"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, April 5, 2011

The Paris Court of Appeal Decision in Dallah Real Estate v Pakistan

Thanks to one of the members in the Linkedin International Arbitration group, this blawgger was able to get hold of the decision of the Court of Appeal of Paris in Dallah Real Estate and Tourism Holding Co. v. Government of Pakistan. We have had about three posts (more would come, hopefully in the near future!) on the case. Basically, we had discussed a few principles involved in the case and had two posts (here and here) on the English Commercial Court's decision. We now analyse the French Court of Appeal (CoA) decision and compare the same to what the Commercial Court decided.

The only issue that the CoA was really concerned with was whether Pakistan was a party to the arbitration agreement. While discussing the facts, the court noted that the Awami Hajj Trust established by an Ordinance of the Government of Pakistan ceased to exist only after the agreement was executed (for facts, see this post). The CoA held that Pakistan was a party to the arbitration agreement for the following reasons:
  • As per the MoU (Memorandum of Understanding) signed between Dallah and Pakistan, Dallah was to submit the terms and conditions of the agreement, the financial plans etc to Pakistan and the financier was to be an entity designated by Pakistan. Further, the Pakistan had the right as per the MoU to 
  • The only interlocutor with Dallah was the Government of Pakistan. the negotiations took place exclusively between Pakistan and Dallah
  • The officials of the Ministry of Finance, Pakistan were members of the board of the Trust.
  • The financial plans etc were given by Dallah to the Government during the pre-contractual stage
  • Although Dallah has written a letter which states that the Trust was the sole contracting partner , as per the understanding between Dallah and the Government, the government designated in the letter head of the government the financier for the project.
  •  It was clearly indicated to the Chairman of Dallah by one of the members of the Board of the Trust that it was for the Government to approve the contractual relationship between Dallah and the Trust.
  • During the performance of the contract, officials of the Pakistani Government exchanged correspondence in respect of the agreement.
It may be noted that the English Commercial Court decided that the Government of Pakistan was not a party to the agreement. The Commercial Court (CC) accepted that the Trust was created by the Ordinance and that the Government had control over the Trust (through the board). Further, the CC also admitted that the participation of the Government in the agreement was substantial: the agreement was signed by a Government  official although he signed it as a member of the board; the Trust had a unilateral right to assign the contract to the Government; the government provided the contract bank guarantee on behalf of the Trust. Nevertheless the CC concluded that the Government was not party. The reasons were:
  • The Managing Trustee of the Trust signed the contract
  • The guarantee provided to the affiliate of Dallah was an independent contract. merely furnishing the bank guarantee does not indicate that the third party intended to be bound by the contract. The obligations of the trust were independent to that of the Government in furnishing guarantee
  • Pakistan was not a party to the agreement
  • The assignment clause itself was indicative of the fact that the Government did not have any rights in the agreement.  
  • The most important aspect in favour of Pakistan was that the MoU contemplated that the Government would be a party while in the agreement the Government was not a party.
  • Although the letters nominating the financier were sent to Dallah under the letter head of the Government, the nomination was already done by the Trustees.
  • Although the arbitrators concluded that it was the Government which actually funded the Trust, the conclusion was not correct because the funds were to come from the piligrims and philanthropists
  • Although the termination letter was under the letter head of the Ministry of Religious Affairs, he could not have acted as a member of the Board of the Trustee as by then the Trust had ceased to exist.
  • It was not that by not re-promulgating the Ordinance, the Government decided to step in the shoes of the Trust.
  • Before the Judge in Pakistan, the government had sought a declaration that the agreement was repudiated due to the default of Dallah. This implied that the Government did not consider itself to be a party to the agreement.
I leave it to the readers to decide which one is of these judgements is more convincing. We'll look at this extremely interesting divergence between the French and the English courts in a future post.

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