UK: IFI Update London, August/October 2008 - Part 2

Last Updated: 9 October 2008
Article by Andrew McKnight
This article is part of a series: Click IFI Update London, August/Octber 2008 - Part 1 for the previous article.

Securities lending transactions

A judge in the Federal Court of Australia has considered whether a securities lending transaction might constitute the giving of security by the party which "lent" the securities or, alternatively, whether the recipient of the securities might be taken to have charged them for performance of its obligation to transfer back to the lender equivalent securities. The case is relevant in England, and should be regarded as persuasive authority, because the Australian judge applied a classic analysis of English law in finding the answers to those questions. He also decided that the same result would have followed under the law in the USA.

The transaction between the parties took place under a Securities Lending and Borrowing Agreement that they had entered into, which largely followed the form of standard documentation that had been prepared by industry bodies, including the International Stock Lenders Association and its Australian counterpart. Under the transaction, the provider or lender of the securities (Party A) agreed to transfer the securities to the recipient or borrower of the securities (Party B) on the basis that Party B was under an obligation, at the date when required under the agreement (the retransfer date), to transfer to Party A equivalent securities to those originally transferred by Party A under the agreement (ie. equivalent as to type, nominal value, description and amount, with adjustments to take account of dividends, redemptions and such like that occurred in the meantime in relation to the securities). In consideration of the transfer of the original securities, and at the same time, Party B was to pay cash collateral to Party A, calculated by reference to the value of the original securities at the time they were transferred (although the cash collateral would not necessarily be the same value as that of the original securities). Party A was required to pay back to Party B the cash collateral on the re-transfer date and, in the meantime, to pay margin or a fee (ie. interest) on the amount of the cash collateral. There were provisions for topping up or down in the securities that had been transferred and of the cash collateral and the margin, depending on movements in market values. There were also provisions for netting and set-off of obligations in the event of a default or an insolvency affecting a party. The agreement also provided that the title to, and ownership of, any securities or cash collateral transferred under the agreement should be transferred in full, without any encumbrance or other impediment, so that full title and ownership would pass.

In pursuance of the agreement, Party A transferred a number of securities to Party B and received cash collateral in return (but in a lesser amount than the value of the securities that had been transferred). Party B had become insolvent (having transferred the securities to a third party which, it was argued, was on notice of Party A's rights and thereby bound by them). Party A sought to argue that it had retained an interest in the securities, as the transaction was really by way of a mortgage for an advance to it of the cash collateral. Alternatively, it sought to argue that in so far as Party B (or the third party which was on notice) retained the securities that had been transferred to it, Party B had charged them in favour of Party A to secure the performance of Party B's obligation to transfer equivalent securities at the re-transfer date. Party A failed to succeed on those arguments.

The judge applied the principles established in English cases such as Alderson v. White (1858) 2 De G & J 97, McEntire v. Crossley Bros Ltd [1895] AC 457, Helby v. Matthews [1895] AC 471 and Re George Inglefield Ltd [1933] 1 Ch 1, and the Privy Council decision in Chow Yoong Hong v. Choong Fah Rubber Manufactory [1962] AC 209. The character of the transaction must be gleaned from the language used in the documentation, rather than from its economic substance (which might be seen as a method by which Party A raised funds on the strength of the transfer of securities to Party B). In addition, he said that it was relevant to take into account the purpose of the transaction, which could only be achieved by transferring title in the securities to Party B, which would thereby be enabled to deal with them as it wished.

There had not been a mortgage of the securities originally transferred for a number of reasons. First, the agreement required that unencumbered title should pass on delivery of the securities and the cash collateral, so that Party B could use the securities for its own purposes. Secondly (and, it might be observed, crucially) there was no obligation to retransfer the original securities or cash collateral. Thirdly, the agreement provided for netting and set-off provisions which came into effect on default, as a means of mitigating credit risk, which converted delivery obligations into payment obligations. It would be inconsistent with the concept that Party A had retained an equitable interest in property, by virtue of a mortgage, if its position on default changed so that it became one for payment under a netting arrangement, as that would amount to an impermissible clogg on its equity of redemption under such a mortgage (note: this particular point might be analysed differently under English law because of the Financial Collateral Arrangements (No 2) Regs 2003 (SI 2003.3226)). The judge also commented, in relation to identifying the legal nature of the transactions, that it did not matter how one might characterise the type of market in which the transactions had taken place, such as whether they had taken place on a retail or an institutional market, nor was it relevant to consider the nature of those involved in such markets or this particular transaction.

