court which had power to
determine it. They might then be merely wasting their time and
Page 41
everybody else’s. They are not obliged to take either of those
courses. They are entitled to inquire into the merits of the issue
whether they have jurisdiction or not, not for the purpose of reaching
any conclusion which will be binding upon the parties – because that
they cannot do – but for the purpose of satisfying themselves as a
preliminary matter whether they ought to go on with the arbitration
or not. If it became abundantly clear to them, on looking into the
matter, that they obviously had no jurisdiction as, for example, it
would be if the submission which was produced was not signed, or
not properly executed, or something of that sort, then they might
well take the view that they were not going to go on with the hearing
at all. They are entitled, in short, to make their own inquiries in order
to determine their own course of action, and the result of that inquiry
has no effect whatsoever upon the rights of the parties.”
94. The DTI Departmental Advisory Committee in its February 1994 Report on
a draft Arbitration Bill said:
“[The German] doctrine of Kompetenz-Kompetenz resolves logical
difficulties in legal systems where the jurisdiction of state courts and
the jurisdiction of arbitrators under a valid arbitration agreement are
mutually exclusive in legal theory. In these legal systems, the state
courts must ‘dismiss’ legal proceedings brought in violation of a
valid arbitration agreement, thereby retaining no competence over
the parties – but in the case of an invalid or non-existent arbitration
agreement, the arbitrators can have no jurisdiction at all. Who then
decides what and in what order – in the absence of a suitable
doctrine of Kompetenz-Kompetenz? In contrast, the courts of most
common law countries (including England) merely ‘stay’ legal
proceedings because in legal theory an arbitration agreement can
never oust the Court’s jurisdiction over the parties; and this logical
problem over jurisdiction has not arisen in the same form …
For these reasons, the law and practice of English arbitration does
not require an express doctrine of Kompetenz-Kompetenz. English
law achieves the same result as the German doctrine by a different
route. … [T]he practice of arbitration tribunals determining their
own jurisdiction, subject to the final decision of the English Court,
has long been settled in England ..” (Ch III, pp 4-5)
95. The position in England under the Arbitration Act 1996 as regards
arbitrations the seat of which is in England is as follows. By section 30(1) of the
1996 Act, which is headed “Competence of tribunal to rule on its own jurisdiction”
Page 42
the arbitral tribunal may rule on its own substantive jurisdiction, including the
question whether there is a valid arbitration agreement. By section 30(2) any such
ruling may be challenged (among other circumstances) in accordance with the
provisions of the Act. Section 32 gives the court jurisdiction to determine any
preliminary point on jurisdiction but only if made with the agreement of all parties
or with the permission of the tribunal, and the court is satisfied (among other
conditions) that there is good reason why the matter should be decided by the
court. By section 67 a party to arbitral proceedings may challenge any award of the
tribunal as to its substantive jurisdiction but the arbitral tribunal may continue the
arbitral proceedings and make a further award while an application to the court is
pending in relation to an award as to jurisdiction. The equivalent provisions in
Scotland are in the Arbitration (Scotland) Act 2010, Sched 1, Rules 19, 42 (not
limited to jurisdiction), and 67.
96. The consistent practice of the courts in England has been that they will
examine or re-examine for themselves the jurisdiction of arbitrators. This can arise
in a variety of contexts, including a challenge to the tribunal’s jurisdiction under
section 67 of the 1996 Act, or in an application to stay judicial proceedings on the
ground that the parties have agreed to arbitrate. Thus in Azov Shipping Co v Baltic
Shipping Co [1999] 1 Lloyd’s Rep 68 Rix J decided that where there was a
substantial issue of fact as to whether a party had entered into an arbitration
agreement, then even if there had already been a full hearing before the arbitrator
the court, on a challenge under section 67, should not be in a worse position than
the arbitrator for the purpose of determining the challenge. This decision has been
consistently applied at first instance (see, eg, Peterson Farms Inc v C&M Farming
Ltd [2004] EWHC 121 (Comm), [2004] 1 Lloyd’s Rep 603) and is plainly right.
97. Where there is an application to stay proceedings under section 9 of the
1996 Act, both in international and domestic cases, the court will determine the
issue of whether there ever was an agreement to arbitrate: Al-Naimi (t/a
Buildmaster Construction Services) v Islamic Press Agency [2000] 1 Lloyd’s Rep
522 (CA) (English arbitration); Albon (t/a NA Carriage Co) v Naza Motor Trading
Sdn Bhd (No 4) [2007] EWCA Civ 1124, [2008] 1 Lloyd’s Rep 1 (Malaysian
arbitration). So also where an injunction was refused restraining an arbitrator from
ruling on his own jurisdiction in a Geneva arbitration, the Court of Appeal
recognised that the arbitrator could consider the question of his own jurisdiction,
but that would only be a first step in determining that question, whether the
subsequent steps took place in Switzerland or in England: Weissfisch v Julius
[2006] EWCA Civ 218, [2006] 1 Lloyd’s Rep 716, para 32.
98. Consequently, in an international commercial arbitration a party which
objects to the jurisdiction of the tribunal has two options. It can challenge the
tribunal’s jurisdiction in the courts of the arbitral seat; and it can resist
enforcement in the court before which the award is brought for recognition and
Page 43
enforcement. These two options are not mutually exclusive, although in some
cases a determination by the court of the seat may give rise to an issue estoppel or
other preclusive effect in the court in which enforcement is sought. The fact that
jurisdiction can no longer be challenged in the courts of the seat does not preclude
consideration of the tribunal’s jurisdiction by the enforcing court: see, e.g. Svenska
Petroleum Exploration AB v Government of the Republic of Lithuania (No 2)
[2006] EWCA Civ 1529, [2007] QB 886, para 104; Paklito Investment Ltd v
Klockner East Asia Ltd [1993] 2 HKLR 39, 48, per Kaplan J.
