Global Business Law: Analysis of Dallah versus Pakistan - Case Study Example

Dallah v Pakistan Case Introduction A famous case of arbitration between Dallah Real E and Tourism Holding Company and The Ministry of ReligiousAffairs, Pakistan had brought attention from worldwide bodies[1]. However, the UK Supreme Court on November 3, 2010 had declined to give the decision under Arbitration Act 1996 and under the New York Convention, the ICC Arbitral Tribunal in Paris. The Government of Pakistan had been awarded with the fine of approximately US$20.5 million and the agreement was made between Dallah and a Trust that was formed under a promulgated Ordinance of the President of Pakistan[2]. When re-applied the UK Supreme Court refused to revert the earlier decision and the argument that the top court of the UK gave was that pursuant to French law, the law of the country where the award was made, the Government was not bound by the arbitration agreement. The decision in the case has become a vehicle in the Court and it had become a benchmark not only in the arbitration with entities in the sovereignty but also for the judicial role as well in the enforcement of the foreign awards[3]. The Supreme Court of the UK had argued that the arbitral tribunal does not have the jurisdiction capacity to award any decision against the Government. However, when the top court of the UK had reopened the files of evidences it was seen that position of Pakistan Government, in the file, is neither named as a party nor as a signatory to the Agreement between the Trust and Dallah[4]. Judgment by the UK Supreme Court While delivering the judgment, the UK Supreme Court had argued that there has been no common intention found to be existed in the circumstances of Pakistan vs. Dallah case[5]. Below are some of the arguments and decisions that were cited by the top court while making its decision: 1. A leading Pakistani Law Firm had advised Dallah pertaining to the Agreement. It was advised by the Law Firm that it was duty of Dallah to understand the Agreement better way so that they were clear about the Agreement was made with an entity of a state and not the entire state[6]. 2. The negotiation of the Agreement has clearly showed evidence that it was made between Dallah and a Trust and not between Dallah and the state of Pakistan[7]. 3. In the Agreement it was mentioned that the Trust was established as a corporate body, which had the power to sue as well as be sued by its name[8]. 4. The arbitration agreement was based upon the ICC model arbitration clause. However, the agreement was amended in such a way that it clearly specified the two parties in the agreement one as Dallah and the other one was “the Trust”[]9. 5. It was argued that prior to the proceedings of dispute about the Agreement, the name in the arbitration Agreement was mentioned as the Trust rather than the Government[10]. Though the UK Supreme Court found that the above mentioned factors suggested a strong link between the Government and the Trust – the issues that it faced were irrelevant and the issue was confusing that whether the Agreement should bind the Government. As far as the involvement of the Government in the Agreement was concerned, the Supreme Court understood that there were quite understandable circumstances[11]. The Agreement showed that neither the Government nor Dallah wanted the Government to be a party in the Agreement. However, the court also argued that the intention of the two parties for not including Government was not deliberate. From the facts it was seen that Dallah is another entry to the series in which the arbitration has been awarded to tackle the issues of separateness of the agencies from that of the State[12]. Decision of the Supreme Courts When Dallah Company appealed in the Supreme Court of the UK, the appeal was dismissed against the decision of the Court of Appeal. In the Court of Law a tribunal has its own right to determine the jurisdiction and the principal of competence-competence gives it the right to determine the same[13]. The Supreme Court also follows the same principal; however, it ensured that the courts should have the final say on this matter. The court also argued that the courts at the place of enforcement of the decision should only conduct a limited review and that review should be in line of the pro-enforcement policy of the New York Convention[14]. The court also suggested that the pro-enforcement policy should not override rights of the party to counterattack the enforcement, which may be possible as the entity is not being a part of the arbitration agreement. This was one of the issues in the decision and the Supreme Court of the UK and it was needed for the top court to make an independent determination on its own. The top court also suggested that the views of the law and findings of the fact by the arbitrators must not bind the court in making any decision[15]. Non-signatories In the Agreement there was no law mentioned that can govern the arbitration agreement. Hence the Supreme Court of the UK decided that the French Law should apply to the question whether the Government should be regarded as a party in the agreement or not. The Supreme Court made this decision based upon the law of the country where the award was made[16]. Under the French Law it is necessary to have a common intention between both the parties that the Government would be bound by the clause of arbitration. The French Law also suggested that the actions of the parties during negotiation, performance and termination of the Agreement would determine the existence of the common intention[17]. The focus of the Supreme Court was on the change in the transaction between the Agreement, signed by the Trust, and the MoU, signed by the Government. It is also mentioned by the court that the Government is just mentioned as the guarantor of the loan that was sanctioned to the Trust[18]. These were the factors that mad the Supreme Court to decide that neither of the parties wanted the Government to be a party in the arbitration agreement. Comment This case shows the approach of the English Court towards an issue of Tribunal jurisdiction. The English courts use their broad powers of review to assess the issues in this case. This was in contrast with the French Court[19]. This particular approach of the English courts made some commentators to suggest that the pro-arbitration reputation of England has been eroded. In a recent arbitration award case in Singapore the respondents took the reference of the Dallah case and argued that difference should be made in accordance with the decision of the Tribunal for public policy objection[20]. Though that application was unsuccessful it was suggested that other parties can use these arguments in