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 community."
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 its entirety.
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.
This article was prepared by Richard Hill and James Rogers (email@example.com or +44 0 20 7832 3672) from Fulbright's International Arbitration and ADR Practice Group. For further information please contact either of the authors listed above