The application of the principles in the present case
99. Dallah’s argument is that the enforcing court, faced with a decision by the
tribunal that it has jurisdiction, should only conduct a limited review. The
argument is essentially this: (1) The arbitral tribunal remained a competent tribunal
to determine its own jurisdiction, whether or not it determined it wrongly. (2) The
first partial award was made with jurisdiction i.e. the Kompetenz-Kompetenz
jurisdiction, even if (on the English court’s view) the later awards relating to the
merits were subsequently found to be made without substantive jurisdiction. (3) It
is universally accepted that an enforcing court cannot review the merits of an
award, and a de novo rehearing at the enforcement stage (by contrast with an
application to set aside at the seat of the arbitration) adds a fact-finding layer to the
process which was not envisaged by those drafting the New York Convention and
which undermines the finality and efficiency of the system. (4) The review
envisaged by the New York Convention is premised on the need to ensure that
there is not a grave departure from the basic precepts of international arbitration
and fairness and basic concepts of justice. (5) The award is itself an evidential
element of the reviewing process, and deference must be given to such an award
by the reviewing/enforcing court. (6) The degree of deference may vary according
to many factors, for example, the experience of the tribunal or the nature of the
underlying decision, such as whether it was one of fact or law or mixed fact and
law, and enforcing courts must be particularly wary where, as here, the underlying
decision is fact-based or a case of mixed fact and law. (7) Where, as here, there is
no dispute as to the underlying facts or law such that the decision is one upon
which different tribunals can legitimately come to different conclusions, enforcing
national courts should be slow to substitute their own interpretation unless it can
be shown that the tribunal’s decision was unsustainable, and this is particularly so
where, as in this case, the resisting party has offered no new evidence. (8) In
essence the issue in this case is whether the English court should refuse to enforce
the award on the basis that its views and interpretation of the same facts, applying
the same principles of law, should be preferred to the decision of a former Law
Lord and a doyen of international arbitration, a former Chief Justice of Pakistan
and an eminent Lebanese lawyer.
Page 44
100. Dallah relies in particular on international authorities relating to
applications to annul awards on the basis that the matters decided by the arbitral
tribunal exceeded the scope of the submission to arbitration: article V(1)(c) of the
New York Convention; article 34 of the UNCITRAL Model Law. In Parsons &
Whittemore Overseas Co Inc v Soc Gén de l’Industrie du Papier, 508 F 2d 969 (2d
Cir 1974) the Court of Appeals for the Second Circuit, in dealing with an attack on
a Convention award based on Article V(1)(c), said (at p 976) that the objecting
party must “overcome a powerful presumption that the arbitral body acted within
its powers.” That statement was applied by the British Columbia Court of Appeal,
in a case under article 34 of the Model Law as enacted by the International
Commercial Arbitration Act, SBC 1986: Quintette Coal Ltd v Nippon Steel Corpn
[1991] 1 WWR 219 (BCCA).
101. These cases are of no assistance in the context of a challenge based on the
initial jurisdiction of the tribunal and in particular when it is said that a party did
not agree to arbitration. Nor is any assistance to be derived from Dallah’s concept
of “deference” to the tribunal’s decision. There is simply no basis for departing
from the plain language of article V(1)(a) as incorporated by section 103(2)(b). It
is true that the trend, both national and international, is to limit reconsideration of
the findings of arbitral tribunals, both in fact and in law. It is also true that the
Convention introduced a “pro-enforcement” policy for the recognition and
enforcement of arbitral awards. The New York Convention took a number of
significant steps to promote the enforceability of awards. The Geneva Convention
placed upon the party seeking enforcement the burden of proving the conditions
necessary for enforcement, one of which was that the award had to have become
“final” in the country in which it was made. In practice in some countries it was
thought that that could be done only by producing an order for leave to enforce
(such as an exequatur) and then seeking a similar order in the country in which
enforcement was sought, hence the notion of “double exequatur” (but in England it
was decided, as late as 1959, that a foreign order was not required for the
enforcement of a Geneva Convention award under the Arbitration Act 1950,
section 37: Union Nationale des Co-opératives Agricoles des Céréales v Robert
Catterall & Co Ltd [1959] 2 QB 44). The New York Convention does not require
double exequatur and the burden of proving the grounds for non-enforcement is
firmly on the party resisting enforcement. Those grounds are exhaustive.
102. But article V safeguards fundamental rights including the right of a party
which has not agreed to arbitration to object to the jurisdiction of the tribunal. As
van den Berg, The New York Arbitration Convention of 1958 (1981) puts it, at p
265: “In fact, the grounds for refusal of enforcement are restricted to causes which
may be considered as serious defects in the arbitration and award: the invalidity of
the arbitration agreement, the violation of due process, the award extra or ultra
petita, the irregularity in the composition of the arbitral tribunal or the arbitral
procedure, the non-binding force of the award, the setting aside of the award in the
Page 45
country of origin, and the violation of public policy.” In Kanoria v Guinness
[2006] 1 Lloyd’s Rep 701, 706, May LJ said that section 103(2) concerns matters
that go to the “fundamental structural integrity of the arbitration proceedings.”
103. Nor is there anything to support Dallah’s theory that the New York
Convention accords primacy to the courts of the arbitral seat, in the sense that the
supervisory court should be the only court entitled to carry out a re-hearing of the
issue of the existence of a valid arbitration agreement; and that the exclusivity of
the supervisory court in this regard ensures uniformity of application of the
Convention. There is nothing in the Convention which imposes an obligation on a
party seeking to resist an award on the ground of the non-existence of an
arbitration agreement to challenge the award before the courts of the seat.
104. It follows that the English court is entitled (and indeed bound) to revisit the
question of the tribunal’s decision on jurisdiction if the party resisting enforcement
seeks to prove that there was no arbitration agreement binding upon it under the
law of the country where the award was made.
Arbitration agreements and non-signatories: groups of companies/State-owned
entities and States
105. One of the most controversial issues in international commercial arbitration
is the effect of arbitration agreements on non-signatories: among many others see,
eg, Hanotiau, Non-Signatories in International Arbitration: Lessons from Thirty
Years of Case Law, in International Arbitration 2006: Back to Basics? (2007, ed
van den Berg), p 341; Park, Non-signatories and International Contracts: An
Arbitrator’s Dilemma, in Multiple Party Actions in International Arbitration (ed
Macmahon, Permanent Court of Arbitration, 2009), p 1.
106. The issue has arisen frequently in two contexts: the first is the context of
groups of companies where non-signatories in the group may seek to take
advantage of the arbitration agreement, or where the other party may seek to bind
them to it. The second context is where a State-owned entity with separate legal
personality is the signatory and it is sought to bind the State to the arbitration
agreement. Arbitration is a consensual process, and in each type of case the result
will depend on a combination of (a) the applicable law; (b) the legal principle
which that law uses to supply the answer (which may include agency, alter ego,
estoppel, third-party beneficiary); and (c) the facts of the individual case.
107. One of the decisions in the field of groups of companies best known
internationally is the Dow Chemical case in France, which arose in the context of
Page 46
the setting aside of a French award. The arbitrators (Professors Sanders, Goldman
and Vasseur: (1984) 9 Yb Comm Arb 131) decided that non-signatory companies
in a group could rely on an arbitration clause in contracts between Isover St
Gobain and two Dow Chemical group companies. The tribunal said that a group of
companies constituted one and the same economic reality (une realité économique
unique) of which the tribunal should take account when it ruled on its jurisdiction.
