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Invalid arbitration awards unenforceable, Supreme Court rules

8 November 2010

The Supreme Court has trumped an international arbitration award by confirming that English courts retain the power to refuse enforcement.

The case of Dallah v Pakistan [2010] UKSC 46 was described by Lord Collins as a case of “international importance” in the interpretation of article V(1)(a) of the 1958 New York Convention, which entitles a state to ignore invalid arbitration awards.

“There is simply no basis for departing from the plain language of article V(1)(a). It is true that the trend, both national and international, is to limit reconsideration of the findings of arbitral tribunals, both in fact and in law… but article V safeguards fundamental rights including the right of a party which has not agreed to arbitration to object to the jurisdiction of the tribunal.”

Dallah, a tour operator providing services to pilgrims, relied on an arbitration clause with a Pakistani public body – which had since ceased to exist - to start proceedings against the Pakistan state. It later secured an International Chamber of Commerce (ICC) arbitration award and, when the state’s religious affairs department refused to pay the company compensation, sought enforcement through the English courts.

Both the first instance judge and the Court Appeal’s decision to reject the claim was upheld by the Supreme Court last week, with a unanimous dismissal of Dallah’s claim on the grounds that the government had not signed the arbitration agreement.

In the 63-page judgment, which was partly based on French law, Collins explained: “Aikens J rejected the argument that the discretion should be exercised in favour of enforcement because of the government’s failure to challenge the award in the French courts: Dallah had not submitted that the government was estopped from challenging the jurisdiction of the tribunal; and the discretion would not be exercised where, as in this case, there was something unsound in the fundamental structural integrity of the ICC arbitration proceedings, namely that the government did not agree to be bound by the arbitration.

“There was no error of principle and the Court of Appeal was right not to interfere with the judge’s exercise of discretion.”

Recognising that a tribunal has jurisdiction to determine its own jurisdiction for its own purposes, the Supreme Court also held that a court, whether within the country where the tribunal is located or within a foreign country where an attempt is made to enforce the award, can and must revisit the question of jurisdiction.

Categorised in:

Procedures ADR Professional negligence Local government