Autumn 2011

The Supreme Court Confirms That Arbitrators Are Not Employees

On 27 July 2011, the United Kingdom Supreme Court (“Supreme Court”) handed down its much anticipated decision in Jivraj v. Hashwani [2011] UKSC 40. The Supreme Court affirmed the decision of Mr. Justice David Steel in the High Court and held that an arbitrator’s role is not one of employment under a contract personally to do work.

Background

The dispute in this case arose in relation to a joint venture agreement (“JVA”) entered into between Mr. Jivraj and Mr. Hashwani to make investments in property development and the oil industry in a number of countries. The JVA between the two parties contained an arbitration clause governed by English law which referred disputes to arbitration to be conducted in London. The controversy in this case arose in relation to a provision of the arbitration clause which required arbitrators to be appointed from respected members of the Ismaili community.

At first instance, the case came before the High Court, where Mr. Hashwani argued, inter alia, that the requirement that arbitrators be of the Ismaili community constituted racial discrimination and was in contravention of the Employment Equality (Religion or Belief) Regulations 2003 (the “Regulations”).

Accordingly, Mr. Hashwani claimed the right to appoint an arbitrator who was not a member of the Ismaili community. Mr. Jivraj, for his part, argued that the arbitration clause was valid and enforceable. In the alternative, Mr. Jivraj proposed that the entire arbitration clause should be invalidated if the court decided that the faith-based requirement was illegal under English law.

The High Court

After considering the relevant arguments, Mr. Justice David Steel found that there was nothing in the legislative history of the Regulations or the case law to support the claim that arbitrators are “employed” within the meaning of the Regulations:

“[I]s it a contract of employment for the purposes of the Regulations? In my judgment it is not. Even if the role or status of an arbitrator can be classified as akin to that of an “independent” contractor, the ’employer’ cannot give instructions as to how he is to work or what outcome he is to achieve. In short, the arbitrator is indeed entirely independent and has no client. Indeed it is only then that he can act impartially.”

Thus, it was determined that the Regulations did not apply to the selection, engagement or appointment of arbitrators under English law. Mr. Justice David Steel further recognised that even if the faith-based requirement was discriminatory in nature, as there was a “genuine occupational requirement” for the appointment of arbitrators from members of the Ismaili community, the clause was nevertheless permitted under the Regulations. Accordingly, it was held that the arbitration clause was valid and enforceable.

The Court of Appeal

The decision of the High Court was appealed. The issue on appeal was whether parties to an arbitration agreement could legitimately stipulate that the arbitral tribunal be drawn from members of a particular religious group or whether this would violate the Regulations. The Court of Appeal departed from the reasoning of Mr. Justice David Steel and held that an arbitration clause with a faith-based criterion for appointing the arbitrator constituted “private discrimination” and was in contravention of the Regulations. Furthermore, the exception to the rule against discrimination where the discrimination is based on a “genuine occupational requirement” was not applicable in the present circumstances. The Court of Appeal agreed, however, with Mr. Justice David Steel’s finding that the faith-based requirement found in the arbitration clause could not be severed as it was “an integral part of the agreement to arbitrate”. It followed that the arbitration clause was void in its entirety.

The Supreme Court

The case was further appealed to the Supreme Court, which reversed the decision of the Court of Appeal and reaffirmed the reasoning of Mr. Justice David Steel at first instance. The judgment of Lord Clarke (with which all the other Justices agreed) noted that the role of an arbitrator is not naturally described as one of employment:

“[I]t is in my opinion plain that the arbitrators’ role is not one of employment under a contract personally to do work… Once an arbitrator has been appointed, at any rate in the absence of agreement between them, the parties effectively have no control over them”.

Therefore, for the purposes of the Regulations, an arbitrator could not be regarded as in employment under a contract personally to do work. Although not required to rule on this point, the majority of the Supreme Court (with only Lord Mance dissenting) also found that the requirement that arbitrators be respected members of the Ismaili community was a “genuine occupational requirement” and therefore fell within the exception to the rule against discrimination.

The Implications for Arbitration Practitioners

This case is of particular interest and importance for arbitration practitioners as it answers the question of whether an arbitration clause purporting to appoint arbitrators of a particular religion will be void under the Regulations giving effect to EU Council Directive 2000/78/EC. In light of the Supreme Court’s decision, it is now clear that the anti-discrimination measures found in the Regulations do not apply to the appointment of an arbitrator under English law.

The previous decision of the Court of Appeal had created considerable concern. Arbitration clauses often refer to the appointment of arbitrators of a particular nationality or faith. This may be done in order to achieve neutrality in the arbitral appointment process or, indeed, as in the present case, to permit the selection of an individual(s) who is deemed to possess a greater understanding and appreciation of the context in which a dispute has arisen. The pragmatic approach adopted by the Supreme Court demonstrates strong support for the system of international arbitration and will provide welcome reassurance for parties who have negotiated an arbitration agreement governed by English law with a nationality requirement for the selection of arbitrators.