It decided that it was the mutual intention of all parties that the group companies
should have been real parties to the agreement. They relied in particular on the fact
that group companies participated in the conclusion, performance and termination
of the contract, and on the economic reality and needs of international commerce.
The Paris Cour d’appel rejected an application to set aside the award: the effect of
the ICC Rules was that the tribunal was bound to take account of the will of the
parties and of trade usages; in the light of the agreements and of the documents
exchanged in the course of their conclusion and termination, the tribunal had given
relevant and consistent reasons for deciding that it was the joint intention of the
parties that Dow Chemicals France and Dow Chemical Company had been parties
to the agreements (and therefore to the arbitration agreements) although they had
not physically signed them. The court also mentioned that as a subsidiary reason
the tribunal had invoked the notion of the “group of companies,” which had not
been seriously disputed by Isover St-Gobain: Soc. Isover Saint-Gobain v Soc. Dow
Chemical France, 21 October 1983, 1984 Rev Arb 98. For other cases see, eg,
Redfern and Hunter, International Arbitration (5th ed 2009, ed Blackaby and
Partasides), paras 2.44-2.45; Wilske, Shore and Ahrens, The “Group of Companies
Doctrine” – Where is it heading? (2006) 17 Am Rev Int Arb 73.
108. As regards States, the Pyramids case (République Arabe d’Egypte v
Southern Pacific Properties Ltd, above, para 89) was also a case of setting aside
rather than enforcement of a foreign award. A company incorporated in Hong
Kong (“SPP”) signed an agreement with an Egyptian state owned entity
responsible for tourism (“EGOTH”). The contract referred to a pre-existing
framework contract between the same parties and the Egyptian Government
concerning the construction of two tourist centres, one of which was located near
the Pyramids. The contract contained an ICC arbitration clause with Paris as the
seat. The last page of the agreement contained the words “approved, agreed and
ratified” followed by the signature of the Egyptian Minister for Tourism. After
political opposition to the project, the Egyptian authorities cancelled it, and SPP
initiated arbitration proceedings against both EGOTH and Egypt. The arbitral
tribunal, with Professor Giorgio Bernini as Chairman, ruled that it had jurisdiction,
because, although acceptance of an arbitration clause had to be clear and
unequivocal, there was no ambiguity since the Government, in becoming a party to
the agreement, could not reasonably have doubted that it would be bound by the
arbitration clause contained in it. The Egyptian Government brought proceedings
in France to set aside the award. The combined effect of articles 1502 and 1504,
NCPC, is that the French court may set aside an award made in France in an
international arbitration on the ground that there is no arbitration agreement. The
Page 47
Paris Cour d’appel held that the Government was not a party to the arbitration
agreement because the words under the Minister’s signature were to be read in the
light of Egyptian legislation which simply gave the Minister the power to approve
construction and in the light of a declaration by the signatories that the obligations
assumed by EGOTH would be subject to approval by the relevant government
authorities. Subsequently an ICSID Tribunal found that it had jurisdiction and
awarded the claimants $27m: 3 ICSID Rep 131 and 189. See also the Westland
case in the Swiss courts, involving the application of an arbitration agreement in a
contract between Westland Helicopters and the Arab Organisation for
Industrialisation to the organisation’s member States: (1991) 16 Yb Comm Arb
174; and Lew, Mistelis and Kröll, Comparative International Commercial
Arbitration (2003), paras 27-26 et seq; Westland Helicopters Ltd v Arab
Organisation for Industrialisation [1995] QB 282.
109. An example in England of a foreign award prior to the present case is
Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (No
2) [2006] EWCA Civ 1529, [2007] QB 886, where the Court of Appeal, after a
review of the principal arbitral decisions, confirmed (at para 81 et seq) that a
government is not to be taken to be a party to an agreement or to have submitted to
arbitration simply because it has put forward a state organisation to contract with a
foreign investor. But on the facts the Government had agreed to ICC arbitration in
Denmark.
French law and transnational law
110. The Joint Memorandum of the experts stated (para 2.8):
“Under French law, the existence, validity and effectiveness of an
arbitration agreement in an international arbitration need not be
assessed on the basis of national law, be it the law applicable to the
main contract or any other law and can be determined according to
rules of transnational law. To this extent, it is open to an
international arbitral tribunal the seat of which is in Paris to find that
the arbitration agreement is governed by transnational law.”
111. The notion in French law that an arbitration clause may be valid
independently of a reference to national law goes back to the decisions of the Cour
de cassation in Hecht v Buisman’s, 4 July 1972, 1974 Rev Crit 82 and of the Paris
Cour d’appel in Menicucci v Mahieux, 13 December 1975, 1976 Rev Crit 507: see
Fouchard, Gaillard, Goldman, para 418; Poudret and Besson, para 180. In the Dow
Chemical case the Paris Cour d’appel (21 October 1983, 1984 Rev Arb 98) said
that the arbitral tribunal could decide on its competence without reference to
Page 48
French law, and could rely on the notion of the “group of companies” as a
customary practice in international trade.
112. In the Dalico case (Municipalité de Khoms El Mergeb v Soc Dalico, 20
December 1993, 1994 Rev Arb 116) the Cour de cassation was concerned with an
application to set aside an award in which an arbitral tribunal had upheld the
existence and validity of an arbitration clause in a document annexed to a works
contract between a Libyan municipal authority and a Danish company (“Dalico”).
The main contract was subject to Libyan law and stipulated standard terms and
conditions, amplified or amended by an annex, which formed part of the contract.
The standard terms and conditions conferred jurisdiction on the Libyan courts, but
the annex amended them by providing for international arbitration. Dalico referred
the dispute to arbitration and obtained an award against the Libyan municipal
authority.
113. An action to set aside the award was brought before the Paris Cour d’appel.
The court dismissed the application to set aside, relying in particular on the fact
that the principle of the autonomy of the arbitration agreement “confirms the
independence of the arbitration clause, not only from the substantive provisions of
the contract to which it relates, but also from a domestic law applicable to that
contract”. The court held that the wording of the documents revealed the parties’
intention to submit their dispute to arbitration.
