CONFLICTING CONTRASTS IN DALLAH V GOVERNMENT OF PAKISTAN

17 Colum. J. Eur. L. F. 51 (2011)

Jacopo Crivellaro

When the Court of Appeal handed out judgment in Dallah v Government of Pakistan [1] the
arbitral community was surprised by the English court’s findings. When, on appeal, the
Supreme Court upheld the judgment, the issue gained greater relevance as it was one of the
only three instances in which an English court had refused enforcement of an arbitral
award under the New York Convention.[2] Even more remarkably, the French Cour d’Appel
considering the same facts in February 2011, reached the opposite conclusion and held the
Government of Pakistan bound to the arbitration agreement.

I. Facts:

The Saudi Arabian Dallah Real Estate and Tourism Holding Company (“Dallah”) entered
into a memorandum of understanding with the Pakistani Government in July 1995 to
provide accommodation for Pakistani pilgrims to the Mecca. Pakistan later established the
Awami Hajj Trust (“The Trust”) to collect and invest the donations received from pilgrims
for the project.[3]

The Trust and Dallah entered into an agreement in September 1996 containing the terms
which had been previously negotiated by Pakistan. The agreement also contained an ICC
arbitration clause but did not specify a choice of governing law. While Pakistan was not a
signatory to the agreement, the government guaranteed the Trust’s loan obligation and
could be assigned the rights and obligations incurred by the Trust without Dallah’s
authorisation.

In December 1996, the ordinance lapsed and the Trust ceased to exist. In January 1997, a
government official from the Ministry of Religious Affairs wrote to Dallah purporting to
terminate the agreement. Claims in Pakistani courts were later dismissed as the Trust no
longer existed as a legal entity.
In May 1998, Dallah commenced ICC arbitration in Paris against Pakistan. The arbitral
tribunal composed of Lord Mustill, Nassim Hasan Shah and Ghaleb Mahmassani, declared
that according to French international arbitration law Pakistan was bound by the
arbitration clause as an alter ego of the Trust. In June 2006 the tribunal made its final
award of an excess of $20 million in favour of Dallah.[4]

Dallah sought to enforce the award in England and France. Pakistan resisted enforcement
in England claiming that it was not a party to the arbitration agreement on which the
award was based. The High Court,[5] the Court of Appeal [6] and the Supreme Court in
November 2010 confirmed this view.

II. Supreme Court decision

In a judgment commended for its depth of analysis and clarity of style,[7] the Supreme
Court held that the arbitral tribunal’s findings on jurisdiction were not final, and concluded
that Pakistan was not a party to the arbitration agreement.

The Court clarified the compétence-compétence of an arbitral tribunal’s jurisdiction. While

a tribunal’s finding is relevant,[8] they are not the “sole judges of their jurisdiction. That
would be neither logical nor acceptable.“[9] As a consequence, “their jurisdiction must
instead be reviewed by the courts if an action is brought to set aside or to enforce the
award.”[10] In considering the level of scrutiny, the Court held that nothing short of a full
investigation would suffice.[11]

Having concluded that “a contract cannot give an arbitral body any power, much less the
power to determine its own jurisdiction, if the parties never entered into it”[12] the Court
then proceeded to examine whether Pakistan was a party to the agreement. Dallah
acknowledged that Pakistan was not a signatory to the agreement, but submitted that it
was bound by the tribunal’s award as an alter ego of the trust or as it was the common
intention of the parties that Pakistan should be a party to the agreement.[13]

The Court dismissed the first submission as there was not “material sufficient to justify the
tribunal’s conclusion.”[14] Whether the parties had a common intention to be bound by the
agreement was to be determined by French law, since the agreement did not specify the
applicable law and French law was the law of the seat of arbitration. French law would
allow an arbitral agreement to bind a non-signatory if:
“all the parties to the arbitration proceedings, including that person, had the common
intention (whether express or implied) to be bound by the said agreement and, as a result,
by the arbitration clause therein. The existence of a common intention of the parties is
determined in the light of the facts of the case. To this effect the courts will consider the
involvement and behaviour of all the parties during the negotiation, performance and, if
applicable, termination of the underlying agreement.“[15]

Lord Mance held that the arbitral tribunal had improperly applied this standard when
concluding that Pakistan was a party to the agreement.[16] In the Court’s view, any other
conclusion would mean that “many third persons were party to contracts deliberately
structured so that they were not party.”[17] After a detailed examination of French and
comparative law,[18] the Court held that there was no “common intention” for Pakistan to
be a party to the agreement.[19]

As such the exceptions of Section 103(2)(b) of the Arbitration Act 1996[20] and Article
(V)(1)(a) of the New York Convention[21] were applicable to deny the enforcement of the
award.

