Ashurst Singapore September 2011

Dallah -v- Pakistan

by Ben Giaretta
On 3 November 2010 the UK Supreme Court delivered its decision in Dallah -vPakistan1. The Supreme Court refused to enforce a French ICC award against assets of the Government of Pakistan in England, on the grounds that the Government was not a party to the relevant arbitration agreement. The case has prompted a great deal of debate, in particular because the French Court of Appeal subsequently ruled (in an application challenging the award in France) that the Government was a party to the arbitration agreement. Background
Dallah Real Estate and Tourism Holding Co (Dallah) provides accommodation and other services to Muslims performing the Hajj. On 24 July 1995 it signed a memorandum of understanding (MoU) with the Government of Pakistan (Government), under which it agreed to provide accommodation for pilgrims from Pakistan. It proceeded to acquire land in Mecca for this purpose. Subsequently on 10 September 1996 the MoU was formalised in an agreement signed by Dallah and the Awami Hajj Trust (Agreement). The Awami Hajj Trust had been set up by the Government as a vehicle for the deal, under a temporary Ordinance. In November 1996, however, there was a change of government in Pakistan. The new administration (whether intentionally or by oversight) allowed the Ordinance to lapse, with the result that the Awami Hajj Trust ceased to exist. The Government also informed Dallah that the Agreement had been discharged. In May 1998 Dallah started an ICC arbitration in Paris against the Government. The Government denied the tribunal had jurisdiction over it because it was not a party to the Agreement, including the arbitration clause therein. However, by a partial award in June 2001 the tribunal decided that it did have jurisdiction, and in June 2006 it awarded Dallah damages of over US$20m. Dallah tried to enforce the award in the English High Court but the Government successfully argued that it was not party to the Agreement. After that decision was upheld by the Court of Appeal, Dallah appealed to the Supreme Court.

Decision of the Supreme Court

The Supreme Court dismissed Dallah's appeal against the decision of the Court of Appeal. Competence-competence By the principle of competence-competence a tribunal can determine its own jurisdiction. The Supreme Court acknowledged that principle, but it observed that the courts have the final say on the matter. It also held that while courts at the place of enforcement generally only conduct a limited review of awards in line with the pro-enforcement policy of the New York Convention, that does not override the fundamental right to resist enforcement on the basis of not being party to the arbitration agreement. The Supreme Court needed to make an independent determination of that issue and "the findings of fact made by the arbitrators and their view of the law can in no sense bind the court."2 Non-signatories The Agreement did not specify a law governing the arbitration agreement. The Supreme Court therefore decided that French law should apply to the question of whether the Government was a party, since this was the law of the country where the award was made. Under French law there needed to be a common intention that the Government would be bound by the arbitration clause. The existence of a common intention would be determined by the parties' actions during the negotiation, performance and termination of the Agreement. The Supreme Court focused on the change in the transaction between the MoU (signed by the Government) and the Agreement (signed by the Trust). Also, the Government was named in the Agreement,

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but only as a guarantor of loans to the Trust. The Supreme Court decided that these factors meant there was no common intention between the parties for the Government to be a party to the arbitration agreement.

the award in France. These conflicting decisions might undermine the principle of uniform treatment of arbitral awards under the New York Convention. However, the French and English courts were addressing different applications, while the case underlines the fact that enforcement involves the fundamental sovereignty of each court over assets in its jurisdiction. International arbitration by definition embraces differing legal cultures and Dallah illustrates some of the myriad issues which they can cause. It also highlights the risks involved with multi-party situations, and emphasises the need to ensure that all relevant parties to a transaction are parties to the arbitration agreement.
Notes: 1 Dallah Real Estate and Tourism Holding Company -v- The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46. 2 Per Lord Saville, at paragraph 160. 3 AJU -v- AJT [2011] SGCA 41.

Comment
This case demonstrates the approach of the English courts to the issue of a Tribunal's jurisdiction. The English courts will exercise broad powers of review on this issue, and this has prompted some commentators to suggest that the England's "pro-arbitration" reputation has been eroded. It is notable that in a recent attempt to set aside an international arbitration award in Singapore3, the Respondent argued by reference to Dallah that deference should not be accorded to a Tribunal's decision on a public policy objection. Although that application was unsuccessful, similar arguments may be advanced by other parties when challenging or resisting enforcement of awards. In contrast to the Supreme Court's judgment, in February 2011 the Paris Court of Appeal ruled that the Government was a party to the arbitration agreement, and it therefore rejected an application to challenge

This article was first published on the website of the Singapore Branch of the CIArb and is reproduced with the kind permission of the CIArb.

Contact
Ben Giaretta Partner Singapore T: +65 6416 3353 E: ben.giaretta@ashurst.com

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