The argument as to the charge in favour of Party A failed, principally because the obligation on Party B to transfer equivalent securities did not amount to an obligation to transfer exactly the same securities as those originally transferred to Party B. Party B was free to dispose of the original securities and merely had a contractual obligation, at the retransfer date, to then transfer securities which amounted to equivalent securities. It was not even possible to imply a term that they should be precisely the same securities and that Party B should hold on to them to satisfy its obligation, as the agreement worked perfectly well without such a term. Indeed, such an implied term would be inconsistent with the purpose of the agreement and the reason for Party B's acquisition of securities under it. Party B was to be free to do whatever if wished with the securities. Furthermore, Party A could not acquire any interest in the equivalent securities until the point at which they were appropriated to it under the agreement (Hoare v. Dresser (1859) 7 HLC 290, Citizens' Bank of Louisiana v. First National Bank of New Orleans (1873) LR 6 HL 352, Re Goldcorp Exchange Ltd [1995] 1 AC 74).

Beaconwood Securities Pty Ltd v. Australia & New Zealand Banking Group Ltd [2008] FCA 594 (Finkelstein J 2/5/2008).

Authority to bind a principal to a contractual obligation

A case has come before Andrew Smith J in the High Court which illustrates the need to ensure that a person or entity which purports to act on behalf of a principal has the authority to do so. The case concerned a refund guarantee purportedly issued by a bank in the Ukraine. The guarantee was expressed to be governed by English law and was in favour of a foreign beneficiary. The guarantee was signed and issued on behalf of the bank by one of its employees, who was the head of one of its regional departments. It was held that the employee lacked any actual authority expressly given to him to sign and issue the guarantee, nor could any authority be implied from the articles of association of the bank. It was also held that he did not have any ostensible authority to sign and issue the guarantee on behalf of the bank, as it was not within the usual scope of authority of an employee in his position to enter into a large commitment of the type represented by the guarantee. Nor could it be said that the bank had held out the employee as having authority to issue the guarantee on its behalf.

There was no discussion in the decision of the conflict of laws issues that arise when considering this type of question. It was simply accepted by the parties that the issue in the case as to actual authority should be decided in accordance with Ukrainian law and that the issue as to ostensible authority and holding out should be decided in accordance with English law.

The generally accepted position under English conflict of laws rules is that where authority is conferred by a contract between the principal and agent, then the existence and scope of that authority should be governed by the law that governs the contract (see Dicey, Morris & Collins, The Conflict of Laws (14th Edn) at paras 33R-428 to 33-445). It has been said that the issue as to whether an agent had apparent or ostensible authority to enter into a contract with a third party on behalf of his principal will be governed by the governing law of the contract purportedly entered into by the agent with the third party (see Marubeni Hong Kong & South China Ltd v. The Mongolian Government [2004] EWHC 472 (Comm), [2004] 2 Lloyd's Rep 198).

It is submitted, however, that where it is argued that an officer of a corporation or other type of entity has authority conferred upon him by virtue of his office in pursuance of the constitutional documents of the corporation or entity, that matter would be governed by the law of the place of incorporation or establishment of the corporation or entity, which would also include the issue as to whether his authority could be amplified or modified by contract (see, for instance, the approach that was taken in Base Metal Trading Ltd v. Shamurin [2004] EWCA Civ 1316, [2005] 1 WLR 1157).

The moral of the story is that a signatory's authority should be confirmed at the time the contract is made, so as to ensure that he had actual authority to contract on behalf of his principal. This is best done by obtaining a legal opinion from duly qualified lawyers who have been able to check the position.

Sea Emerald SA v. Prominvestbank [2008] EWHC 1979 (Comm) (Andrew Smith J 11/8/2008).

