Arbitration ruling shields London status
1 August 2011 | By Katy Dowell
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There was a collective sigh of relief last week as the Supreme Court overturned an appellate court ruling to find that arbitrators cannot be classed as employees and therefore are not subject to UK equality rules.
This means that a party entering into arbitration does have the right to stipulate the background of the arbitrator who will handle their case, something that would not have been allowed under the earlier ruling.
Linklaters partner Greg Reid says the decision is to be welcomed.
“The Supreme Court’s principal finding, that arbitrators aren’t employees, provides welcome clarification of the role and status of an arbitrator,” he comments. “The decision is a positive recognition of the importance of party autonomy in international arbitration.”
The Court of Appeal (CoA) sent shockwaves through the arbitration sector last June when it held that the Equality (Religion and Belief) Regulations 2003 rendered void an arbitration agreement that required all arbitrators to be members of a specific religious community.
What had begun in the High Court as a minor dispute over £1.5m suddenly stirred the arbitration community into action.
The fear was that, if arbitrators were considered to be employees in the eyes of the law, it would call into question numerous existing arbitration agreements and appointments, as well as affecting the drafting of future arbitration clauses.
There were also doubts about what it would do to London as an international arbitration centre.
If the Supreme Court had upheld the CoA ruling it would have destroyed London’s arbitration status, because in other jurisdictions arbitrators are
self-employed and, more importantly, impartial.
Hogan Lovells partner Kieron O’Callaghan says the “principal concerns arising from the CoA’s decision were that the validity of arbitration agreements contained in many commercial contracts would be called into question, and that the parties’ ability to have an arbitrator from a ’neutral’ country would be restricted”.
At the heart of the dispute was a legal battle over a joint-venture agreement for investment in real estate projects worldwide.
An arbitration agreement between the parties stipulated that arbitrators overseeing any dispute between them were to be “respected members of the Ismaili community and holders of high office within the community”. Ismailism is a branch of the Shia denomination of Islam.
When Sadruddin Hashwani launched his claim against former business partner Nurdin Jivraj, he applied to the Commercial Court to have Sir Anthony Colman appointed as an arbitrator.
In response Jivraj applied to the Commercial Court for a declaration that the appointment was invalid, as Colman was not part of the Ismaili community.
At the Supreme Court the case attracted a trio of interveners in support of Hashwani and his bid to have Colman appointed and they brought with them the might of the magic circle.
Reid and partner Christopher Style QC, both of Linklaters, were instructed for the London Court of International Arbitration (LCIA), with One Essex Court’s Laurence Rabinowitz QC drafted in. Style led the team.
Allen & Overy partner Richard Smith instructed Matrix Chambers’ Thomas Linden QC and Essex Court Chambers’ Toby Landau QC for the International Chambers of Commerce (ICC).
Clifford Chance partner Audley Sheppard drafted in Matrix Chambers’ Rabinder Singh QC, who has been elevated to the High Court bench, for His Highness Prince Aga Khan Shia Imami Ismaili of the International Conciliation and Arbitration Board.
The LCIA argued that the desire of the parties - to ensure the tribunal would be constituted in such a manner as to be, and appear to be, neutral and impartial - is legitimate. Supporting, the ICC argued that an arbitrator must be neutral to the arbitrating parties. However, the court ruled that in this instance it was justified for the arbitration to be heard before three Ismailis.
In the court’s unanimous judgment, Supreme Court Justice Lord Clarke said: “One of the distinguishing features of arbitration that sets it apart from proceedings in national courts is the breadth of discretion left to the parties and the arbitrator to structure the process for resolution of the dispute […] The stipulation that an arbitrator be of a particular religion or belief can be relevant to this aspect of arbitration.” The judge’s comments prompted a flurry of excitement.
“London lost out on a number of arbitrations following the Court of Appeal’s decision in this case as a result of nervousness about the validity of a London arbitration incorporating restrictions on arbitrator nationality,” Mayer Brown partner Philippa Charles says.
Essex Court Chambers barrister Jern-Fei Ng says: “This is by all accounts a pro-arbitration decision, which helps to reaffirm London’s status as one of the that pre-eminent arbitration centres in the world.”
Litigation is booming, but alternative dispute resolution methods are considered to be more attractive to commercial clients.
London has worked hard to establish itself as an independent arbitration centre, which is why sets such as Essex Court, One Essex Court and 20 Essex Street have worked so hard to expand their arbitration credentials.
The Supreme Court ruling has underlined London’s credibility and safeguarded that status - until the next challenge.
- The legal line-up
Hill Dickinson partner Jonathan Berkson instructed One Essex Court’s Rhodri Davis QC to lead Schona Jolly of Cloisters
on behalf of Nurdin Jivraj.
Zaiwalla & Co name partner Sarosh Zaiwalla instructed Fountain Court Chambers’ Michael Brindle QC to lead Essex Court Chambers’ Brian Dye for Sadruddin Hashwani.
Linklaters partner Christopher Style QC instructed One Essex Court’s Laurence Rabinowitz QC to lead Blackstone Chambers’ Christopher McCrudden for the London Court of International Arbitration.
Allen & Overy partner Richard Smith instructed Matrix Chambers’ Thomas Linden QC, Essex Court’s Toby Landau QC, Paul Key and David Craig,
also of Essex Court, for the International Chamber of Commerce.
Clifford Chance partner Audley Sheppard instructed Matrix Chambers’ Rabinder Singh QC and Aileen McColgan for His Highness Prince Aga Khan Shia Imami Ismaili of the International Conciliation and Arbitration Board.