114. The Cour de cassation dismissed an appeal, emphasising that the Cour
d’appel justified its decision in law by establishing the existence of the arbitration
agreement without reference to Libyan law, which governed the contract. The
Cour de cassation said, at p 117: “… en vertu d’une règle matérielle du droit
international de l’arbitrage, la clause compromissoire est indépendante
juridiquement du contrat principal qui la contient directement ou par référence et
que son existence et son efficacité s’apprécient, sous réserve des règles imperatives
de droit français et de l’ordre public international, d’après la commune volonté des
parties, sans qu’il soit nécessaire de se référer à une loi étatique ….” (“by virtue of
a substantive rule of international arbitration, the arbitration agreement is legally
independent of the main contract containing or referring to it, and the existence
and effectiveness of the arbitration agreement are to be assessed, subject to the
mandatory rules of French law and international public policy, on the basis of the
parties’ common intention, there being no need to refer to any national law.”). On
this case see Fouchard, Gaillard, Goldman, paras 388, 452.
115. The fact that the experts were agreed that an arbitral tribunal with a French
seat may apply transnational law or transnational rules to the validity of an
arbitration agreement does not mean that a French court would not be applying
French law or that it is no longer a French arbitration. It simply means that the
Page 49
arbitration agreement is no longer affected by the idiosyncrasies of local law, and
its validity is examined solely by reference to the French conception of
international public policy: Fouchard, Gaillard, Goldman, paras 420, 441. As
Poudret and Besson put it (at para 181):
“The result of this case law is that the arbitration agreement is
subjected to a material rule which recognises its validity provided it
does not violate international public policy. Although this has been
the subject of controversy, the rule is an international rule of French
law and not a transnational rule.”
116. Nor could there be any suggestion that the application of transnational law
or transnational rules could displace the applicability in England, under article
V(1)(a) of the New York Convention as enacted by section 103(2)(b) of the 1996
Act, of the law of the place where the award is made.
117. This case does not therefore raise the controversial question of
delocalisation of the arbitral process which has been current since the 1950s. It
started with the pioneering work of Professor Berthold Goldman, Professor Pierre
Lalive and Professor Clive Schmitthoff, which was mainly devoted to the question
of disconnecting the substantive governing law in international commercial
arbitration from national substantive law. It expanded to promotion of the notion
that international arbitration is, or should be, free from the controls of national law,
or as Lord Mustill put it in SA Coppée Lavalin NV v Ken-Ren Chemicals and
Fertilizers Ltd [1995] 1 AC 38, 52, “a self-contained juridical system, by its very
nature separate from national systems of law”: see, among many others, Lew,
Achieving the Dream: Autonomous Arbitration (2006) 22 Arb Int 179; Gaillard,
Legal Theory of International Arbitration (2010); Paulsson, Arbitration in Three
Dimensions (LSE Law, Society and Economy Working Papers 2/2010); the older
material cited in Dicey, Morris and Collins, The Conflict of Laws (14th ed 2006),
para 16-032; and the cases on the enforcement in France of awards which have
been annulled in the country where they were rendered on the basis that they were
international awards which were not integrated in the legal system of that country,
e.g. Soc PT Putrabali Adyamulia v Soc Rena Holding, Cour de cassation, 29 June
2007 (2007) 32 Yb Comm Arb 299, and below at para 129.
Non-signatories: the principle in French law
118. One of the odd features of this case is that there is nothing in the experts’
reports which suggests that there is any relevant difference between French
arbitration law in non-international cases and the principle in such cases as Dalico.
When counsel was asked at the hearing of this appeal what difference it made,
Page 50
there was no satisfactory answer. No doubt that is because common intention
would serve equally to answer the question in a non-international case: cf Loquin,
Arbitrage, para 18, in Juris-Classeur Procédure Civile, Fasc 1032. As M Yves
Derains (Dallah’s expert) put it in his report, the arbitrators may find that the
arbitration agreement is governed by transnational law, but the arbitrators must
also look for the common will of the parties, express or implied, since it is a
substantive rule of French law that the courts will apply when examining the
jurisdiction of the arbitrators.
119. There was, in the event, a large measure of agreement between the experts
on French law who appeared before Aikens J, M le Bâtonnier Vatier for the
Government and M Yves Derains for Dallah. In their Joint Memorandum they
agreed that in order to determine whether an arbitration clause upon which the
jurisdiction of an arbitral tribunal is founded extends to a person who is neither a
named party nor a signatory to the underlying agreement containing that clause, it
is necessary to find out whether all the parties to the arbitration proceedings,
including that person, had the common intention (whether express or implied) to
be bound by the agreement and, as a result, by the arbitration clause; the existence
of a common intention of the parties is determined in the light of the facts of the
case; the courts will consider the involvement and behaviour of all the parties
during the negotiation, performance and, if applicable, termination of the
underlying agreement. When a French court has to determine the existence and
effectiveness of an arbitration agreement, and when for these purposes it must
decide whether the agreement extends to a party who was neither a signatory nor a
named party, it examines all the factual elements necessary to decide whether that
agreement is binding upon that person. The fact that an arbitration agreement is
entered into by a State-owned entity does not mean that it binds the State, and
whether the State is bound depends on the facts in the light of the principles.
120. The principle as expressed in the jurisprudence of the Paris Cour d’appel is
as follows: “Selon les usages du commerce international, la clause compromissoire
insérée dans un contrat international a une validité et une efficacité propres qui
commandent d’en étendre l’application aux parties directement impliquées dans
l’exécution du contrat et les litiges qui peuvent en résulter, dès lors qu’il est établi
que leur situation contractuelle, leurs activités et les relations commerciales
habituelles existant entre les parties font présumer qu’elles ont accepté la clause
d’arbitrage dont elles connaissaient l’existence et la portée, bien qu’elles n’aient
pas été signatoires du contrat qui la stipulait”. (“According to international usage,
an arbitration clause inserted in an international contract has a validity and an
effectiveness of its own, such that the clause must be extended to parties directly
implicated in the performance of the contract and in any disputes arising out of the
contract, provided that it has been established that their respective contractual
situations and existing usual commercial relations raise the presumption that they
accepted the arbitration clause of whose existence and scope they were aware,
Page 51
irrespective of the fact that they did not sign the contract containing the arbitration
agreement.” See Orri v Soc. des Lubrifiants Elf Acquitaine, 11 January 1990, 1991
Rev Arb 95 (affd Cour de cassation, 11 June 1991, 1992 Rev Arb 73, on different
grounds); also Société Korsnas Marma v Soc Durand–Auzias, 30 November 1988,
1989 Rev Arb 691; Compagnie tunisienne de navigation (Cotunav) v Soc
Comptoir commercial André, 28 November 1989, 1990 Rev Arb 675.