Choice of jurisdiction clauses

Two cases have come before the High Court involving transactions which were comprised in a number of contracts, where the contracts variously contained inconsistent and differing choices of jurisdiction in relation to disputes arising under them. The question arose as to which court had jurisdiction to resolve disputes that had arisen under the transactions. In the first of the cases, some of the contracts conferred exclusive jurisdiction in favour of the English courts, whilst the other contracts conferred non-exclusive jurisdiction on the New York courts. In the other case, one contract contained an exclusive jurisdiction clause in favour of the Jersey courts whilst the other contracts, which were later in point of time, conferred exclusive jurisdiction in favour of the English courts. Although the judgment in the later case does not refer to the earlier case, a similar approach was taken in the two cases.

Despite the advantages of having a "one stop shop" (as mentioned in Fiona Trust & Holding Corp. v. Privalov [2007] UKHL 40, [2008] 1 Lloyd's Rep 254), it was held that the approach in cases such as these was to identify the contract with which the dispute was most closely related and then to apply the jurisdiction provision in that contract to determine which court should hear the dispute. That could mean that separate proceedings would be on foot in each of the relevant jurisdictions, with each jurisdiction dealing with the dispute, or the aspects of a dispute, that were allocated to it under the relevant contracts. In a situation where exclusive jurisdiction was conferred on the English courts under one contract and nonexclusive jurisdiction was conferred on different courts under another contract, it would be illogical to say that the same matter could fall within the scope of both the exclusive jurisdiction clause and the non-exclusive jurisdiction clause. To the extent that it fell within the latter, it was improbable that it would also fall within the former (see Credit Suisse First Boston (Europe) Ltd v. MLC (Bermuda) Ltd [1999] 1 Lloyd's Rep 767).

Except where the defendant is domiciled in England, in which case other considerations would apply (see Owusu v. Jackson Case C-281/02, [2005] QB 801), an English court would only have exclusive jurisdiction conferred upon it by Art. 23 of the EC Regulation on jurisdiction and judgments (EC 44/2001 OJ L 12/1 16/1/2001) if the dispute fell within the scope of the submission to jurisdiction. To the extent that the dispute more properly fell within the ambit of the jurisdiction conferred under a separate contract on a different court, an English court was not obliged by Art. 23 to assume jurisdiction and it could determine that the other court was the more suitable forum to determine the dispute.

These cases serve to illustrate the good sense of ensuring that the same courts are specified as having jurisdiction to determine disputes in each of the contracts within an overall transaction. Sometimes it may not be realistic to avoid referring to different courts as, for instance, where some of the documentation deals with rights in rem which might best be adjudicated upon by the courts that are locally situated in the place of the relevant property. In such a case, it is preferable that the submission to the jurisdiction of the local court is specified as being non-exclusive, with an alternative submission to the courts specified in the other documentation, so as to leave open the possibility that the whole dispute might be heard in one jurisdiction.

In situations where it is desired to confer jurisdiction upon the English courts, however, it should also be borne in mind that an English court will not adjudicate upon matters concerning the ownership or possession of, or title to, foreign land or certain types of other asset (see British South Africa Co. v. Companhia de Mocambique [1893] AC 902, Hesperides Hotels Ltd v. Aegean Turkish Holidays Ltd [1979] AC 508). There are some very limited exceptions to that principle, such as where an English court may be prepared to enforce a contract relating to foreign land where the court is acting in personam (see Penn v. Lord Baltimore (1750) 1 Ves Sen 444) and claims in tort where the principal enquiry does not concern title in the land (see S. 30(1) of the Civil Jurisdiction and Judgments Act 1982). When considering issues of jurisdiction, it is also necessary to remember that the EC Regulation on jurisdiction and judgments (EC 44/2001 OJ L12/1 16/1/2001) confers exclusive jurisdiction in certain situations upon particular courts, irrespective of any agreement as to jurisdiction between the parties (see, for instance, Art. 23(5) of the Regulation, which preserves the exclusive jurisdiction that arises under Arts 13 (insurance matters), 17 (consumer contracts), 21 (employment contracts) and 22 (immovable property, companies, the effect of public registers and intellectual property).

UBS AG v. HSH Nordbank AG [2008] EWHC 1529 (Comm) (Walker J 4/7/2008).

