A recent English Court of Appeal decision, Jivraj v Hashwani  EWCA 712 raises the possibility – which we hope the courts will dismiss at the earliest opportunity – that arbitration clauses are void if they require arbitrators to come (or not to come) from certain countries, belong to a certain religion or have a certain number of years’ experience.
Members of the Ismaili community entered into an agreement which provided that any dispute was to be resolved in England by three arbitrators, with all arbitrators to be respected members of the Ismaili community.
Following a dispute, the respondent appointed Sir Anthony Colman as his arbitrator and served notice on the applicant to appoint his own arbitrator. The applicant objected that the appointment of Sir Anthony was invalid because he did not satisfy the requirement of being a member of the Ismaili community. The respondent asserted that the requirement contravened the Employment Equality (Religion or Belief) Regulations 2003 (implementing European Directive 2000/78/EC), which prohibits discrimination on religious grounds against people in employment.
The High Court held that the arbitrator was not in “employment” and accordingly the regulations did not apply, with the consequence that the appointment was void. When that decision was appealed, the Court of Appeal agreed that Sir Anthony could not be appointed, but for different reasons entirely. It concluded that the requirement for arbitrators to be members of the Ismali community was unenforceable in English law, rendering the arbitration agreement itself void.
The conclusion of the appeal
The Employment Equality (Religion and Belief) Regulations 2003 prohibit an employer from discriminating on grounds of religion in relation to employment at an establishment in Great Britain. The Court of Appeal held that arbitration does fall within the definition of “employment” By requiring that arbitrators should be of a certain religion, the arbitration clause was void.
It was impossible to sever the unlawful requirement from the remainder of the clause; the composition of an arbitral tribunal is often critical in obtaining the agreement of one or both parties to arbitration. It was an integral part of the arbitration clause and the clause stood or fell as a whole.
What would otherwise be discrimination can be justified when it is a “genuine occupational requirement” regarding the nature of employment, as long as it is proportionate to apply the requirement. The Court of Appeal considered that this exemption did not apply in this case. The arbitrators were simply under an obligation to apply English law to the dispute. By contrast, had the arbitration clause called for the application of religious principles, a case for a genuine occupational requirement might have been established.
“It was an integral part of the arbitration clause and the clause stood or fell as a whole”
Implications for existing law
Existing English discrimination law, which will be replaced by the Equality Act 2010 (the Act), prohibits discrimination on grounds including sex, race (including nationality), religion and age. In each case, the law applies to those in “employment” and provides an exception for discrimination that is based on genuine occupational requirements. The Court of Appeal indicated that arbitration is employment for all of these purposes, so an arbitration clause may be capable of challenge if, as is commonly the case, it requires the arbitrator:
(a) To have a specified number of years of experience or to have reached a particular level in a trade or profession, or to be retired from a professional position (eg, a retired judge).
(b) To belong to an organisation or to possess a qualification which is open only or primarily by men, or simply to be male.
(c) To hold the beliefs of a specified religion.
(d) To be of a specified nationality, generally other than that of the parties.
The genuine occupational requirement test may be satisfied relatively easily in case (a), and probably in case (b). But in each situation this would be subject to the important qualification that the specific characteristics are required when the arbitration agreement is made or when a dispute actually arises (a fresh agreement comes into being when a dispute is submitted to arbitration). An arbitration clause might never validly contain any of the restrictions in (a) and (b), because the question of whether there is a genuine occupational requirement for a dispute to be resolved can only fall to be considered when that dispute arises.
It is difficult to see when nationality could ever be a genuine occupational requirement. The justification for nationality provisions found in some arbitral institutions’ rules is that they ensure the independence and impartiality of arbitrators. However, under the Arbitration Act 1996, arbitrators are required to be impartial (as distinct from independent), so insisting upon a particular nationality is redundant.
“It is difficult to see when nationality could ever be a genuine occupational requirement”
Equality Act 2010
Under the Act, employment is defined as meaning “employment under … a contract personally to do work …” Given the approach in Jivraj, this appears to catch arbitrators. Its provisions about “occupational requirements” seem to replicate the position under the existing discrimination legislation. Any term which is discriminatory is void to that extent. In the light of the ruling in Jivraj, it would seem that the entire arbitration clause becomes void unless the discriminatory appointment is based on occupational requirements.
A further issue is whether arbitral institutions’ rules are within the Act, which applies to any “Qualifications Body”, “Employment Service-Provider” and “Trade Association”.
If an arbitral institution falls within any of these definitions, problems arise where an arbitral institution has discriminatory membership rules or where an arbitral institution is called upon to appoint an arbitrator using discriminatory criteria. The rules are void to the extent that they are discriminatory, although some form of severance would probably be possible to save the rest of the rules. In addition, any appointment made by reference to discriminatory criteria would contravene the legislation unless there was a genuine occupational reason for that particular qualification. One exception may be if the discrimination is indirect, for instance where the appointee has to be a QC and thereby versed in a particular system of law.
Territorial scope of the Act
Any arbitration agreement governed by English law irrespective of the place of performance would seem to fall within the Act, and it is also likely that any arbitration agreement to be performed in England (seat), irrespective of its applicable law, would fall within the Act. The substantive law to be applied to the dispute is irrelevant to the scope of the Act.
The Act derives from EU law and so the implications of Jivraj may affect any country in Europe in which the EU legislation has been implemented unless those member states interpret the laws differently.
Any attempt to apply Jivraj to common arbitration clauses, to render them void and possibly to unwind past awards made under them, would run against the grain of decisions by the English courts. The Court of Appeal’s decision is surprising because of the trend in English law to support arbitration and because it appears to limit party autonomy. As we write, the parties in Jivraj have been attempting to apply for permission to appeal to the Supreme Court. But until this decision is considered by the Supreme Court or the European Court of Justice, there remains a small possibility that many standard arbitration clauses are void.
Professor Robert Merkin is a consultant and Research Professor of Commercial Law at Southampton University.
James Thomas is an associate based in the dispute resolution team in London.