Commercial Dispute Resolution Briefing | January 2011

Arbitration

Supreme Court refuses to enforce foreign arbitral award

Dallah Real Estate and Tourism Company (Dallah) v The Government of Pakistan (2010)

This case constitutes a rare refusal by the English courts to enforce an international arbitration award and confirms that the English courts will consider afresh the validity of the arbitration agreement at the point of enforcement. It stands as a reminder of the importance of ensuring that arbitration agreements are clear and binding on all relevant parties.

The appellant, Dallah, was part of a Saudi conglomerate. It concluded a Memorandum of Understanding with the Government of Pakistan for the provision of housing for pilgrims in Mecca. Subsequently, the Government established the Awami Hajj Trust as a vehicle for the project. Dallah put forward revised proposals for the project and, after negotiations with the Government, the Trust rather than the Government, entered into an agreement with Dallah. The agreement contained an arbitration clause providing that: "(a)ny dispute or difference of any kind whatsoever between the Trust and Dallah arising out of or in connection with this agreement shall be settled by arbitration held under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris, by three arbitrators appointed under such rules".

Following a change in political power in Pakistan, the Trust ceased to exist as a legal entity and Dallah commenced arbitral proceedings against the Government of Pakistan in order to claim damages for breach of the agreement. In those proceedings, the arbitral tribunal made an award in Dallah's favour. Dallah then applied to the High Court to enforce the award in England. The Supreme Court considered whether the arbitration agreement was valid and binding on the Government of Pakistan. The law applicable to decide this issue was French law and the key issue was whether there was a common intention on the part of all parties to the arbitration proceedings (including the non-named party) to be bound by the agreement in question. The arbitral tribunal had considered this issue and had decided that this test was satisfied.

However, the Supreme Court found the opposite, ie, that there was no common intention for the Pakistani Government to be bound by the arbitration clause and, therefore, the award was not in fact, valid. The Court questioned the tribunal's approach to this issue of whether or not there was the requisite common intention, and rejected the argument that the wording of the relevant provisions of the New York Convention (Article v(i)) and the Arbitration Act 1996 (section 103(2)) which provided that "recognition or enforcement of the award may be refused" enabled the enforcement of an award made without jurisdiction.

This decision confirms the willingness of the English courts to examine decisions of arbitral tribunals regarding their own jurisdiction. Parties should now be aware that such decisions, particularly where a tribunal assumes jurisdiction over a party who is not party to the relevant arbitration agreement, may be vulnerable to challenge at enforcement stage.

Click here for the judgment.

Arbitration agreement found void for discriminating on grounds of arbitrators' religious belief

Nurdin Jivraj v Sadruddin Hashwani: Sadruddin Hashwani v Nurdin Jivraj (2010)

In a surprising ruling, the Court of Appeal has declared void an arbitration agreement that required that the three arbitrators to be appointed should be respected members of and holders of high office within the Ismaili community. The Court held that such a clause was discriminatory and fell foul of the Employment Equality (Religion or Belief) Regulations 2003 (the Regulations) which give effect to EC Directive 2000/78 on equal treatment in employment (the Directive). Parties to arbitration agreements must therefore now check that their agreements are worded in a non-discriminatory manner to ensure that they are not vulnerable to attack under these regulations.

The parties (Jivraj and Hashwani) had entered into a joint venture agreement. Article 8 of the agreement provided for disputes to be referred to three arbitrators, all of which had to be respected members of the Ismaili community and holders of high office within the community. After the parties decided to terminate their venture and divide the assets, Hashwani put forward a substantial claim and notified Jivraj of the appointment of his arbitrator (who was not a member of the Ismaili community) under article 8 of the agreement. Jivraj sought a declaration that this appointment was invalid under the parties' arbitration agreement because he was not a member of the Ismaili community. Hashwani sought an order that his arbitrator should be appointed sole arbitrator under section 18(2) Arbitration Act 1996 on the basis that the requirement that the arbitrators be members of the Ismaili community, although lawful when the agreement was made, had been rendered unlawful and void under the Regulations.

The Court of Appeal decided that the Regulations applied. Regulation 6(1) provides that "it is unlawful for an employer, in relation to employment by him at an establishment in Great Britain, to discriminate against a person: (a) in the arrangements he makes for the purpose of determining to whom he should offer employment; or (b) in the terms on which he offers that person employment; or (c) by refusing to offer, or deliberately not offering, him employment".

The Court observed that "employment" as referred to above, was defined as including any contract personally to do any work and held that "work" covered the provision of services by an arbitrator. Hence the arbitrator is an employee for the purpose of the Regulation. The arbitration agreement fell within regulation 6(1)(a) since an arbitration agreement constituted "arrangements", and the stipulation that the arbitrator be from the Ismaili community meant that regulation 6(1)(c) also applied since this amounted to refusing, or deliberately omitting, to offer employment as arbitrator to any person who was not a member of the Ismaili community.

As a matter of policy, the Court held that the Regulations and the Directive should be given a broad interpretation and rejected the argument that the Regulations should not apply to those (such as arbitrators) who were self-employed. Finally, the Court considered whether the exception in regulation 7 of the Regulations applied to validate the agreement where the particular religion or belief stipulated is a genuine occupational requirement for the job. However, the Court found that this exception did not apply as membership of the Ismaili community was clearly not necessary for the discharge of the arbitrator's functions under the agreement. Finally, the Court held that it was not possible to sever the requirement that the arbitrators be members of the Ismaili community from the rest of the arbitration agreement and hence the entire arbitration agreement was rendered void.

NB: The parties have been given leave to appeal against this decision by the Supreme Court. We will report on the Supreme Court's ruling in due course.

Click here for the judgment.

Civil Procedure Rules

Time-limited offer not a valid Part 36 offer

C v D and D2 (2010)

A Part 36 settlement offer which was clearly intended to be a "Part 36" offer and attract all the costs consequences that flow from making such an offer, may not be regarded as such if its wording fails to follow the strict requirements of Part 36 of the Civil Procedure Rules (CPR). Accordingly, when making (and receiving) offers, parties should be alert to drafting mistakes that may mean that the offer is invalid under Part 36.

The claimant and defendant had entered into an agreement for the sale and purchase of land. The defendant subsequently withdrew from the agreement and the claimant sought specific performance of the contract, or alternatively, damages for breach of contract. The claimant sent an offer of settlement to the defendant labelled "Offer to Settle under CPR Part 36". The letter stated that it was open for 21 days and that it was intended to have the consequences set out in Part 36 of the CPR and settle all matters raised in the proceedings. The offer was not accepted within the 21-day period and litigation continued. A few weeks before the scheduled trial date, the defendant purported to accept the offer on the basis that it was still open for acceptance as there had been no formal withdrawal of it. The claimant applied for a declaration that the offer was no longer open for acceptance.

The key issues the High Court considered were whether the offer was limited in time and, if so, whether such a time-limited offer may be a valid Part 36 offer. The judge concluded that the offer's wording stating that "the offer will be open for 21 days from the date of the Offer Letter" made it a time-limited offer and that this was not capable of constituting a valid Part 36 offer. This was because Part 36.9(2) provides that an offer must...