UK: UK Supreme Court Unanimously Allows Appeal In Jivraj v Hashwani

The UK Supreme Court has unanimously overturned last year's decision of the Court of Appeal in Jivraj v Hashwani, the practical result of which is that there should no longer be any problem providing in an agreement to arbitrate that arbitrators should be of a specific nationality or religion. In this regard, the Supreme Court provides welcome clarification to the uneasy application of anti-discrimination principles of EU employment law to the appointment of arbitrators. It puts to rest the controversy and alarm amongst practitioners regarding the drafting of arbitration clauses providing for a place of arbitration in England, not to mention the status of arbitrations commenced under certain institutional rules and affirms the supportive approach of the English courts to international arbitration.

Court of Appeal

In June 2010 the English Court of Appeal held that an arbitration clause requiring the arbitrators to be of a certain religion (a relatively common mechanism for resolving disputes arising within, amongst others, the UK's Islamic and Jewish communities) was void under English anti-discrimination legislation. This was because the court interpreted the relationship between the disputing parties and the arbitrator to be one of employer and employee, and therefore subject to employment law. As a result, the parties' whole arbitration agreement was legally ineffective.

The Court of Appeal's decision contradicted the rules of major arbitration institutions and established practice, triggering fears among practitioners that some common arbitration clauses may be discriminatory under English law, because of the wide scope of English anti-discrimination legislation. The arbitration rules of a number of the most common arbitral institutions, specifically the ICC and the LCIA, as well as the UNCITRAL rules, the principal ad hoc arbitration rules, provide that a sole arbitrator or the chairperson of the Tribunal may not be of the same nationality as any of the parties. However, UK employment law prohibits discrimination on the grounds of nationality in the same terms as the prohibition on religious discrimination.

Adopting the logic of the Court of Appeal in Jivraj, if it were correct that employment law applied in the appointment of an arbitrator, an arbitration clause which incorporates the ICC, the LCIA or UNCITRAL arbitration rules would therefore run the risk of being considered discriminatory under English law and potentially void. As a reaction to the Court of Appeal's decision, practitioners had taken the precaution of expressly disapplying the nationality requirements contained in institutional rules when drafting arbitration clauses with a seat in England and Wales. Indicative of the significance of this case to the wider international arbitration community, both the ICC and the LCIA intervened in the appeal to the Supreme Court.

Supreme Court Decision

The Supreme Court overturned the Court of Appeal's decision and confirmed that arbitrators are not employees within the meaning of English anti-discrimination legislation. Lord Clarke categorised the role of arbitrators as sui generis, being neither sub-contractor nor employee but somewhere in between: "an independent provider of services who is not in a relationship of subordination with the parties who receive his services...he is in effect a 'quasi-judicial adjudicator'" whose duty was not to act in the interests of either party. The Supreme Court distinguished the contract between parties and arbitrators from contracts of service on the basis that arbitrators are not under the direction of the parties.

Beyond the issue of whether an arbitrator is an employee, a further issue arose if the relationship is one of employment. Specifically, whether a particular religion or belief was a legitimate and justified requirement of an occupation was a secondary question that the Supreme Court addressed. The Supreme Court approved the submission from the ICC's argument that, "The raison d'être of arbitration is that it provides for final and binding dispute resolution by a tribunal with a procedure that is acceptable to all parties in circumstances where other fora (in particular national courts) are deemed inappropriate...because the available courts are considered insufficiently expert for the particular dispute, or insufficiently sensitive to the parties' positions, cultures or perspectives." Thus, the stipulation that an arbitrator be of a particular religion or belief can be relevant to the manner in which disputes are resolved. Party autonomy, entrenched in the English Arbitration Act 1996, supports the parties' freedom to appoint a tribunal in which the parties have confidence. Lord Clarke stated that,"The question is whether, in all the circumstances the provision that all the arbitrators should be respected members of the Ismaili community was legitimate and justified. In my opinion it was... The parties could properly regard arbitration before three Ismailis as likely to involve a procedure in which the parties could have confidence and as likely to lead to conclusions of fact in which they could have particular confidence".

Conclusion

This is a welcome clarification of English law, in light of which the threat of an arbitration agreement under institutional rules such as ICC and LCIA being considered void is no longer a source of anxiety for clients and practitioners alike. Indeed, there is now no longer any need to include specific carve-outs in respect of the nationality provisions of those institutional rules when considering and drafting arbitration agreements.

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