Hill and James
In a decision handed down earlier
today, the UK Supreme Court unanimously allowed the appeal in Jivraj v
Hashwani  UKSC 40, and held that arbitrators are not employees
for the purposes of UK anti-discrimination legislation. The Supreme Court
thereby recognized the right of parties to agree to restrictions on an arbitrator's
background, religious belief and/or nationality. The Supreme Court's ruling
reverses the Court of Appeal's highly controversial decision of June 2010.
The Court of Appeal Decision
The dispute arose from a real estate
joint venture agreement between Mr. Jivraj and Mr. Hashwani, which included an
arbitration agreement stipulating that the arbitrators should be "respected
members of the Ismaili community and holders of high office within the
In a controversial decision, which
prompted much debate within the international arbitration community, the
English Court of Appeal held that the requirement that the arbitrators be
respected members of the Ismaili community contravened, and was therefore void
by application of, the Employment Equality (Religion and Belief) Regulations
2003 ("the Regulations"). The Court of Appeal also considered that
the requirement was an integral part, and could not be carved out, of the
arbitration agreement, and therefore that the arbitration agreement was void in
The Supreme Court Decision
The primary question that the
Supreme Court was required to answer was whether the relationship of arbitrator
to the parties in dispute was one of "employment under ... a contract
personally to do any work" in accordance with the Regulations.
In addressing this question, the
Court distinguished the relationship between the parties and the arbitrator
from that of normal employment. The Court found that there was "a clear
distinction between those who are, in substance, employed and those who are
'independent providers of services who are not in a relationship of
subordination with the person who receives the services.'" The Supreme
Court went on to acknowledge that, "The arbitrator is in critical
respects independent of the parties. His functions and duties require him to
rise above the partisan interests of the parties and not to act in, or so as to
further, the particular interests of either party."
Accordingly, on an analysis of
English and European case law, the Court concluded that the arbitrators were
not employees in the sense contemplated by the Regulations, and that
accordingly the Regulations were "not applicable to the selection,
engagement or appointment of arbitrators."
The second issue before the Supreme
Court was whether, if an arbitrator was an employee for the purposes of the
Regulations, the restriction in the arbitration clause that arbitrators must be
respected members of the Ismaili community was nevertheless a "genuine
occupational requirement for the job" for the purposes of the
exceptions to the Regulations. Given the Supreme Court's finding that
arbitrators were not employees for the purposes of the Regulations, it was not
strictly necessary for the Court to address this issue. However, in obiter comments,
the Court observed that such a religious requirement could be relevant to the
manner in which disputes are resolved and as such could qualify as a "legitimate
and justified" occupational requirement.
The Court of Appeal's decision had
caused significant concern among the international arbitration community in
London. A primary area of concern related to the enforceability under
English law of arbitration clauses providing for institutional arbitration
rules that impose nationality restrictions upon arbitrators. For example,
Article 6 of the LCIA Rules states that where the parties are of different
nationalities the sole arbitrator or chairman shall not be of the same
nationality as a party. Under the Court of Appeal's decision, any institutional
arbitration rules incorporating such restrictions, and their incorporation into
an arbitration agreement, would arguably contravene the Act, resulting in the
invalidity of the entire agreement to arbitrate. Thus, since the Court of
Appeal's decision, many parties have expressly excluded the nationality
restrictions contained in institutional arbitration rules.
Another area of concern related to
the enforcement of foreign arbitral awards in England where the tribunal was
selected in accordance with similar restrictions on the arbitrators'
background, religion or nationality. Applying the Court of Appeal's
decision, such awards could have been said to offend English public policy, one
of the limited grounds upon which the English courts may refuse to enforce
international arbitration awards under the New York Convention.
Fortunately, the decision of the
Supreme Court has now confirmed the validity of arbitration agreements
providing for such restrictions upon the appointment of arbitrators. The
clarity that the Supreme Court has provided in this respect will be welcomed by
the arbitration community (including the LCIA and the ICC which both intervened
in the proceedings before the Supreme Court).
The arbitration community will also
applaud the Court for correctly identifying that, "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 Court recognized the genuine public interest of allowing parties the power
to structure the arbitration process to suit their particular needs, as
enshrined by section 1 of the English Arbitration Act.
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