121. The principle applies equally where a non-signatory seeks the benefit of an
arbitration agreement, as in Dalico itself and in Dow Chemicals.
122. The common intention of the parties means their subjective intention
derived from the objective evidence. M le Bâtonnier Vatier, the Government’s
expert, confirmed in his oral evidence that under French law the court must
ascertain the “genuine,” subjective, intention of each party, but through its
objective conduct, and M Yves Derains, Dallah’s expert, agreed. M Derains
confirmed that in order for an act (such as the letter of termination) of the
Government to have the effect of establishing the subjective intention on the
Government’s part to be bound by the arbitration agreement, it would have to be a
“conscious, deliberate act by the government”; that “anything less than a conscious
and deliberate act of the government might make the letter less relevant”; and that
the letter would not be relevant if it was written by mistake.
Renvoi
123. The parties were agreed before Aikens J that article V(1)(a) of the New
York Convention established two conflict of laws rules. The first was the primary
rule of party autonomy: the parties could choose the law which governed the
validity of the arbitration agreement. In default of that agreement, the law by
which to test validity was that of the country where the award to be enforced was
made. Because they were to be treated as “uniform” conflict of laws rules, the
reference to “the law of the country where the award was made” in article V(1)(a)
of the New York Convention and the same words in section 103(2)(b) of the 1996
Act must be directed at that country’s substantive law rules, rather than its
conflicts of law rules. Aikens J also drew support from section 46(2) in Part I of
the 1996 Act, which defines “the law chosen by the parties” as “the substantive
laws of that country and not its conflict of laws rules,” and which was specifically
inserted to avoid the problems of renvoi: Mustill & Boyd, Commercial Arbitration,
2001 Companion (2001), p 328. Aikens J considered that the same approach was
intended for section 103(2)(b) in Part III of the 1996 Act, and that he should have
regard to French substantive law and not its conflict of laws rules (at para 78) and
that the principle of French law that the existence of an arbitration agreement in an
international context may be determined by transnational law was a French
conflict of laws rule (at para 93).
Page 52
124. It is likely that renvoi is excluded from the New York Convention: see van
den Berg, The New York Convention of 1958 (1981), p 291. But it does not follow
that for an English court to test the jurisdiction of a Paris tribunal in an
international commercial arbitration by reference to the transnational rule which a
French court would apply is a case of renvoi. Renvoi is concerned with what
happens when the English court refers an issue to a foreign system of law (here
French law) and where under that country’s conflict of laws rules the issue is
referred to another country’s law. That is not the case here. What French law does
is to draw a distinction between domestic arbitrations in France, and international
arbitrations in France. It applies certain rules to the former, and what it describes
as transnational law or rules to the latter.
125. As mentioned above, the applicability of transnational rules or law (and
there was no evidence on their content) would not make a difference in this case.
But even if there were a difference, there is not, according to English notions, any
reference on to another system of law. All that French law is doing is
distinguishing between purely domestic cases and international cases and applying
different rules to the latter. If a French court would apply different principles in an
international case, for an English court to do what a French court would do in these
circumstances is not the application of renvoi.
Discretion
126. The court before which recognition or enforcement is sought has a
discretion to recognise or enforce even if the party resisting recognition or
enforcement has proved that there was no valid arbitration agreement. This is
apparent from the difference in wording between the Geneva Convention on the
Execution of Foreign Arbitral Awards 1927 and the New York Convention. The
Geneva Convention provided (article 1) that, to obtain recognition or enforcement,
it was necessary that the award had been made in pursuance of a submission to
arbitration which was valid under the law applicable thereto, and contained (article
2) mandatory grounds (“shall be refused”) for refusal of recognition and
enforcement, including the ground that it contained decisions on matters beyond
the scope of the submission to arbitration. Article V(1)(a) of the New York
Convention (and section 103(2)(b) of the 1996 Act) provides: “Recognition and
enforcement of the award may be refused …” See also van den Berg, p 265;
Paulsson, May or Must Under the New York Convention: An Exercise in Syntax
and Linguistics (1998) 14 Arb Int 227.
127. Since section 103(2)(b) gives effect to an international convention, the
discretion should be applied in a way which gives effect to the principles behind
the Convention. One example suggested by van den Berg, op cit, p 265, is where
the party resisting enforcement is estopped from challenge, which was adopted by
Page 53
Mance LJ in Dardana Ltd v Yukos Oil Co [2002] 2 Lloyd’s Rep 326, para 8. But,
as Mance LJ emphasised at para 18, there is no arbitrary discretion: the use of the
word “may” was designed to enable the court to consider other circumstances,
which might on some recognisable legal principle affect the prima facie right to
have an award set aside arising in the cases listed in section 103(2). See also
Kanoria v Guinness [2006] 1 Lloyd’s Rep 701, para 25 per Lord Phillips CJ.
Another possible example would be where there has been no prejudice to the party
resisting enforcement: China Agribusiness Development Corpn v Balli Trading
[1998] 2 Lloyd’s Rep 76. But it is not easy to see how that could apply to a case
where a party had not acceded to an arbitration agreement.
128. There may, of course, in theory be cases where the English court would
refuse to apply a foreign law which makes the arbitration agreement invalid where
the foreign law outrages its sense of justice or decency (Scarman J’s phrase in In
the Estate of Fuld, decd (No 3) [1968] P 675, 698), for example where it is
discriminatory or arbitrary. The application of public policy in the New York
Convention (article V(2)(b)) and the 1996 Act (section 103(3)) is limited to the
non-recognition or enforcement of foreign awards. But the combination of (a) the
use of public policy to refuse to recognise the application of the foreign law and
(b) the discretion to recognise or enforce an award even if the arbitration
agreement is invalid under the applicable law could be used to avoid the
application of a foreign law which is contrary to the court’s sense of justice.
