Data

Date:: 14-12-2007
Country:: United Kingdom
Number:: [2007] EWHC 2981 (Ch)
Court:: High Court of Justice
Parties:: Musawi v. R.E. International (UK) Ltd and others

Keywords

ARBITRATION AGREEMENT - BETWEEN AN IRAQI PARTY AND AN IRANIAN PARTY - CHOICE OF SHARIA LAW AS THE RULES APPLICABLE TO THE SUBSTANCE OF THE DISPUTE - ADMISSIBLE UNDER SECTION 46(1)(B) OF THE UK ARBITRATION ACT 1996 - REFERENCE TO THE UNIDROIT PRINCIPLES AS ANOTHER POSSIBLE CHOICE OF NON-STATE RULES APPLICABLE TO THE SUBSTANCE OF THE DISPUTE

Abstract

An Iraqi citizen and an Iranian family concluded a series of agreements to jointly acquire, develop and own a land adjoining the Wembley Stadium in London. Subsequently, the parties disagreed as to their respective rights and entered into an arbitration agreement providing that the dispute should be settled in accordance with “Islamic legal standards”. They also appointed an Ayatollah “as arbitrator and Islamic legal judge”. The arbitrator issued an award in favour of the Iraqi party, who sought enforcement in the High Court of Justice.

The Court ruled in favour of the plaintiff. In doing so, the Court, referring to Dicey, Morris & Collins, The Conflicts of Laws (14th edition), affirmed that section 46(1)(b) of the UK 1996 Arbitration Act "allows parties the freedom to apply a set of rules or principles which do not in themselves constitute a legal system" and that "such a choice may include a non-national set of legal principles (such as the 1994 UNIDROIT Principles of International Commercial Contracts) or, more broadly, general principles of commercial law or the lex mercatoria." Consequently, the Court held that the arbitration agreement validly selected Shia Sharia law as the law applicable to the substance of the dispute and decided in favour of the enforcement of the arbitral award.

Fulltext

The Hon. Mr Justice David Richards:

Introduction

1. This case concerns a 4.1 acre undeveloped site in South Way, Wembley, London adjoining the Wembley Stadium (the Wembley land). The acquisition, development and ownership of the land was the subject of a series of agreements and alleged agreements between 1987 and 2002 involving the claimant and some or all of the defendants. From 1988 to 2004, the registered proprietor of the freehold title to the land was the first defendant R.E. International (UK) Limited (REI). The dispute in this case concerns the interest of the claimant in the Wembley land. The land was the subject of a compulsory purchase order made on 20 February 2004 by the London Development Agency and confirmed on 13 October 2004 by the Secretary of State. The London Development Agency took possession of the site on 14 September 2004. Any interest of the claimant is therefore now in the sum payable in compensation. The London Development Agency has put forward a valuation of £900,000 and paid £800,000 on account. The valuation is disputed and will have to be determined by the Lands Tribunal, if it cannot be agreed. It is said that the value was several millions of pounds. The parties are cooperating in relation to this issue.

2. There have been a number of unusual complicating factors. First, it was the position of all parties, in their statements of case and at the start of the trial, that all the relevant agreements were governed by Shia Sharia law. In the light of the Contracts (Applicable Law) Act 1990 and the decisions at first instance and on appeal in Halpern v Halpern [2007] EWCA Civ 291, as well as the decision of the Court of Appeal in Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd [2004] 1 WLR 1784, both counsel agreed that Shia Sharia law could not be the applicable law, at least for any of the agreements made after the 1990 Act came into force on 1 April 1991. They agreed that so far as those agreements were concerned, the applicable law must be the law of a country and that on the facts of this case it had to be English Law. Mr Harbottle for the claimant nonetheless submitted that at common law an agreement could be governed by a system of law which was not the law of a country and that the agreements at issue in this case made before 1 April 1991 were governed by Shia Sharia law. Mr Sen for the defendants submitted that this was not the correct position at common law and that all the relevant agreements were governed by English law.

(...)