ACP Capital Ltd v. IFR Capital PLC [2008] EWHC 1627 (Comm) (Beatson J 11/7/2008).

State immunity from enforcement against assets

S. 13(2) of the State Immunity Act 1978 provides (subject to the exceptions mentioned below) that the courts in the UK may not make mandatory orders by way of injunction or specific performance against a foreign state and that a judgment or arbitral award may not be enforced against the property of a state. There are two exceptions to the limitations contained in S. 13(2). The first, which is contained in S. 13(3), is that the state may consent, either in a limited or a general manner, to the making of such orders or to such enforcement against its property. The consent may be contemporaneous or contained in a prior agreement. S. 13(5) provides that the head of the state's diplomatic mission is deemed to have authority to give the consent. However, consent is not to be implied simply because the state has agreed to submit the adjudication of a dispute to the jurisdiction of the courts. Secondly, S. 13(4) provides (subject to a qualification concerning states which are parties to the European Convention on State Immunity) that enforcement may be taken against any of a state's property "which is for the time being in use or intended for use for commercial purposes". S. 13(5) also provides that a certificate provided by the head of the state's diplomatic mission, to the effect that any property of a state is not in use or intended for use for commercial purposes, is to be accepted as prima facie of that fact (unless the contrary is proved).

Burton J in the High Court has considered the two exceptions mentioned above, in a case involving the enforcement of an ICC arbitral award against the Republic of Chad; specifically, the enforcement of the award against the balance in a bank account (the "relevant account") maintained by the Republic with a commercial bank in England. By way of background, a foreign arbitral award against a state may be recognised and enforced in the UK (in the sense of being treated as a valid and binding determination) by virtue of S. 9 of the 1978 Act, taken in combination with Part III of the Arbitration Act 1996, which gives effect to the New York Convention of 1958 (see, further, Svenska Petroleum Exploration AB v. Government of the Republic of Lithuania [2006] EWCA Civ 1529, [2006] QB 886).

Property in use or intended for use for commercial purposes

In relation to the second of the exceptions mentioned above, his Lordship considered whether the balance on the relevant account constituted property which was in use or intended for use for a commercial purpose. S. 17(1) of the 1978 Act provides that,
"'Commercial purposes' means purposes of such transactions or activities as are mentioned in S. 3(3)...". That section, in turn, provides that,

"'Commercial transaction' means:

  1. any contract for the supply of goods or services; (
  2. any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation, and
  3. any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority;

[but does not include a contract of employment]."

His Lordship noted that the qualification in para. (c) of that definition (ie. that the transaction or activity in which the state was engaged would not be treated as a commercial transaction if it was carried out in pursuance of sovereign authority) did not apply to either para. (a) or para. (b), which meant that the transactions described in paras (a) and (b) would fall to be considered as commercial transactions even if they were entered into or engaged in by the state in the exercise of sovereign authority (see Lord Diplock in Alcom Ltd v. Republic of Columbia [1984] 1 AC 580, at 603). His Lordship also noted that the provision of finance within para. (b) might be either by or to the state, that is, that a transaction where the state is providing finance is just as much a commercial transaction as would be the case where the finance was provided to the state. A similar approach could also be taken with respect to para. (a).

The time as at which the relevant purpose is to be ascertained is the date when the process for enforcement against the property is issued (see AIC Ltd v. The Federal Government of Nigeria [2003] EWHC 1357 (QB), at [56]).

The evidence showed that the relevant account was established as one of a series of accounts that were opened by the Republic with the commercial bank in London pursuant to requirements associated with loan finance provided to the Republic by the World Bank and the European Investment Bank. The scheme of the accounts was that there was an overall receipts account to which all proceeds of oil revenues due to the state (arising on the sale of oil extracted in the state and use of a pipeline which traversed the territory of the state) were to be paid. Periodically, the balance on that account was distributed to other accounts, three of which concerned debt service due to the World Bank and the EIB. A fourth account was to establish a fund for the benefit of future generations of the state. The final account, which was the relevant account with which the judgment was concerned, was intended to receive the remainder of the funds, which were then available for use by the Republic as it wished. At the relevant date, that account had a credit balance of approx. US$44m.

