Challenges to Enforcement: s.103(2) of the Arbitration Act

Published: 20/2/2020

This blog examines two recent cases involving challenges to enforcement under s.103(2) of the English Arbitration Act 1996 (the "Act"). Both cases show the pitfalls of seeking to enforce an Award in England whilst a challenge to the validity of the Award in the Arbitral seat remains outstanding.

See also our blog reporting on the judgment of AIC Ltd v Federal Airports Authority of Nigeria [2019] EWHC 2212 (TCC), which reviewed the principles taken into account by the English Court in applications under s.103(5) of the Act and commented on the willingness of the English Courts to defer its support of arbitral proceedings in circumstances where proceedings challenging an award in a foreign seat are ongoing.

In Leidos Inc v The Hellenic Republic [2019] EWHC 2738 (Comm), a case in which Enyo Law acted for the Respondent, the Court made authority on the circumstances in which a respondent party will be able to resist enforcement in England under s.103(2)(f) of the Act.

In Kabab-Ji S.A.L. (Lebanon) v Kout Food Group (Kuwait) [2020] EWCA Civ 6, 2020 WL 00265025, the Court of Appeal considered the circumstances in which adjournment under s.103(5) of the Act will not be appropriate. 

Leidos Inc v The Hellenic Republic 
Background

Leidos issued ICC arbitration proceedings in Greece against The Hellenic Republic concerning a dispute arising out of a contract between the parties relating to the 2004 Athens Olympics. On 2 July 2013, the Tribunal found in Leidos's favour and issued an award of 40 million euros (the "Award").

The Hellenic Republic made a series of challenges to the Award in the Greek Courts, which culminated in an appeal to the Greek Supreme Court in 2018. On 18 October 2018, the Greek Supreme Court suspended enforcement of the Award pending its full decision.

Whilst the Greek Supreme Court was still hearing the appeal, on 30 October 2018 Leidos sought and obtained an ex parte order to enforce the arbitration award in England (the "Enforcement Order"). On 13 June 2019, the Hellenic Republic issued a set aside application under s.103(2)(f) which states that enforcement may be refused where "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, it was made" (the "Set Aside Application").

Before the Set Aside Application could be heard, the Greek Supreme Court dismissed The Hellenic Republic's final appeal and the suspension of the Award's enforcement was lifted. As a result, the Set Aside Application fell away and The Hellenic Republic made arrangements to pay the Award sum.

The question before Mr Justice Jacobs was which party ought to recover its costs. This involved consideration of whether the Set Aside Application would likely have succeeded.

Interpretation of s.103(2)(f)

One of the questions before Jacobs J was the proper meaning of the wording in s.103(2)(f) that "the award…has been…suspended by a competent authority of the country in which…it was made", which appears in identical form in the New York Convention (Art. V(1)(e)).

Neither party's counsel had identified any authority on the concept of "suspension" and there appeared to be no previous case where there had been a stay of enforcement ordered by a court in the seat of the arbitration and an enforcement application had been sought in a different jurisdiction.

Jacob J found with "little doubt" that the effect of the Greek Supreme Court orders were to "suspend" the Award, by preventing any enforcement of the Award pending the determination of the substantive challenge before the Supreme Court. There were three factors in this:            

  1. The Judge rejected Leidos's argument for s.103(2)(f) to apply that "suspension" had to be permanent, stating his view that "suspension" denotes something temporary.
  2. The Judge found it was not necessary for the "suspension" to be expressed to have extra-territorial effect: it was sufficient that a competent authority (in this case the Greek Supreme Court) makes it clear that there can be no enforcement of the award pending its determination of the substantive application.
  3. It makes no sense for "suspension of the enforcement of the award" to be distinguished from a "suspension of the award". Jacobs J agreed with The Hellenic Republic's counsel that the question of whether there has been a suspension of the award must be considered as a matter of substance, and that this occurs where the courts of the seat have stayed enforcement pending determination of a challenge of the Award.

On the final point, Jacobs J stated that whilst no clear definition of "suspension" emerges from a consideration of the New York Convention's drafting history, these commentaries indicate that the term "suspended" does extend to the suspension of the enforcement of an award by a judicial decision, albeit that it arguably does not apply where an award is automatically suspended as a result of the mere bringing of an action to set it aside.

The Judge found that had the Set Aside Application been heard at a time when the Greek Supreme Court had not yet determined and dismissed the challenge, it was "highly probable" that it would have succeeded.

Kabab-Ji S.A.L. (Lebanon) v Kout Food Group (Kuwait)

In the recent Court of Appeal decision in Kabab-Ji S.A.L. v Kout Food Group, the Court of Appeal considered, amongst other issues, whether the lower court judge erred in failing to make a final determination under s.103(2) of the Act.

Background

In 2001, Kabab-Ji and Al Homaizi Foodstuff Company (AHFC) entered into a Franchise Development Agreement (FDA). The FDA contained an arbitration provision that "the arbitration shall be conducted in the English language in Paris France" and another provision that stated the FDA "shall be governed by and construed in accordance with the laws of England". In 2005, AHFC became a subsidiary of Kout Food Group (KFG). A dispute later arose under the FDA and Kabab-Ji issued arbitration proceedings against KFG rather than AHFC, the original counterparty to the FDA.