The parties' claims

12. Mr Musawi's principal claim is for a declaration that he holds a 60.4% interest in the Wembley land and any proceeds of sale. This claim is based on an award dated 3 June 2004 given by Ayatollah Mohsen Araki pursuant to an arbitration agreement dated 27 September 2003. The defendants deny this claim on a number of grounds, principally because the award was outside the scope of the arbitration agreement and because the parties to the arbitration agreement did not include the legal or beneficial owners of any interest in the land against whom any such award could be made.

13. If Mr Musawi fails on his principal claim, he has a number of alternative claims. First, he claimed the same entitlement to a 60.4% interest in the land on the basis of an agreement alleged to have been made in correspondence 1998-1999. In his closing speech, Mr Harbottle informed me that this claim was not pursued.

14. Secondly, Mr Musawi claimed that the unstamped 1990 agreement had been rescinded for misrepresentation in 1999. There was no purported transfer of any interest in the land except as contained in the agreement. He therefore claimed the interest in the Wembley land which he had owned prior to the 1990 agreement. On this basis he claimed to be the sole beneficial owner of the land. As the 1990 agreement is not admissible in evidence and cannot be relied on by the defendants for any interest in the land, this claim falls away. The same is true of Mr Musawi's third alternative claim that Dr Shahrestani was in repudiatory breach of the 1990 agreement and that Mr Musawi accepted the repudiation and brought the agreement to an end in 1999.

15. A fourth alternative claim was added by way of reamendment. On the basis that the 1990 agreement was unstamped and inadmissible, Mr Musawi claims the entire beneficial interest in the land which, on his case, he owned prior to that agreement.

16. There is a counterclaim as to the beneficial interests in the land. As finally pleaded, after the close of evidence, it is a counterclaim by REI, Reza and Saleh for a declaration that Mr Musawi holds a 47.7% interest, and Reza and Saleh on behalf of their father Mehdi hold a 52.3% interest, in the land or proceeds of sale, subject to the assessment of management charges claimed by Reza and Saleh. This is based on an agreement which the defendants allege was made on 7/8 August 2002.

The proper law of the contracts at common law

17. Mr Harbottle submitted that at common law the proper law of a contract need not be the law of a country, but could be any system of law provided it was sufficiently certain. It was common ground that the parties to the various contracts in this case had intended them to be governed by Shia Sharia law and there was no dispute between them as to which school or system of Sharia law was intended. He submitted that Shia Sharia law was sufficiently certain and that therefore, while accepting that agreements made after 1 April 1991 had to be governed by the law of a country, those made before that date could be governed by the parties' choice of Shia Sharia law.

18 Mr Harbottle accepted that his submission was not directly supported by any authority, but equally there was no decision which established the contrary. He accepted that a dictum of Lord Diplock in Amin Rasheed Shipping Corp v Kuwait Insurance Co [1984] AC 50 was against his submission, but he pointed out that it was made in a case which concerned only the laws of countries and which raised no issue of non-national systems. He relied on dicta in Deutsche Schachtbau-Und Tiebohrgesellschaft MBH v Ras Al-Khaimah National Oil Co [1990] 1 AC 295 ( DST v Rakni) and Home and Overseas Insurance Co Ltd v Mentor Insurance Co Ltd [1989] 3 All ER 74 .

19. In my judgment, at common law the proper law of a contract had to be either English law or the law of another country, and the courts would not apply any other system to a contract. Although I am not aware of any decision to this effect, it was clearly stated as the applicable principle in successive editions of Dicey & Morris: The Conflicts of Laws. For example, in the 11th edition (1987), the last before the Contracts (Applicable Law) Act 1990, it was stated that the parties to a contract could choose the law of a country as its governing law, failing which the court would decide the proper law by applying its conflicts of laws rules which necessarily involve a choice between the laws of countries: see p. 1162. By way of exception, it was noted that where a government was a party to a contract, "it may, it seems (at any rate for purposes of arbitration) choose as the proper law the "general principles of law" or even "public international law" (p. 1188). In Chapter 16, dealing with arbitration, the editors stated:
"Nor can an English arbitrator apply any conflict of laws rules other than English rules; nor can he apply any substantive law other than that of a fixed and recognisable system. Some of the most important cases in England on the conflict of laws have been decided by the courts by way of review of arbitration awards, or in answer to questions of law posed by arbitrators. The reason is that arbitrators in an English arbitration must apply the law, and that in English law a contract is governed either by English law or by some specific foreign law."
In the latest edition (14th ed, 2006), the equivalent paragraph (16-047) notes the changes made by the Arbitration Act 1996 and states:
"In England, prior to the 1996 Act, it was axiomatic that an English arbitrator was bound to apply English law, including the English conflict of laws rules to decide the substance of any dispute, and many of the most important cases in the conflict of laws arose by way of appeal on matters of law from arbitral awards. The other consequence of this approach was that, just as in the English courts, an English arbitrator could only apply a national legal system, designated as applicable by the relevant choice of law rule. The tribunal could not apply non-national rules, still less decide the dispute ' ex aequo et bono ' or as an ' amiable compositeur ', on the basis of general principles of justice and fairness."

