English Court refuses to enforce ICC Award

One of the key attractions of international arbitration is the relative ease of enforcement by reason of the New York Convention (“NYC”). Furthermore, the ICC prides itself on the enforceability of its awards.  As Steyn J (as he then was) said in Bank Mellat v GAA Development Co [1988]: “it is regarded as the first imperative of the ICC system that the awards under it should be enforceable … The system of scrutiny of awards by the Court contributes to the enforceability of ICC awards.” That the English Court of Appeal declined to enforce an ICC award therefore raises, at the very least, an eyebrow.

The case was Dallah v Ministry of Religious Affairs, Government of Pakistan [2009].  The Court had to consider s.103 Arbitration Act 1996 that closely follows Article V of the NYC and which is in the following terms:

“(1) Recognition or enforcement of a [NYC] 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 …”

The court decided the following points:

Firstly, the interrelationship of the courts of the supervisory jurisdiction (here France) and those of the enforcing country – the court held that s.103 was only brought into play where the award was made in a seat of another jurisdiction.  In that context the right to try and ‘prove’ something involves a right to adduce evidence and the court was not constrained to merely to review the tribunal’s award.  The court had, in this context the same rights as the courts of the supervisory jurisdiction.

Secondly, whether the Government of Pakistan was a party to the relevant agreement and agreement to arbitrate was in issue.  The judge had found that the subjective intention of all parties was that the Government was not to be a party having applied French law.  The appeal court agreed.  The tribunal had applied transnational laws to reach a different conclusion

Thirdly, it was argued that the Government was estopped from denying that it was a party as the tribunal was a court of competent jurisdiction that had ruled on the matter and the Government had not challenged that in the courts of the seat.  The tribunal represented a court of competent jurisdiction if, and only if, the parties agreed to confer jurisdiction upon it.  As the Government had not agreed to be a party, no estoppel could arise.  The absence of challenge was not fatal as the very purpose of Article V of the NYC was to preserve the right to challenge enforcement on the grounds of fundamental validity and integrity.

Finally, the court held that as a matter of discretion (noting that enforcement may be refused) it would normally be the proper exercise of discretion not to enforce an award once it was found that the entity against whom enforcement was sought was not a party to the arbitration agreement.  There was a general requirement to enforce subject to specific defences.  The court said that it was difficult to contemplate a more complete defence than the absence of consent to arbitrate.  The court approved the statement in Kanoria v Guinness [2006]:

“ … the limited circumstances in which an English court can be persuaded to refuse  enforcement of a [NYC] award concern … the structural integrity of the arbitration proceedings.  If the structural integrity is fundamentally unsound, the court is unlikely to make a discretionary  decision in favour of enforcing the award.”

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