129. Only limited assistance can be obtained from those cases in which awards
have been enforced abroad (in particular in France and the United States)
notwithstanding that they have been set aside (or supended) in the courts of the
seat of arbitration. In France the leading decisions are Pabalk Ticaret Sirketi v
Norsolor, Cour de cassation, 9 October 1984, 1985 Rev Crit 431; Hilmarton Ltd v
OTV, Cour de cassation, 23 March 1994 (1995) 20 Yb Comm Arb 663, in which a
Swiss award was enforced in France even though it had been set aside in
Switzerland: “… the award rendered in Switzerland is an international award
which is not integrated in the legal system of that State, so that it remains in
existence even if set aside …” (at p 665); République arabe d’Egypte v
Chromalloy Aero Services, Paris Cour d’appel, 14 January 1997 (1997) 22 Yb
Comm Arb 691. Thus in Soc PT Putrabali Adyamulia v Soc Rena Holding, Cour
de cassation, 29 June 2007 (2007) 32 Yb Comm Arb 299, an award in an
arbitration in England which had been set aside by the English court (see PT
Putrabali Adyamulia v Soc Est Epices [2003] 2 Lloyd’s Rep 700) was enforced in
France, on the basis that the award was an international award which did not form
part of any national legal order. Those decisions do not rest on the discretion to
allow recognition or enforcement notwithstanding that “the award … has been set
aside … by a competent authority of the country in which … that award was
made” (New York Convention, article V(1)(e)). They rest rather on the power of
the enforcing court under the New York Convention, article VII(1), to apply laws
Page 54
which are more generous to enforcement than the rules in the New York
Convention: see Born, International Commercial Arbitration (2009), pp 2677-
2680; Gaillard, “Enforcement of Awards Set Aside in the Country of Origin”
(1999) 14 ICSID Rev 16; and Yukos Capital SARL v OAO Rosneft, 28 April 2009,
Case No 200.005.269/01 Amsterdam Gerechtshof.
130. In the United States the courts have refused to enforce awards which have
been set aside in the State in which the award was made, on the basis that the
award does not exist to be enforced if it has been lawfully set aside by a competent
authority in that State: Baker Marine (Nigeria) Ltd v Chevron (Nigeria) Ltd, 191 F
3d 194 (2d Cir 1999); TermoRio SA ESP v Electranta SP, 487 F 3d 928 (DC Cir
2007). But an Egyptian award which had been set aside by the Egyptian court was
enforced because the parties had agreed that the award would not be the subject of
recourse to the local courts: Chromalloy Aeroservices v Arab Republic of Egypt,
939 F Supp 907 (DDC 1996). That decision was based both on the discretion in the
New York Convention, article V(1) and on the power under article VII(1) (see
Karaha Bodas Co v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara,
335 F 3d 357, 367 (5th Cir 2003)) and whether it was correctly decided was left
open in TermoRio SA ESP v Electranta SP, ante, at p 937.
131. The power to enforce notwithstanding that the award has been set aside in
the country of origin does not, of course, arise in this case. The only basis which
Dallah puts forward for the exercise of discretion in its favour is the Government’s
failure to resort to the French court to set aside the award. But Moore-Bick LJ was
plainly right in the present case (at para 61) to say that the failure by the resisting
party to take steps to challenge the jurisdiction of the tribunal in the courts of the
seat would rarely, if ever, be a ground for exercising the discretion in enforcing an
award made without jurisdiction. There is certainly no basis for exercising the
discretion in this case.
III The application of the principles to the appeal
132. The crucial facts have been set out fully by Lord Mance. The essential
question is whether the Government has proved that there was no common
intention (applying the French law principles) that it should be bound by the
arbitration agreement. The essential points which lead to the inevitable conclusion
that there was no such common intention are these.
133. First, throughout the transaction Dallah was advised by a leading firm of
lawyers in Pakistan, Orr, Dignam & Co, which was responsible for the drafts of
both the Memorandum of Understanding (“MoU”) which was concluded on 24
July 1995 between Dallah and the Government, and the Agreement of 10
Page 55
September 1996 (“the Agreement”) between Dallah and the Trust. It must go
without saying that the firm well understood the difference between an agreement
with a State entity, on the one hand, and the State itself, on the other.
134. Second, there was a clear change in the proposed transaction from an
agreement with the State to an agreement with the Trust. The MoU was expressed
to be made between Dallah and “the President of the Islamic Republic of Pakistan
through the Ministry of Religious Affairs,” and it was signed “For and on behalf of
The President of the Islamic Republic of Pakistan”. It was governed by Saudi
Arabian law (clause 23). It provided for ad hoc arbitration with a Jeddah seat
(clause 24), and contained an express waiver of sovereign immunity, including
immunity from execution (clause 25).
135. Third, the Trust was established as “a body corporate having perpetual
succession and a common seal with power to acquire, hold and dispose of
property, and may by its name, sue and be sued.”
136. Fourth, the Agreement (including the arbitration agreement) was plainly an
agreement between Dallah and the Trust, and the Government was referred to in
the Agreement only in its capacity of guarantor of loans to the Trust. It described
the parties as “Dallah Real Estate and Tourism Holding Company” and “Awami
Hajj Trust…” (which is referred to as having been: “… established under Section 3
of the Awami Hajj Trust Ordinance, 1996 (Ordinance No VII of 1996)…” On the
signature page, there are two signatories: Dallah and the “Awami Hajj Trust”.
Shezi Nackvi signed on behalf of Dallah, and “Managing Trustee” (Zubair
Kidwai) signed on behalf of the Trust. Clause 2 provided for the Trust to pay
$100m to Dallah by way of advance, subject to (inter alia) Dallah providing a
Financing Facility “against a guarantee of the Government of Pakistan” and the
Trust and the Trustee Bank providing a counter guarantee “in favour of the
Government of Pakistan.” By clause 27 it was provided: “The Trust may assign or
transfer its rights and obligations under this Agreement to the Government of
Pakistan without the prior consent in writing of Dallah.” The arbitration clause
(article 23) related to “Any dispute or difference of any kind whatsoever between
the Trust and Dallah …..” The parties amended the ICC model clause (which
reads: “All disputes arising out of or in connection with the present contract shall
be finally settled…”), in order to specify “the Trust” and “Dallah”.
137. Fifth, it was the Trust which immediately following the termination letter of
19 January 1997, commenced proceedings against Dallah in Islamabad (the “1997
Pakistan Proceedings”). The proceedings were for a declaration that the Trust had
validly accepted Dallah’s repudiation of the Agreement between the Trust and
Dallah on 19 January 1997. The contents of the pleading were verified on oath by
Mr Muhammad Lutfullah Mufti. On the same day Mr Lutfullah Mufti made an
Page 56
application in the name of the Trust for an interim injunction restraining Dallah
from holding itself out to have any contractual relationship with the Trust. On 6
March 1997 Dallah filed an application to stay the action, given the existence of an
arbitration agreement with the Trust. The Trust took preliminary objections against
this application, among which was that the Trust had challenged the validity and
existence of the Agreement. Mr Lutfullah Mufti, describing himself as “Secretary
Board of Trustees Awami Hajj Trust/Secretary, Religious Affairs Division,
Government of Pakistan” swore an affidavit verifying the objections by the Trust
to the application.