20. Lord Diplock's dictum in Amin Rashid Corp v Kuwait Insurance Co at pp. 61-62 is at the end of the following passage:
"English conflict rules accord to the parties to a contract a wide liberty to choose the law by which their contract is to be governed. So the first step in the determination of the jurisdiction point is to examine the policy in order to see whether the parties have, by its express terms or by necessary implication from the language used, evinced a common intention as to the system of law by reference to which their mutual rights and obligations under it are to be ascertained. As Lord Atkin put it in Rex v. International Trustee for the Protection of Bondholders Aktiengesellschaft [1937] A.C. 500, 529:
"The legal principles which are to guide an English court on the question of the proper law of a contract are now well settled. It is the law which the parties intended to apply. Their intention will be ascertained by the intention expressed in the contract if any, which will be conclusive. If no intention be expressed the intention will be presumed by the court from the terms of the contract and the relevant surrounding circumstances."

Lord Atkin goes on to refer to particular facts or conditions that led to a prima facie inference as to the intention of the parties to apply a particular system of law. He gives as examples the lex loci contractus or lex loci solutionis, and concludes:
"But all these rules but serve to give prima facie indications of intention: they are all capable of being overcome by counter indications, however difficult it may be in some cases to find such."

"There is no conflict between this and Lord Simonds's pithy definition of the "proper law" of the contract to be found in Bonython v. Commonwealth of Australia [1951] A.C. 201, 219 which is so often quoted, i.e., "the system of law by reference to which the contract was made or that with which the transaction has its closest and most real connection." It may be worth while pointing out that the "or" in this quotation is disjunctive, as is apparent from the fact that Lord Simonds goes on immediately to speak of "the consideration of the latter question." If it is apparent from the terms of the contract itself that the parties intended it to be interpreted by reference to a particular system of law, their intention will prevail and the latter question as to the system of law with which, in the view of the court, the transaction to which the contract relates would, but for such intention of the parties have had the closest and most real connection, does not arise.
One final comment upon what under English conflict rules is meant by the "proper law" of a contract may be appropriate. It is the substantive law of the country which the parties have chosen as that by which their mutual legally enforceable rights are to be ascertained, but excluding any renvoi, whether of remission or transmission, that the courts of that country might themselves apply if the matter were litigated before them."
Lords Roskill, Brandon and Brightman agreed with Lord Diplock's speech. Mr Harbottle accepted that it left no room for anything other than the law of a country, and I regard it as an authoritative statement of the position at common law. In Halpern v Halpern at para 24, Waller LJ described it as the conventional view of the common law principles.

21. The dicta of Sir John Donaldson MR in DST v Raknoc at p. 315 and of Lloyd LJ in Home and Overseas Insurance Co Ltd v Mentor Insurance Co Ltd at pp. 84-85 were concerned with the principles by which arbitrators could decide the substantive issues. The first case concerned the enforcement of a foreign award, but the second concerned an English arbitration. In the years immediately before the Arbitration Act 1996, there was some uncertainty as to whether the conventional and established rule, that in an English arbitration the arbitrators had to apply the law of a country, remained good law.

