It is unusual to see the courts of England and Wales refusing to enforce an award of an international arbitral tribunal. In a recent decision, the Court of Appeal re-confirmed an earlier Commercial Court decision on the enforceability of an ICC arbitral award. The Court of Appeal found that the award was invalid under section 103 of the Arbitration Act 1996 (the Act), which specifies the grounds on which recognition or enforcement of an international arbitral award may be refused.

Please click here to read our earlier Law-Now on the Commercial Court's decision.

The Appeal

Dallah and the Government of Pakistan had submitted a dispute over a construction agreement to ICC arbitration, in accordance with an arbitration clause contained in that agreement. The ICC tribunal found in Dallah's favour and awarded damages. Dallah sought to enforce that award in England.

Pakistan challenged Dallah's right to enforce the award of the ICC tribunal in England, on the ground that Pakistan was not a party to the arbitration agreement (section 103(2)(b) of the Act). The parties had failed to specify what law the construction agreement – including, crucially, the arbitration clause – would be subject to. In the absence such a provision, the parties had later agreed that French law should determine the validity of the arbitration clause, since France was the country where the final award was made. Applying French law, the Commercial Court did not consider Pakistan to be a party to the arbitration agreement, and refused permission to enforce the award.

Dallah appealed the Commercial Court's decision, arguing that the arbitration agreement was valid, and that even if the arbitration agreement was not valid, the Commercial Court should have exercised its discretion to allow enforcement of the award in England. It also argued that Pakistan was estopped (prevented) from denying that the arbitration agreement was valid by waiving its right to challenge the award in France. The Court of Appeal rejected these arguments:

  1. The Commercial Court had properly applied the principles of French law to the facts before it, and was correct in concluding that the subjective intention of the parties was that Pakistan should not be bound by the arbitration clause.
  2. If Pakistan and Dallah were not parties to the agreement to arbitrate, then the ICC tribunal was not a court of competent jurisdiction to consider any estoppel.
  3. The wording of section 103(2)(b) of the Act ("enforcement of the award may be refused") gave the court some discretion to permit enforcement even where one of the grounds for refusal had been established, but it should not be exercised in circumstances where Pakistan had never been party to the arbitration agreement.

Impact Of The Decision

The Court of Appeal's decision is important in two respects.

  1. Importance of properly drafted governing law and arbitration clauses. It is important to include properly drafted governing law and arbitration clauses in agreements. The inclusion of such clauses ensures a degree of certainty in how any disputes that arise will be resolved. A failure to include such clauses can lead to unexpected and undesirable results.
  2. Enforcement of international arbitration awards. It is unusual to see the courts of England and Wales refusing to enforce an award of an international arbitral tribunal. One of the benefits of international arbitration is the mutual recognition by states party to the New York Convention of arbitration agreements, and the ability for arbitral awards to be enforced in jurisdictions outside of the country where the award was made. In the majority of cases, agreements to arbitrate are recognised and awards are enforced. International arbitration remains, in most cases, the preferred method of cross-border dispute resolution. However, as this case shows, the core elements of an agreement to arbitrate must all be present to avoid problems with enforcement.

For further information about international arbitration, please click here to view the CMS Guide to Arbitration.

Further reading: Dallah Real Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan [2009] EWCA Civ 755

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 10/08/2009.