III. Cour d’Appel [22],

Confident of the favourable ruling in London, Pakistan applied to the French courts to
annul the awards previously decreed against it as permitted in Article 1502(1) of the
French Code of Civil Procedure.[23]

The Cour d’Appel concurred with the Supreme Court in recognising the courts’ inherent
authority to review an arbitral tribunal’s conclusion on jurisdiction and applied the same
standard for the law relating to non-signatories.[24]

Yet, the French Court concluded that Pakistan had intended to be a party to the agreement.
The Court drew particular attention to the government’s involvement in the pre-
contractual stages and its active role throughout the agreement.[25] The government was
seen to act “as if the Contract was its own; … this involvement… confirm[s] that the creation
of the Trust was purely formal and that [the Government] was in fact the true Pakistani
party in the course of the economic transaction.”[26]
IV. Analysis:

The divergence between the French and English judiciaries is an unwelcome sign for the
arbitral community[27] and for the consistency of comparative contractual law.
Commentators have accused the English court of having “ultimately failed to appreciate the
substance of French law and … [having] applied what amounted to a classically English
approach to contract law.[28] On the other hand, the Court’s expertise in the field of
arbitration and its extensive analysis of comparative law “suggests that the position
[adopted] should be similar worldwide.”[29]

It might be the case that the French and English courts, while considering the same facts
and the same principles, have approached the issue from a different and irreconcilable
standpoint. The Supreme Court focused on evidence demonstrating Pakistan’s intent to be
bound by the contract. In this perspective, the creation of a special legal entity like the
Trust to avoid direct involvement was “indicative of an intent not to be bound by the
contract.”[30] The Cour d’Appel was more interested in understanding whether Pakistan
was “the true party to the economic transaction,”[31] and in this light, the active-yet-
indirect role the government maintained throughout the contract (even despite the
creation of the Trust), was sufficient to persuade the court of an intent to be bound by the
arbitral provision.[32]

Ultimately, whether the Supreme Court’s ruling has marked the beginning of a more
interventionist era in the traditionally pro-enforcement regime of English arbitrations can
only be determined by the judicial and legislative reactions to the judgment. Clearly, were
the French case to be appealed and upheld at the Cour de Cassation a strong signal of
discord would be sent to Parliament Square.

Endnotes:
[1] Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46.

[2] Irvani v. Irvani, [2000] 1 Lloyd’s Rep. 412 and Kanoria v. Guiness, [2006] EWCA Civ 222, [2006] 1 Lloyd’s Rep. 701.

[3] The Trust was established by means of a Presidential ordinance in January 1996. It was subject to renewal every four months. The
ordinance was renewed in May and August 1996 but not in December 1996.

[4] A detailed description of the findings of the tribunal is reported inDevika Khanna, Dallah: The Supreme Court’s Posivitely Pro-
Arbitration “No” to Enforcement, 28 J. of Int’l Arbitration 127, 129-130 (2011).

[5] Dallah Real Estate & Tourism Holding Co v. Ministry of Religious Affairs, Government of Pakistan, [2008] EWHC 1901 (Comm).

[6] Dallah Real Estate & Tourism Holding Co v. Pakistan, [2009] EWCA Civ 755, [2010] 2 W.L.R. 805 (CA Civ Div).

[7] Salim Moollan, Dallah v Pakistan: “Worth the Wait”, 5(6) Global Arbitration Rev. 13 (2010); Khanna, supra note 4, at 135.

[8] “The tribunal’s own view of its jurisdiction has no legal or evidential value, when the issue is whether the tribunal had any legitimate
authority in relation to the Government at all… The court may have regard to the reasoning and findings of the alleged arbitral tribunal, if
they are helpful, but it is neither bound nor restricted by them” Dallah, supra note 1,at 30-31.

