Posts tagged: enforcement

Interest Update

Two recent cases have discussed issues relating to interest.  Firstly, Sonatrach v Statoil looked at post-award interest and, secondly, Martrade Shipping & Transport GmbH v United Enterprises Corporation looked at the application of the Late Payment of Commercial Debts (Interest) Act 1988 to international arbitration.  It is convenient to use those cases as an opportunity to review some basic principles.

Most references are concerned with recovering damages. With damages there is normally an award of interest.  The general principle as stated in Panchand Freres SA v. R. Pagnan & Fratelli[1] is that “In a commercial transaction, if the plaintiff has been out of his money for a period, the usual order is that the Defendant should pay interest for the time for which the sum has been outstanding.”

A failure to award interest can cause substantial prejudice to a party and in CNH Global NV v PGN Logistics Ltd[2] an award that was corrected by the Tribunal so as to include interest (inadvertently omitted from the original award) and which was done when the tribunal was functus, was allowed to stand as whilst it was an irregularity in the reference it did not cause substantial injustice within the terms of s.68 Arbitration Act 1996.

Approaches

In Europe and the U.S., an award of interest is common place.  Asian countries such as China, Taiwan, India, and Korea generally allow interest where there is default in the payment of money.  Interest is no more than the price of money (if borrowed) or the opportunity cost of money (if not borrowed)[3]. Rates at which interest should be awarded on damages may be heavily influenced by contractual terms on interest. The parties will often have stipulated a rate of interest for the late payment of invoices under the contract: should the same rate be used for interest on awards of damages?  Although awards of interest are matters of discretion for the Arbitral Tribunal, it seems right in principle that if the parties have agreed the price of money, that rate should be applied or at least considered in any award of damages. Of course, there may be good reason why the rate of interest on late paid invoices is higher than might be the case for damages. The parties might know that the product being sold was financed under especially expensive borrowing facilities and that interest on damages might not need to be compensated at the same rate.  Alternatively, there could be a coercive effect in setting a high rate to encourage payment of invoices.  It is suggested, however, that in normal circumstances a contractual rate should be applied to any award of interest on damages.

Interest on What and from When

Interest is normally awarded on the entire amount awarded but care should be taken not to overcompensate a claimant by awarding interest on the entire amount from the date of breach[4]. For example, interest on lost profits might run from each of the relevant years of loss rather from the date of breach. Equally, interest should, in principle, not be awarded on tax on grossed up damages (the grossing up being necessary if the damges are taxable in the hands of the claimant).  The tax is not a loss to the claimant and the claimant will simply be obliged to account to the tax authorities upon receipt. Unless there is a liability to the tax authorities for interest, it should generally not be awarded on the tax element of the loss.

Simple or Compound?

The further issue is whether interest should be awarded on a simple or compound basis[5].  Again, if the point is dealt with elsewhere in the contract, the same principle might be applied to the award of damages.  If the issue is not covered elsewhere then, as ever, it is a matter of discretion for the Tribunal. The point was considered by the House of Lords in Sempra Metals Ltd v. Inland Revenue Commissioners[6].  The House held that the time had come to recognise that money had a value: the court had a common law jurisdiction to award interest, simple and compound, as damages on claims for the non-payment of debts as well as on other claims for breach of contract and in tort.  Furthermore, a Tribunal is entitled to take into account the prevailing commercial practice of borrowing and investing on a compound basis.

Margins

If no rate is mentioned in the contract, a margin over bank base rates is probably the right starting point. The base rates should be taken as those prevailing in the country where the aggrieved party has its main banking arrangements. The margin may depend on whether the aggrieved party is a net borrower or depositor. A net borrower might be better compensated by say a margin over base rates equivalent to the rate a comparable company would be expected to pay and likewise a net depositor the rate a similar company might command on its deposits. A rate of 1 or, perhaps, 2% over bank base rate might be appropriate.  Generally, the larger and wealthier an organisation the cheaper will be its borrowing costs and hence the lower the rate of interest it will be able to recover.  Equally, the larger and wealthier an organisation the more money it will have to invest / deposit and the more sophisticated its treasury function and hence the higher the rates of interest it will receive on deposits.