22. Section 46(1)(b) of the Arbitration Act 1996 enables parties to choose principles other than the law of a country as the basis on which the dispute is to be decided by the arbitrators. Section 46 provides as follows:
"1) The arbitral tribunal shall decide the dispute--
(a) in accordance with the law chosen by the parties as applicable to the substance of the dispute, or
(b) if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tribunal.
(2) For this purpose the choice of the laws of a country shall be understood to refer to the substantive laws of that country and not its conflict of laws rules.
(3) If or to the extent that there is no such choice or agreement, the tribunal shall apply the law determined by the conflict of laws rules which it considers applicable."
The "law" which may be chosen under section 46(1)(a) or which may be applied under section 46(3) must be the law of a country: see Dicey, Morris & Collins (14th ed) at paras 16-050 to 16-055. By contrast, section 46(1)(b):
"allows the parties the freedom to apply a set of rules or principles which do not in themselves constitute a legal system. Such a choice may thus include a non-national set of legal principles (such as the 1994 UNIDROIT Principles of International Commercial Contracts) or, more broadly, general principles of commercial law or the lex mercatoria."
The distinction made in section 46 between "law", being the law of a country, and "other considerations" is consistent with what I consider to be the common law position. I do not think that the dicta in DST v Raknoc and the Home and Overseas case, dealing with arbitrations, have any application to the common law rules which the court would apply when deciding on the proper law to be applied by it to a contractual dispute.

23. As regards contracts made since the Contracts (Applicable Law) Act 1990 came into force, the position is that the only law which the courts may apply is the law of a country. So far as I am aware, no-one suggested that its enactment would change English law in this respect.

24. I therefore conclude that all the agreements in issue in this case, including the 1987 agreement, are governed by English law.

The facts

25. By 1987 Mr Musawi and Dr Shahrestani were well known to each other. Dr Shahrestani visited India and was well-known and respected in the Shia community. Mr Musawi knew that Dr Shahrestani's business interests included construction and he was looking for an investment to produce income and returns for charitable uses. As he knew, Mr Musawi completely trusted him. In or about July 1987 Dr Shahrestani told Mr Musawi that the Wembley land was for sale, with planning permission for 200,000 square feet of offices. An initial feasibility study showed that the whole project, including acquisition and development, would cost £19.5 million and on completion could be sold for £24 million. He had made an offer of £2.5 million and suggested that Mr Musawi might put up £1-1.3 million, with the balance of the purchase price being borrowed.

26. On 15 July 1987 Mr Musawi and Dr Shahrestani signed an agreement in Arabic in a form put forward by Dr Shahrestani (the 1987 agreement). It is stated to be Islamically binding. Although not mentioning the Wembley land, it was in fact made with a view to its acquisition and development. (I mention here that both Mr Musawi and Ehsan gave evidence that the agreement preceded any discussion of the Wembley site. Ehsan thought that any discussion was certainly a year after the agreement. A contemporaneous letter from Dr Shahrestani to Mr Musawi shows this to be wrong. It simply illustrates the difficulty of accurate recollection after 20 years.)

27. Articles 1 and 2 of the 1987 agreement provided (in translation):
"1. The arrangement for and provision of money for the work of the agreement will be from pledges by the first party, [Mr Musawi] and the work and the activities making use of the money in the field of construction works in England are among the obligations of the second party [Dr Shahrestani].
2. Projects, which will be carried out by purchase, implementation or establishment, must remain within the limit of the amounts paid in for the work of the agreement, and when more is needed prior agreement must be obtained from the first party."
Article 5 spelt out in a little more detail the obligations of Dr Shahrestani and provided that he should be responsible for the fees of professional advisers and the costs of supervising the development. Articles 6 to 8 provided:
"6. All expenses related to the project other than those mentioned above will be included within the expenses and cost of the project.
7. The cost calculation of each project will be made upon its completion and the fulfilment of its sale.
8. The final (net) profits will be divided between the two parties equally after the deduction of all expenses, duties and taxes."

28. In broad terms, Mr Musawi was to provide funds and Dr Shahrestani was to provide his project management expertise, on the basis of an equal division of the profits. The parties called the agreement a mudaraba, which is a form of joint venture agreement recognised in Sharia law but it was strictly a misnomer because a mudaraba involves raising money for trade, not property investment or development.

