UK: Don't Panic! Sanity Prevails In Jivraj (But Was It Really Worth All That Fuss?)

Last Updated: 17 November 2011
Article by Richard Power

In Jivraj v Hashwani the Supreme Court held that arbitrators are not employees and are not subject to anti-discrimination legislation. But is the ability to specify an arbitrator's religion or nationality really fundamental to arbitration?

What has happened?

The Court of Appeal previously held that UK employment legislation applied to the appointment of an arbitrator, and hence prohibited a clause specifying the arbitrator's religion. As the Equality Act also prohibits employment discrimination on the grounds of race/nationality, by analogy such clauses would also be void. This would have been problematic since most major arbitration institutions' rules (including the ICC's and LCIA's) provide that where the parties to an arbitration are of different nationalities, the sole arbitrator/chairman will not be of the same nationality as either party.

Some EU states have not interpreted EU anti-race discrimination rules as applying to nationality, and none applied those rules to arbitrators; commentators feared therefore that London would be at a competitive disadvantage compared to other potential arbitral seats. Parties would go elsewhere, so as to be able to control their arbitrators' nationality. However, in July 2011 the Supreme Court overturned the Court of Appeal's decision.

Key points of the Supreme Court decision

The Supreme Court recognised that the relationship between the appointing parties and the arbitrator is unique; although the arbitrator is appointed and paid by the parties, he is not in a subordinate relationship with them. He is an independent, quasi-judicial adjudicator. Therefore, arbitrators are not "employees" for the purposes of the Equality Act.

Four of the five justices also commented as an aside that even if an arbitrator were an employee, it may be appropriate in some cases to stipulate that an arbitrator be of a particular religion or belief, in order to give the parties confidence in the arbitral process; hence the discrimination would be allowed as a "genuine occupational requirement".

The decision has been widely welcomed because it preserves the appointing parties' right to specify the characteristics of the arbitrator; and it removes the prospect of commonplace arbitration clauses being void where they require an arbitrator/tribunal chairman to be of a different nationality than the parties. Consequently, the UK will not be out of step with other potential arbitral seats, and the threat to London's position as a leading arbitral centre is removed.

What is the significance of the decision?

Given prevailing attitudes, the Supreme Court's decision has protected London as a seat for international arbitrations. However, are those attitudes are right?

The accepted view is that where parties to a contract or dispute are of different nationalities, one of the reasons they choose arbitration is to avoid the dispute being decided by one party's home courts, thus reducing the possibility of biased "home" decisions. Arbitration agreements and institutional rules commonly ensure that the sole arbitrator/tribunal chairman is nationally neutral to address this concern and enhance confidence in the arbitral process.

However, most rules require the arbitrators to be independent and impartial anyway - does this not achieve the same result? Excluding or including an arbitrator on the basis of nationality can be arbitrary: nationality can be acquired by marriage or naturalisation, as well as birth, and someone's view of their compatriots might be tainted by other factors (e.g. religion or ethnicity). Shared nationality does not bestow shared values, morals, or other norms. Nationality does not ensure even-handedness any more than it ensures competence.

How does this affect me?

The Supreme Court's decision means that those drafting arbitration clauses can continue to incorporate institutional rules, or their own rules, which provide for an arbitrator/tribunal chairman to be of a different nationality than the parties. There is no need to consider choosing an overseas seat to ensure such clauses are valid. However, it is wise to remember that, by itself, this does not necessarily achieve impartiality and independence.

BLP Perspective

The Supreme Court's decision is correct and is welcomed. However, the Court of Appeal's earlier decision raised the question of whether we need some commonly-used provisions of arbitration agreements/rules. Is the requirement that a sole arbitrator/chairman be of a different nationality to the parties just a placebo? There is no apparent bias when a Commercial Court judge is the same nationality as one of the parties before him - isn't arbitration mature enough to adopt a similar approach?

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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