In England there is a useful statute for the victims of late payment: the Late Payment of Commercial Debts (Interest) Act 1988.  The Act prescribes interest that is not intended to be compensatory rather it is penal and aimed to act as a deterrent to late payment.  The Act applies to domestic transactions but also has limited international reach.  This is because s.12 provides that where parties to a contract with an international dimension have chosen English law to govern the contract, the choice of English law is not, of itself, sufficient to attract the application of the Act.  To do so there must be a “significant connection” between the contract and England or the contract must be one that would be governed by English law apart from the choice of law.  The application of the Act to international arbitration albeit seated in England was reviewed by Popplewell J in Martrade Shipping & Transport GmbH v United Enterprises Corportation[7]Popplewll J identified the sorts of factors that would amount to a significant connection are (a) where the place of performance of obligations under the contract is England; (b) one of the parties is English; (c) the parties carry on some relevant part of their business in England; and (d) the economic effect of non-payment may be felt in England.  A London arbitration clause alone is insufficient connection[8].

The Court held that although choice of London arbitratuon will generally be treated as a choice of English law under Article 3 of trhe Rome Convention, that choice was to be ignored for the purposes of s.12 due to words providing ‘but for that choice’.

Post – Award

Finally, it is appropriate to consider whether any and if so what interest should be awarded post-award. In principle, it would seem logical that nearly every award should carry interest post-award down to payment.  In some instances it may be difficult to conceive of circumstances that would make it appropriate to not award such interest. It is incumbent on the party claiming interest to seek such an award and for the arbitral tribunal to consider making an award in those terms. Failure to do so can create difficulties as any judgment entered so as to enforce the award can usually only be in the terms of the award.  For example, §66(2) of the 1996 Arbitration Act states “ . . . judgment may be entered in terms of the award.” If the award does not deal with post-award interest, there is nothing an enforcing court can do: Walker v Rome[9].  As Aikens J (as he then was) said in that case “Section 66 of the 1996 Act enables the court to embody an award made by the tribunal in a judgment of the court.  But it does not empower the court to add an extra judgment for post-award interest when the arbitrators have not made such an award … Any attempt by the court to add a judgment for interest would be an intervention by the court … and so would infringe the principle set out in s.1(c) of the 1996 Act.”

If an award does not provide for post-award interest and payment is not made promptly, it may be appropriate to enter judgment in the terms of the award; for judgments may, depending on the jurisdiction, carry interest—e.g., in England under the Judgments Act 1838 judgments carry interest at the rate of 8%[10] on a simple (non-compounded) basis.

The authorities on this area were reviewed by Flaux J in Sonatrach v Statoil[11]Flaux J observed that Aikens J had not overlooked the statutory interest in Walker v Rome for Aiken J had said a little earlier in the judgment: “If interest was payable at all after the date of the judgment, then it would be payable under the Judgments Act 1838 …”

Aikens J was to make the same point in Pirtek (UK) Ltd v Deanswood Ltd[12] in a case where the court held that an arbitrator had no jurisdiction to make an award on interest in respect of a previous award where no interest had been awarded.  He said: “ … the difficulty could have been avoided by a much earlier application to make the Award a judgment.  Judgment Act interest would then have run on the sum awarded.”

As the above cases demonstrate once judgment has been entered under s.66 (or s.101(2) in the case of a foreign New York Convention award) of the Arbitration Act 1996 that judgment has the same characteristics as any other judgment and carries interest accordingly: the obligation to honour the award merges into a judgment which carries interest: see Dalmia v National Bank[13] and Gater Assets Ltd v Nak Naftogaz (No. 2)[14].  In the latter case Beatson J (as he then was) said: “The essential difference is that the obligation to honour an award arises by virtue of the agreement of the parties, whereas in the case of a judgment it follows from the powers of the court.”

 


[1] [1974] 1 Lloyd’s Rep 394

[2] [2009] EWHC 977 (Comm).  As the judge described it “This was simply a howler which was sought to be corrected.”  The writer represented the award creditor.

[3] Care should, however, be taken not to over compensate by looking too closely at the opportunity cost.  For remoteness reasons a claimant should not usually be compensated for the actual use they might have put the money to i.e. it would have purchased stock that has significantly increased in value.  The normal measure will be lost interest that the funds would have attracted.

[4] In general terms interest should run from when payment was due in the case of debts and from when the loss was suffered in the case of damages.  In civil law systems (such as France, Germany and Switzerland) as it is not sufficient merely for the payer to be in breach and the innocent party must give notice of default for interest to accrue, it will generally run from the date of the notice.  Practice Guideline 13 of the Guidelines for Arbitrators on how to approach the making of awards on interest, suggests that a mid-point is taken when losses are suffered over a period.