On the basis of that evidence, Burton J held that the relevant account was established and continued to be operated for the purposes of a commercial transaction, namely, to receive part of the proceeds of a contract for the supply of goods or services and as part of a system that had been established for the purposes of servicing the loans made to the Republic by the World Bank and the EIB. His Lordship came to this conclusion despite a certificate that had been provided by the Republic's ambassador that the account was used for sovereign purposes, because the evidence disproved that assertion. S. 13(5) of the 1978 Act only provides that such a certificate should be treated as prima facie evidence, which means that its effect may be overturned by sufficient evidence to the contrary (for cases where such a certificate was effective, see AIC Ltd v. The Federal Government of Nigeria [2003] EWHC 1357 (QB) and AIG Capital Partners Inc. v. Republic of Kazakhstan [2005] EWHC 2239, [2006] 1 WLR 1420).

In arriving at the conclusion that the account (and therefore the credit balance on it) was used or intended to be used for commercial purposes, his Lordship distinguished the position in this case from that in Alcom Ltd v. Republic of Columbia [1984] 1 AC 580. In that case, it had been held that a bank account which was held partly for commercial purposes and partly for sovereign or diplomatic purposes should be treated as one asset which could not be divided and so should be treated as immune from enforcement action. That was not the case here, as there was no evidence that any part of the relevant account was intended to be used for a sovereign or diplomatic purpose. The funds that might have been intended to be used for a sovereign purpose, namely those set aside for the benefit of future generations, were held in a separate account against which enforcement was not sought (in AIG Capital Partners Inc. v. Republic of Kazakhstan [2005] EWHC 2239, [2006] 1 WLR 1420 the establishment and running of a fund for the benefit of future generations was treated as being of a sovereign character).

It is worth noting at this point that the provisions of the 1978 Act concerning the assets of a central bank of other monetary authority of a state are different from those outlined above. S. 14(4) of the Act, in effect, provides that such assets should be treated for all purposes as immune from enforcement action, unless there has been a consent to enforcement. For this reason, a state would be well advised to arrange that accounts with banks in the UK should be held by its central bank, rather than by it directly. Even if the funds in such an account are really held by the central bank on behalf of the state, the immunity will apply (see AIC Ltd v. The Federal Government of Nigeria [2003] EWHC 1357 (QB) and AIG Capital Partners Inc. v. Republic of Kazakhstan [2005] EWHC 2239, [2006] 1 WLR 1420).

Consent to enforcement

The other situation mentioned above, in which enforcement may take place, is where the state has consented to enforcement against its property within the UK. The consent may be general or limited to one or more particular assets and it may be given prospectively or at the time enforcement is sought. As to the approach to construction of a consent, see Waller LJ in Sabah Shipyard (Pakistan) Ltd v. Islamic Republic of Pakistan [2002] EWCA Civ 1643, [2003] 2 Lloyd's Rep 571, at [25] – [26].

In this case, it was argued that the Republic had consented to enforcement against the relevant account by virtue of its submission to ICC arbitration in accordance with the ICC Rules. Art. 28(6) of those Rules provides as follows:

"Every Award shall be binding on the parties. By submitting the dispute to arbitration under these Rules, the parties undertake to carry out any Award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made."

It might be interpolated at this stage that, presumably, the article should refer to a deemed waiver of a party's right to "object to" or "assert any defence to" any form of recourse.

In the end, Burton J did not come to a concluded view on this argument, having reviewed jurisprudence in both France and the USA, and some academic writings, which he found not to be conclusive either way on the point. From a practical viewpoint, a state (or a central bank of other monetary authority of a state) which is minded to agree to a submission to arbitration should check carefully to consider if the consequence of doing so will be that an arbitral award against it could be enforced against its assets, wherever they might be situated. On the other hand, parties which have dealings with a state or its central bank might like to bear the point in mind in case there might be an advantage to be gained in obtaining a submission by the state (or the central bank) to arbitration.

Orascom Telecom Holdings SAE v. The Republic of Chad [2008] EWHC 1841 (Comm) (Burton J 29/7/2008).