138. There are only two serious contra-indications. The first is the fact that the
termination latter was written, after the Trust had ceased to exist, by Mr. Lutfullah
Mufti (who had been Secretary of the Board of Trustees of the Trust and its
Managing Trustee, and who was also from time to time Secretary of the Ministry
of Religious Affairs) under the letterhead of the Ministry of Religious Affairs, and
signed as “Secretary.” There is nothing in the text of the letter to suggest that it
was written on behalf of the Government. On the contrary, as Moore-Bick LJ said
[2010] 2 WLR 805, para 36 (differing on this point from Aikens J, at para 117) all
the internal indications are that it was written on behalf of the Trust. Thus the
opening paragraph reads as follows:
“Pursuant to the above mentioned Agreement for the leasing of
housing facilities in the holy city of Makkah, Kingdom of Saudi
Arabia, you were required within ninety (90) days of the execution
of the said Agreement to get the detailed specifications and drawings
approved by the Trust. However, since you have failed to submit the
specifications and drawings for the approval of the Trust to date you
are in breach of a fundamental term of the Agreement which
tantamounts to a repudiation of the whole Agreement which
repudiation is hereby accepted.”
139. The second contra-indication is contained in the fact that the 1998 Pakistan
Proceedings were commenced in the name of the Government. That was because,
when the 1997 Pakistan Proceedings were dismissed by the Pakistan court on the
ground that the Trust had ceased to exist as of 11 December 1996, the judge said
that, on dissolution of the Trust suit should have been filed by the Ministry for
Religious Affairs, apparently on the basis that the Government had succeeded to
the rights and obligations of the Trust. On 18 September 1998, the Islamabad
judge ruled that the Government was not the legal successor of the Trust, and so
not bound by the Agreement or the arbitration agreement. On 14 January 1999, the
Government applied voluntarily to withdraw the suit, which was granted on the
same day.
Page 57
140. Neither of these two matters, nor the other matters relied on, was sufficient
to justify a finding of a common intention that the Government should be bound by
the arbitration agreement. It is true that the principle of common intention in
French law was similar to that articulated by the tribunal, but M Le Bâtonnier
Vatier’s evidence made clear that there were significant differences. He accepted
that the principles adopted by the tribunal were in general the principles that might
be adopted in French law, but they were too general.
141. That is undoubtedly a valid criticism of the way in which the Tribunal
sought to use material from the period prior to termination to justify its conclusion.
The Tribunal first considered the conduct of the Government prior to the execution
of the Agreement. It drew the conclusion that the organic control of the
Government over the Trust, although insufficient to lead to the disregard of the
separate legal entity of the Trust, constituted nevertheless an element of evidence
as to the true intention of the Government to run and control directly and indirectly
the activities of the Trust, and to view the Trust as one of its instruments. The
Tribunal next considered the conduct of the Government at the time of execution
of the Agreement. From that it drew the conclusion that the Government was
“contractually involved in the Agreement, as the Government was bound, under
article 2 thereof, to give its guarantee for the financial facility to be raised by
[Dallah]” and that the Trust’s right to assign its rights and obligations to the
Government was a provision which was normally used only where the assignee is
closely linked to the assignor or is under its total control through ownership,
management or otherwise. The Tribunal considered that during the lifetime of the
Agreement the Government continued itself to handle matters relating to the
Agreement and to act and conduct itself in a way which confirmed that it regarded
the Agreement as its own. Government officials were actively involved in the
implementation of the Agreement. The Government decided not to re-promulgate
the Ordinance and therefore put an end to the Trust, and so the very existence of
the Trust appeared to have been completely dependent on the Government.
142. None of these matters could possibly justify a finding that there was a
common intention that the Government should be bound by the arbitration
agreement.
143. The crucial finding was that after the dissolution of the Trust, the
termination letter of 19 January 1997 was written on Ministry of Religious Affairs
letterhead and signed by the Secretary of the Ministry, and confirmed in the
clearest way possible that the Government regarded the Agreement with Dallah as
its own and considered itself as a party to the Agreement and was entitled to
exercise all rights and assume all responsibilities provided for under the
Agreement. The signature of the letter could only be explained as evidence that
the Government considered itself a party to the Agreement. But the Trust had no
separate letterhead and it is plain from the surrounding circumstances, and
Page 58
particularly the way in which the 1997 Pakistan proceedings were commenced on
behalf of the Trust, and verified by Mr Lutfullah Mufti, that the letter was written
on behalf of the Trust and in ignorance of its dissolution.
144. The tribunal ignored the 1997 Pakistan proceedings, and relied on the 1998
Pakistan proceedings to find that they showed that the Government considered
itself as a party to the Agreement. But it is clear that those proceedings were
commenced at the erroneous suggestion of the Pakistan judge and shed no light on
whether the parties intended that the Government should be bound by the
Agreement or the arbitration agreement.
145. Consequently on a proper application of French law as mandated by the
New York Convention and the 1996 Act there was no material sufficient to justify
the tribunal’s conclusion that the Government’s behaviour showed and proved that
the Government had always been, and considered itself to be, a true party to the
Agreement and therefore to the arbitration agreement. On the contrary, all of the
material up to and including the termination letter shows that the common
intention was that the parties were to be Dallah and the Trust. On the face of the
Agreement the parties and the signatories were Dallah and the Trust. The
Government’s role was as guarantor, and beneficiary of a counter-guarantee. The
assignment clause showed that the Government was not a party. It permitted the
Trust to assign or transfer its rights and obligations under the Agreement to the
Government without the prior consent in writing of Dallah. The arbitration clause
related to any dispute between the Trust and Dallah.
146. The weakness of the conclusion of the tribunal is underlined by this passage
in the Award:
“Certainly, many of the above mentioned factual elements, if
isolated and taken into a fragmented way, may not be construed as
sufficiently conclusive for the purpose of this section. However, Dr
Mahmassani believes that when all the relevant factual elements are
looked into globally as a whole, such elements constitute a
comprehensive set of evidence that may be relied upon to conclude
that the Defendant is a true party to the Agreement with the Claimant
and therefore a proper party to the dispute that has arisen with the
Claimant under the present arbitration proceedings.
Whilst joining in this conclusion Dr Shah and Lord Mustill note that
they do so with some hesitation, considering that the case lies very
close to the line.”
Page 59
147. Aikens J rejected the argument that the discretion should be exercised in
favour of enforcement because of the Government’s failure to challenge the award
in the French courts: Dallah had not submitted that the Government was estopped
from challenging the jurisdiction of the tribunal; and the discretion would not be
exercised where, as in this case, there was something unsound in the fundamental
structural integrity of the ICC arbitration proceedings, namely that the Government
did not agree to be bound by the arbitration agreement in clause 23 of the
Agreement. There was no error of principle and the Court of Appeal was right not
to interfere with the judge’s exercise of discretion.