29. The Wembley land was purchased in 1988 for £2.5 million, of which a little over £1.5 million was initially funded by a mortgage loan from Benchmark Bank plc to REI. The costs incurred on the purchase were £83,420. The records for costs incurred over the next two years, including interest and maintenance and other expenditure on the land are very inadequate but, according to figures produced by Ehsan, the total expenditure on the land, including the purchase price, until the end of 1990 was £3,537,000. According to Ehsan's figures, Mr Musawi provided £2,002,000 of this amount and the balance was provided by the Shahrestani family. The mortgage loan was reduced by instalments over this period out of the funds provided by the parties. It does appear that a significant proportion of the necessary expenditure was met by the Shahrestani family rather than by Mr Musawi, as required by the 1987 agreement. Although it was agreed in discussions that funds would be borrowed, Mr Musawi accepted that he was responsible to procure their repayment.

30. It is clear from the evidence of all the witnesses and was common ground among them that under the 1987 agreement and the associated discussions between the parties Mr Musawi was to be the beneficial owner of the Wembley land, although legal title was to be held by REI, a company owned by the Shahrestanis. For the first time, a case was advanced for the defendants in Mr Sen's closing speech that at all times the entire beneficial interest in the land was owned by REI and that Mr Musawi's interest was in the share capital of REI. Not only was this not part of the defendants' pleaded case, until reamendments were made after the end of the parties' main closing speeches (without prejudice to the claimant's right to contend that it was without foundation), but it was directly contrary to the defendants' pleaded case. It was not put to Mr Musawi and Dr Shahrestani's evidence was clear that REI was owned by his brother Mehdi and himself. He never suggested that Mr Musawi had any interest in REI. There is no substantial basis for the contention that he was to be a beneficial owner of shares in REI, rather than the Wembley land itself. Mr Sen relied on the facts that Mr Musawi agreed that the land should be conveyed to REI and that REI was the borrower under the loan agreements with Benchmark Bank. But, it was Dr Shahrestani's explanation to Mr Musawi at the time that it was necessary to vest legal title in a company in order to borrow the necessary funds. Mr Sen also relies on the annual accounts of REI which at all times showed the land as an asset, beneficially owned by REI. This is a telling point in favour of the conclusion that the Shahrestanis personally were not beneficial owners of any interest in the land. However, it carries no weight as against Mr Musawi, who was in no sense a party to the accounts. There is no evidence, or even any reason to suppose, that he saw the accounts.

31. The plan to develop the site was at first delayed by the need to negotiate the termination of tenancies of parts of the site, which was in due course achieved, and then halted by the recession in the commercial property market in the early 1990's. The land remained undeveloped at the time of the compulsory purchase order.

32. The lack of any income from the investment in the land was a major concern for Mr Musawi and it was against that background that the parties negotiated the 1990 agreement. As I have already indicated, the agreement contemplated a sale by Mr Musawi of his interest in the land to Dr Shahrestani.

33 By 1998, Mr Musawi was expressing great dissatisfaction with the arrangements following the 1990 agreement. On 27 May 1998 Dr Shahrestani wrote to Mr Musawi with a proposal to resolve these issues, the main feature of which was:
"We revert to the partnership agreement between us and cancel the Hove sale and the conditions surrounding it. The actual picture is that you have paid to the Wembley project the sum of £2,002,522 while we have paid £1,313,000. That means the proportion of our participation in Wembley is 39.6% and your participation is 60.4% (despite the fact that, under Item 1 of the agreement, we were not responsible for paying anything). This ratio is still in force now and, when we sell (it is sold) and receive the money, the net amount received will be distributed between us in the same ratio."
By "our" participation, Dr Shahrestani meant the Shahrestani family. According to Ehsan, Dr Shahrestani wrote the letter on behalf of Mehdi, Reza and Saleh. At the end of the letter, he wrote that the new agreement "could be signed for us by me and by my brother, Sayyed Mehdi, and his son, Sayyed Reza."

34. Mr Musawi did not accept this proposal but in subsequent correspondence affirmed the 1990 agreement. In the first part of 1999 he sought and obtained written confirmation of his rights under the 1990 agreement. However, in a letter dated 26 September 1999 to Dr Shahrestani he stated that he had been considering whether to continue with the 1990 agreement or to bring it to an end, involving a return to Dr Shahrestani of the share in the nursing home in Hove and the receipt by Mr Musawi of a 55% interest in the Wembley land. He stated that he had decided to pursue the second of these alternatives and requested registration of his interest in the land as quickly as possible.

