25 Jurisdictional Issues Relating to Challenges and the New York Convention Fictions, Failures and Finality a Choice of Remedies by Hilary Heilbron Q.C.* ABSTRACT The Article examines the option of a party against whom an award has been made, of waiting for enforcement proceedings to be brought, rather than challenging and seeking to set aside an award in the seat of the arbitration, in relation to jurisdictional and similar issues and the impact, if any, such failure to challenge and award in the seat has on enforcement of awards under Article V of the New York Convention 1958 with particular reference to two recent cases, namely Dallah Real Estate and Tourism Holding Company v. Ministry of Religious Affairs, Pakistan [2010] UKSC 46 and PT First Media TBK v. Astro Nusantara International BV and others [2013] SGCA 57. The premise of jurisdictional issues being matters for the tribunal to determine under the competenz-competenz principle is based on the fiction of the separability of the arbitral agreement, something enshrined in many national statutes and the Model Law 1. Logic would tend to point to the reverse, such that the invalidity of the main agreement should carry with it the invalidity of one of its terms, but arbitral law and practice has developed what, on its face, is a pragmatic way of resolving jurisdictional issues. Its justification is that spurious challenges can be dealt with early on in the process by a tribunal or that difficult jurisdictional issues can be similarly determined, in the hope and expectation that the parties will accept the decision and move on. Unfortunately, that is not necessarily the case. Just as the taking of the jurisdictional point in the first instance may be motivated by, on the one hand, tactics or, on the other hand a genuine belief in the lack of jurisdiction of the tribunal, so a failure to resist jurisdiction by the contesting party can merely be the first hurdle for a party seeking to found jurisdiction in a tribunal to overcome, in what may turn out to be a long wait for enforcement of an award. For while in the first instance a tribunal can determine its own jurisdiction, it now appears to be universally held that the ultimate decision on a tribunal s jurisdiction is one for the courts. * Hilary Heilbron Q.C. of Brick Court Chambers has extensive experience as counsel both in international arbitration in many jurisdictions, as well as court-related arbitration cases and commercial litigation in the English courts, including the Supreme Court. She also sits regularly as an arbitrator with over seventy appointments, (as chair, sole and party or institution appointed) and is a member of several institutional panels. She is a member of the LCIA Court. She is the author of A Practical Guide to International Arbitration in London. 1 E.g. The English Arbitration Act, section 7; the Model Law, Article 16(1). 2015 TURKISH COMMERCIAL LAW REVIEW, Vol. 1, No. 1, February 2015
26 The Turkish Commercial Law Review Volume 1 Issue 1 February 2015 The problem is brought into stark reality by the competing judicial roles of the court of the seat and the enforcing court in relation to such jurisdictional issues. This in turn raises the further issue as to which party has the ability to determine which court is the ultimate arbiter of the issue of jurisdiction: the successful party or the objecting party. Recent case-law points in most instances to this being the unsuccessful party. It is therefore pertinent to examine these competing roles. The courts of the seat have the exclusive right to set aside awards; but the grounds on which this can be done, the time within which this can be done, the procedure for doing so and the consequent effect of the failure to do so can vary from jurisdiction to jurisdiction. The starting point is probably the Model Law. This provides: Article 34: Application for setting aside as exclusive recourse against arbitral award (1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article. (2) An arbitral award may be set aside by the court specified in article 6 only if: (a) the party making the application furnishes proof that: (i) the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State; or (ii) (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or (iv) the composition of the arbitral tribunal or the arbitral proce dure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or (b) (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the award or, if a request had been made under article 33, from the date on which that request had been disposed of by the arbitral tribunal. The above provisions reflect the similar provisions in Article V (1) (a) (c) and (d) of the New York Convention. 2 Whereas the Model Law has a time limit of three months for all challenges including jurisdiction, the English Arbitration Act 1996 (the 1996 Act) is more restrictive providing for an application to be made within twenty eight days 3. In 2 The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. 3 The 1996 Act, s. 67 and 70 (3).
