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English High Court refuses to enforce award against Czech Republic on grounds of issue estoppel

The English Commercial Court has refused to enforce a £275 million New York Convention award against the Czech Republic in favour of the Lichtenstein company Diag Human on the basis that an earlier judgment of the Austrian Supreme Court created an issue estoppel or, alternatively, that the award was not “binding” under s.103(2)(f) of the Arbitration Act 1996.  This is a landmark decision as it is believed to be the first time that issue estoppel has been successfully argued as a ground for refusing enforcement of a New York Convention award.

Somewhat unusually, the parties’ arbitration agreement provided for any award to be subject to a review process by a new arbitral tribunal.  These review proceedings were commenced, and the Czech Republic argued that the award (which was issued under the Czech Arbitration Act) was not binding while the review process was still pending.  In earlier enforcement proceedings in Austria, the Austrian Supreme Court had agreed that the award could not be enforced or rejected by a national court whilst the review proceedings before the second arbitral tribunal were pending.

In Diag Human Se v The Czech Republic [2014] EWHC 1639 (Comm), the Commercial Court acknowledged that a foreign court’s refusal to enforce an award under the New York Convention on public policy grounds “will not ordinarily give rise to an issue estoppel in England”.  Nonetheless the Commercial Court went on to refuse enforcement because there was “no reason in principle” why the decision of a foreign court in the course of enforcement proceedings that an arbitral award was not binding could not create an issue estoppel.  In other words, the Commercial Court found that because the issue being decided was identical to the issue which had already been decided by the Austrian Supreme Court, and the other requirements under English law for an issue estoppel had been met, there was no reason why a party could not be “estopped” or prevented from litigating the same point again before the courts of another jurisdiction.

The decision has been met with criticism from the international arbitration community, because it effectively allows the judgment of a foreign court (other than a court at the seat of the arbitration)  denying enforcement to prevent a party from seeking enforcement in another state which is party to the New York Convention, and thus risks undermining the principle of enforceability which is so fundamental to the attractiveness of arbitration as the preferred method of resolving international disputes.  It is not yet clear whether this decision will be appealed, but if so it is likely that arbitration practitioners will follow the progress of any appeal closely to see whether the approach applied in this case is upheld.