35. In his oral evidence Mr Musawi made clear that he regarded Dr Shahrestani as having been in serious breach of the 1990 agreement since 1994 and that in 1999 his reason for terminating that agreement was non-performance by the other party, not misrepresentation. It is clear that Mr Musawi did not purport to rescind the agreement for misrepresentation.

36. There is not a great deal of evidence concerning the period from September 1999 to mid-2002. It is clear that Mr Musawi wished to be recognised as having an interest in the Wembley land and in principle the Shahrestanis were agreeable to this, but the documents and the evidence of the witnesses do not disclose an enforceable agreement as a matter of English law. In February 2001 and again in June 2001, Mr Musawi wrote to Dr Shahrestani stating his wish to proceed as Dr Shahrestani had proposed in his letter of 27 May 1998, which would give Mr Musawi a 60.4% share in the land. These requests were not acted upon.

(...)

Arbitration

(...)

74. On 27 September 2003 Mr Musawi, Reza and Saleh signed an agreement in Farsi providing as follows:
"The parties to the dispute over the Wembley land (located in South Way), as per the attached map, and also the nursing home at: Regent House Nursing Home, 107-109 The Drive, Hove BN3 6GE which is related to the issue of the disputed land, namely [Mr] Mousavi, Mr Sayyed Reza Shahrestani, director of RE International Ltd, as well as Mr Sayyed Saleh Shahrestani, a shareholder in the aforementioned company and director of the nursing home, have agreed to accept whatever judgment is issued by Sheikh Mohsen Araki as arbitrator and Islamic legal judge in settlement of the dispute according to Islamic legal standards and to accept it as a final judgment and submit to its findings."

75. This agreement was signed at a meeting with Ayatollah Araki, the arbitrator appointed by the agreement. Mr Musawi, and Reza and Saleh, made oral statements of their respective positions which are recorded in minutes. On 29 September 2003 Reza wrote to the arbitrator with a position statement and a request for judgment.

76. A second hearing, as it is described in the minutes, was held on 10 January 2004. The principal participants were Mr Musawi and Reza, to both of whom the arbitrator addressed questions. The translated minutes run to 11 pages. Further written submissions were made by Mr Musawi on 11 January and by Reza on 12 January 2004.

77. On 13 January 2004, the arbitrator issued a preliminary judgment, running in translation to seven pages. He invited further submissions within three days, failing which the judgment would become final and binding. Mr Musawi and Reza both made further written submissions on 15 January 2004.

78. On 7 June 2004, Ayatollah Araki wrote to Mr Musawi, Dr Shahrestani, Reza, Saleh and Mehdi as follows:
"Following the revocable judgement in relation to the disputed case relating to the Wembley land, in order to give the final judgement in the final meeting (which has been postponed 3 time despite pre-announcement and failure to attend), you are required to attend the meeting at the Islamic Centre. Therefore the last appointment for the final review of this case between yourselves will be Sunday the 20th of June. And in this date the judgement shall be given, even if no-one shows up."
A letter in almost identical terms was sent on 18 June to the same addresses except Mr Musawi.

79. No-one attended before Ayatollah Araki on 20 June 2004. He had prepared a final award which is dated 3 June 2004, although there is no reason to suppose that he would not have re-considered it in the light of any submissions from the parties if they had attended. It is not absolutely clear on the evidence exactly how and when the parties received the final award, but on 19 July 2004 Mr Musawi's solicitors wrote to the defendants' solicitors asking if they would honour the award. Later in the year the defendants through their solicitors orally stated they would not do so.

80. Mr Musawi pleads the effect of the award as follows:

"a. Mr Musawi is beneficially entitled to 60.4% of the Wembley land and Messrs Reza and Saleh Shahrestani are beneficially entitled to 39.6% thereof.
b. Mr Musawi has no interest in the Nursing Home.
c. Mr Reza Shahrestani is entitled to a fair remuneration in respect of any work he did in relation to the Wembley land after September 26, 1999.
d. Entitlements to any income from the Wembley land are as follows:
i. Income accruing from November 22, 1988 to December 28, 1990 belongs to Mr Musawi;
ii. Income accruing between December 28, 1990 and September 26, 1999 belongs to Messrs Reza and Saleh Shahrestani.
iii. Income accruing after September 26, 1999 is owned in accordance with the parties' respective shares in the Wembley land."