A Paris-seated Tribunal determined that the issue as to whether KFG was bound by the arbitration agreement was a matter of French law. However, the issue as to whether a novation had occurred was governed by English law. The Tribunal found that, as a matter of English law, KFG had become a party to the FDA and the arbitration agreement by conduct. Following the Award, KFG filed an annulment application before the French court. Prior to that hearing taking place, the Kabab-Ji (the Appellant in the later appeal) issued proceedings in the Commercial Court in London under s.101 of the Act to enforce the Award in England and on 7 February 2018, Popplewell J made an order ex parte for the Award to be enforced as a judgment. Shortly thereafter, KFG applied under s.103(2)(a) and (b) of the Act for an order that recognition and enforcement of the Award be refused and to set aside Popplewell J’s order.

At a case management conference in June 2018, Teare J made an order for the trial of certain preliminary issues. He also ordered that the Appellant’s applications for an adjournment of the enforcement proceedings in England pending the determination of the French proceedings be dealt with by the Court at the same hearing as the preliminary issues.

First Instance Decision

Following a three-day hearing in March 2019, Sir Michael Burton found that there had been an express choice of English law governing the arbitration agreement and therefore the issue of whether KFG became a party to that agreement was a matter of English law. Following the principles laid down by the Supreme Court in MWB Business Exchange Centres Limited v Rock Advertising Limited [2018] UKSC 24, the 'No Oral Modification' clause in the FDA would mean that KFG was not a party to either the FDA or the arbitration agreement unless the Appellant could satisfy the conditions for estoppel set out in Rock Advertising (which on his findings the Appellant could not).

The Judge then went on to consider whether the decision regarding enforcement of the Award should be adjourned. Referring to the Court of Appeal’s decision in Soleh Boneh International v Uganda [1993] 2 Lloyd’s Rep 208, he said there were two important factors to be considered on such an application, the first of which was the merits. He had concluded here that the prospects of the Kabab-Ji ever enforcing the award in this jurisdiction were very slim. The second factor was ease of enforcement and whether delay would render it more difficult, which did not apply here where it was the award creditor seeking an adjournment.

Despite finding that the prospects of the Appellant ever enforcing the Award in England were "very slim", the Judge refused to make a final determination on the grounds that:

  1. What Teare J ordered was the hearing of Preliminary Issues, not the final resolution of the enforcement application;
  2. The Appellant’s list of documents relied upon was only finalised during the course of the hearing, and it may not be complete; and
  3. It was "just possible" that the examination of documents, and any evidence given, by way of rehearing, might establish that there was something approximating to a consent in writing by the parties in accordance with the conclusions, although that was "unlikely".
Court of Appeal’s Consideration 

The Appellant appealed against the Judge’s first instance findings that the contract was governed by English law and that the ‘No Oral Modification’ clause in the contract meant that the Respondent had not become a party to the arbitration agreement.

The Respondent cross-appealed on the basis that the Judge erred in law in failing to apply the test for summary judgment to the application to enforce the Award. KFG submitted that where, as here, the award debtor established a New York Convention defence under Article V (as enacted in s.103(2) of the Act) and/or the appellant has no realistic prospect of resisting the defence, recognition and enforcement should be refused without the need for any further or fuller rehearing.

The Court of Appeal dismissed the Appellant’s appeal and upheld Sir Michael Burton’s decision that English law governed the arbitration agreement. It also found in favour of the Respondent that the Judge should have made a final determination that KFG was not a party to the FDA or the arbitration agreement, such that the Award was not enforceable against KFG under s.103(2) of the Act. An order was made setting aside the ex parte order of Popplewell J and refusing enforcement and recognition of the Award.

The Judge had erred in law and principle by failing to make a final determination and adjourning the application for enforcement for a possible further hearing after the French court was to determine the annulment issue. First, he overlooked that the decision of the French court was not relevant to the questions of English law and its application to the facts which were before the judge because the French Court would not apply the Article V(1)(a) of the New York Convention test in determining the law of the arbitration agreement, but internal French law. Whilst the French court may annul the Award and therefore render the English proceedings academic, that was no reason for adjourning the English proceedings at the request of the Award creditor after a three-day hearing on the merits of the application to enforce the Award.

Second, the Judge failed to make any assessment as to whether, if the application returned for a further hearing after the French Court’s determination, the Appellant had a real prospect of successfully establishing that the Respondent was a party to the  arbitration agreement and thus of enforcing the Award as a judgment in England under s.101 of the Act. The judge should have considered whether the Appellant could pass the summary judgment threshold.

In arguing for an adjournment, it was for the Appellant to demonstrate at a further hearing before the Commercial Court that it had a real prospect of successfully enforcing the Award. It had not done so. It failed to particularise what further evidence it contended would or even might be available at a further hearing, let alone how that evidence would satisfy the Rock Advertising test.

Given that, in the Judge’s view, the prospect of a different decision being reached at a later hearing was remote, an adjournment should not have been granted and he should have made a final determination refusing recognition and enforcement of the Award.

Sign up to our newsletter