Jurisdictional Issues relating to Challenges and the New York Convention 27 France, on the other hand, the position is open-ended and can usually only be closed off by an application to enforce. Such hearings are usually by way of re-hearing. In the context of jurisdiction and setting aside awards most national statutes reflect the wording of the New York Convention. Section 67 of the 1996 Act dealing with substantive jurisdiction, for example, says more succinctly what is provided for by the Model Law and thus concerns (a) whether there is a valid arbitration agreement; (b) whether the tribunal is properly constituted, and (c) what matters have been submitted to arbitration in accordance with the arbitration agreement 4. The problems arise not so much when a party actually challenges an award, for in such cases, the position is normally resolved one way or another and an estoppel of record would usually arise. Though absent an estoppel, there is authority that enforcement can be resisted under the New York Convention even where the application to set aside is unsuccessful. 5 More difficult issues arise where the award has been set aside, as some jurisdictions e.g. France, nonetheless consider themselves free to enforce an award in such circumstances, but these are the exceptions to the general regime. The problems most frequently arise when the resisting party does nothing and waits for the successful party to enforce the award. There is now clear authority for the proposition that in some circumstances a party has the right to do nothing and wait for the enforcing party to seek to enforce a New York Convention award. This can controversially sometimes happen even if there are applicable time-limits for setting aside have expired (see below). A recipe one might argue for delay and undermining of the process or, on the other hand, the obligation of the claiming party to found its claim on a jurisdictional base, take the initiative and to be prepared to uphold such jurisdictional base through to enforcement. Article V(1) of the New York Convention provides: (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, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be 4 The 1996 Act, s. 82(1). 5 Dallah Estate and Tourism Holding Company v. Ministry of Religious Affair of the Government of Pakistan [2009] EWCA Civ 755, 90; and [2010] UKSC 46, 103-4.
28 The Turkish Commercial Law Review Volume 1 Issue 1 February 2015 recognized and enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding, on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made... Article VI provides: If an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V (1) (e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security 6. It is not, however, only in the context of jurisdiction that such issues arise. In fact the first reported case which recognised the option of a party resisting enforcement to sit back and await enforcement was not a jurisdiction case, but a due process case. In a case 7 concerning a CIETAC arbitration, the issue was whether due process had been followed where a tribunal failed to give a respondent the opportunity to comment on a tribunal expert s report, which in the circumstances of the case the court concluded was a serious procedural irregularity. The issue was whether, having failed to challenge the award in China, the seat of the arbitration, the respondents were debarred from resisting enforcement of the award in Hong Kong. Kaplan J, in refusing enforcement in the exercise of his discretion under the New York Convention, stated: It is clear that a party faced with a Convention award against him has two options. Firstly, he can apply to the courts of the country where the award was made to seek the setting aside of the award. If the award is set aside then this becomes a ground in itself for opposing enforcement under the Convention. Secondly, the unsuccessful party can decide to take no steps to set aside the award but wait until enforcement is sought and attempt to establish a Convention ground of opposition I therefore conclude that the defendant s failure to apply to set aside the award is not a factor upon which I should or could rely in relation to the exercise of my discretion If there remained any doubt that this was the case, the UK Supreme Court in Dallah Real Estate 8 dispelled it 9. The case related to enforcement in England of an ICC award seated in Paris. In a partial award the Tribunal had found that it had jurisdiction against the Government of Pakistan although not a signatory to the agreement and later 6 See the Model Law, Art. 36. 7 Paliko Investment Limited v. Klockner East Asia Limited, [1993] HKCU 0613. 8 Dallah Real Estate and Tourism Holding Company v. Ministry of Religious Affairs, Pakistan [2010] UKSC 46. 9 The author was lead counsel for Dallah in the Supreme Court and other English courts and the advocate in the arbitration.