[5] English law gives the tribunal discretion: Arbitration Act 1996 s49.  In contrast Swiss law provides that compound interest cannot be awarded (Swiss Code of Obligations Articles 105 and 314).

[6] [2007] 3 WLR 354.

[7] [2014] EWHC 1884 (Comm)

[8] The Court allowed an appeal against an award that granted interest under the Act.  The Court was plainly very conscious not to extend domestic policy to international parties and not to dissuade international parties from choosing English law and seat.

[9] [1999] 2 All ER (Comm) 961, [2000] 1 Lloyd’s Rep 116.

[10] A generous rate at the time of writing such that it may be beneficial NOT to seek post-award interest and rely upon this or similar provisions.

[11] [2014] EWHC 875 (Comm)

[12] [2005] EWHC 2301 (Comm); [2005] 2 Lloyd’s Rep 728

[13] [1978] 2 Lloyd’s Rep 223, 275

[14] [2008] EWHC 1108 (Comm); [2009] 1 ALL ER (Comm) 667

Foreign Judgments – Enforceability – Fines and Penalties

In JSC VTB Bank v Skurikhin and others [2014], the court  considered an application for summary judgment on the basis that final, binding and conclusive judgments had been obtained in Russia and none of the defences raised had a real prospect of success or gave rise to any compelling reason for a trial.

VTB entered into 40 loan agreements with a group of companies known SAHO. The loans were secured by guarantees from D. The loans and guarantees were subject to Russian law and to the jurisdiction of the Russian courts. VTB brought proceedings in the Russian courts for sums due under the loan agreements, and under related guarantees.

VTB secured judgments against D in the Russian courts. In the context of enforcement proceedings in the English courts, VTB applied for summary judgment on the basis that (a) the Russian judgments were “final, binding and conclusive”, (b) D had never suggested that they were not, and (c) that, although the Russian judgments referred to “penalties or fines”, they were actually recoverable contractual remedies.

D defended the summary judgment application. Although it was accepted that, on their face, the Russian judgments were “final binding and conclusive”, he raised the following five objections to enforcement of those judgments which, he said, had a real prospect of succeeding at trial:

  • The judgments were obtained as part of a fraudulent scheme to obtain control of the SAHO companies.
  • It would be contrary to English public policy to enforce the judgments.
  • The judgments were obtained in a manner contrary to natural justice.
  • There were compelling reasons, under CPR 24.2(b), why the case should not be disposed of without a trial.
  • The court should not enforce judgments insofar as they included sums that amounted to penalties.
A foreign judgment for a definite sum which is final and conclusive on the merits is generally enforceable by claim and unimpeachable for error of law or fact. There are four material exceptions to the common law rule on the conclusiveness of foreign judgments. A judgment can be impeached in the following circumstances:
  • Fraud:  This is partly on the basis that a party should not be able to take advantage of his own wrongdoing (see, for example, Gelley v Shepherd [2013]), and also takes account of the principle that “fraud unravels all” (see HIH Casuallty v Chase Manhattan Bank [2003]). The principle extends to all types of fraudulent conduct. In principle, a foreign judgment could be impeached for fraud irrespective of whether new evidence was produced or whether the fraud was alleged in the foreign proceedings (see, for example, AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2012]) or whether the fraud was known and could have been raised in the foreign proceedings (Syal v Heyward [1948]). However, in such circumstances, the court would probably want to know why it had not been raised previously.
  • Public Policy. The ambit of this exception cannot be precisely defined and can change over time, as it is based on public policy. It can extend to a refusal to recognise or enforce judgments that offend universal principles of morality.
  • Natural Justice. See the principles clearly set out in Pemberton v Hughes [1899]. This will usually focus on the regularity of the proceedings, and will take account of the right to a fair trial.
  • Fine or a Penalty. A “penalty” in this sense means “a sum payable to the State, and not to a private claimant.  The question whether enforcement of a judgment can be refused on public policy grounds when the judgment is for exemplary, punitive or manifestly excessive damages is undecided. S.A. General Textiles v Sun & Sand Ltd [1978] and Lewis v Eliades [2004] are examples of cases where English courts have recognised the enforceability of awards of damages that would not have been awarded by an English court. However, an Australian decision (Schnabel v Lui [2002]) held that damages imposed to penalise a party would amount to a penalty even if they were not payable to the state.

The judge concluded that D had no prospect of successfully defending enforcement of the principal sums and contractual interest that was claimed, and granted summary judgment for those claims. However, he held that there was an arguable defence, on public policy grounds, to elements of the claims characterised as “penalties”.

The judge highlighted the need to remember that the fraud exemption is “carefully delineated” and should not be given an expansive application.  He concluded that the allegations of a fraudulent scheme on the part of VTB lacked reality, and was an artificial construct designed to avoid the consequences of the fact that SAHO had no defence to what were straightforward debt claims.

As to public policy and natural justice the judge noted that these argument relied upon the factual assumption based on the fraud exemption, and (a) it was difficult to see why enforcement could be contrary to public policy, unconscionable, unjust or immoral, if the fraud exception did not apply and (b) as there was no consistent and coherent explanation of why he had not advanced defences that were available to him, in the foreign proceedings there was no breach of natural justice.

D provided a breakdown of sums claimed under the Russian judgments (split into principal, interest and penalties). Approximately 20% of the sum claimed comprised “penalties” (that is, it did not represent actual loss or a genuine pre-estimate of loss and was over and above the contractual interest). These sums were described as “default interest” or “penalties” in translations of the Russian judgments, and represented sums incurred for being in default of payment obligations under the loans.

Referring to the conflicting decisions in S.A. General Textiles and Schnabel, the judge noted that the approach in Schnabel might lead to an argument that a judgment for exemplary damages was unenforceable. In his view, the question of whether a judgment for a very high rate of interest that had been awarded by a foreign court, was enforceable at common law should not be decided on the basis of the English court’s view of the appropriate rate of interest. Rather, the English court should consider whether the foreign court’s approach was contrary to domestic public policy.  He held that D had an arguable defence that sums of interest identified as “penalties” were not recoverable (being punitive in nature), albeit that they were not payable to the state.

The judgment highlights the uncertainty about the precise scope of the exception to the common law rule on the conclusiveness of foreign judgments for “fines or penalties”: in particular, whether damages imposed to penalise a party will constitute a penalty even where they are not payable to the state.

Court Injunctions in Aid of Arbitration

In Doosan Babcock Ltd v Commercializidora de Equipos y Materiales Mabe [2013], the Court considered the scope of section 44(3) of the Arbitration Act 1996. Section 44(3) empowers the courts in cases of urgency to make an order for interim relief for the purpose of preserving evidence or assets.  Crucially “assets” include contractual rights or ‘choses in action’.

Babcock had made an application for an injunction restraining the Respondent (known as Mabe) from making demands for payment under two “on demand” performance guarantees, on the ground that Mabe had failed to issue certain certificates as required by the contract. The significance was that guarantees were stated to expire upon the issuance of the certificates.

Babcok argued that it was entitled to interim relief on the grounds that:

  • any demand under the performance guarantees would be a breach of the contract, as Mabe had wrongfully failed to issue the certificates: had the certificates been issued, the guarantees would have expired;
  • if Mabe was entitled to make demands under the guarantees, its position would not be significantly prejudiced by the grant of an injunction for a short period, as there was some time left until the long-stop expiry date;
  • on the other hand, Babcok could not be adequately compensated in damages for the loss it would suffer if its application was dismissed.

Section 44(3) provides that: “If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.

Cetelem SA v Roust Holdings [2005]  held that section 44(3) could be used to preserve a contractual right if the effect of any order made pursuant to section 44(3) was to preserve the value of that right. A contractual right was not preserved if a failure to give effect to it would destroy much or all of its value (as would occur if Mabe did not issue the certificates and then demanded payment under the performance guarantees), the case was one where the Court was empowered to grant an injunction under section 44(3) provided that the requirements of urgency and necessity were also met. These requirements were met, as there was sufficient evidence to suggest that Mabe intended to make demands under the performance guarantees.

Under English law, a court will not take action to prevent a bank from paying out on an “on demand” bond or guarantee unless material fraud is established at a final trial or there is clear evidence of fraud at an interim stage in proceedings. However, a court can grant an interim injunction restraining a beneficiary from making a demand under such a bond or guarantee.

