Dallah Real Estate v Government of Pakistan

From DMC
Jump to: navigation, search


United Kingdom

Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan

UK Supreme Court: Lord Hope, Deputy President Lord Saville, Lord Mance, Lord Collins and Lord Clarke: [2010] UKSC 46: 3 November 2010


Hilary Heilbron QC and Klaus Reichert (instructed by Kearns & Co) for Dallah

Toby Landau QC and Patrick Angénieux, solicitor (respectively instructed by and of Watson Farley & Williams LLP) for the Government of Pakistan



An ICC tribunal in Paris decided, applying transnational law, that the Defendant, the Government of Pakistan (’GoP‘), although a third party to a main agreement, was bound by an arbitration clause within it. The tribunal found in favour of the Claimant, Dallah, and the Claimant applied to enforce the award against the GoP in the UK. The GoP resisted enforcement on the grounds that the arbitrators had exceeded their jurisdiction. The GoP had not taken any substantive part in the arbitration and had maintained throughout that it was not a party.

The Supreme Court, agreeing with the Court of Appeal and the Judge at First Instance, decided that, in the circumstances, a court did not merely have a power to review the tribunal’s finding as to its competence, but could determine the issue afresh by effectively retrying it.

Their Lordships applied French law, which for this purpose incorporated transnational law. They disagreed with the tribunal. They found that, as the Government of Pakistan had specifically set up a vehicle, a trust, to avoid its direct liability, it was difficult to see a “common intention” that it should be party to the arbitration clause. Also, the fact that the proposed party was a state meant that the conclusion that it intended to be bound by an arbitration agreement when it was not a signatory to the relevant contract, was one that should be arrived at with especial care.

This story did not end with the judgment of the Supreme Court. Dallah had, in parallel with the English proceedings, sought to enforce its award in France. Despite the findings of the Supreme Court, the Paris Court of Appeal had no hesitation in concluding that the arbitration agreement was in fact valid.

This case note has been contributed by Michael J Harakis, a partner in the London office of Hill Dickinson LLP, who acknowledges the assistance of Professor Gilles Cuniberti of the University of Luxemburg for his provision of the Paris Cour d’Appel judgment and of Sébastien Lootgieter, avocat of SCP Villeneau Rohart Simon & sociés, for his explanations of matters of French law.

The Application

Dallah Real Estate and Tourism Holding Company (“Dallah”) applied ex parte to enforce an arbitral award against The Ministry of Religious Affairs of the Government of Pakistan (“MORA”) under section 101 of the Arbitration Act 1996. The award was made in Paris by an arbitral tribunal under ICC Rules and Dallah was awarded US$20,588,040.

MORA resisted Dallah’s attempts to enforce the award in the UK, relying on section 103(2)(b) of the Arbitration Act 1996. Insofar as is relevant, section 103(2)(b) provides,

“Recognition and enforcement of the award may be refused if the person against whom it is invoked proves- ……(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made.”


In December 1994, Pakistan approved in principle the setting up of a Trust (“the Trust”) For, among other things, the construction of housing in Mecca.

Negotiations began with Dallah, culminating in a memorandum of understanding (“the MOU”) with MORA. A Trust was formally created by government ordinance in January 1996.

On 10 September 1996, Dallah and the Trust entered into an agreement (“the Agreement”). By the terms of the Agreement, the Trust was to pay Dallah US$100 million within 30 days. The Agreement also contained a general waiver of sovereign immunity, including for the purposes of enforcement.

The ordinance was not renewed and, under the law of Pakistan, lapsed at midnight of 11/12 December 1996. The trust had no legal existence after that time.

A Mr. Lutfullah Mufti wrote to Dallah on 19 January 1997 under a letterhead, which read “Government of Pakistan, Ministry of Religious Affairs, Zakat & Ushr and Minorities Affairs”. He signed the letter “Secretary” but without saying of what. He claimed Dallah were in repudiatory breach of the agreement.

On 20 January 1997, the Trust, as plaintiff, purported to begin proceedings in Pakistan against Dallah, in which Mr Mufti swore an affidavit in support of the injunction, referring to himself as “Secretary to the Board of Trustees of the Trust”.

The Court in Islamabad found that the trust had no legal existence. There ensued proceedings by MORA and the GoP against Dallah and appeals and cross appeals, which did not conclude with a final outcome.

In the meantime, Dallah wrote to the ICC and requested arbitration against MORA and nominated Lord Mustill as its appointed arbitrator. MORA took no part in ICC proceedings, apart from to say that it denied the tribunal had jurisdiction.

