In a judgment dated 22 May 2014, the Commercial Court of England and Wales refused enforcement of an award under the New York Convention using the doctrine of issue estoppel which prevents an issue that has already been litigated on the merits from being litigated a second time.
We understand that this is the first time that the doctrine of issue estoppel was successfully argued to prevent enforcement of an award under the New York Convention. There is previous English case law which discusses this doctrine, but none where it was actually successfully applied.
Diag Human SE, a Lichtenstein company, started arbitration proceedings against the Czech Republic for damages and other relief arguing that certain statements made by the Czech Health Minister had contributed to the collapse of its blood plasma business. On 4 August 2008, an ad hoc Arbitral Tribunal awarded Diag Human £275 million (£135 million in damages and £140 million in interest).
Article V of the arbitration agreement between the parties provided for a review process which gave the parties the opportunity to ask a new panel of arbitrators to review the case within thirty days of the date on which the applicant party received the arbitral award. Both parties sought to invoke the review process.
After a dispute arose between the parties about the constitution of the new review panel, Diag Human decided on 29 March 2010 to withdraw its application for review of the award.
Diag Human then made various attempts to enforce the award in different jurisdictions including England, France, Luxembourg, the USA and Austria. The attempts in France and Austria failed and the enforcement proceedings in the USA and Luxembourg were still outgoing at the time Commercial Court’s judgment was handed down. For the purposes of the English application for enforcement “nothing turn[ed] on [those] proceedings apart from the judgment of the Supreme Court of Austria” (§48 of the English and Wales commercial court judgment of 22 May 2014).
On 16 April 2013, the Supreme Court of Austria held that the award was not yet binding because the submission of an application for review had the effect of suspending the enforceability of the award on the basis that the “arbitration proceedings ha[d] not been concluded” (§ 48 of the English and Wales commercial court judgment of 22 May 2014).
The Austrian decision that the award was unenforceable was based on article V(1)(e) of the New York Convention, which provides that :
“Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoke, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: […]
(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”.
Diag Human then sought enforcement of the award in the Commercial Court of England and Wales pursuant to s103 of the Arbitration Act 1996. The Czech Republic argued that the decision of the Supreme Court of Austria created an issue estoppel in favour of the Czech Republic and that the award was therefore not capable of enforcement.
The doctrine of issue estoppel, according to English law, prevents two parties who have already litigated an issue which was finally determined on the merits before a court, including before a foreign court or an arbitration tribunal, from litigating the same issue again. This is subject to the caveat that a court has discretion on public policy grounds to depart from the doctrine.
On 22 May 2014, the Commercial Court of England and Wales held that the award was unenforceable on the grounds that Diag Human was estopped from asking for a redetermination of an issue on which the Supreme Court of Austria already decided:
- The Judge noted that questions of arbitrability and public policy may be different in different states and that a decision of a foreign court refusing to enforce an award under the New York Convention on public policy grounds in another state would not ordinarily give rise to an issue estoppel in England (58 of the English and Wales commercial court judgment of 22 May 2014);
- However, the court held that there was “no reason in principle” why a decision of a foreign court that the award was not binding “should not give rise to an issue estoppel” provided that the issue to be determined “can properly be said to be “on the merits”” (59 of the English and Wales commercial court judgment of 22 May 2014);
- According to the judgment, “there is [also] no reason why the fact that such decision was made in the context of enforcement proceeding as opposed to any type of proceeding can, of itself, be material” (59 of the English and Wales commercial court judgment of 22 May 2014);
- The Court also underlined that the distinction between the Arbitration Act 1996 and the New York Convention was “a distinction without a difference” because the Arbitration Act was effectively the means by which the Convention was implemented into English law (§62 of the English and Wales commercial court judgment of 22 May 2014).
This judgment may be criticized because:
- A party having been denied enforcement of an award in another state may find that the previous denial automatically prevents it from enforcing its award in England (provided the very narrow doctrine of issue estoppel applies); and
- The New York Convention obliges signatory states to enforce arbitration awards unless one of the listed exceptions applies. “Issue estoppel” is not one of the listed exceptions and critics argue that one state should not be able to rely on the incorrect decision of another state. However, it is decided case law that issue estoppel is part of English public policy, and therefore arguably falls within one of the listed exceptions according to article V (2) (b) of the New York Convention.
The decision is available here.