In deciding whether to grant interim relief, the court will consider the criteria established in the case of American Cyanamid Co v Ethicon Ltd [1975]; but the applicant must show that it has a “strong case” that, under the terms of the underlying contract to which the bond relates, the beneficiary is not entitled to make a demand on the bond. The Court made an order restraining Mabe from making demands under the performance guarantees for a defined period.

This is an example of applying established principles but it is an interesting case nevertheless.  The power under s44(3) is a useful one especially as, in appropriate cases, the Court can grant an interim injunction that, in effect, amounts to the final relief that a tribunal would be asked to adjudicate upon.  Cetelem makes clear that provided the injunction is a genuine interim injunction and court ensures, by obtaining appropriate undertakings from the claimant, that the substantive rights of the parties would ultimately be resolved by arbitration such an injunction may be granted.

Due Process Challenge Fails

In Primera Maritime (Hellas) Limited v Jiangsu Eastern Heavy Industry Co Ltd [2013], the Court rejected a challenge under section 68(2)(d) of the Arbitration Act 1996.  The claimants alleged that the tribunal had failed to deal with all the issues put to it and that this failure amounted to serious irregularity.

The claimants had alleged that the defendants were in anticipatory breach of certain shipbuilding contracts because they had refused to perform the contracts and had renounced them. The tribunal found that the claimants had subsequently affirmed the contracts and that as a result the defendants were not liable for breach.

The claimants applied under section 68(2)(d) of the Act alleging that the tribunal had failed to consider the issues put before them by the claimants, namely: (i) that the renunciation by the defendants was continuous; and (ii) in relation to the quantum of the claimants’ claim, that the claimants could have “flipped” the contracts (sold them on at a profit to third parties).

In rejecting the challenge to the award, the Court provided guidance as to the serious irregularity challenge under section 68 of the Act.

A successful challenge under section 68 requires an applicant to demonstrate that there has been a serious irregularity affecting the tribunal, the proceedings or the award. A serious irregularity means an irregularity which falls within one of the closed list of categories in section 68(2) which has caused or will cause the applicant substantial injustice.

Section 68 was “only to cover extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected.” The point of section 68 is not to examine whether the tribunal has “got it right” but whether there has been due process.

A challenge on the basis that the tribunal failed to “deal with all the issues that were put to it” may be pursued pursuant to sub-section 68(2)(d). The judge held that there were four questions for the court to consider in relation to section 68(2)(d):

  1. whether the relevant point or argument was an “issue” within the meaning of the sub-section;
  2. if so, whether the issue was “put” to the tribunal;
  3. if so, whether the tribunal failed to deal with it; and
  4. if so, whether that failure has caused or will cause substantial injustice.

Firstly, the judge doubted whether “continuing renunciation” and “repeated renunciation” had been submitted to the tribunal as separate issues. Even if “continuing renunciation” were a separate and narrower “issue”, this had clearly been dealt with by the tribunal. The conclusions reached by the tribunal were conclusions of fact that could not be reviewed by the court under section 68 or otherwise and the Court held that it was wrong in principle to look at the quality of the reasoning if the issue had been dealt with.

In relation to whether the claimants could have “flipped” the contracts, the Court found that this issue had been dealt with appropriately. The point was moot, given that the tribunal had found that the claimants had repudiated the contract in the first place. The judge found that even if there had been any point in dealing with the issue, the claimant would not have been able to demonstrate that the failure to deal with the issue had caused substantial injustice.

The increasing number of failed challenges to awards under section 68 of the Act has prompted changes to the Commercial Court Guide earlier this year. The sanction of indemnity cost consequences against a party bringing an unmeritorious challenge is now expressly mentioned.

Award set aside where conditions precedent not complied with – no contract

In Hyundai Merchant Marine v Americas Bulk Transport [2013] the Commercial Court has set aside an award under section 67 of the Arbitration Act 1996 on the basis that no binding contract had ever been concluded. Disputes under a charterparty were referred to arbitration by the owners (O). The charterers (C) objected to the jurisdiction of the tribunal on grounds (broadly) that:

  • A “subject” or condition precedent had not been complied with.
  • There was no consensus between the parties.

The tribunal ruled that all conditions precedent had been complied with and that a binding contract therefore existed.

