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The Supreme Court’s decision to unanimously allow the appeal in Jivraj v Hashwani this week has been hailed a victory for common sense and has been warmly received throughout the arbitration community. This is the second arbitration case to have reached the Supreme Court after Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 (please see our case comment here). The Supreme Court held, reversing a Court of Appeal decision that had caused great uncertainty amongst arbitration practitioners, that arbitrators are not employees for the purposes of anti-discrimination legislation, thereby validating a term in an arbitration agreement providing that all arbitrators must be of a certain religious belief.

Background

The case history is set out in our case preview posted back in March (see here) but, in summary, the case involves a joint venture agreement that stipulated in its arbitration clause that arbitrators should be members of the Ismaili community. When disputes arose, Mr Hashwani notified Mr Jivraj of his intention to appoint an arbitrator who was not from the Ismaili community. Jivraj sought a declaration by the Court that such an appointment was invalid. Hashwani then sought a judgment validating the appointment on the basis that such a requirement, although lawful at the time the agreement was made, constituted religious discrimination in the context of an employer determining to whom he should offer employment under the Employment Equality (Religion or Belief) Regulations 2003 (the “Regulations“).

Reversing the High Court decision, the Court of Appeal unanimously held that arbitrators were employed for the purposes of the Regulations: they were deemed to be persons contracted personally to carry out any work and the exemption did not apply because being a member of the Ismaili community was not a genuine occupational requirement. In addition, the Court of Appeal decided that severance of this part of the clause would render it substantially different from that which the parties originally intended so therefore the entire arbitration agreement was void.

Issues

The issues before the Supreme Court were:

1. Does a term in an arbitration agreement which provides that all arbitrators must be members of the Ismaili community relate to employment as defined in the Regulations and, if so, is it discriminatory?

2. If the term is discriminatory, does it fall within the genuine occupational requirement exemption in the Regulations taking into account the circumstances of the case?

Judgment

The Supreme Court (Lords Phillips, Walker, Mance, Clarke and Dyson) decided that arbitrators were not employees for the purposes of the Regulations because, drawing inference from the definition of “employment” under the Regulations which is “employment under a contract of service or of apprenticeship or a contract personally to do any work”, arbitrators are “independent providers of services who are not in a relationship of subordination with the person who receives the services” and as, “quasi-judicial adjudicator[s]”, their purpose is “the impartial resolution of the dispute between the parties in accordance with the terms of the agreement”.

Although Lord Mance preferred not to address the issue of whether the exemption for genuine occupation requirement would have applied had the clause fallen foul of the Regulations, the majority found that the Court of Appeal had been “too legalistic and technical” in its view of arbitration as being “no more than the application of a given national law to a dispute” and that “stipulation that an arbitrator be of a particular religion or belief can be relevant to this aspect of arbitration”. In addition, since there appeared to be a particular “enthusiasm for dispute resolution” within the Ismaili community, the Supreme Court held that the clause would have been exempt.

Effect on arbitration

The Court of Appeal decision called into question the validity of existing arbitration agreements that contain clauses restricting the choice of arbitrator on the grounds of nationality. These are commonly used in respect of the appointment of a sole arbitrator or the chairman of a three-man panel to promote a sense of neutrality and confidence in arbitral proceedings conducted between parties of different nationalities and can be found in institutional arbitration rules such as those of the ICC International Court of Arbitration (ICC) and the London Court of International Arbitration (LCIA). The concern of the arbitration community was such that legal practitioners had been advising their clients to disapply bespoke and institutional rules relating to the nationality of arbitrators in future arbitration agreements and the ICC and the LCIA were granted leave to intervene in the hearing. Laurence Rabinowitz QC, on behalf of the LCIA, spoke of the “chilling effect” of the Court of Appeal’s decision on London arbitration, one of the most popular seats of arbitration in the world. If the Court of Appeal’s decision had been upheld, causing a knock-on effect of invalidity on a countless number of arbitration agreements, the concerned parties may well have found themselves forced to go to Court to battle out their disputes, at the very place they intended to avoid.

The current law is now stated in the Equality Act 2010 but the issues in this appeal remain pertinent and are not affected by the revocation of the Regulations. The Supreme Court decision has effectively safeguarded one of arbitration’s most appealing characteristics which is “the breadth of discretion left to the parties and the arbitrators to structure the process for resolution of the dispute”. The arbitration community has collectively breathed a big sigh of relief.