UK: Supreme Court Rules That Religious Discrimination Laws Do Not Apply To The Appointment Of Arbitrators

Last Updated: 1 August 2011
Article by Andrew Grant

The Court of Appeal's decision in Jivraj v Hashwani, in which an arbitration agreement was held to be unenforceable due to the application of discrimination legislation in England, could have had wide-reaching implications for the choice of arbitration to resolve disputes in many commercial contracts governed by English law. It also potentially put under threat London as an arbitration centre.

Background

Two individuals entered into an arbitration agreement which stipulated that all the arbitrators had to be high office holders within the Ismaili community. The appellant applied to the English courts seeking an order that a particular arbitrator, who was not a member of the Ismaili community, be appointed.

It was argued that the requirement that the arbitrators came from 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").

Regulation 6 of the Regulations (broadly) makes it unlawful for an employer to discriminate against a person applying for employment on the grounds of religion or belief. Regulation 7 provides an exception where belonging to a particular religion is a "genuine occupational requirement" of the job.

Regulation 2 provides that 'employment' means employment under a contract of service or of apprenticeship or a contract personally to do any work, and related expressions shall be construed accordingly" (emphasis added).

At first instance, the judge held that the Regulations did not apply because the arbitrators were not employees. The Court of Appeal reversed this finding, holding that arbitrators were employees and that 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. The Supreme Court has now reversed the Court of Appeal judgment and held that the Regulation does not apply to the appointment of arbitrators.

Supreme Court Decision

The Supreme Court considered two issues on the appeal:

(1) Are the arbitrators "employees" for the purpose of the Regulations? It was unanimously held that they are not. Lord Clarke delivered the leading judgment. He saw significance in the fact that Regulation 2 did not simply refer to a contract to do work but to "employment under" such a contract. Arbitrators were not covered by Regulation 2 because "the role of an arbitrator is not naturally described as one of employment at all".

A review of decisions by the European Court of Justice led the Supreme Court to conclude that a distinction should be drawn between those who are employed and those who are "independent providers of services who are not in a relationship of subordination with the person who receives the services". Nothing in domestic caselaw required the court to reach a different conclusion.

In critical respects, an arbitrator is independent of the parties. His functions and duties require him to rise above the partisan interests of the parties. As a result, certain provisions of the Regulations could clearly not apply to an arbitrator (for example the provision that anything done by a person in the course of his employment shall be treated, for the purposes of the Regulations, as done by his employer as well).

(2) Although not required to consider the point, in light of the finding in (1) above, the Supreme Court also held that, even if an arbitrator was an employee, there was a "genuine occupational requirement" that the arbitrator come from the Ismaili community.

It was said that one of the distinguishing features of arbitration is the breadth of discretion left to the parties and the arbitrator to structure the process for resolution of the dispute: "The stipulation that an arbitrator be of a particular religion or belief can be relevant to this aspect of arbitration". As the judge at first instance held, "one of the more significant and characteristic spirits of the Ismaili sect was an enthusiasm for dispute resolution contained within the Ismaili community". This in turn could be considered "an ethos based on religion".

The Supreme Court also refused to refer any questions arising from the appeal to the European Court of Justice.

Comment

The Rules of such arbitration institutions as the International Chamber of Commerce and the London Court of International Arbitration contain neutrality provisions, such that a Chairman could not be of the same nationality as the parties. It was these inbuilt neutrality provisions that, on the back of the Court of Appeal's judgment in Jivraj, some commentators said could have rendered arbitration clauses containing references to these institutions unenforceable. This threat has now significantly receded with the Supreme Court's Judgment.

This decision is good news for arbitration agreements which are subject to English law. It underlines the importance of the parties being able to choose the arbitrators they wish, without fear that such a choice will fall foul of European or domestic discrimination regulations.

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.

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