[9] Dallah, supra note 1,at 22, referring to P. Fouchard, E. Gaillard, B. Goldman & J. Savage, Fouchard Gaillard Goldman on International
Commercial Arbitration, 659 (1999). A similar view was expressed by Lord Hope when referring to the 1996 Report on the Arbitration
Bill of the Departmental Advisory Committee on Arbitration Law. His Lordship stated that “an arbitral tribunal may rule on its own
jurisdiction but cannot be the final arbiter of jurisdiction, for this would provide a classic case of pulling oneself up by one’s own
bootstraps.” Dallah, supra note 1,at 159.

[10] Dallah, supra note 1,at 22, referring to P. Fouchard, E. Gaillard, B. Goldman & J. Savage, Fouchard Gaillard Goldman on International
Commercial Arbitration, 659 (1999).

[11] “The starting point in this case must be an independent investigation by the court… The findings of fact made by the arbitrators and
their view of the law can in no sense bind the court” Dallah, supra note 1,at 160. The heightened review imposed by the Supreme Court
has been criticised as it undermines “the finality of arbitral awards, and the procedural economy and efficiency that arbitration is
supposed to provide… [As a consequence] [d]e novo review at the enforcing stage takes back on the one hand what the doctrine of
competence-competence had purported to give with the other.” Paul Tan, Competing priorities in international commercial arbitration,
Int’l Arbitration Law Rev. 67- 68, 70 (2011).

[12]Dallah, supra note 1,at 92.

[13] Patrick Heneghan & Jonathon Egerton-Peters, Dallah v Pakistan: Vive la différence? 6(3) Global Arbitration Rev. 25, 26 (2011).

[14] Dallah, supra note 1,at 145.

[15] Dallah, supra note 1,at 17, this is the test set out in Cour d’Appel, [CA][regional court of appeal] Paris, Oct. 21, 1983 and affirmed in
Cour d’Appel, [CA][regional court of appeal] Paris, Jan. 11, 1990: “an arbitration clause in an international contract has a validity and an
effectiveness of its own, such that the clause must be extended to parties directly implicated in the performance of the contract and in
any dispute arising out of the contract, provided that it has been established that their contractual situation, their activities and
commercial relations raise the presumption that they have accepted the arbitration agreement, being aware of its existence and scope,
irrespective of the fact that they did not sign the arbitration agreement.” It was referred to by Aikens J in the High Court judgment of
Dallah at paragraph 85.

[16] Dallah, supra note 1,at 66.

[17] Id. at 40.

[18] For a detailed analysis of the French Law experts availableto the court, UK Supreme Court rules on Dallah v Pakistan, 5(6) Global
Arbitration Rev. 10, 11 (2011).

[19]The court relied on several factors to justify its conclusion, including: Pakistan’s involvement in the pre-contractual stages was not
indicative of an intention to be a party to the ultimate contract, [para 42]; the different contractual structure (the change from the
previous memorandum of understanding to the January 2006 Trust-Dallah contract with the creation of a trust having separate legal
personality) highlighted the government’s deliberate desire to abstain from direct contractual involvement.[para 134-136]; Dallah was
advised by leading legal practitioners during the entire course of the conduct so that it must have been informed of the difference
between contracting with a state and contracting with a state entity, [para 133]; while government officials corresponded with Dallah
this element was not conclusive of an official involvement of the government [para 44, 46-61, 138]; the Trust had commenced legal
proceedings in Pakistan against Dallah [para 137]. See the analysisby Alexis Martinez, A tale of two judicatures, Int’l Arbitration Law Rev.
N4 (2011); Melanie Willems & Markus Esly, Dallah v Pakistan – French Courts Uphold the Award, 5 The Arbiter 3, 6 (2011).

[20] Section 103(2) of the English Arbitration Act, 1996, (c23), “Recognition and enforcement of the award may be refused…..if a) the
arbitration agreement is not valid under the law to which the parties have subjected it, or failing any indication thereon, under the law of
the country where the award was made“. While the jurisdiction of 103(2) is discretionary, the Court held that the permissive discretion
should only be exercised when some “recognisable legal principle” might affect the prima facie right to have enforcement or recognition
refused. Dallah, supra note 1,at 67.

[21] Worded identically to the 1996 Act.

[22] Gouvernement du Pakistan Ministere des Affaires Religieuses v Sociere Dallah Real Estate and Tourism Holding Company, Cour
d’Appel [CA][regional court of appeal] Paris, Feb. 17, 2011, 09-28533, 09/28535 and 09/28541.