order to resist or challenge the award of arbitration. Decision by the French Law In contrast to the judgment by the Supreme Court of the UK, the Paris Court of Appeal ruled, in February 2011, that the Government is a party in the arbitration agreement. Based on this decision and the ground of agreement the court rejected the application to challenge the award in France[21]. This was the major contrast that can be seen in the decision of the top courts in two countries. As there was a conflict between the decisions of the same arbitration agreement in two countries – there were chances that this can undermine the principal of uniform treatment of arbitral awards under the New York Convention. However, both the courts were addressing different applications. The case basically underlines the fact that the enforcement should be involved by the fundamental sovereignty of the two courts for their assets and jurisdiction[22]. The international arbitration also embraces the difference in the legal culture of two countries by definition. It was evident that Dallah may illustrate some of the myriad issues that were caused by them. The French Court also highlighted the risks that were involved in the multi-party agreement situation. It also emphasized on the fact that it needs to be ensured that all the relevant parties involved in the transaction should be a part of the arbitration agreement[23]. As per the application in the French Law the appellant argued that the judge has made a mistake in understanding and application of the relevant principles of the French Law. On this question, which was fact sensitive, the findings of Aikens J had been supported by the Court of Law. Aikens had the opportunity to debate with the experts in the essential nature of the French Law, which made him to fully understand them and this had made him to bring the actual context to the appellant before they apply for rehearing[24]. In this kind of situation the judgment of the case can go in slow pace and can give the judge to make a sound decision without being hurried and make wrong decision based upon the only facts available. Conclusion In Dallah case, the decision awarded by the UK Supreme Court mattered to a greater extent at several levels of the international commercial arbitration[25]. From the point of view where two laws are conflicting to the same case the attention of the court was drawn towards the application of the jurisdictional question, which was transactional and this is in contrast of the French law notion where the autonomy of the arbitration agreement gets the importance. These notions are kind of alien to the common law tradition. It was seen that the UK Supreme Court too did not try to discover the common intention test in the French transactional law that is relevant to determine the differences in the States in order to implement the instrumentalities in the arbitration context. This approach was jointly guided by the law experts in the court. However, the Court acknowledged that the jurisdictional issues in this aspect were governed by the French Law. References 1. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 330 U.N.T.S. 38 (1959), reprinted at 9 U.S.C. § 201. The Convention is implemented in the UK by the Arbitration Act (England and Wales), Part III, and by the Arbitration (Scotland) Act 2010, Secs. 18-22. 2. Government of Kuwait v. Sir Frederick Snow & Partners, [1984] AC 426; Hiscox v. Outhwaite, [1992] 1 AC 562. 3. Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46. 4. 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. 5. Dallah Real Estate & Tourism Holding Co v. Ministry of Religious Affairs, Government of Pakistan, [2008] EWHC 1901 (Comm). 6. Salim Moollan, Dallah v Pakistan: “Worth the Wait”, 5(6) Global Arbitration Rev. 13 (2010); Khanna, supra note 4, at 135. 7. 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). 8. Gouvernement de Pakistan, Ministere des Affaires Religieuses v. Societe Dallah Real Estate and Tourism Holding Co., joined cases 09/28533, 09/28541 (Ct. App. Paris, Feb. 17, 2011). 9. Arbitration Act 1996, Sec. 103(2)(b). 10. Id. at P 36. The tribunal thus drew upon the factual circumstances surrounding the arbitration agreements "negotiation, performance and termination." Id. 11. According to Aikens J., "The fact that the experts were agreed that an arbitral tribunal with a French seat may apply Page 12 22 Am. Rev. Intl Arb. 1, *20 transnational law or transnational rules to the validity of an arbitration agreement does not mean that a French court would not be applying French law . . ." Dallah, supra note 3, at P 115. 12. Patrick Heneghan & Jonathon Egerton-Peters, Dallah v Pakistan: Vive la différence? 6(3) Global Arbitration Rev. 25, 26 (2011). 13. Dallah, supra note 1,at 145. 14. or 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). 15. 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. 16. 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. 17. 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 18. Martinez, supra note 19, at N7. 19. The Restatement Third of the U.S. Law of International Commercial Arbitration opts for treating partial awards in the same fashion as any other award for recognition and enforcement purposes. Indeed it goes much further, defining awards within the meaning of the Convention to include even arbitral orders of provisional relief, though not purely procedural orders. RESTATEMENT THIRD OF THE U.S. LAW OF INTERNATIONAL COMMERCIAL ARBITRATION, § 1-1(v) (Council Draft No. 2, Sept. 27, 2010, approved Oct. 21, 2010). 20. RESTATEMENT THIRD OF THE U.S. LAW OF INTERNATIONAL COMMERCIAL ARBITRATION § 5-17(c)(Council Draft No. 2, Sept. 27, 2010, approved Oct. 21, 2010). 21. GARY B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2403 ff. (2009). 22. The new French decree on international arbitration codifies the prior case law to this effect. Decree No. 2011-48 of Jan. 13, 2011 (J.O. Jan. 14, 2011, p. 9). According to Article 1447 of the Code of Civil Procedure, introduced by the decree, "[t]he arbitral tribunal has exclusive authority to rule on objections to its authority." Article 1448 adds that "[w]hen a dispute subject to an arbitration agreement is brought before a court, such court shall decline jurisdiction except if an arbitral tribunal has not yet been vested to hear the dispute and if the arbitration agreement is manifestly void or manifestly not applicable." 23. "The tribunals 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." Dallah, supra note 3, at P 30. 24. China Minmetals Materials Import & Export Co., Ltd. v. Chi Mei Corp., 334 F.3d 274, 288 (3d Cir. 2003). 25. George A. Bermann, The "Gateway" Problem in International Commercial Arbitration, forthcoming in 37 YALE J. INTL L. (2011). Read More