Recognition and enforcement of a foreign arbitral award

Aikens J in the High Court has reviewed the right of a defendant against whom a foreign arbitral award has been made to challenge the validity of the award in proceedings in England for the recognition and enforcement of the award, on the ground that the defendant was not bound by it because it was not a party to a written agreement to submit the matter in dispute to arbitration. The case concerned an award made by an arbitral tribunal under ICC rules, where the seat of the arbitration was Paris. The claimant was a commercial company established in Saudi Arabia and the defendant was the Ministry of Religious Affairs in the Government of Pakistan. It was sought to enforce the award before the English courts under Part III of the Arbitration Act 1996 (Ss 101 to 104), which concerns the recognition and enforcement of foreign arbitral awards pursuant to the New York Convention 1958. The arbitral tribunal had decided that the defendant had agreed to submit the dispute to arbitration. It then decided the substantive matter in dispute against the defendant. The issue of sovereign immunity did not arise in the case, but enforcement of such an award against a foreign state is permitted by S. 9 of the State Immunity Act 1978 (see Svenska Petroleum Exploration AB v. Government of the Republic of Lithuania [2006] EWCA Civ 1529, [2006] QB 886).

S. 102(1)(b) of the 1996 Act requires that the claimant which seeks recognition and enforcement of the foreign award should produce to the court "the original arbitration agreement or a duly certified copy of it". Ss 103(2) and (3) then set forth various grounds on which recognition and enforcement of an award might be refused. S. 103(2)(b) of the Act provides that the court may refuse to recognise or enforce the award if the party against whom it is sought to invoke the award proves 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." In the present case, as there was no choice of law to govern the alleged arbitration agreement, the relevant law for the purposes of S. 103(2)(b) was that of France, being the seat of the arbitration and where the award was made.

Aikens J held that the relevant agreement for the purposes of S. 103(2)(b) would be the original agreement between the parties to submit future disputes to arbitration, as distinct from the separate reference to arbitration that the parties would sign once a dispute had arisen which they then sought to resolve by arbitration in accordance with their original agreement. He arrived at this conclusion by referring to the definition of "arbitration agreement" in S. 6(1) of the Act (which encompasses both the original agreement and the reference), when taken in the context of S. 103 and the meaning given to the phrase by the New York Convention. By contrast, the reference to a "submission to arbitration" in S. 103(2)(d) was to the later reference to arbitration and not the original agreement. Although it was not relevant to this case, it should, nonetheless, be possible to construe the reference in S. 103(2)(b) as intending to catch an alleged ad hoc agreement which the parties entered into to refer a particular dispute to arbitration, where there was no prior agreement between them which envisaged that disputes which might subsequently arise out of their relationship would be referred to arbitration.

His Lordship then decided that S. 103(2)(b) applied to cover the situation where the defendant asserted that it was not a party to or bound by the alleged arbitration agreement, and not just matters relating to the formal validity of the agreement (eg. whether it had to be in a particular form, how it should be signed and so on). In coming to this conclusion, he relied upon the decision of Mance LJ in Dardana Ltd v. Yukos Oil Co. and Petroalliance Services Co. Ltd [2002] EWCA Civ 543, [2002] 2 Lloyd's Rep 326, which Aikens J discussed in an Annex to his judgment. In the Dardana case, Mance LJ had distinguished between the process of producing to the court the alleged agreement for arbitration under S. 102 of the Act and the procedure which then followed under S. 103(2)(b) of the Act, by virtue of which the defendant was given the right to challenge the validity of that agreement.

Aikens J said that the reference in S. 103(2)(b) to "the law of the country where the award was made" was to the substantive law of that country, without reference to its conflict of laws rules (ie. the doctrine of renvoi would not apply). His Lordship said that the same approach applied in the case of domestic awards by virtue of S. 46(2) of the Act, where the parties had chosen the relevant governing law. It should follow from this that, for the purposes of S. 103(2)(b), in cases where there had been an express choice of law, it would be the substantive rules of the chosen law and not its conflict of laws rules that would apply. It is interesting to note that, on the basis of the expert evidence, his Lordship nonetheless held that under French substantive law (rather than under its conflict of laws principles), account would be taken of the law of the place of establishment or existence of an entity as to its constitutive powers and the methods by which it might be bound.