[23] Relying on a precedent of the Cour de cassation: “it is for the court to construe the contract in order to determine itself whether the
arbitrator ruled in the absence of an arbitration clause” Cour de cassation [Cass.][supreme court for judicial matters], Jan. 6, 1987.
Translation provided by Dany Khayat, France: Dallah, a whole new law and the Tecnimont decisions, (June 25, 2011),
http://www.arbitration-ch.org/below-40/pdf/France.pdf .

[24] “What is reasonably clear, however, is that both courts proceeded to address the question of the jurisdiction of the tribunal and the
validity of the arbitral award on the same basis – that is, to consider the matter afresh… While the court does not expressly state the test
that it applied in order to determine whether or not Pakistan was party to the arbitration agreement, its approach does not appear to be
inconsistent with the Supreme Court’s determination of the relevant test under French law.” Patrick Heneghan & Jonathon Egerton-
Peters, supra note 13, at 26-27.
[25] Factors which persuaded the Cour d’Appel were: Pakistan’s important role in the pre-contractual negotiations, especially the fact
that it was the sole contractual counterpart to Dallah until the creation of the Trust in January 1996; the fact the government was
involved with lending institutions in its own name and the requirement of governmental approval before the project could be concluded.
The court also focused on Pakistan’s active role throughout the entire duration of the contract, as highlighted by the extensive
correspondence of leading government officials with Dallah (especially when these officials had no official position with the Trust), and
concluded that the termination letter had been written on behalf of the government of Pakistan (unlike the conclusions of the Supreme
Court). For an analysis, see, Martinez, supra note19, at N7; Melanie Willems & Markus Esly, supra note 19, at 6.

[26] Translation by Gary B. Born, Dallah and the New York Convention, Kluwer Law International (Jun. 25, 2011)
http://kluwer.practicesource.com/blog/2011/dallah-and-the-new-york-convention/

[27] In particular, leading arbitration practitioner and academic Gary B. Born believes the different outcomes undermine the spirit and
purpose of the New York Convention in ensuring “uniform treatment of arbitral awards.” “Those goals are undermined when, a decade
after an arbitral tribunal decides that parties concluded a binding agreement, courts in different Contracting States reach conflicting
conclusions as to the correctness of the tribunal’s award – with a foreign court disagreeing with the courts of the arbitral seat over the
application of its own law.” Born, supra note 26. On the other hand, Patrick Heneghan & Jonathon Egerton-Peters argue that “a
fundamental part of the ethos underlying the New York Convention – that only awards which are valid should be recognised and
enforced – is upheld by the two decisions.” Patrick Heneghan & Jonathon Egerton-Peters, supra,note 13, at 28. A similar view is endorsed
by Devika Khanna, “the Supreme Court’s unanimous “no” to enforcement is very much in line with the spirit of the New York Convention.
The Convention… has not been weakened in any respect by this decision.” Khanna, supra note 4, at 127. Perhaps the answer is that
“[while] Dallah is a textbook application of orthodoxy… when the practical result of the application of orthodoxy is that a three-day trial
in England whitewashes a five-year arbitration presided over by a distinguished tribunal and in respect of which the now-successful
party showed no interest in challenging or participating, one may be forgiven for asking whether something has gone wrong.” Tan, supra
note 11, at 67.

[28] Born believes that the English courts were uncomfortable with the French standard, and thereby chose to heighten the
requirements for binding non-signatories. Furthermore, he suggests a distinctively English approach can be seen from the court’s
reluctance to focus on pre-contractual negotiations, while emphasizing the role of express terms – uncommon features in French
contractual jurisprudence. He suggests the wording of Article V(1)(a) would have required the Supreme Court to apply the “substance
and spirit of the legal rules specified” by the arbitral agreement. Born, supra note 26. That the English court adopted a narrower time
frame when considering pre-contractual negotiations is suggested by Melanie Willems & Markus Esly, supra note 19, at 6.

[29] Arbitration E-Bulletin, Supreme Court unanimously rejects appeal to Dallah judgment refusing enforcement of a French ICC award,
Herbert Smith (Jun. 25, 2011) http://www.herbertsmith.com/NR/rdonlyres/965CE371-A0EA-4EA8-BE68-
5B5677DFC567/0/SupremeCourtunanimouslyrejectsappealtoDallahjudgmentrefusingenforcementofaFrenchICCawa.html

[30] Martinez, supra note 19, at N7.

[31] Id.

[32] Id.