It was not submitted that this was an inaccurate summary, although it may be added that the award also determined that Mr Musawi was entitled to retain a total of £300,000 which he had received as rental for the nursing home in Hove.

81. It is common ground that an arbitration agreement, effective in English law, was made on 27 September 2003 appointing Ayatollah Araki as arbitrator. It was accepted that the applicable law for the arbitration agreement, as opposed to the law or principles to be applied by the arbitrator, was English law. Although the Rome Convention, incorporated into English law by the Contracts (Applicable Law) Act 1990, does not apply to arbitration agreements, the common law requires in my view the applicable law to be the law of a country, for the reasons which I have already given. In the case of this arbitration agreement, there is no country other than England whose law could arguably apply to it. Accordingly, issues concerning the arbitration agreement itself are governed by English law.

82. It is also common ground that the arbitrator was required by agreement to apply to the subject matter of the dispute and its resolution the principles of Shia Sharia law. This was an agreement which the parties were entitled to make under section 46(1)(b) of the Arbitration Act 1996: see Halpern v Halpern at para 36 per Waller LJ and Dicey, Morris & Collins: Conflict of Law (14th ed.) at 16- 050 to 16-053.

83. The parties agree that Ayatollah Araki was qualified for appointment as an arbitrator who would apply Shia Sharia law. The defendants admit Mr Musawi's pleading that the Ayatollah has "at all material times been a highly qualified Shia Islamic scholar and Islamic judge." At the time of the arbitration he was President of the Islamic Centre in England which is a centre for the teaching of Shiite Islam. He returned to Iran in 2005 and is now teaching at the University of Qom. He is one of the 86 members of the expert parliament, all of whom are ayatollahs and whose function is to choose the religious leader of Iran. He gave evidence in these proceedings both as an expert and as a witness of fact on certain issues. In his evidence, he explained that an ayatollah is a person whose level of knowledge of the Shiite Islamic religion and Sharia law is such as to give him the authority to rule on theological and legal disputes.

84. The defendants submit that the arbitrator never made a final award. They rely on the facts that no-one attended on 20 June 2004 and that the date of the award is 3 June 2004. I reject this submission. The arbitrator signed and issued what he described as his "final and irrevocable judgment". The parties' non-attendance on 20 June 2004 meant that there was no reason for the arbitrator to re-consider the award already prepared by him. There is no reason not to treat the award as his final award.

85. Reza had some complaints about the conduct of the arbitration but none was pleaded and the time to challenge or appeal the award under section 70(3) of the Arbitration Act 1996 has long since passed. They were not relied on by Mr Sen as grounds for disputing the validity of the award.

86. The two principal grounds on which the defendants resist enforcement of the award are (i) that the matters ruled on in the award are outside the scope of the arbitration agreement and (ii) the relevant parties to those issues were not parties to the arbitration.

87. On the scope of the arbitration agreement, the defendants' case is that the purpose of the arbitration was to determine the issue of management charges left unresolved by the alleged August 2002 agreement. As originally pleaded, and in Reza's first witness statement, it was said that the arbitrator had jurisdiction to determine only the management charges. On the face of it, it is highly improbable that the parties would have referred an issue as to the amount to be allowed for management charges to an Islamic scholar. In his second witness statement Reza revised his evidence and stated that the arbitrator:
"had jurisdiction to determine if we were at the 1990 Agreement or at the 2002 Agreement, then the management charge to be determined if the latter is correct."

88. Mr Musawi's case is that the arbitration was to determine all the issues between the parties as to the Wembley land and the nursing home in Hove, particularly Mr Musawi's claim to an interest in the Wembley land.

89. In my judgment, Mr Musawi is correct and the defendants' contention is unsustainable. There are a number of reasons for this conclusion.

