As discussed in Topic 9 (International Arbitrations) of our e-book, International Practice: Topics and Trends, the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), June 10, 1958, 21 U.S.T. 2517 (enacted in the U.S. as chapter two of the Federal Arbitration Act), is a seminal multinational instrument used much the world over to regulate the recognition or enforcement of arbitral awards.  The New York Convention is a mainstay in U.S. jurisprudence.  How is it being applied in countries other than the U.S.?

The recent decision from the Supreme Court of the UK is instructive.  In what appears, and has been reported, to be its first decision concerning international arbitration, Dallah Real Estate and Tourism Holding Co. v. Ministry of Religious Affairs, Gov’t of Pakistan, [2010] All ER (D) 36 (Nov); [2010] UKSC 46 (3 Nov. 2010), the UK’s high court interpreted Section 103 of the UK Arbitration Act 1996 (UK Act). In pertinent part, the UK Act provides that recognition or enforcement of a New York Convention award shall not be refused except in a limited number of cases.  The two exceptions discussed by the U.K. Supreme Court in this case are:  that a party to the arbitration was, under the law applicable to him, under some incapacity, and if “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”.

The claimant in the case provided services for Holy Places in Saudi Arabia. The claimant agreed to acquire land in Mecca for the construction of housing facilities for Pakistani pilgrims. The contract was between the claimant and a trust proposed by the Pakistani government. Pakistan did not sign the agreement. The agreement contained an arbitration clause designating the ICC in Paris for the resolution of disputes. The claimant sought recovery against the Pakstani government when things went awry. The arbitral tribunal found that the government of Pakistan was bound by the arbitration clause and thereafter held in favor of the claimant.

Reviewing the claimant’s application for the recognition and enforcement in the UK of the award under the New York Convention, the UK Supreme Court held:

  1. The consistent practice of English courts has been to examine for themselves the jurisdiction of arbitrators – e.g., “the court would determine the issue of whether there was ever an agreement to arbitrate”.
  2. The English court, therefore, was not only entitled but “bound” to revisit the question of the arbitral tribunal’s own jurisdiction, the question being whether there was a binding arbitration agreement “under the law of the country where the award was made”.
  3. The Court stated that it was “likely that renvoi was excluded from the New York Convention”. According the UK Supreme Court, renvoi occurs when an English court refers an issue to a “foreign” system of law and where “foreign” system’s conflict of laws rules the issue is to be referred to another country’s laws (see, e.g., this blog’s recent discussions of that concept in the context of applying choice of forum and choice of law provisions). In the case at hand, the UK Court held that the fact was that an English court testing jurisdiction of the Paris tribunal in an international commercial arbitration was not a case of renvoi. French law applied French rules rather than yet another country’s rules.  Even though the French rule was to apply another country’s rules, what was being done was applying French law – hence no renvoi.
  4. Applying French law, the UK court found that the government of Pakistan was not a proper party to the arbitration. The Court relied on evidence of the negotiating and drafting history to reach that conclusion.
  5. Independently, the Court considered the argument that the language of the New York Convention, which uses the word “may” and not “shall” in connection with the grounds for refusing to recognize a foreign arbitral award, somehow meant that a court had discretion to recognize a foreign award even when there was no jurisdiction over the respondent. The UK high court rejected that argument.