Summary

When the Supreme Court gave judgment in the controversial case of Jivraj1 on 27 July 2011 many in the UK breathed a huge sigh of relief at the result. There had been widespread concern at the effect of the lower court's decision, which was that clauses requiring arbitrators to have specific characteristics (such as being of a certain religion) might be unlawful. For commercial parties this raised the prospect of existing clauses being unenforceable; for institutions such as the ICC and LCIA this led to concern that certain provisions in their rules might be against English law; and for English lawyers this seemed to be a reason for arbitration users to avoid England altogether.

This decision will therefore come as a relief to many. It means parties entering into contracts may include requirements for arbitrators to have the qualifications or characteristics they prefer. There is now no need to disapply parts of the ICC or LCIA Rules relating to, for example, the nationality of arbitrators. And English law is now in line with the rest of Europe on this issue.

Facts

In 1981, Jivraj and Hashwani entered into a joint venture. The business grew, acquiring various assets worldwide. When the joint venture ended in 1988, various disputes arose as to how the assets should be split. Most of these disputes were resolved, but two remained. After a long delay, in July 2008 Hashwani informed Jivraj he was appointing Sir Anthony Colman as arbitrator to decide the disputes.

The joint venture agreement provided that "all arbitrators shall be respected members of the Ismaili community and holders of high office within the community". Although Sir Anthony was not a member of the Ismaili community, Hashwani made clear he did not think this mattered because this part of the clause was against English law. Jivraj disagreed and commenced court proceedings to prevent Sir Anthony's appointment.

Previous judgments

The High Court originally decided that English equality laws did not apply to the appointment of Sir Anthony and, even if they did, that an exception, under which membership of the Ismaili community was required for the job, applied. Since Sir Anthony was not a member of the Ismaili community, his appointment was invalid.

The Court of Appeal overturned this decision in 2010, finding that the appointment of an arbitrator was a contract of employment under English law. Parties appointing arbitrators were therefore "employers" and the requirement for arbitrators to be members of the Ismaili community was therefore discriminatory. It said the exception did not apply, as being a member of the Ismaili community was not a requirement for the job. The parties' arbitration agreement was therefore unenforceable.

Supreme Court judgment

The Supreme Court's judgment highlights the legal distinction between (i) people providing services for another person in return for payment and (ii) independent providers of services. It held that arbitrators fell into the second category. In reaching this conclusion, it found support in English arbitration legislation, including, for example, the sections requiring arbitrators to act fairly and impartially, enabling them to decide procedural matters and limiting parties' ability to remove arbitrators once appointed. It decided arbitrators would not be given these powers or be in this position if they were effectively employees.

It also placed significant emphasis on the principles of the Ismaili community, such as its preference for disputes to be resolved internally and its less confrontational approach to resolving disputes. The court decided that Jivraj and Hashwani expected arbitration before an Ismaili tribunal to result in procedures and conclusions consistent with their values and in which they could have confidence.

The decision is to be welcomed. It confirms what many users of arbitration must already have assumed: the relationship between party and arbitrator is not one of employment. In addition to the powers referred to in the decision, mention might also have been made of arbitrators' ability to decide on their own jurisdiction and to award costs in favor of either party. These powers would not be consistent with someone acting as an employee.

The Supreme Court's conclusion about the benefits of an Ismaili tribunal to the parties also underlines the importance of parties' freedom and flexibility when negotiating contracts. Parties should be free to agree clauses that meet their particular requirements. This decision ensures parties can continue to do so without fear that these provisions might be against English law.

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