A central reason for opting to determine a dispute by Arbitration is the parties freedom to determine their arbitrator(s). Indeed according to Redfern & Hunter's leading text book, Law and Practice of International Commercial Arbitration,1 the ability to choose the neutral is the 'first' reason why parties choose to arbitrate over using national courts of law. Additionally the UK Arbitration Act 1996 makes clear that parties are free to determine the number of arbitrators on a tribunal and to choose whom they please.2 It is therefore a great surprise to many in the arbitration community that the English Court of Appeal have given judgment in Jivaraj v Hashwani restricting the right of choice over their arbitrator. This article will look at the case and the reasoning for restricting a party's right to choose their neutral.
The Appeal
The Jivaraj case arose from a dispute concerning the arbitration agreement to choose an arbitrator from a specific religious community, in this case the Ismaili community. Importantly it was common ground that, although the arbitration agreement was lawful when it was made, it is now subject to the provisions of the European Employment Equality (Religion and Belief) Regulations 2003, and this raised a question of whether the clause relating to the religious background of an arbitrator was permissible under the new law. The form of the Regulations follows closely that of the earlier legislation, in particular in defining 'employment' as including a contract personally to do work of any kind, and this was the way in which it was suggested that arbitrators were 'employed.'
The Background
In January 1981 the appellant, Mr. Nurdin Jivraj, and the respondent, Mr. Sadruddin Hashwani, entered into a joint venture agreement for investment in real estate in various parts of the world, initially Canada and subsequently elsewhere. Article 8 of the contract provided, so far as material, as follows:
'(1) If any dispute difference or question shall at any time hereafter arise between the investors with respect to the construction of this agreement or concerning anything herein contained or arising out of this agreement or as to the rights liabilities or duties of the investors or either of them or arising out of (without limitation) any of the businesses or activities of the joint venture herein agreed the same (subject to sub-clause 8(5) below) shall be referred to three arbitrators (acting by a majority) one to be appointed by each party and the third arbitrator to be the President of the H.H. Aga Khan National Council for the United Kingdom for the time being. All arbitrators shall be respected members of the Ismaili community and holders of high office within the community.
(2) The arbitration shall take place in London and the arbitrators' award shall be final and binding on both parties.'
In 1988 the parties decided to terminate their venture. They appointed three members of the Ismaili community as a conciliation panel to assist them in dividing the assets, but certain matters remained unresolved and an attempt to resolve their remaining differences by means of an ad hoc arbitration came to nothing. The matter then fell into abeyance until July 2008 when solicitors acting for Mr. Hashwani wrote to Mr Jivraj putting forward a claim for £1,412,494, together with interest compounded quarterly from May 31st 1994, and notifying him of the appointment of Sir Anthony Colman as arbitrator under Article 8 of the agreement. They called on Mr. Jivraj to appoint an arbitrator within 7 days.
Mr. Jivraj's response was to start proceedings in the Commercial Court (2008 Folio 1028) seeking a declaration that the appointment of Sir Anthony was invalid because he is not a member of the Ismaili community. Six weeks later Mr. Hashwani issued an arbitration claim form (2008 Folio 1182) seeking an order that Sir Anthony be appointed sole arbitrator pursuant to section 18(2) of the Arbitration Act 1996. The application was made on the basis that the requirement that the arbitrators be members of the Ismaili community, although lawful when the agreement was made, had been rendered unlawful and was void because it contravened the Employment Equality (Religion and Belief) Regulations 2003 ('the Regulations'). Mr. Hashwani also sought to rely on the Human Rights Act 1998 and public policy in support of his case.
The applications were heard below before Mr. Justice Steel who held that the Regulations do not apply to arbitrators because they are not employees and that there is nothing in the Human Rights Act or public policy that renders the requirement that the arbitrators should be members of the Ismaili community void or unenforceable. He therefore granted a declaration that the appointment of Sir Anthony Colman was invalid and dismissed Mr. Hashwani's claim. In the course of his judgment he also expressed the view that, even if the Regulations did apply, this was a case which fell within the exception in Regulation 7, which provides for the case where being of a particular religion or belief is a genuine occupational requirement. Finally, he expressed the view that the requirement that the arbitrators be members of the Ismaili community could not be severed from the rest of the clause and that, if it was void, the arbitration clause as a whole was void.
