London's position as key arbitration centre bolstered as Supreme Court delivers verdict in Jivraj v Hashwani

London's position as a global centre for arbitration has been reaffirmed following a Supreme Court ruling that nationality and religion can be used as criteria in the selection and appointment of arbitrators.

In a landmark judgment handed down last week, the Supreme Court confirmed that arbitrators are not employees and therefore fall outside of UK equality laws.

The ruling means that nationality restrictions on arbitrators, such as those specified in last week's Jivraj v Hashwani ruling, can continue to be used in arbitration proceedings held in the UK because arbitrators are not subject to equality laws.

The judgment, which overturns a Court of Appeal decision in June last year that arbitrators were employees for the purposes of the Employment Equality Regulations, will provide further confirmation of London's position as a destination of choice for international arbitration.

In the event that the Court of Appeal decision had not been overturned, concerns had been raised that parties may have been discouraged from coming to London to arbitrate. Over the last year, many lawyers have said that they have drafted arbitration clauses to avoid nationality restrictions in response to the Court of Appeal decision.

The Jivraj case concerned a joint venture agreement signed in 1981 which included an arbitration clause requiring any dispute to be resolved before three arbitrators, each of which must be "a respected member of the [Muslim] Ismaili community".

Hashwani had appointed Sir Anthony Colman, a retired judge of the Commercial Court, as an arbitrator, with Jivraj subsequently arguing that this breached the terms of the agreement.

The High Court found in favour of Jivraj on the grounds that arbitrators fell outside the scope of the regulations as they were not employed, before the Court of Appeal reversed this decision in June 2010.

The final ruling, which upholds the original High Court judgment, states: "The Supreme Court unanimously allows the appeal on the ground that an arbitrator is not a person employed under a contract personally to do work within the meaning of the regulations, which do not therefore apply."

It continued: "In this case, the judge had correctly found that the Ismaili community had demonstrated an ethos, based on religion, for dispute resolution contained within that community."

Hill Dickinson commercial litigation partner Jonathan Berkson acted for Jivraj alongside One Essex Court's Rhodri Davies QC and Cloisters Chambers' Schona Jolly.

Zaiwalla & Co senior partner Sarosh Zaiwalla acted for Hashwani alongside Fountain Court's Michael Brindle QC and Essex Court Chambers' Brian Dye.

Linklaters, Allen & Overy (A&O) and Clifford Chance provided advice to the interveners, advising the London Court of International Arbitration; the International Chamber of Commerce; and His Highness Prince Aga Khan Shia Imami Ismaili, International Conciliation and Board, respectively.

A&O arbitration partner Richard Smith (pictured above) said: "The Court of Appeal decision created considerable concern. Arbitration agreements commonly contain restrictions on the nationality of arbitrators which are designed to ensure the neutrality of the process.

"By treating arbitrators as employees, such restrictions would have been discriminatory and the relevant arbitration agreements could have been struck down in their entirety. The Supreme Court's finding that arbitrators are not employees is very welcome and lays to rest the problems created by the earlier decision."

Freshfields Bruckhaus Deringer dispute resolution partner Nigel Rawding (pictured right) added: "The decision brings the UK back into line with what we understand the likely position to be in other EU jurisdictions. In fact, the reaction to the judgment among the arbitration community, both in London and elsewhere, was that there was something incorrect or ill-fitting about characterising an arbitrator as an 'employee', given the necessary independence of the arbitrator from the parties.

"In that way, the decision helps to cement London's position as a centre of excellence for the resolution of international business disputes."

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View from the profession

"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. For that reason, the London arbitration community, and users of London as a preferred arbitral venue, will welcome the fact the Supreme Court has overturned the previous findings and taken a common sense view of the issues involved.

"If the Court of Appeal decision had been upheld, it would have had a chilling effect on the world's view of London as an arbitration centre. The ability to choose a chairperson of neutral nationality is a cornerstone of many international arbitration agreements." – Philippa Charles (pictured), international arbitration partner, Mayer Brown

"The judgment provides certainty for people drafting arbitration clauses. It confirms London as a leading centre for international arbitration. I warmly welcome the decision. The English courts have lived up to their reputation for robustly supporting international arbitration.

"Nationality restrictions have been used in international arbitration for many years. This is to ensure a balanced and neutral tribunal: for instance, in a World Cup football match you would not expect the referee to be from the same country as one of the teams. They are extremely popular with the parties and we are delighted that they will remain part of arbitrations in England." – Joe Tirado, head of international arbitration, Norton Rose

"The decision is a positive recognition of the importance of party autonomy in international arbitration. It removes any uncertainty which had been generated by the Court of Appeal's decision as to the validity of arbitration agreements incorporating institutional rules relating to the nationality of arbitrators, and confirms the pro-arbitration approach of the English courts." Greg Reid, litigation partner, Linklaters