The Abitral Awards

By its first partial award, the ICC tribunal decided that it had competence to decide the dispute between Dallah and the GoP. It also found that GoP was bound by the Agreement.

In arriving at its determination, the Tribunal considered that the arbitration agreement was separate from the Agreement. The meaning and effect of the arbitration agreement, the clause in the Agreement referring to ICC arbitration, was determined “by reference to those transnational general principles and usages reflecting the fundamental requirements of justice in international trade and the concept of good faith in business”

The GoP would be considered a party if, by its direct involvement in the contract’s negotiation and performance, there was a presumption of a common intention to make it bound by the contract, notwithstanding its not being a signatory.

The Tribunal considered that the individual features of the case would not express such a common intention, but taken together they would.

The Tribunal found, having analysed the facts, that the trust was “organically and operationally under the government’s strict control, that its financial and administrative independence was largely theoretical, and that everything concerning the Agreement was at all times ‘performed by the government concurrently with the trust’”.

The Judgment of the Supreme Court

The main judgments were given by Lords Mance and Collins. Their reasoning was similar, but their approaches were slightly different. Lord Collins drew more on comparative law.

Dallah argued that an enforcing court ought to review the decision of the tribunal with less rigour than would a court in the seat. Their lordships rejected the idea that the courts of the seat have an elevated status under the New York Convention.

Lord Mance noted that the onus of proof was on MORA under section 103(2)(b), “Dallah starts with advantage of service, it does not also start fifteen or thirty love up.”

Lord Mance agreed with Aitkens J (as he then was), the Judge at First Instance, who had held that particular care was needed when dealing with a state, which - by entering into such a contract - would give up its sovereign immunity.

Their Lordships then went on to criticise the findings of the Tribunal as being too general. The Tribunal’s statement of the basic proposition was not disputed. The basic proposition was that a third party to an agreement can under transnational law become a party to it, because of a common intention of all parties that it should.

Lords Mance and Collins found that the Tribunal was essentially too broad brush in its approach. It applied general principles but too generally!

Their lordships criticised the Tribunal’s conclusion that Mr. Mufti’s letter of 19 January 1997, was clear evidence that the GoP considered itself as party to the Agreement. Among other things, Lord Mance said that this letter predated the proceedings in Pakistan which established the lack of legal existence of the trust. Lord Mance found that the Tribunal was wrong to reject the argument that Mr. Mufti was acting without authority and in a way that had no legal effect, when this was “on any view” the case. He then went on to give about half a dozen other reasons why the Tribunal had misinterpreted the effect of the letter.

Lord Mance found that the GoP was effectively distancing itself from the Trust. In addition, Lord Collins pointed out that, at the relevant times, Dallah was being advised by a leading law firm in Pakistan, who would have understood the significance of the change from the MOU to the Agreement.

Their lordships, therefore, found that the GoP was not bound by the arbitration agreement.

The Paris Cour d’Appel

The Cour d’Appel recounted the facts of the case outlined above and, on that basis, determined that the creation of the trust was ‘purely formal’ and that the GoP had acted at the relevant times as a true party. They interpreted the letter of Mr. Mufti as supporting that determination.


What next?

Will Dallah return to the English Courts and say that the definitive view of French law on the facts has been delivered by a French appellate court and therefore their lordships judgment was clearly wrong? Technically, it would be possible for their lordships to reverse themselves. Watch this space should Dallah ask them to. The practical issue will depend on whether the French action actually results in enforcement and would thus make a further English action unnecessary.

Lord Collins was clear that for the purposes of Article V(a)(fn.1), the “law of the seat” included only the substantive law and not the conflicts of law rules of that law; in other words, there was an absence of renvoi in the New York Convention.

The appropriate standard of review

Lord Mance and particularly Lord Collins borrowed from comparative law to arrive at the conclusion that the review could be full. Their analysis was clearly intended to make wider statements as to the law that would be of general application.

There were two omissions in the analysis. Firstly, there was no discussion of the travaux préparatoires to the New York Convention and very little direct interpretation in terms of its object and purpose.

Secondly, although it is probably the case that, generally, courts would carry out a full review of any proceedings; this is not a universal approach. See the decision of the Court of Appeal in Ontario, at http://www.canlii.org/eliisa/highlight.do?text=mexico+karpa&language=en&searchTitle=Search+all+CanLII+Databases&path=/en/on/onca/doc/2005/2005canlii249/2005canlii249.html

Fn. 1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity , or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, undep the law of the country where the award was made;...