90. First, the terms of the arbitration agreement signed on 27 September 2003 made no reference to management charges. The dispute which is referred to in the agreement is "the dispute over the Wembley land ... and also the nursing home ... which is related to the issue of the disputed land." In context, this is, as it appears to me, a clear reference to the existing and substantial dispute as to whether Mr Musawi was entitled to an interest in the Wembley land and, if so, its size.

91. Secondly, the context of the arbitration agreement is not the alleged August 2002 agreement and a dispute about management charges. The context is the dispute about the existence and size of Mr Musawi's interest in the Wembley land which had been the subject of correspondence before and after 8 August 2002, and which had escalated with registration of a caution by Mr Musawi. I have already referred to the correspondence, from which can be seen the rival positions of the parties, including Mr Musawi's contention that he was entitled to a 60.4% interest.

92. Thirdly, it is clear from the submissions made by the parties to the arbitrator that they saw the scope of the arbitration as including primarily the dispute over Mr Musawi's alleged interest in the Wembley land.

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95. For all these reasons, I conclude that the entire dispute relating to ownership of the Wembley land and related matters, such as entitlements to income and management charges, was the subject of the arbitration agreement. In his closing speech, Mr Sen accepted that it was difficult for the defendants to sustain their position that the arbitration was restricted to the issue of management charges.

96. The defendants' second principal defence to Mr Musawi's claim to enforce the award relates to the parties. This is an issue which has been bedevilled by the confusion and inconsistencies on the defendants' part as to the ownership of the Shahrestani family interest in the Wembley land. As I have already found, REI was not only the legal owner of the Wembley land but also its beneficial owner subject to any interest of Mr Musawi. It is common ground that on the Shahrestani side only REI itself had any beneficial interest in the land. Given that the principal purpose of the arbitration was to determine Mr Musawi's interest (if any) it was essential that the parties should include REI and/or those able to control REI.

97. It is, in my judgment, clear that REI was a party to the arbitration. The arbitration agreement was signed by Reza and Saleh and, while the agreement names them as parties, Reza is described and identified as director of REI and Saleh as a shareholder in REI. Importantly, the letter to the arbitrator dated 29 September 2003 and signed by Reza, was not only written on REI paper and signed by Reza as its director, but also referred to the arbitration as "RE International (UK) Ltd vs Mr S Musawi" and thanked the arbitrator for listening to "both parties". Consistently with this, the enclosures were headed "in the case: RE International (UK) Ltd vs Mr S M Mousawi". One stated the "Position of RE Intentional as of today" and the other began "RE International require the following actions to be taken". Likewise, when Reza wrote to the arbitrator on 15 January 2004 in response to the preliminary award, the enclosure was headed "Facts regarding RE International (UK) Ltd (Shahrestani) v Mr Musawi". Three times the question was put to Reza in cross-examination as to whether it was his position that REI was not a party to the arbitration, without an answer being given. When he was then asked whether he was putting REI forward as a party in his communications with the arbitrator, he agreed that he was.

98. The final award refers to the dispute "between the Shahrestanis (Sayyed Reza Shahrestani and Sayyed Saleh Shahrestani) and Mr Sayyed Mohammed Musawi". It determines that Mr Musawi has a 60.4% interest in the site and that "the Shahrestanis" have a 39.6% interest. It is not, in my judgment, significant that the award does not refer in terms to REI. The arbitration and the award was not concerned with how the Shahrestani interest in the land was owned or who on the Shahrestani side was or were the owner or owners, but with the split (if any) between the Shahrestani side and Mr Musawi. As Reza and Saleh had signed the arbitration agreement, it was not unreasonable for the arbitrator to refer to them as parties to the dispute, but in any case he knew of REI's involvement from the submissions made to him and it is to be noted that he addressed his letters of 7 and 18 June 2004 to REI as well as to the individuals.

99. For present purposes, it is enough to conclude that Reza and Saleh signed the arbitration agreement as agents for REI, that REI fully participated through Reza in the arbitration and that REI is bound by the award.

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Conclusion

115. For the reasons given, I uphold Mr Musawi's primary claim to enforce the arbitration award and I dismiss the defendants' counterclaim. I will hear submissions on the appropriate form of order.}}

Source

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