Saturday, November 6, 2010

UK Supreme Court on Non-Signatory Parties in Arbitration: Part II


 

(Continued from Part I which is available here)

We can now briefly turn to the judgment of Lord Collins. Lord Collins elaborated the position on broadly similar reasoning. On the issue of the standard of review to be adopted, he observed, "The principle that a tribunal has jurisdiction to determine its own jurisdiction does not deal with, or still less answer, the question whether the tribunal's determination of its own jurisdiction is subject to review, or, if it is subject to review, what that level of review is or should be...
it does not follow that the tribunal has the exclusive power to determine its own jurisdiction, nor does it follow that the court of the seat may not determine whether the tribunal has jurisdiction before the tribunal has ruled on it. Nor does it follow that the question of jurisdiction may not be re-examined by the supervisory court of the seat in a challenge to the tribunal's ruling on jurisdiction. Still less does it mean that when the award comes to be enforced in another country, the foreign court may not re-examine the jurisdiction of the tribunal..." (This test may well be satisfactory when an arbitrator assumes jurisdiction without the interference of a Court – what about a situation where, in the Indian context, the arbitrator is appointed by the Chief Justice after a judicial determination?)

Lord Collins then discusses in detail the application of an arbitration agreement to non-signatory parties. Instead of the approach of Lord Mance (of applying supranational law as part of French law; or supranational law as applied by French courts), Lord Collins begins with a broad analysis of the issue on the general principles of international commercial arbitration. In the words of Lord Collins, "The issue has arisen frequently in two contexts: the first is the context of groups of companies where non-signatories in the group may seek to take advantage of the arbitration agreement, or where the other party may seek to bind them to it. The second context is where a State-owned entity with separate legal personality is the signatory and it is sought to bind the State to the arbitration agreement. Arbitration is a consensual process, and in each type of case the result will depend on a combination of (a) the applicable law; (b) the legal principle which that law uses to supply the answer (which may include agency, alter ego, estoppel, third-party beneficiary); and (c) the facts of the individual case..."

Lord Collins then discussed the point on the applicability of the doctrine of renvoi. "It is likely that renvoi is excluded from the New York Convention: see van den Berg, The New York Convention of 1958 (1981), p 291. But it does not follow that for an English court to test the jurisdiction of a Paris tribunal in an international commercial arbitration by reference to the transnational rule which a French court would apply is a case of renvoi. Renvoi is concerned with what happens when the English court refers an issue to a foreign system of law (here French law) and where under that country's conflict of laws rules the issue is referred to another country's law. That is not the case here. What French law does is to draw a distinction between domestic arbitrations in France, and international arbitrations in France. It applies certain rules to the former, and what it describes as transnational law or rules to the latter..."

Lord Collins then discussed the facts which in his view meant that the 'common intention' test was not satisfied:

First, throughout the transaction, Dallah was advised by a leading Pakistani law firm, which was responsible for the drafts of both the MoU and the Agreement. Secondly, there was a clear change in the proposed transaction from an agreement with the State to an agreement with the Trust. The MoU was expressed to be made between Dallah and the Government, whiile the agreement was not. Thirdly, at the time of its establishment, the Trust was established as a body corporate. Fourthly, the Agreement contained references to the Government only in its capacity as a guarantor and there was nothing to indicate that it was a party to the Agreement itself.

On these factual grounds, Lord Collins held that the Government could not be treated a s aparty, and there was no valid arbitration agreeemnt between the Government and Dallah.

Further, Lord Collins went on to criticise the Tribunal on the grounds that it "drew the conclusion that the organic control of the Government over the Trust, although insufficient to lead to the disregard of the separate legal entity of the Trust, constituted nevertheless an element of evidence as to the true intention of the Government to run and control directly and indirectly the activities of the Trust, and to view the Trust as one of its instruments." This observation perhaps goes to indicate that the test for determining whether a non-signatory is a party to an arbitration agreement or not is the same as that for determining whether the cirporate veil should be lifted. It is often thought that non-signatories can be made party to an arbitration agreement in two ways – one, by pleading that the corporate veil should be lifted; and secondly, by relying on arguments that as a matter of arbitration law (and not as a matter of company law), the non-signatory should be treated as a party. What Lord Collins's criticism (arguably obiter) indicates that there are no two tests – the test is a common one. This also appears to be the only exception left open in Indian law after Indowind.

The judgment of the UK Supreme Court is available here. The impugned decision of the Court of Appeal is available here.

A Kluwer Arbitration Blog note on the decision of the Court of Appeal is available here. The commentator raises the concern, "On a more fundamental level the Dallah decision raises the question whether the New York Convention is fulfilling its objectives if national courts ruling on enforcement of Convention awards interpret Article V as permitting them to reopen and completely rehear challenges to a tribunal's finding on the validity of the arbitration agreement, and hence its own jurisdiction..." This concern – somewhat reminiscent of the concerns expressed in relation to the intervention of the Indian judiciary in arbitration – is noteworthy and is as applicable to the Supreme Court's decision; yet as a matter of principle, the Supreme Court explains in great detail how the regular standard of review operates and is applicable in enforcement proceedings when the issue of validity of the agreement is in question. It is also important to note that nowhere can the decision be read as supporting such a threshold of judicial review on questions of the merits of the case, once jurisdiction has been established.


 

No comments: