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12 November 2015
The English court rarely refuses enforcement of foreign awards made under the New York Convention. In Malicorp Ltd v Government of the Arab Republic of Egypt the court did so for the fifth time on the basis that the award had been set aside by the court of the seat and because the respondent (Egypt) had been unable to present its case in the arbitration.(1)
The court's discretion to set aside an award that has been annulled by the curial court is enshrined in Section V(2)(e) of the New York Convention. The proper application of this discretion is much debated. It has not previously been considered by the English courts, where it is enshrined in English law by Section 103(2)(f) of the Arbitration Act. Section 103(2)(f) provides a discretionary ground for refusing enforcement on the basis that the award has not yet become binding on the parties or has been set aside or suspended by the courts of the seat of arbitration.
In Malicorp Ltd v Government of the Arab Republic of Egypt, Justice Walker exercised the court's discretion under both these provisions, refusing to enforce a Cairo Regional Centre for International Commercial Arbitration award granted in favour of Malicorp Ltd.
The dispute arose out of a concession contract between Malicorp and the Egyptian government. The contract related to the design, construction and operation of a new airport at Ras Sudr on the Red Sea Coast. The Egyptian Holding Company for Aviation (representing Egypt) gave notice to Malicorp that it was cancelling the contract because, among other things, Malicorp had allegedly submitted documents whose "authenticity [was] dubious" and which were thought to be "untrue" to the Egyptian authorities, and had failed to fulfil its obligation to form an Egyptian company on time.
In April 2004, Malicorp commenced arbitration at the Cairo Regional Centre for International Commercial Arbitration, claiming lost profit damages with respect to the airport project in excess of $500 million. Before the final award was rendered, Dr Gabr (appointed by Egypt) retired from the tribunal, citing a February 2006 Egyptian Administrative Court decision suspending the arbitration on the basis that the arbitration agreement was invalid. Despite this, the truncated tribunal issued an award in favour of Malicorp in 2006 requiring Egypt to pay $10 million plus costs and interest. Significantly, the tribunal found that the contract was void for mistake and awarded damages pursuant to Article 142 of the Egyptian Civil Code, which operates to return the parties to the position they would have been in had the mistake not occurred.
In 2008, Malicorp sought to enforce the award in France. This application was refused by both the Paris Court of Appeal and the Paris Court of Cassation. The same year Malicorp also brought a claim against the government for expropriation which was rejected by an International Centre for Settlement of Investment Disputes tribunal in 2011 – a decision confirmed by another tribunal pursuant to annulment proceedings.
In 2012, the Cairo Court of Appeal set aside the award (a decision currently on appeal to the Egyptian Court of Cassation) (referred to as the 'Cairo decision').
The matter came before the English court in 2012, when Malicorp made a without notice application for permission to enforce the award which Justice Flaux had co-granted, reserving Egypt's right to apply to set aside the order for enforcement.
In the present case, Egypt sought to set aside the enforcement order, arguing that the case fell within the exceptions enshrined in Sections 103(2) to 103(4) of the Arbitration Act 1996. Justice Walker was satisfied that the court should refuse enforcement of the award on two bases under Section 103(2) of the act and set aside the enforcement order.
The first ground concerned the effect of the Cairo decision on the English's courts ability to enforce the award.
Egypt's primary argument was that the award, having been set aside in Cairo, no longer existed in a legal sense and therefore could not be enforced. In doing so, Egypt referred to the principle of ex nihilo nil fit (nothing comes from nothing) and principles set out by Van den Berg in "Enforcement of Annulled Awards".(2)
Malicorp contended that the Cairo decision should not be given effect because:
Agreeing with Egypt, the court found that the effect of the Cairo decision was that the award should not be enforced. However, it differed in its reasoning. Referring to dicta in Yukos Capital SARL v OJSC Rosneft Oil Company, Justice Walker applied what he considered to be the "preferred approach" to the enforcement of foreign arbitral awards.(3) While the discretion to enforce the award lay with the English court, "it would not be right to exercise that discretion if, applying general principles of English private international law, the set aside decision was one which this court would give effect to". As such, he held that the Cairo decision should be upheld unless "it offended basic principles of honesty, natural justice and domestic concepts of public policy". He noted that the claims made by Malicorp could not be accepted without "positive and cogent evidence". The evidence presented by Malicorp did not meet the standard required.
The second ground was that the award granted remedies on the basis of Article 142, a basis neither pleaded nor argued by the parties. Malicorp's claim had throughout been focused on seeking compensation for breach of the contract. There was no suggestion from either party that the doctrine of the mistake formed the basis of the claim or that damages might be awarded on the basis of Article 142 of the Egyptian Civil Code. In these circumstances, the award of damages on the basis of Article 142 would have been a "complete surprise to Egypt" and it would have been "astonishing" if Egypt had failed to argue against the award of damages in this way. Accordingly, the judge held that the failure to allow Egypt to put its case on this issue constituted a breach of natural justice, justifying non-enforcement of the award on the basis of Article 103(2)(f) of the Arbitration Act 1996.
The New York Convention is premised on an agreement by state parties to recognise and enforce arbitral awards and a discretion to set aside awards in only limited circumstances.
The preferred approach of the English courts acknowledges the state's discretion to enforce an award that has otherwise been set aside by the court of the seat. However, ultimately it pays more credence to the principle of comity between courts that requires judgments to be enforced unless they offend fundamental principles of due process. The court will analyse the effect of the judgment of the curial court by reference to the principles relating to the recognition of foreign judgments. Unless the judgment offends basic principles of honesty and public policy, it should be upheld and the award should not be enforced.
This is only the fifth time that an English court has refused to enforce an award issued under the New York Convention. The decision demonstrates deference to the court of the seat to regulate arbitral awards issued under its auspices, but does not affect the general pro-enforcement stance that the English courts take when faced with recognition and enforcement of a convention award.
For further information on this topic please contact Marie Berard or Anna Kirkpatrick at Clifford Chance LLP by telephone (+44 20 7006 1000) or email (firstname.lastname@example.org or email@example.com). The Clifford Chance website can be accessed at www.cliffordchance.com.
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