Agreements – France – International Chamber of Commerce – Non-parties – Pakistan – Seat of arbitration

Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan: QBD (Comm) (Mr Justice Aikens): 1 August 2008

The applicant ministry of the Pakistan government (P) applied to set aside an ex parte order that the respondent company (D) be entitled to enforce an arbitration award made against P in France.

In December 1994, P had approved a proposal to establish a trust for mobilising savings from intending Hajj pilgrims. D provided services to pilgrims visiting Mecca. P and D entered into a memorandum of understanding where D agreed to acquire land within Mecca and to build houses for lease to P. P subsequently established the trust by promulgating an ordinance. The trust was a statutory corporation with a separate legal personality to P. The trust entered into an agreement with D concerning the building of the houses. P was not named as a party to the agreement, nor did it sign it. The agreement stated that it was subject to arbitration under the rules of the International Chamber of Commerce in France. P failed to renew the ordinance in December 1996 and the trust ceased to exist. In January 1997, the trust nevertheless attempted to bring proceedings in Islamabad against D for repudiatory breach of contract, but the proceedings aborted when the court pronounced that the trust no longer existed. In May 1998, D commenced arbitration proceedings against P, but P had already started proceedings against D in Islamabad. D unsuccessfully tried to stay the Islamabad proceedings by relying on the arbitration provisions in the agreement and by maintaining that P was a party to that agreement. A judge found that P was not a signatory to the agreement. The arbitration in the International Chamber of Commerce continued. It was common ground that, for the purposes of section 103(2)(b) of the Arbitration Act 1996, there was no ‘indication’ as to which law the parties had ‘subjected the arbitration agreement’ and the seat of the arbitration was determined to be France. Meanwhile, P obtained a court ruling in Pakistan that it was not a party to the arbitration agreement and it refused to participate in the arbitration proceedings. At the hearing, P was found to be bound by the arbitration agreement and the final award was made in D’s favour. The instant court was required to construe section 103(2)(b) of the act, to define the scope of the enquiry to be performed when a party challenged the recognition and enforcement of an award under that section, and to determine the ­principles on which it was decided that P was bound by the agreement.

Held: (1) The structure of section 103(2)(b) of the act reflected a distinction between the arbitration agreement on the one hand and the individual reference to arbitration once a dispute had arisen on the other. The phrase ‘arbitration agreement’, correctly construed, referred to the agreement to refer future disputes to arbitration and not to an agreement between the parties to refer a particular dispute to arbitration. The phrase ‘the arbitration agreement was not valid under...’ had to be construed as including the issue of whether the party against whom the award was to be invoked was bound by the arbitration clause that gave the arbitrators their jurisdiction to make the award, Dardana Ltd v Yukos Oil Co (No1) [2002] EWCA Civ 543, [2002] 1 All ER (Comm) 819 applied. A party that alleged it had never agreed to arbitrate a dispute had to have the right to argue that point in the courts of countries where it was sought to enforce the award. The reference to ‘the law of the country where the award was made’ had to be directed at that country’s substantive law rules, rather than its conflicts of law rules. In the instant case, that meant having regard to French substantive law and Pakistani law.

(2) If a party challenged the recognition and enforcement of an award under section 103(2)(b), it had to prove, on a balance of probabilities, one of the matters set out within the provision. Those matters were all matters of fact. Subject to issue estoppel, which might apply to prevent a party re-fighting issues of fact that had already been specifically argued and decided, the statutory wording of section 103(2)(b) required a party to be entitled to ask the court to reconsider all relevant evidence on the facts, including foreign law, as well as to apply relevant English law.

(3) The court considered French law principles for determining whether P was bound by the arbitration agreement and concluded on the facts and evidence that P was not so bound. Once P had demonstrated that it was not bound in accordance with French law principles, there was nothing more it needed to prove to satisfy the test in section 103(2)(b).

(4) Article 173 of the Constitution of Pakistan 1973 stated that the State of Pakistan could only validly enter into and be bound by an agreement if the agreement was made in the name of the president and was signed by a duly authorised person. The instant agreement had not been signed by the Pakistani president. It was not necessary to decide whether that provision was mandatory or directory, but even if it was only directory, it was a powerful factor against a conclusion that the common subjective intention of the parties had been that P should be bound by the agreement.

(5) There was no issue estoppel preventing P from asserting that the arbitration agreement was not valid as between itself and D under French law, and there was no other reason to exercise a discretion to recognise the final award. Accordingly, the ex parte order requiring P to pay compensation to D was set aside.

Application granted.

Hilary Heilbron QC, Klaus Reichert (instructed by Kearns & Co) for the claimant; Tony Landau QC, Patrick Augenieux (instructed by Watson Farley & Williams) for the defendant.