A one-stop shop? Issue estoppel and the limits to forum shopping in enforcement of arbitral awards

The recent decision of the English High Court¹ in Diag Human Se v The Czech Republic [2014] EWHC 1639 has illustrated that issue estoppel could thwart a party's attempt to enforce an award that has already been the subject of unsuccessful enforcement proceedings in a court of another jurisdiction. An earlier case in Australia suggests that a similar approach would likely be taken by an Australian court.

Background to the Diag Case

The case concerned a long-running dispute between Diag Human, one of the world's largest blood plasma suppliers, and the Czech Republic. The parties referred the dispute to ad hoc arbitration, which ultimately led to an award in favour of Diag Human.

Both parties sought to invoke the review process provided for in the arbitration agreement, although Diag Human subsequently withdrew its application for review. The review process was subsequently caught up in a series of Czech court proceedings challenging the constitution of the review tribunal.

Diag Human did not attempt to enforce the arbitral award in the Czech Republic, but attempted to enforce the award in other jurisdictions including France, Luxembourg, the USA and Austria. Relevantly, the Supreme Court of Austria had held that the award was not binding, and therefore unenforceable under Article
V of the New York Convention.

Issue estoppel

The central issue before Eder J in Diag was whether the earlier enforcement proceedings in Austria under the New York Convention gave rise to an issue estoppel to the effect that the award was not binding.

In order to establish an issue estoppel, four conditions must be satisfied:

1. The judgment must be given by a foreign court of competent jurisdiction;
2. The judgment must be final and conclusive and on the merits.
3. There must be identity of parties.
4. There must be identity of subject matter.

Eder J held that the issue determined by the Supreme Court of Austria was that the award was not binding. It made no difference that the Austrian court reached that conclusion in the context of enforcement proceedings under the New York Convention, rather than under the English Arbitration Act 1996.

Eder J accepted that questions of arbitrability or public policy might be different in different states, and that a decision in another jurisdiction on those grounds would not ordinarily give rise to an issue estoppel in England. However, Eder J considered that there is no reason why a foreign court's decision that an award is not binding, would not give rise to an issue estoppel. Whether the Austrian court was right or wrong is irrelevant to a plea of estoppel.

Accordingly, Eder J held that the award was not binding under the English Arbitration Act and dismissed Diag Human's application for enforcement of the award.

Diag and issue estoppel in Australia

It may be that an Australian court would take a similar approach to issue estoppel. Issue estoppel in the context of enforcement proceedings was considered in the earlier decisions of the Federal Court of Australia in Gujarat.² 

In Gujarat, both Foster J at first instance and the Full Federal Court on appeal found that enforcement of the relevant award should not be refused on the basis of denial of procedural fairness. Significantly, Foster J had also held that an issue estoppel prevented Gujarat from successfully making this argument, given that the issue had been determined in a prior judgment by the English High Court (London being the seat of arbitration) in proceedings brought by Gujarat to set aside the arbitral award. The Full Court considered it was unnecessary to deal with this issue.

However, the Full Court interestingly remarked that at the very least, Foster J was correct to hold that it will generally be inappropriate for the enforcement court of a Convention country to reach a different conclusion on the same question of asserted procedural defects as that reached by the court of the seat of arbitration.

While in contrast to Diag, Gujarat raised the question of whether, in enforcement proceedings, an issue estoppel could arise from a foreign court's refusal to set aside an arbitral award (that foreign court being a court of the seat), the Gujarat case seems to suggest that an Australian court is likely to take a similar approach to issue estoppel as the English court in Diag.

A limit to forum shopping?

There has been some criticism of the decision in Diag in that it effectively adds an extra basis to the limited grounds to challenge the enforcement of an award.

From the perspective of an award debtor, the Diag case highlights the significance of giving careful consideration to the jurisdiction in which an award is to be enforced, as an unfavourable decision in enforcement proceedings in one jurisdiction could thwart a subsequent attempt in another jurisdiction by reason of issue estoppel. However, this is likely to depend on the "issue" in respect of which the issue estoppel could be raised. For example, a foreign judgment refusing enforcement on grounds of arbitrability or public policy seems unlikely to ordinarily give rise to issue estoppel.