- Legal update
- Choices in arbitration: users' survey
- Dispute resolution in London
- Jivraj developments
- New UNCITRAL rules
- Focus on London: Professor Robert Merkin
By Joe Tirado and James Thomas
This article reviews the arguments and recent developments regarding the controversial judgment in Jivraj v Hashwani  EWCA 712, which ruled that an arbitration clause was void because the appointment provisions specified that the arbitrator was to be Ismaili (see our last issue, September 2010).
This may mean that if a clause specifies that a sole arbitrator or chairman must come from a neutral country or specifies some other nationality-based qualification, the whole arbitration clause may be void. The International Chamber of Commerce (ICC) and London Court of International Arbitration (LCIA) have intervened in the application for permission to appeal to the UK Supreme Court against the judgment in this case.
Recap of the case
An arbitration clause specified that any dispute between the parties must be decided by a panel, all of whom must be "respected members of the Ismaili community". One of the parties attempted to appoint a non-Ismaili, and the other challenged the appointment. The Court of Appeal decided that the arbitrator was "in employment" under the Employment Equality (Religion and Belief) Regulations 2003. The Directive to which the Regulations give effect states that it is concerned with discrimination affecting access to the means of economic activity. The definition of employment in the Regulations includes a "contract personally to do any work". An arbitrator - so the court held – had a contract personally to work and this afforded him access to economic activity, so his job was, for purposes of the Regulations, no different from a solicitor or plumber.
The Court of Appeal further decided that being Ismaili was not a "genuine occupational requirement" which would have provided an exception to the Regulations. Although the court accepted the argument that Ismailis commonly decide disputes within their own community, the arbitrator was deciding the dispute according to English law (not under an ex aequo et bono clause) and he did not need to be Ismaili to do so.
"The English courts have a good record of supporting international arbitration."
The result was that the whole arbitration clause was rendered void and the parties would have to litigate if they did not agree a new clause. Appointment provisions are usually an important factor in securing agreement to an arbitration clause and so the clause could not survive without the appointment provisions.
This case has caused considerable debate because of the possibility that it may be applied to more common clauses. The Court of Appeal acknowledged its judgment was likely to have wider implications. The current uncertainty is at best unhelpful and at worst capable of causing long-term damage to London's pre-eminent standing as an international arbitration centre.
The Supreme Court has now granted permission to appeal. It is anticipated that some interested third parties such as the ICC and the LCIA may apply for permission to intervene. Although the clause in Jivraj was unusual, the institutions are concerned about the application of the principles in the judgment to their appointment procedures. Other institutions and organisations may also intervene in support.
Retaining the confidence of the parties
The ICC and LCIA Rules provide that the sole arbitrator or chair of the arbitrators should have a neutral nationality (ie, different from that of the parties). Under the Equality Act 2010 (which on 1 October 2010 superseded the Race Relations Act 1976) this appears to constitute direct race discrimination. The exception for an occupational requirement may not apply because arbitrators are presumed to be capable of applying the law in a fair and unbiased way even if they have the same nationality as one of the parties. In any event, there are already provisions in the Arbitration Act 1996 to prevent actual and perceived bias.
"There is every reason to believe the decision in Jivraj will be confined to its particular facts."
The prospect of arbitration clauses being declared void has led some commentators to recommend that when parties are negotiating an IC or LCIA arbitration clause, they should consider excluding this aspect of the appointment provisions.
The English courts have a good record of supporting international arbitration. There is every reason to believe the decision in Jivraj will be confined, therefore, to its particular facts. Retaining the confidence of international parties by allowing them to choose, if they wish, a sole arbitrator or chairman of neutral nationality is permitted under the Equality Act as an occupational requirement. Retaining the parties' confidence in this way is a legitimate aim and
the appointment provisions are a proportionate way of achieving it. Additionally, if the provisions are unlawful, then they might be severed from the rest of the institutional rules. There are also arguments that arbitrators are not "in employment" because the parties do not exercise control over them.
This is a Europe-wide question because EU treaties contain the principle of equal treatment on grounds of nationality. Although the question has not yet come before other European courts, arbitration practitioners across Europe are watching the outcome of the Supreme Court appeal with interest.
It is anticipated that the appeal will be heard by the Supreme Court in late 2011.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.