Jivraj v Hashwani - The Supreme Court decision

27 July 2011

Introduction

The UK Supreme Court has unanimously ruled that arbitrators are not employees and so discrimination law does not apply to arbitrators. The Court was giving its judgment in the Jivraj v Hashwani case and has reversed the decision of the Court of Appeal. The Court of Appeal decision last year had raised concerns about the validity of many standard arbitration clauses including those in existing contracts. The Supreme Court decision lays those concerns to rest. It will be widely welcomed by the arbitration community in England and abroad.

The case involved an arbitration clause which contained a religious restriction. The clause required that the arbitrators were “respected members of the Ismaili community”. The Court of Appeal found that arbitrators are “employed” for the purposes of discrimination law. The religious restriction was clearly discriminatory - and the Court of Appeal decided that, because an arbitrator of any religion could apply English law, the discrimination was not justified. The Court of Appeal could not simply remove the religious restriction - instead the whole arbitration clause was void.

When the arbitration clause in a contract is found to be void the parties have no choice but to go to court unless they can agree a new arbitration clause. Where the parties are international this can lead to multiple proceedings in different foreign courts with the risk of conflicting judgments and substantial legal costs.

The Court of Appeal decision led to concern that arbitration clauses incorporating the rules of the ICC and the LCIA might also be void. Their rules include restrictions on the nationality of arbitrators. Typically they provide that sole arbitrators, or the chair in a panel of three, must have a different nationality to the parties. The fear was that - because an arbitrator of any nationality can apply the law - the whole arbitration clause might be void.

A balanced and neutral tribunal is critical to give the parties confidence in the process. In a world cup football match you would not expect the referee to be from the same country as one of the teams. Nationality restrictions have been used in a similar way in international arbitration for many years. They are extremely popular with the parties. But since the Court of Appeal decision last year, many lawyers have drafted arbitration clauses to exclude nationality provisions.

There were also concerns about arbitration clauses which require arbitrators to have a certain number of years experience of an industry. These could be void on grounds of age discrimination.

All these concerns have now been laid to rest because the Supreme Court has decided that arbitrators are not employees.

An employee for these purposes is defined as someone employed under a “contract personally to do any work”. This is a wide definition. The Supreme Court agreed with the LCIA and the ICC that an arbitrator is not an employee because an arbitrator lacks the subordinate role of an employee. The role of an arbitrator is, like a judge, to give an independent decision; an arbitrator does not work for either of the parties.

By a majority of 4 to 1 the Supreme Court also found that if an arbitrator were an employee then the religious restriction would have been justified as an occupational requirement and so the arbitration clause would not have been void.

We warmly welcome the Supreme Court decision. The English courts have lived up to their reputation for robustly supporting international arbitration. The judgment provides certainty for people drafting arbitration clauses. It confirms London as a leading centre for international arbitration.