C challenged the award. Relying on dicta in UR Power v Kuok Oils & Grains [2009], it argued that, unless the parties had made it clear that the condition precedent also governed the arbitration agreement, the court should presume that the arbitration agreement was unaffected by any failure of the subject that might affect the underlying charterparty.  That might be thought to be an uncontroversial proposition and the judge did not disagree with it – rather he held the facts were sufficiently different and disagreed in the result.

Any conditions applied to the arbitration clause just like any other, and there was no evidence that the parties intended the arbitration clause to have effect independently of the charterparty.  Assuming that a binding contract otherwise existed, the judge would have held (like the tribunal) that the conditions had been lifted.  However, having reviewed the evidence, the judge held that there was no consensus, and no contract had ever come into existence.

Although the English courts have traditionally said that a jurisdictional challenge must “directly impeach” the arbitration agreement, this case illustrates that a complete lack of consensus will affect the arbitration agreement just as it affects the host agreement. The judgment also illuminates the evidential difficulties that can face a court when conducting a rehearing of a jurisdictional issue: the issues turned in part upon the proper effect of telephone calls which took place five years ago, and the contemporaneous documents were sparse.

New Brussels Regulation

On 6 December 2012, the Economic and Monetary Affairs Council adopted the recast of the Brussels Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (44/2001).  This follows the endorsement of the recast Regulation by the European Parliament on 20 November 2012.

The key points of the new Regulation, as far as the treatment of the arbitration exception is concerned, are:

  • The retention of the arbitration exception in article 1(2)(d) .
  • The addition of a recital (recital 12) that clarifies the extent of the arbitration exception, including by:
    • expressly preserving the right of member states’ courts to rule on issues such as the validity of arbitration agreements;
    • stating that a ruling of a member state court on the validity of an arbitration agreement should not be subject to the rules on recognition and enforcement of the Regulation;
    • confirming that the New York Convention takes precedence over the Regulation and that, therefore, member states’ courts may recognise and enforce arbitral awards even if they are inconsistent with a judgment of another member state court (for example, where a member state court has decided that the arbitration agreement is not valid and has gone on to give judgment on the merits); and
    • clarifying that the Regulation does not apply to any action or ancillary proceedings relating to, in particular, the establishment of the tribunal, the arbitrators’ powers, the conduct of the arbitration, nor any action or judgment concerning the review, appeal, recognition or enforcement of the award.
  • A new article 84(1)(a), expressly stating that the Regulation shall not affect the application of the New York Convention.

The recast Regulation will be published in the Official Journal in the coming weeks and enter into force 20 days later.  It will start applying two years after its entry into force.

Enforcement of Awards against non-parties to the Arbitration Agreement

The New York Convention is one of the stated advantages of international arbitration over court proceedings. One of the cardinal principles of the Convention is the recognition, and as necessary enforcement, of ‘foreign’ awards in most countries in the world. That is enshrined in s.103 Arbitration Act 1996 which provides that Recognition or enforcement of a New York Convention award shall not be refused except in certain specified cases. One such exception to the recognition and enforcement regime is where there was no valid arbitration agreement: s103(2) (b). This provision was considered by the Supreme Court in Dallah Real Estate and Tourism Holding Company v Government of Pakistan [2010] UKSC 46 The case raised the issue of whether the government of Pakistan (P) could resist enforcement in England of a French ICC award, on the basis that it was not party to the arbitration agreement, even though the tribunal had previously ruled that P was bound by the agreement. The Court of Appeal had held that enforcement should be refused under section 103(2)(b) because, on the evidence, P was not bound by the arbitration agreement. Upholding the conclusions and reasoning of the Court of Appeal, the Supreme Court held that: 

  • The question of whether P was bound by the arbitration agreement fell to be determined by reference to all the evidence. The English court was not limited to reviewing the tribunal’s own ruling on this issue, and was not required to defer to the tribunal’s views. 
  • Dallah’s argument, that P was bound by the arbitration agreement as a matter of French law on the basis of the parties’ “common intention”, was rejected. On the evidence (including expert evidence of French law), P was not so bound. 
  • Although section 103 confers on the court a limited discretion to allow enforcement even if one of the statutory defences to enforcement is established, that discretion will not be exercised in favour of the award creditor where there was no valid binding arbitration agreement and the tribunal lacked jurisdiction to make the award.

The decision is to be welcomed for it must be correct that if a party had never conferred jurisdiction on a tribunal it ought not to face execution over its assets to enforce the award that ought never to have been made.

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