UK: Freedom To Choose

Last Updated: 16 August 2011
Article by Maurice Kenton

The freedom of parties to specify the arbitrators they can choose was decisively upheld by the UK's Supreme Court on 27 July 2011 in Jivraj v Hashwani. The ruling overturns the widely criticised Court of Appeal decision that an arbitration clause in a joint venture agreement was void for non-compliance with regulations implementing EU equality laws.

The joint venture agreement between Mr Jivraj and Mr Hashwani encompassed substantial business interests in Asia, Europe and North America. The agreement was governed by English law. Disputes between Mr Jivraj and Mr Hashwani under the agreement were to be referred to binding arbitration by a panel of three arbitrators sitting in London. All three arbitrators were to be respected members of the Ismaili community, whose leader is the Aga Khan. The parties were able to appoint one arbitrator each, and the third would be the President of the HH Aga Khan National Council for the United Kingdom.

In the late 1980s and early 1990s, Mr Jivraj and Mr Hashwani caused an arbitral panel to be constituted in respect of certain disputes, all three arbitrators being respected members of the Ismaili community. This arbitral process resolved some, but not all, of the matters in dispute.

In 2008 Mr Hashwani purported to appoint an arbitrator under the arbitration clause, but the individual he chose, the retired judge Sir Anthony Coleman, was not a member of the Ismaili community. Mr Hashwani's lawyers articulated the position that the parties were no longer bound by their agreement to choose arbitrators only from within the Ismaili community, as it was said that in view of relatively recent legislation, this would amount to unlawful religious discrimination. Mr Jivraj did not agree, and accordingly the issue of whether parties could lawfully agree that arbitrators should be drawn only from within the Ismaili community fell to be determined by the UK courts.

In 2003 the UK's Employment Equality (Religion or Belief) Regulations came into force, and provided that it was unlawful for an employer to discriminate when employing another by treating, on the grounds of religion or belief, one person less favourably than he would have treated other persons. In this context, employment meant a contract of service or a contract personally to do any work. Discrimination was lawful however where being of a particular religion or belief could be shown to be a genuine occupational requirement.

This UK law implemented the EU Directive 2000/78/EC of 27 November 2000, applicable EU-wide, which stated that its purpose was to establish a general framework for combating discrimination as regards employment and occupation, not only on the grounds of religion or belief, but also disability, age and sexual orientation. Legislation in English law accordingly reflects all these requirements. Similarly, EU law requires legislation prohibiting discrimination on the grounds of such matters as nationality, race and gender, and English law also has legislation that is compliant with this. Recently the UK has repealed many of the separate pieces of legislation relating to discrimination on various grounds, and instead has passed the Equality Act 2010 which contains a more general prohibition of discrimination on any of a number of different grounds.

Accordingly, so far as employment and occupation is concerned, UK and all EU states have passed legislation preventing discrimination on a range of different grounds, of which religion and belief is but one. That situation runs in parallel with many countries outside the EU, which in an employment or occupational context have equality laws preventing discrimination on various grounds.

The Court of Appeal decision in Jivraj v Hashwani rendering an arbitration clause void for breach of anti-discrimination laws was seen as potentially having an impact far beyond just those arbitration clauses which make reference to religion and belief. In particular, it was pointed out that clauses and institutional rules providing for international arbitration commonly make provisions regarding the nationality of the arbitrators, typically that the arbitrators will be of a different nationality from either of the parties. If the Court of Appeal decision were to have been left unchallenged, the fear was that many arbitration clauses already entered into specifying London as the seat of arbitration would potentially be declared void for breach of anti-discrimination laws. Potentially the same analysis could apply in respect of clauses specifying a seat anywhere else in the EU and in other jurisdictions.

For those reasons the two most widely used arbitration institutions, the LCIA and the ICC, took the unusual step of intervening in the Supreme Court proceedings.

In the event, the Supreme Court's decision has the effect of emphatically upholding party autonomy in the selection of arbitrators, and provides a very welcome reinforcement of the general principle that the courts will have only very limited interference in the arbitral process. In reaching this conclusion, the Supreme Court's decision would also seem to have the effect of confirming the validity of standard conditions relating to nationality commonly contained in institutional codes.

Further helpful comments are apparent in the Supreme Court's reasoning leading to this conclusion. The Supreme Court based their decision on their central finding that the relationship between parties and arbitrators is not to be equated with that of employer and employee (however widely those terms are construed), and thus laws intended to regulate an employment or occupational situation did not apply to arbitrators. In particular, unlike employees or those retained to perform a service, arbitrators were said in critical respects to be independent of the parties. This was because once an arbitrator has been appointed, the arbitrator may only be removed in exceptional circumstances, and to a significant extent the arbitrators' actions are beyond the parties' control. Indeed, in a reversal of the situation of an employee acting under the control of an employer, it is often the arbitrator who exercises control over the parties.

For completeness, the Supreme Court also determined that, even if the equality legislation had applied to the selection of arbitrators, the Court would have held that a provision requiring the arbitrators to be from within the Ismaili community would have been a genuine occupational requirement. This was because the parties were justified in agreeing an arbitral procedure in which they had confidence.

The decisive nature of the Supreme Court's judgment has brought certainty to the position in the UK, and parties can select London as a seat of arbitration with renewed confidence.

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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