The Decision
The Court noted that the Regulations were widely drafted with an intent to implement the effect of the European Council Directive 2000/78/EC, which established a general framework for equal treatment in employment and occupation. It was common ground, therefore, that they are to be construed as far as possible in a way that gives effect to the objective of the Directive; per Marleasing S.A. v La Comercial Internationale de Alimentacion S.A. [1990] ECR I-4135. The Court considered the English authorities that obliged them to give effect to the meaning and made a point of reference to Litster v Forth Dry Dock & Engineering Co Ltd [1990] 1 A.C. 546 which they said was a 'striking example of the lengths to which the court may go in giving effect.'
Whilst Mr. Justice Steel looked at the role of the arbitrator as being akin to a judge and on English authorities concluded that judges, magistrates and those in similar positions are not normally regarded as employees, and consequently the Regulations did not apply to arbitrators. However, the Court of Appeal were persuaded by the submissions to them that the judge concentrated too much on the nature of the arbitrator's position and failed to recognise that the Directive and the Regulations are intended to apply to all forms of employment in the broadest sense, including the provision of services under any form of contract. Consequently the Court of Appeal found that the Regulations apply to the appointment of an arbitrator, because a person who appoints another to act in that capacity employs that person to provide a service. 'Employment' for these purposes is defined in the Regulations as including any contract personally to do any work and work in this context is apt to cover the provision of services of any kind.
As to Regulation 7's opt out, that discrimination is permitted where there is a genuine requirement to fulfil the role that requires it, the Court heard argument that the ethos and belief of the Ismaili community made membership of that faith a genuine occupational requirement. However, The Court of Appeal considered that the requirements of Regulation 7(3), could only permit an arbitrator from the Ismaili community if the arbitration clause had empowered and required the tribunal to act applying the moral principles and understanding of justice and fairness that are generally recognised within that community. In the absence of such the arbitrators' function under clause 8 of the agreement was only to determine the dispute between the parties in accordance with the principles of English law. That requires some knowledge of the law itself, including the provisions of the Arbitration Act 1996, and an ability to conduct the proceedings fairly in accordance with the rules of natural justice, but it does not call for any particular ethos. Membership of the Ismaili community was not necessary for the discharge of the arbitrator's functions and consequently the exception provided in Regulation 7 could not be invoked in this case.
Analysis
For supporters of Arbitration this is another worrying interference of European law in the arena of private dispute resolution. As in the case of Accentuate Ltd v Asigra Inc [2009] EWHC 2655 (QB), where a Canadian arbitration and jurisdiction clause was not enforceable because that clause would result in EU Regulations not being taken into account; this case illustrates the danger of contracting arbitration clauses without a full understanding of the impact of pan-national laws such as those in the European Union which have the ability to undermine the intentions of the parties. Furthermore, the case demonstrates the unforeseeable affect of future statutory changes which invalidate a clause that was legal at the point of contracting.
Given that the choice of a neutral or panel is a central pillar in the arguments for using arbitration there is a considerable issue of public policy here. Parties to an international contract are often from differing jurisdictions, indeed the more parties the greater the number of jurisdictions that may be involved. Since most laws and contract provide for the resolution of disputes in a defendant's home court, and in any event a court path to resolution is also subject to one jurisdiction, other parties are bound to fear the prospect of being the 'foreign' party in a dispute working in your opponents' jurisdiction. Foreign courts mean the use of foreign lawyers, procedures and perhaps language, and it is because of this that arbitration with its choice over location, neutrals, language etc. is attractive. If in fact parties are constrained in their choice of neutral even to a limited extent that attraction is diminished to the detriment of the arbitral format. However, the matter is not yet over with an appeal to the Supreme Court pending and interventions from both the International Chamber of Commerce and the London Court of international Arbitration confirmed. As this ruling has called into question so many existing arbitral clauses it is essential that all practitioners in the field watch the final result of this case for guidance on the permitted approach to choosing a panel. The final out come will have far reaching consequences for arbitral rules on neutral selection, and in particular in relation to Islamic finance disputes, which perhaps more than any other area, tend to require neutrals of specific religious beliefs and membership of specific religious groups. For now parties must clearly re-evaluate the enforceability of existing neutral selection clauses, and await the final determination of the Supreme Court to see if this is indeed the new world in which neutral selection must be determined.
Footnotes
1. Thomson, 4th Edition, 1-41 & 42
2. Arbitration Act 1996, see sections 15-16.
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.