In this case, that involved reference to matters of the law of Pakistan.

The scope of the enquiry under S. 103(2) was by way of a full hearing of all the evidence that the relevant party wished to adduce to persuade the court to refuse recognition and enforcement of the award. This was because the burden was on that party to persuade the court. The matters to be adduced were all matters of fact, including as to any issues of foreign law. This meant that the court was not simply reviewing the decision of the arbitral tribunal. On the basis of the evidence adduced by the defendant, Aikens J decided that it had not agreed to be bound by the alleged arbitration agreement.

It was argued that the defendant was estopped from asserting that it was not bound by the alleged arbitration agreement because that matter had already been decided against it by the arbitral tribunal. Accordingly, an issue estoppel had arisen against the defendant, the issue having been decided by a competent arbitral tribunal, which meant that the defendant could not relitigate the issue by raising it again before the English court under S. 103(2)(b). The decision of the Court of Appeal in Svenska Petroleum Exploration AB v. Government of the Republic of Lithuania [2006] EWCA Civ 1529, [2006] QB 886 was said to support this view. Aikens J rejected the argument. He said that in the Svenska case, the English courts had decided that the defendant had agreed to be bound by the agreement to arbitration. Accordingly, the English courts would view the arbitral tribunal appointed pursuant to that agreement as being competent to decide matters concerning the scope of its own jurisdiction, including whether the defendant had agreed to arbitration of the dispute that had arisen and it would be bound by that decision. In the present case, however, the court had to decide the preliminary issue as to whether the defendant had agreed to be bound under a valid agreement to arbitrate. His Lordship had decided that the defendant had not agreed to be bound, so there was not a valid agreement to arbitrate, with the result that the English court would regard the tribunal as being without jurisdiction. The decision of the arbitral tribunal did not, in these circumstances, give rise to an issue estoppel. His Lordship also said that his conclusion was unaffected by the fact that the defendant had failed to challenge the validity of the arbitral tribunal's decision in the French courts, which were the courts having supervisory jurisdiction over the arbitration because the arbitration was seated in France.

Aikens J also rejected an argument to the effect that he retained a discretion at large to decide that he should recognise and enforce the arbitral award notwithstanding that the defendant had been successful in making out its case under S. 103(2)(b). The argument was raised because S. 103(2) uses the word "may" in terms of the court deciding whether the award should be recognised and enforced, which implies that the court has a discretion in the matter. His Lordship said that whilst in theory there was a discretion, it was not an open discretion (see Mance LJ in the Dardana case). May LJ (supported by Lord Phillips LCJ) had said in Ajay Kanoria v. Guinness [2006] EWCA Civ 222, [2006] 1 Lloyd's Rep 701 that if one of the grounds in Ss 103(2) or (3) had been made out then there was something unsound about the arbitration proceedings and the court was unlikely to order recognition and enforcement of the resulting award. In the Dardana case, Mance LJ had said that the court might still enforce an award in the exercise of its discretion where the parties had agreed by contract not to raise the point or where some form of estoppel might validly apply.

Following the approach set out above, Aikens J held that the defendant had proved that it was not a party to an agreement to arbitrate, thus there was not a valid agreement which bound it and so the award purportedly made against the defendant would not be recognised or enforced in England.

Dallah Real Estate and Tourism Holding Co. v. The Ministry of Religious Affairs, Government of Pakistan [2008] EWHC 1901 (Comm) (Aikens J 1/8/2008).

Appointment of administrators

Patten J in the High Court has held that where the directors of a company wished to petition the court for the appointment of an administrator and creditors representing a significant part of the company's indebtedness had petitioned the court for the appointment of a different administrator, the court should resolve the matter in favour of the wishes of the creditors concerned, including in a case where the secured and other creditors remained neutral on the issue.

The Oracle (North West) Ltd v. Pinnacle Services (UK) Ltd [2008] EWHC 1920 (Ch) (Patten J 11/7/2008).

To view part 1 of this article please click on the previous page link below.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

This article is part of a series: Click IFI Update London, August/Octber 2008 - Part 1 for the previous article.
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.