Jurisdictional Issues relating to Challenges and the New York Convention 29 went on to find for Dallah on liability and damages. The contract had been for the construction of accommodation for those undertaking Hajj in Mecca. The Government of Pakistan had not sought to take any action in Paris the seat of the award to set it aside. However, the position under French law is that the time allowed for doing so does not begin to run until steps are taken to enforce it. As Dallah had taken no steps to enforce the award at that stage in France, time had not begun to run against the Government of Pakistan for this purpose. The consequence was that the award had not become invulnerable to challenge in the French courts. In the Court of Appeal 10 which views were followed by the Supreme Court Moore-Bick LJ stated: However, even if that were the case, it would not in my view be sufficient to prevent the Government of Pakistan from challenging its recognition and enforcement in this country on the grounds set out in section 103(2)(b) of the Act. It is in my view clear that the purpose of Article V.1 of the Convention was to preserve the right of a party to a foreign arbitration award to challenge enforcement on grounds that impugn its fundamental validity and integrity. The fact that it has not been challenged or that a challenge has failed in the supervisory court does not affect that principle, although a decision of the supervisory court may finally determine such questions and thereby itself create an estoppel by record. As Lord Collins stated in the Supreme Court: 11 The failure by the resisting party to take steps to challenge the jurisdiction of the tribunal in the courts of the seat would rarely, if ever, be a ground for exercising the discretion in enforcing an award made without jurisdiction. The position may well be different if there was found to have been jurisdiction in the first place (see Svenska Petroleum v. Government of Lithuania (No.2) 12 ). The issue of an optional course for a resisting defendant arose most recently in a controversial decision in Singapore in PT First Media TBK 13. The case concerned enforcement in Singapore under the International Arbitration Act 2002 (IAI) of a SIAC arbitration seated in Singapore relating to an Indonesian joint venture. It was thus a domestic international award(s) rather than a New York Convention Award. The Model Law has the force of law in Singapore unless expressly excluded. Two parties who were not signatories to the relevant agreement, but which had been joined as parties to the arbitration under Article 241(b) of the 2007 SIAC Rules, sought to resist enforcement of the award. However they had not availed themselves of the provision in Article 16 (3) of the Model Law to seek a preliminary ruling on jurisdiction within thirty days of the award. One of the issues before the Court of Appeal was whether the waiver of the right to rely on an active remedy e.g. Article 16 (3) of the Model Law with a thirty day time limit, or setting aside under the Article 34 Model Law grounds, which has a three month time limit, precluded recourse to a later passive remedy i.e. enforcement. The Court 10 [2009] EWCA Civ 755, para. 56. 11 [2009] EWCA Civ 755, para.131. 12 [2006] EWCA Civ 1529; [2007] Q.B. 856. 13 PT First Media TBK v. Astro Nusantara International BV and others [2013] SGCA 57.
30 The Turkish Commercial Law Review Volume 1 Issue 1 February 2015 held that: 14 Thus, in our view, the travaux make it clear beyond argument that the Model Law provides for the system of choice of remedies and that this system applies equally to both foreign and domestic awards which are treated uniformly under the Model Law. It follows that under the Model Law, parties that do not actively attack a domestic international award remain able to passively rely on defences to enforcement absent any issues of waiver. The Court added: 15 It is generally for each enforcing court to determine for itself what weight and significance should be ascribed to the omission, progress or success of an active challenge in the court of the seat. The menu of alternative remedies offered to a recalcitrant party to defeat an award on the ground of a jurisdictional challenge can provide an indigestible antidote to an otherwise successful enforcement regime and an obstacle to the finality of awards. To give primacy to the court of the seat and compel an objecting party to initiate proceedings in the seat of the arbitration brings with it an obligation on the part of the party contesting jurisdiction to incur expense to extricate itself from a system of dispute resolution based on consent, to which ex hypothesi it did not agree. Moreover, the court of the seat will be the jurisdiction chosen for the arbitration, whereas the objecting party may wish to take its chances on the choice of enforcing court. On the other hand, entitling such a party to await enforcement creates delay and, if enforcement is unsuccessful on jurisdictional grounds, renders otiose the prior arbitration proceedings. It is a difficult balance, but on the basis that the party initiating the claim has the ultimate obligation to prove its case, so too should it be the party which takes the ultimate risk of failure at the last hurdle. No system is perfect. If the jurisdictional objection is baseless the arguments in favour of a choice of options are less appealing. The checks and balances of the New York Convention regime overall work effectively, but the regime is ultimately based on a consensual basis of dispute resolution. Thus to give the party who asserts lack of consent the opportunity to choose its remedies even if in its wake it promotes delay in enforcement and finality may ultimately be the fairer option. But even if it is not, it seems clearly to be the current practice of enforcing courts and can be ameliorated to some extent by the successful party acting promptly in seeking enforcement. However, it is important to note that the position may be different where there is a time bar for setting aside in a particular jurisdiction or where a court of the seat has given a final judgment on the issue both of which situations may on the facts and depending on the enforcing jurisdiction, give rise to an estoppel precluding the availability of the option. 14 Para. 71. 15 Para. 75.