LORD HOPE
148. The essential question in this case, as Lord Mance and Lord Collins explain
in paras 2 and 132 of their judgments, is whether the Government of Pakistan has
proved that there was no common intention (applying French law principles)
between it and Dallah that it should be bound by the arbitration agreement. This is
a matter which goes to the root of the question whether there was jurisdiction to
make the award. As such, it must be for the court to determine. It cannot be left to
the determination of the arbitrators.
149. For the reasons set out in the opinions of Lord Mance and Lord Collins, I
agree that the facts point inevitably to the conclusion that there was no such
common intention. As Lord Mance says in para 66, the agreement was deliberately
structured to be, and was agreed, between Dallah and the Trust. I also agree that
the Court of Appeal was right not to interfere with the judge’s exercise of his
discretion to refuse enforcement of the award. I too would dismiss the appeal.
LORD SAVILLE
150. In his judgment Lord Mance has set out in detail the facts of this case and
no purpose would be served by repeating them in this judgment.
151. The case concerns an application by Dallah Real Estate and Tourism
Holding Company to enforce in this country an ICC arbitration award dated 23rd
June 2006 against the Ministry of Religious Affairs of the Government of
Pakistan. The amount of the award was US$20,588,040. The application was
opposed by the Ministry of Religious Affairs on the grounds that there was no
arbitration agreement between the parties, so that the award was unenforceable.
Page 60
152. The award was a New York Convention Award within the meaning of
Section 100 of the Arbitration Act 1996 and was made in Paris.
153. Section 103(1) of the Arbitration Act 1996 provides that recognition and
enforcement of a New York Convention Award “shall not be refused except in the
following cases.” The following sub-sections set out the cases in question. Section
103(2) contains a number of these cases and provides that recognition or
enforcement of the award may be refused if the person against whom it is invoked
proves (so far as the case relevant to these proceedings is concerned) “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.”(Section 103(2) (b)) (emphases added).
154. The arbitrators considered the question of their jurisdiction before dealing
with the merits of the claim and concluded that the Ministry of Religious Affairs of
the Government of Pakistan was party to an arbitration agreement with Dallah
Real Estate and Tourism Holding Company, for the reasons contained in what they
described as a Partial Award dated 26th June 2001.
155. It was common ground that the question whether or not the Ministry of
Religious Affairs was a party to the arbitration agreement relied upon by Dallah
Real Estate and Tourism Holding Company, under which the ICC award was
made, was to be determined under Section 103(2)(b) of the Arbitration Act 1996,
and that the law to be applied was French law, being the law of the place where the
award was made.
156. After a trial, during which both parties tendered expert evidence on French
law, Aikens J (as he then was) held that the Ministry of Religious Affairs was not
party to the arbitration agreement and refused to enforce the award. The Court of
Appeal upheld his decision. Dallah Real Estate and Tourism Holding Company
now appeal to the Supreme Court.
157. In their written case Dallah Real Estate and Tourism Holding Company
submitted that the first issue for resolution by the Supreme Court concerned the
nature and standard of review to be undertaken by an enforcing court when
considering recognition and enforcement of a New York Convention award; and
further submitted that the court should accord a high degree of deference and
weight to the award of the arbitrators that there was an arbitration agreement
between the parties.
Page 61
158. In the present case the arbitrators have made a ruling, as they were
doubtless entitled to do under the doctrine of kompetenz-kompetenz, that there was
an arbitration agreement between the parties, so that they were able to hear and
decide the merits of the case, which they then proceeded to do. However, under
Section 103 of the Arbitration Act 1996 (as under the New York Convention itself)
the person against whom the award was invoked has the right to seek to prove that
there was no arbitration agreement between the parties, so that in fact the
arbitrators had no power to make an award. The question at issue before the court,
therefore, was whether the person challenging the enforcement of the award could
prove there was no such agreement.
159. In these circumstances, I am of the view that to take as the starting point the
ruling made by the arbitrators and to give that ruling some special status is to beg
the question at issue, for this approach necessarily assumes that the parties have, to
some extent at least, agreed that the arbitrators have power to make a binding
ruling that affects their rights and obligations; for without some such agreement
such a ruling cannot have any status at all. As the Departmental Advisory
Committee on Arbitration Law put it in paragraph 1.38 of its 1996 Report on the
Arbitration Bill, an arbitral tribunal may rule on its own jurisdiction but cannot be
the final arbiter of jurisdiction, “for this would provide a classic case of pulling
oneself up by one’s own bootstraps.”
160. In my judgment therefore, the starting point cannot be a review of the
decision of the arbitrators that there was an arbitration agreement between the
parties. Indeed no question of a review arises at any stage. The starting point in
this case must be an independent investigation by the court of the question whether
the person challenging the enforcement of the award can prove that he was not a
party to the arbitration agreement under which the award was made. The findings
of fact made by the arbitrators and their view of the law can in no sense bind the
court, though of course the court may find it useful to see how the arbitrators dealt
with the question. Whether the arbitrators had jurisdiction is a matter that in
enforcement proceedings the court must consider for itself. I accept, as an accurate
summary of the legal position, the way it was put in the written case of the
Ministry of Religious Affairs:
“Under s103(2)(b) of the 1996 Act / Art V.1(a) NYC, when the issue
is initial consent to arbitration, the Court must determine for itself
whether or not the objecting party actually consented. The objecting
party has the burden of proof, which it may seek to discharge as it
sees fit. In making its determination, the Court may have regard to
the reasoning and findings of the alleged arbitral tribunal, if they are
helpful, but it is neither bound nor restricted by them.”
Page 62
161. In short, as was held in China Minmetals Materials Import and Export Co
Ltd v Chi Mei Corporation (2003) 334 F3d 274, a decision of the United States
Court of Appeals (3rd Circuit), the court must make an independent determination
of the question whether there was an arbitration agreement between the parties.
162. In the present case, for the reasons given by Lord Mance and Lord Collins
(and the courts below), the Ministry of Religious Affairs has succeeded in showing
that no arbitration agreement existed to which it was party and that there were no
other grounds for enforcing the award. I would accordingly dismiss this appeal.
LORD CLARKE
163. I agree that this appeal should be dismissed for the reasons given by the
other members of the court. Both Lord Mance and Lord Collins have analysed the
relevant principles so fully and so expertly that it would be inappropriate selfindulgence for me to attempt a detailed analysis of my own.
